RO1 - S.5 - financial regulators’ responsibilities and approach to regulation Flashcards
What are the 3 key committees that sit within the Bank of England and what are their roles?
1) Monetary Policy Committee - Set monetary policy for UK & set interest rates
2) Prudential Regulation Committee - To chair the PRA
3) Financial Policy Committee - To scan for systemic risks which may affect industry, releases 2x reports a year
What is the FCA’s one strategic objective and what are it’s 3 operational objectives?
Strategic - 1) To ensure markets work well
Operational 1) To protect Consumers 2) to protect markets 3) to promote competition
Which permissions do firms need to apply for to undertake regulated activities?
Part 4a permissions to become an authorised person/principal
What is general prohibition and what can it lead to?
Criminal offence of carrying out regulated activities without authorisation (e.g advising), can lead to 2 year prison sentence
Who would undertake enforcement proceedings at the FCA and who would decide on the outcomes within the FCA?
Enforcement officers undertake the investigations, which are then referred to the Regulatory Decisions Committee (RDC) who make judgements on punishments - fines etc
What is the difference between fixed portfolio firms and flexible portfolio firms?
Fixed portfolio firms tend to be those which need to be monitored the closest based on their risk level, will have an assigned staff member to supervise. Flexible portfolio firms make up the bulk of regulated firms, do not have anyone dedicated to them and will be supervised on a lighter basis.
What are the FCA’s 3 pillars in its supervision model and what are they for?
Pillar 1 – Proactive firm/ group supervision – Only for fixed portfolio firms and is more of a proactive forward driven approach
Pillar 2 – Event driven – For flexible portfolio firms, more reactive supervision
Pillar 3 – Thematic Approach - More proactive supervision and focuses on particular processes/ products not focusing on specific firms
What 3 areas will the FCA concentrate on mostly when conducting regulatory visits & give an example for each
1) Business Operations - e.g record keeping, ensuring compliance is effective
2) Personnel matters - e.g How firms recruit, certification procedures
3) Customer Matters - e.g client facing docs/ complaints
How do the PRA risk rate firms?
PRA rate the 1500 firms they supervise on a scale from 1-5 based on risk of failure
How would the PRA measure firms’ financial strength?
Using the Free asset ratio (FAR) - FAR = Assets - Liabilities/ total assetsx100
Explain how the FCA categorise firms in their supervision model (P1-P3) & how often they would perform a capital & liquidity test
P1 – Failure would cause widespread issues (capital & liquidity test every 2 years)
P2 - Failure would cause manageable disruption (capital & liquidity test every 4 years)
P3 – Failure wouldn’t cause long term issues (reactive capital & liquidity tests)
What does Free Asset Ratio (FAR) measure?
The amount in between an insurer’s capital reserves and it’s expected liabilities expressed as a %
What is the main driver behind COCON and when does it apply?
Sets high level standards for behaviour of individuals and wants to raise the bar for individuals behaviour, applies to the majority of staff in SM&CR firms
What is the APER and who does it apply to?
Statement of Principle for Approved Persons (APER)
Applies for FCA ARs which aren’t SM&CR firms & ARs carrying out controlled function roles
How many blocks are there of the FCA Handbook?
9
What does block 1 of the FCA handbook cover?
The high level standards
What is the overarching requirement for firms in SYSC?
Firms need to have systems and controls which are adequate to meet the needs of the business
In SYSC, give an example of what a system would be regarded as, and give one example for what a control would be regarded as.
System - IT, Compliance function, cloud infrastructure
Controls - MI, record keeping, business continuity
How many principles for businesses exist in PRIN and who needs to abide by them?
11 principles, all firms need to abide
What do the COND regulations stipulate?
COND - Sets the minimum threshold conditions for firms to operate and maintain their authorisation
What does COND 2.2 - Location of Offices make firms do?
Makes firms have their head office in the country which the business was authorised in
Why do firms need to comply with the T&C - Training & Competence scheme?
All firms need a training and competence scheme to improve competence of staff, needs to be a living document which helps business to improve standards
What are the 3 different fee types which are stipulated under FEES?
Application Fees – Need to pay them when you go into each new fee block, min £1500 & is non-refundable
Periodic Fees – Annual membership fee for each fee block, varies dependent on the FCA’s Annual funding requirement (AFR)
Special Project fees – Fees which need to be paid when FCA is required to undertake a review, instigated by a firm or the FCA
According to ICOBS, what do clients need to be provided with when being provided with advice?
Terms of Business (ToB) & Demands + Needs statement
