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Investment Environment > Regulatory Environment > Flashcards

Regulatory Environment Flashcards

1
Q

What are the 2 features of a fund manager?

A
  • Operates within the wholesale market
  • Uses their expertise to manage institutional client assets to maximise returns
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2
Q

What are the 4 features of a wholesale client?

A
  • Institutional clients such as charities, insurance companies and pension funds
  • Have more knowledge
  • Less regulated
  • Larger trades in more specified investments
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3
Q

What are the 3 features of a retail client?

A
  • Private individuals
  • Less knowledge and experience
  • More regulated by the FCA
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4
Q

What are the 7 functions of Investment Banks?

A
  • Trading: buying and selling shares
  • Broking: dealing on behalf of a client
  • Market making: Quoting market prices to other participants
  • Corporate finance: advice on the raising of capital
  • Research: offering insight and analysis
  • M&A: takeover advice
  • Fund management: investing client capital to maximise return
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5
Q

What is insurance and what are the 2 types of insurance companies? (3)

A
  • Client pays a premium to be protected
  • General - car, housing, travel
  • Life insurance - death, accident,
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6
Q

What does a pension fund do? (1)

A

Invests pension money

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7
Q

What are the 2 functions of custodians when it comes to investment portfolios?

A
  • Safekeeping
  • Administrating
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8
Q

What is an IFA? (3)

A
  • Independent financial adviser
  • Gives advice on any product in the market
  • Helps clients to make the best decisions
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9
Q

What is an execution only client? (1)

A
  • A client who makes an informed decisions to invest in a product based on their own knowledge, experience and judgement
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10
Q

What is an appointed representative? (3)

A
  • An advisor or a ‘tied agent’ who advises on a particular product
  • Tied to a provider or a group of providers
  • Advise is valuable but limited
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11
Q

Name the 2 institutions that set economic policy in the UK?

A
  • The government (supply side and fiscal)
  • The BoE (monetary)
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12
Q

Which government institution writes financial law?

A

Her Majesty’s Treasury

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13
Q

What 2 major laws did Her Majesty’s Treasury introduce?

A
  • Financial Services and Markets Act 2000 (FSMA 2000)
  • Financial Services Act 2012 (FSA 2012)
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14
Q

What are the 4 objectives of the FCA?

A

Strategic objective
1. Ensure that markets work effectively

Operational objective
2. Consumer protection: ensuring an appropriate degree of protection for consumers
3. Integrity of the UK financial system
4. Promoting competition in the interest of consumer

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15
Q

What are the 4 features of the European Union?

A
  • To promote a single market
  • Free movement of labour and capital
  • Single currency - economic and monetary union
  • Sustainable development
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16
Q

What was the European Union Withdrawal Act 2018? (1)

A
  • When Britain left the European Union and single market following the June 2016 referendum
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17
Q

Which EU institution sets EU law and directives? (1)

A

The European Commission

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18
Q

Who are the 3 new EU supervisory bodies?

A
  • European Securities and Markets Authority (ESMA)
  • European Banking Authority (EBA)
  • European Insurance and Occupational Pensions Authority (EIOPA)
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19
Q

Which body did ESMA replace and what is its function? (3)

A
  • Committee of Securities Regulator in 2011
  • Regulators of securities markets throughout the EU
  • Referred to as ‘competent authorities’ like the FCA
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20
Q

What are the 3 objectives of ESMA?

A
  • Investor protection
  • Maintain market order
  • Ensure financial stability within economies
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21
Q

What are the 4 ways ESMA achieves its objectives?

A
  • Supervisory convergence
  • Assesses risks to investors, markets and financial stability
  • Directly supervises financial bodies
  • Single rule book for EU market
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22
Q

What are the 5 powers of ESMA?

A
  • Technical advice to the EU Commission
  • Drafting subordinate acts (how to implement acts into EU law and delegating acts - the details needed to comply with the law)
  • Consistent approach for implementation and enforcement of EU legislation
  • Investigates non-compliance either at the request of the EU commisssion or its own initiative
  • Launch investigate a national regulatory authority on an issue within 2 months (e.g. FCA)
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23
Q

What EU institution monitors financial risk in the EU?

A

European Systemic Risk Board

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24
Q

What is the 3 objectives of the Financial Services Action Plan?

A

A set of laws and directives
- To create a wholesale market
- To achieve open and secure retail markets
- To create prudential rules and structures

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25
Q

What is EU regulation? (2)

A
  • EU law
  • Legally binding across member states and on par with national law
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26
Q

What is EU directives? (2)

A
  • Instructed to national governments
  • National governments have the duty to then implement it into law
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27
Q

What was the name of the regulator FSMA 2000 originally created?

A

The Financial Services Authority - a single regulator for the entire market

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28
Q

Why does the FSA no longer exist?

A
  • Too micro focused
  • Global Financial Crisis 08/09
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29
Q

What Act disbanded the Financial Services Authority?

A

The Financial Services Act 2012

30
Q

What 3 bodies did the FSA 2012 introduce?

