Regulatory Environment Flashcards
1
Q
What does FSMA 2000 stand for?
A
Financial Services and Markets Act, 2000
2
Q
What was the purpose of FSMA 2000?
A
New structure for regulating financial services to provide stronger protection for consumers
3
Q
What did the Financial Services Act 2013 introduce?
A
FCA and PRA
4
Q
What does FCA stand for?
A
Financial Conduct Authority
5
Q
What does PRA stand for?
A
Prudential Regulation Authority
6
Q
What is the FPC?
A
Financial Policy Committee
7
Q
What body did the FCA/PRA replace?
A
Financial Services Authority (FSA)
8
Q
What did FSMA establish?
A
- Regulators (originally FSA, then from Apr’13 introduced FCA/PRA)
- FOS (Financial Ombudsman Service)
- FSCS (Financial Services Compensation Scheme)
- Penalties for market abuse
- UK listings regime
9
Q
What is the UKLA?
A
UK Listing Authority
10
Q
What is the UKLA now referred to as?
A
FCA primary market function
11
Q
What is the FCA solely responsible for?
A
Authorisation and supervision of all FIs not regulated by the PRA
12
Q
What does the FCAs role include?
A
Protecting consumers
Keep industry stable
Promoting healthy market competition
13
Q
Which powers did the FCA inherit from the FSA?
A
Powers to investigate and prosecute insider dealing and market abuse. Took over the UKLA.
14
Q
Who oversees the FOS?
A
FCA
15
Q
Who oversees the FSCS?
A
FCA and PRA
16
Q
What is the twin peaks legislation?
A
PRA - Prudential issues
FCA - Focus on conduct and market issues
17
Q
What is Section 19 of FSMA?
A
General prohibition - illegal to conduct regulated activity in the UK unless authorised or if you’re an exempt person
18
Q
What is the punishment for breaking the general prohibition (S19, FSMA)?
A
Max 2 yes in person
Unlimited fine
Agreements unenforceable
19
Q
What is an authorised person?
A
A firm that is authorised by the PRA and or FCA to carry out 1 or more regulated activities
20
Q
What is an Approved Person?
A
An individual that has been approved by the PRA and or FCA to perform a role or carry out activity that requires regulatory approval
21
Q
What is the SM&CR regime?
A
Individual accountability regime called the Senior Managers and Certification Regime
22
Q
What must SMFs apply for?
A
Regulatory approval to take on a senior management function
23
Q
4 types of authorised persons?
A
-Society of Lloyds (S315 FSMA)
- Permission from FSA (before 2013) or FCA/PRA to carry out regulated activity (P4A FSMA)
- Certain EEA, treaty and UCITS forms
- ICVCs
24
Q
What is an ICVC?
A
Investment company with variable capital
25
What type of regulation must authorised ICVCs have even established under?
Open ended investment company (OEIC) regulations 2001
26
What Part of FSMA regulation to forms apply to be regulated under?
Part 4A FSMA 2000
27
Examples of exempt persons?
- Appointed representatives of authorised persons (S39 FSMA)
- recognised investment exchanges
- recognised clearing houses (S285 FSMA)
- BoE and Central Bank
- Operators of multilateral trading systems exercising certain rights
28
What is an RIE?
recognised investment exchanges
29
What is an RCH?
Recognised clearing houses
30
Can you be both regulated and exempt?
No
31
Who is the PRA accountable to?
Bank of England
32
What did the Bank of England and Financial Services Act 2016 do?
- Change PRA from a BoE subsidiary to be part of and accountable to BoE
- Established Prudential Regulation Committee
33
What is the PRAs focus? What type of firms?
Prudential regulation of banks, building societies, credit unions insurers and investment firms. Promotes safety and soundness if these firms to reduce harm to UK economy
34
How are the FCA and PRA funded?
Fees paid by firms they regulate
35
Who is the FCA accountable to?
HM Treasury (UK Gov)
36
What does the FPC focus on?
Official BoE committee, focused on macro and financial issues that threaten long term growth prospects of the UK economy
37
What is the HM Treasury responsible for?
