Regulators' responsibility & regulatory approach Flashcards
Q: What is the role of the Financial Conduct Authority (FCA)?
A: To regulate conduct in retail and wholesale financial markets, protect consumers, ensure market integrity, and promote competition.
Term: Prudential Regulation Authority (PRA)
Definition: A regulator within the Bank of England responsible for the prudential regulation of banks, insurers, and major investment firms.
Q: Which act established the FCA and PRA?
A: The Financial Services Act 2012.
Term: Financial Policy Committee (FPC)
Definition: A Bank of England committee responsible for macro-prudential regulation — managing systemic financial risk.
Q: What are the FCA’s three operational objectives?
A: Consumer protection, market integrity, and promoting competition.
Term: Macro-prudential Regulation
Definition: Oversight of the financial system as a whole to prevent systemic risk and financial crises.
Q: How does the PRA support financial stability?
A: By ensuring firms maintain adequate capital and liquidity and can be resolved in failure without harming the economy.
Term: Twin Peaks Model
Definition: The UK’s regulatory structure dividing responsibilities between the FCA (conduct) and PRA (prudential regulation).
Q: What powers does the FCA have?
A: Rule-making, supervision, enforcement, and authorisation of firms and individuals.
Term: Risk-Based Regulation
Definition: A supervisory approach where regulators focus on higher-risk firms, activities, or behaviors.
Q: What is the FCA Handbook?
A: A comprehensive guide containing the rules, guidance, and principles for regulated firms.
Term: Principles for Businesses
Definition: 11 high-level standards all FCA-regulated firms must follow (e.g., integrity, fair treatment of customers).
Q: What is the FCA’s approach to supervision?
A: Proactive, risk-based, and forward-looking — focusing on preventing harm before it occurs.
Term: Threshold Conditions (COND)
Definition: The minimum standards firms must meet to be authorised and continue regulated activity.
Q: How does the FCA encourage innovation in financial services?
A: Through initiatives like the Regulatory Sandbox and Innovation Hub.
Term: Proactive Supervision
Definition: Ongoing monitoring of firms to identify and address risks early.
Q: What is “credible deterrence” in regulatory terms?
A: An enforcement strategy focused on penalties and actions that discourage rule-breaking.
Term: Enforcement Action
Definition: FCA power to fine, ban individuals, revoke authorisation, or take legal action against misconduct.
Q: What does “Treating Customers Fairly” (TCF) aim to achieve?
A: Fair outcomes for consumers across the entire customer journey.
Term: Authorisation
Definition: The process through which firms and individuals gain permission to carry out regulated activities
Q: What is the Financial Services Register?
A: A public record of all individuals and firms authorised or registered by the FCA and PRA.
Term: The FCA’s Consumer Duty
Definition: A higher standard of care requiring firms to deliver good outcomes for retail customers.
Q: What are the 4 outcomes of the FCA’s Consumer Duty?
A: Products and services, price and value, consumer understanding, and consumer support.
Term: Accountability Framework
Definition: Rules requiring firms to clearly define responsibilities and ensure senior managers are held accountable.