A
  • FPC - Financial Prudential Committee within BoE
  • FCA - Financial Conduct Authority - focused on wholesale and retail markets
  • PRA - Prudential Regulatory Authority - within subsidiary of BoE
31
Q

How is the FCA funded?

A

From levies on regulated firms

32
Q

What is the PRA? (6)

A
  • Regulates financial institutions e.g banks that manage significant risks on their balance sheets
  • Sits within the subsidiary of the BoE
  • A focused prudential regulator
  • Supervises banks, building societies, insurers, credit unions, investment firms, Lloyds
  • Approx 2,200 firms are PRA regulated
  • Risk and judgement based approach to regulation
33
Q

What is a dual regulated firm? (2)

A
  • Regulated by both the FCA and PRA, but apply to the FCA for authorisation
  • Both have separate regulatory functions (conduct vs supervision) but a single administrative process
34
Q

What are the 2 processes for dual authorisation with the PRA?

A
  1. Consent: the FCA gives or refuses consent to the PRA. If the FCA refuses consent, the PRA can refuse application
  2. Consult: For certain permissions, the PRA must consult the FCA. The PRA must consider FCA response, but is not bounded by it
35
Q

What is the Payments Systems Regulator? (4)

A
  • A subsidiary of the FCA
  • Independent body with its own managing director and board
  • Aims to make payments systems work well for those who use them
  • Promote innovation, protection, competition in payments systems
36
Q

What is the role of the Financial Policy Committee? (5)

A
  • Macro-prudential regulator
  • Gives recommendations and advice FCA and PRA
  • Governor of the BoE is the Chair
  • FPC assists the BoE in achieving financial stability
37
Q

What is the Financial Ombudsman Service? (3)

A
  • Independent complaints handler
  • Investigates complaints that are unable to be dealt with the firm and are therefore escalated to the FOS if the customer is not satisfied
  • Mediation and determination stage
38
Q

On what grounds does the FOS make awards?

A
  • Distress and inconvenience
  • Damage to reputation
  • Financial loss
  • Pain and suffering
39
Q

What is the Financial Services Compensation Scheme?

A
  • Offers compensation to approved and authorised persons who are unable to satisfy claims due to insolvency
40
Q

What is the Tax and Chamber Chancery of Upper Tribunal? (3)

A
  • Sits within the MoJ
  • Where customers appeal if they are unsatisfied by PRA and FCA decisions
  • Decisions from the TCCUT can be appealed by the Supreme Courts if customer is still unsatisfied
41
Q

What is the function of the Bank of England? (5)

A
  • Monetary policy - sets base rate and controls money supply to meet Chancellor’s CPI target
  • Oversees financial infrastructures and payments systems
  • Manages liquidity
  • Lender of last resort
  • Appoints the Chair of the Panel of Takeover and Mergers
42
Q

If GDPR is breached, what is the penalty amount imposed by the Information Commissioner’s Office?

A

4% of annual turnover or 20m EUR, whichever is greater

43
Q

Approximately how many firms does the FCA regulate?

A

33,000 including 2,200 regulated by the PRA

44
Q

What are the powers of the FCA under FSMA 2000?

A
  • Temporary product intervention
  • Enforcement - against authorised firms and approved individuals
  • Authorisation - to grant authorisation
  • Rule making - to govern authorised firms
  • Supervision - overseeing and investigating authorised firms and approved individuals
  • Sanctions - imposing disciplinary measures
45
Q

What are the 7 blocks of the FCA Handbook?

A

Block 1: High quality standards - SYSC (senior management arrangements), COCON (code of conduct), PRIN (principles of business), COND and APER (standards for becoming authorised), TC (competence rules), FIT (fit and proper criteria for approved persons)
Block 2: Prudential - PRU (prudential regulations that will affect firms)
Block 3: Business - COBS (code of business rules), CASS (client assets and money), MAR (code of market conduct to prevent abuse)
Block 4: Regulatory - DEPP (decision procedures and penalties) and SUPP (supervision)
Block 5: Redress - DISP (dispute resolution) and COMP (compensation)
Block 6: Specialist - COLL (collective investment schemes)
Block 7: Listing, prospectus and disclosure - UKLA

46
Q

What is a TPIR and when is it triggered? (3)

A
  • Temporary product intervention rule
  • When a product is being mis-sold
  • Last up to 12 months without consultation
47
Q

Why is a TPIR triggered? (3)

A
  • Product discriminates and inappropriately target consumers
  • Product is faulty
  • Product restricts competition
48
Q

What are the 3 key approaches to the FCA’s supervision?

A
  1. The role of the business model - how do the firms activities affect its ability to protect consumers, market integrity and competition
  2. The role of the culture and individuals - holding individuals to account for their behaviour
  3. The role of prudential supervision - the resilience of firms to challenge environments to ensure markets function well
49
Q

What ways can the FCA sanction? (6)

A
  • Withdraw authorised/approved status
  • Issue a prohibition order
  • Public censure indicating a firms violation of FSMA 2000
  • Issue statement of misconduct
  • FInancial penalties
  • Prosecution
50
Q

What are examples of specified activities?