Overall responsibility for UK financial system, including institutional structure and legislation that governs it
38
3 mechanisms by which the FCA is accountable to the Treasury?
- Power to appoint or dismiss FCA board and Chair
- Annual reporting on way its discharged functions / met objectives
- Power to commission reviews and inquiries into FCA operations
39
2 core purposes of the Bank of England?
Monetary stability
Financial stability
40
What is Monetary stability?
- Stable prices and confidence in currency
41
Which body reviews inflation target?
Monetary policy committee
42
Objectives of the FCA?
Strategic:
- ensure relevant markets function well
Operational
- consumer protection
- Integrity
- Competition
43
Objective of the PRA?
Promote safety and soundness of PRA authorised persons
44
Ways FCA can be held Accountable?
- Annual report
- Rules have to be explained
- Judicial Review
- Regulatory Failure
45
Difference between FSA and FCA approach?
FSA didn’t intervene until something went wrong. FCA takes a proactive approach
46
2 Key features of FCAs outcomes focused supervisory model?
- Enhanced analysis and risk identification capacities
- Focus on outcomes testing
47
3 types of work undertaken by the FCA?
Proactive
Reactive
Thematic.
48
What is conduct risk?
Risk posed to customers and wider integrity of the markets by the way in which authorised firms and staff conduct themselves
49
What is the FTOC?
Fair treatment of customers
50
What is contained in Fair treatment of customers initiatives?
- Ensuring customers deal with firms where fair treatment of consumers is central to the corporate culture
- products that are designed to meet people’s needs
- clear info
- no unreasonable barriers
51
What is BCBS?
Basel Committee on Banking Supervision
52
Operational risk definition
The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events
53
Types of conduct behaviours FCA expects firms not to undertake?
Profits over ethics
Tick box approach to compliance
Disclose at point of sale representing good outcomes
Comply with letter of the law
54
What does Part 9A of FSMA empower FCA to do?
Make rules that are legally binding on authorised forms
55
Who oversees the regulation of financial services across Europe?
European System of Financial Supervision (ESFS)
56
3 ESAs?
European Banking Authority (EBA)
European Securities and Markets Authority (ESMA)
European Insurance and Occupational Pensions Authority (EIOPA)
57
What is ERSB?
European Systemic Risk Board (Macro prudential oversight)
58
What did the Financial Services and Markets Bill (published July 2022) allow for?
HM Treasury and PRA/FCA to implement Wholesale Market Review and outcomes of future regulatory framework reviews.
Greater focus on international competitiveness and long term growth
59
What are 1 - 5 on the principles of business
1. Integrity
2. Skill, care and due diligence
3. Management and control
4. Financial Prudence
5. Market Conduct
60
What are 6, 7 and 12 of the Principles of Business?
6. Customers Interests
7. Communications with clients
12. Firm must act to deliver good outcomes for retail customers
61
What are rules 8-11 of the principles of businesses?
8. Conflicts of interest
9. Customers: relationships of trust
10. Clients assets
11. Relations with regulators
62
When do the consumer duty rules come in?
31 July 2023 for open products
1 year grace for closed sale products
63
Which rules cease to apply if consumer duty applies?
6 and 7
64
Scope of consumer duty?
Customer credit (CMCOB and FPCOB)
Deposit taking (BCOBS)
Insurance (not reinsurance)
Investments (non professional)
Mortgages (regulated)
65
Products not designed for retail customers are not in scope of consumer duty where:
- only marketed and provided to non retail customers
- not provided under a distribution agreement for a retail service
66
Which wholesale activities are excluded from consumer duty?
- Products / services for wholesale purposes
- Activities for non retail financial instruments (50k) min
- retail markets business
- Insurance contracts for commercial customers, group police’s or where risk is abroad
- benchmarking activities
67
What do cross cutting rules require?
- Act in good faith towards retail customers (including in design)
- Avoid foreseeable harm (understand risks)
- enable and support retail customers to purpose financial objectives
68
What are the GOOD outcomes the FCA expects to see under consumer duty?
Product and services outcome
Price and value outcome
Consumer understanding
Customer support
69
What are firms ongoing obligations re. Consumer duty?
- Monitoring / governance (at least annual board report)
- Cultural change
- accountability
70
What is principle 6 of business also known as?
Clients best interest rule
71
What does the fair treatment of customers principle do?
Help customers understand product
Minimise sale of unsuitable products
72
What are the 8 fundamental PRA rules?
1. Integrity
2. Due skill
3. Prudent manner
4. Adequate financial resources
5. Effective risk strategies and management
6. Responsible and effective organisation
7. Open with regulators
8. Prepare for resolution in an orderly manner
73
What is APER and who does this apply to?
Approved person regime, someone in a controlled function role
74
Types of controlled functions?
Significant influence functions (SIFs)
Customer Dealing function
75
What did SM&CR introduce?
Senior manager regime
Certification regime
Conduct rules
76
3 categories for SMCR firms?
Core scope (majority)
Limited scope (less requirements)
Enhanced scope (greater requirements)
77
What is the FCA required to prove if they think a senior manager guilty of re. Regulatory breach?
FCA must demonstrate SM failed to take reasonable steps to prevent regulatory breach
78
Examples of SMR roles?
CFO, CRO, CEO
MLRO
Interactive Audit Head
Chairperson
Non exec directors
79
What is a prescribed responsibility?
Specific responsibilities assigned by FCA/PRA that have to be apportioned to an SMF
80
SMFs classifications for requirements?
Prescribed responsibilities
Management responsibilities map
Duty of responsibility
Oversight of consumer duty (including a board champion)
81
What is the certification regime?
Firms must assess during recruitment and on an annual basis fitness of certain employees who could pose a significant harm to customers or firm
82
Examples of certification roles
Material risk takers
Significant harm functions
Manager of certified person
83
What are the conduct rules?
1. Integrity
2. Due skill
3. Open with regulators
4. Due regard to customers, treat fairly
5. Proper standards of market conduct
6. Deliver good outcomes for retail customers
84
What are the senior manager conduct rules
SC1. Take Reasonable steps to ensure effective control of business
SC2. Take Reasonable steps business complies with rules / regulations
SC3. Take Reasonable steps to delegate effectively
SC4. Disclose to FCA/PRA appropriately
85
What is the SYSC?
Senior management arrangements, systems and controls sourcebook (requirements for SM)
86
When are the FCA handbook text legally enforceable?
When firms are subject to capital requirements directive and MiFID
87
What are the general requirements in SYSC 4?
Sound governance
Persons in charge suitable experienced and at least 2 independent minds for policy and control
Frequent written governance on compliance, risk , audit and financial crime
Clear apportionment of responsibilities
88
What does SYSC 5 outline?
Requirements apply to all persons appointed to a firm (including self employed and agents)
Specific qualifications and competence requirements for certain roles
89
What does SYSC 6 outline?
Requirements for proper
- Compliance function
- internal audit
- financial crime
90
What is SYSC 7?
Expands on risk control requirements
91
What does SYSC 12 apply to?
Group risk systems and controls
92
What is SYSC 8 related to?
Rules on outsourcing
93
What does SYSC 8 say in relation to outsourcing and responsibility?
Firm remains fully responsible for obligations even if they outsource the function or activity
Proper DD required
94
What does SYSC 9 outline?
Requirements with regard to record keeping
95
What are rules for record keeping?
5 years for MIFID investment business (FCA/PRA could request 7 yrs)
Durable medium (English and on paper)
Accessible and detailed
Corrections clear
Audit log
96
What is SYSC 10?
Conflicts of interest rules
97
What is SYSC 10A?
Recording of calls and electronic communication
98
What is the scope of communications that must be recorded?
Telephone
Electronic communications
Any communication re. Transaction execution
99
What activities require a recorded line?
Receiving and executing client orders
Transactions for the firm
Instruments traded on a trading venue (multilateral / organised trading facilities)
Investments relating to financial instruments
100
What does FOS offer?
Scheme dealing with disputes between consumers and firms
101
Who does FCA appoint for FOS?
Chair and directors (but they must be independent from FCA)
102
Are FOS decisions binding?