A
  • Dealing
  • Market making
  • Advising on investments
  • Lloyds activities
  • Managing
  • Arranging
  • Operating MTF
  • Custody/admin
  • Operating CIS
  • Spending dematerialised instructions
  • Effecting contracts of insurance
  • Providing funeral plans contracts
  • Providing regulator mortgages
  • Home finance activities
  • Accepting/taking deposits
  • Issuing electronic money
  • Carrying out specialist activities
51
Q

What are excluded activities not regulated by the FCA?

A
  • Investment advice in newspapers (tipsheets are regulated)
  • Anything commercial
  • TV broadcasts
  • SIPPS - Bloomberg and Reuters
  • Personal representatives
  • Employee share scheme
  • Trading on ones own account
  • Dealing in contracts in foreign exchange
  • Overseas persons
52
Q

What specified investments are regulated by the FCA?

A
  • Shares
  • Depositary receipts
  • Warrants
  • Bonds
  • Contracts - commodities, CFDs
  • Options
  • Futures
  • Units in CIS
  • Insurance rights
  • Lloyds syndicates
  • Stakeholder pension right
  • Funeral plans
  • Mortgages
  • Deposits
  • Home finance
  • Rights to investments
53
Q

What are excluded investments from FCA regulation?

A
  • Physical real estate/antique - land, property, buildings, copper
  • Currencies and transactions in currencies - spot/forward contracts for forex
  • Premium bonds
  • National savings certification
  • Commercial securities
54
Q

Who regulates the capital adequacy of large investment firms?

A

PRA

55
Q

Who decides on the majority of disciplinary measures?

A

Regulatory Decision Committee on behalf of the FCA

56
Q

What are the 6 principles of the Data Protection Act 2018?

A
  1. Processed lawfully, fairly and transparently
  2. Collected and used for specified, explicit and legitimate purposes
  3. Adequate, relevant and limited to what is necessary
  4. Accurate and kept up to date
  5. Kept for no longer than is necessary
  6. Processed in a manner that ensures appropriate security of the personal data
57
Q

What is the name of the shortfall when the UK government spends more than it earns?

A

Public Sector Net Cash Requirement

58
Q

What are the 2 functions of retail banks?

A
  • Deposit cash
  • Give out loans
59
Q

Who did the UK government grant powers to to amend EU technical standards?

A

FCA, PRA and Payments Systems Regulator

60
Q

How did the UK reduce regulatory uncertainty during Brexit? (2)

A
  • By introducing the Temporary Permissions Regime (TPR)
  • This allows EEA firms who were formally using a passport to continue operating in the UK for a limited period while they seek authorisation from UK regulators
61
Q

What are the 2 functions of the EU Commission?

A
  • Manage, implement and control policies adopted by the European Council (Heads of States)
  • Promotes harmonisation in legislation among member states
62
Q

Who supervises the day to day of financial institutions?

A

National regulatory bodies e.g. FCA in the UK

63
Q

What is the single most important EU directive in this module?

A

Markets in Financial Instruments Directive (MiFID)

64
Q

What are the 4 powers of the Payments Systems Regulator?

A
  • Set standards and impose rules to carry out investigations
  • Require operators to provide direct access to payments systems
  • Amend agreements relating to payment systems e.g. fees and charges
  • Act alongside the CMA to rectify anti competitive behaviour
65
Q

What is the Information Commissioner’s Office? (2)

A
  • Considers whether there is a GDPR breach and issues penalties if there is
  • Must be notified within 72 hrs of breach
66
Q

What are the powers of the Information Commissioner’s Office? (3)

A
  • Enter premises and seize documentation without warrant
  • Issue enforcement notice which requires data controllers to take action
  • Instigate criminal proceedings
67
Q

What are the 4 processes to FCA supervision?

A
  • Identification of harm
  • Diagnostics tools - allow FCA to understand the cause of the problem
  • Remedy tools - supervision is suppportive by the FCA
  • Evaluation - FCA will evaluate its own performance in handling the issue
68
Q

How does the FCA gather information? (2)

A
  • Demand documents e.g. tapes, files, computer data
  • Demand an interview with an employee
69
Q

What is the General Prohibition Order under FSMA 2000? (2)

A
  • No person may carry regulated activity unless it is an authorised person or exempt person
  • Regulated activities = specific investments and specified activities
70
Q

Under what Act are specified activities and orders listed?

A

Regulated Activities Order 2001

71
Q

What are the 5 other powers of the FCA?

A
  • UK Listing Authority
  • Supervises RIEs and OTC markets
  • Prudential regulator for non-PRA regulated firms
  • Criminal enforcement and investigations
  • Oversees FOS and FSCS
72
Q

What are the powers of the Regulatory Decisions Committee?

A
  • Deals with larger regulatory issues on behalf of the FCA
  • Chair is the only employee of the FCA
  • Can issue fines, warnings, penalties

Investment Environment (10 decks)

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