Consumers don’t have to accept FOS ruling and can go to court however if they accept the decision is binding
103
How does FCA oversee FSCS and FOS
Annual report
104
What is the CMA
Competition and markets authority
105
What are the 5 priorities of the CMA
- new responsibilities since Brexit to protect consumers
- fostering competition for innovation/growth
-effective competition for digital markets
- low carbon growth transition
- global completion and consumer protection
106
What is the CMA responsible for?
- Investigating mergers
- Studies into markets with competition and consumer problems
- Investigating breaches of UK competition law
- enforce consumer protections
- promote competition in regulated industries
- conducting regulatory appeals (price controls etc.)
- info to policy makers
107
What is the ICO?
Information Commissioners Office
108
What is the ICO responsible for?
Administer Data Protection Act (2018)and Freedom of Information Act (2000)
109
What the TPR?
The Pensions Regulator
110
What rights did Pensions Acts (2004/2008) give to TPR?
- project benefits of members workplace schemes
- promote good scheme admin
- Reduce use of pension protection fund
- maximise employer compliance with their pension duties
111
What is PPF?
Pension Protection Fund
112
How is the PPF run?
Public corporation (set up by pension act 2004) and run by independent board
113
How is the PPF funded?
- assets from pension schemes
- return on investments
- levy on eligible pension schemes
- recovered assets from insolvent employers
114
What is the role of the FPC?
Financial policy committee monitor and act to reduce systemic risks to protect UK financial system
115
How many times does FPC meet?
4 times a year, records are published
116
What is the FSR report?
BoEs biannual Financial Stability report
117
Who sets the bank interest base rate?
Monetary policy committee, monthly
118
Who does the FCA report to?
HMT Treasury
119
What is the Upper Tribunal (Tax and Chancery Chamber)?
Agency of MoJ, assist appeals against first tier tribunal for tax or charity cases, FCA/PRA and TPR
120
What types of decision notices can be appealed to the Upper Tribunal?
Authorisation and permissions
Penalties for market abuse
Disciplinary measure
Official listings
Other powers (e.g. bans)
121
What is the POTM and what is it responsible for?
Panel of takeovers and mergers is an independent body (1968) who administers the City Code on Takeovers and Mergers
122
What are R types in the FCA handbook?
Rules - binding on firms including principles for business
123
What are E provisions in the FCA handbook?
Evidential provisions, rules not binding in their own right. Always relate to a binding rule.
124
What are G provisions in the FCA handbook?
Guidance - used by FCA/PRA to explain implications of provision or recommend action. No discipline issues for failing to follow
125
What are D provisions in the FCA handbook?
Directions and requirements - binding on those to whom they are relevant to
126
What are UK. provisions in the FCA handbook?
Uk legislative material - Acts of Parliament, official regulations etc. usually in square brackets
127
What are P provisions in the FCA handbook?
Statements of principe for Approved Persons - binding on approved persons
128
What are C provisions in the FCA handbook?
Conduct - behaviour which doesn’t amount to market abuse
129
What are FCA/PRAs thoughts on industry guidance
Encourages best practise and gives official recognition to good guidance
130
What regulation gives the FCA Statutory power to challenge unfair terms in consumer contracts?
Consumer Rights Act (2015)
Unfair Terms in Consumer Contracts Regulations (1999)
131
What period does UTCCR cover?
1st July 1995 to 30th September 2015
132
What are the 8 CISI code of conduct principles?
Personal Accountability
Client focus
Conflict of interest
Respect for Market Partners
Continue to Learn
Aware of Capabilities
Respect Others and the Environment
Speak up and listen up
133
What is the role of internal audit?
Ongoing maintenance and assessment of firms control, processes and risk management. Independent and able to directly discuss with the board
134
What does an external auditor do?
Assess firms risk and infrastructure
- relevant industry knowledge
- objective
- professional scepticism
135
What is a Trustee?
Trust is a legal arrangement that allows a suitable 3rd party (Trustee) to hold and manage assets on behalf of bene
136
What did the Pension Act 2008 require?
All UK Employers to put certain staff into a workplace pension and contribute towards it
