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Ro1 Regulations And Ethics Of The Finanacial System > The FCA Objectives and Approach > Flashcards

The FCA Objectives and Approach Flashcards

1
Q

What are the three main bodies for the UK financial services set out in financial services act 2012?

A

PRA - responsible for the safety and soundness of systemic operations relating to firms.

FPC - responsible for the overarching safety and success of the entire regulatory regime.

FCA - ensuring that relevant markets function well for consumers.

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2
Q

What are the 3 statutory operational objectives of the FCA to make markets work well.

A

Protect consumers
Protect integrity of financial markets
Promote competion

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3
Q

How does the FCA protect consumers? 3

A

Appropriate level of consumer protection

Looks at things that might cause direct harm to consumers and acts where this is unreasonable.

Engages with consumers, promoting awareness.

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4
Q

What was added to the FCA on 31st July 2022?

A

A new consumer duty, including 12 principles to replace principles 6 and 7 for retail clients.

It requires firms to act to deliver good outcomes for clients.

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5
Q

How does the FCA protect the integrity of financial markets?

A

Has a role in preventing market abuse and reducing financial crime.

Implementation of money laundering regulations would fall under this.

BOE and PRA have more responsibility for the integrity of the markets.

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6
Q

How does the FCA promote competition?

A

Aims for appropriate competition.

Where it is appropriate for markets to be competitive, the FCA will ensure that there is sufficient competition to provide fair market consumers.

Where there is inadequate competition, it will seek to understand why and work towards a remedy.

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7
Q

What should good competition do?

A

Innovative products
Appropriate costs
Better choice

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8
Q

Who does the FCA work with regarding competition?

A

The competition and markets authority

They work as a concurrent regulator.

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9
Q

What is Part 4a Permission, and why is it called this?

A

FCA authorization to give permission to perform regulated activities for non-exempt people.

Covered by part 4a of the financial services and Markets Act 2000.

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10
Q

What are the key activities the FCA will be involved in?

A

Direct authorisation of firms not covered by the PRA.

Financial police

Monitoring, overseeing, and checking various other bodies such as the local stock exchange and clearing houses like CREST.

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11
Q

Where do the FCAs key activities extend to? 5

A

Governance of product design
Overseeing corporate culture
Examination of the sales process
Risk management
Prevention of crime

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12
Q

What activities fall outside the FCA?

A

Buy-to-let mortgages
Occupational pensions
Compensation claim handlers

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13
Q

Under FSMA, what power does the treasury have?

A

The power to enact secondary legislation known as Regualted Activities Orders.

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14
Q

How often does the FCA make reports to parliament?

A

Annually

These are in respect to its activity and will be overseen in its opperation by a board appointed by the government.

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15
Q

What special rule is there for the FCA?

A

Whistle blow on itself

Report to the treasury if there is a failing of the FCAs own actions or failure to act.

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16
Q

What bodies does the FCa have dotted line responsibilities?

A

Uper tribunal (tax and chandery chamber)

Competion and market authority

Complaints commissioner

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17
Q

What is the limitations on liability for the FCA and those that work for them?

A

Not held liable for anything they do in exercising their responsibilities. Unless they acted in bad faith and breached the Human Rights Act 1998.

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18
Q

What not legally binding panels does the FCA operate as a final check and balance?

A

Financial services practitioner panel - made up of senior figures from across the industry

Financial services consumer panel - made up of consumers to represent the interests of consumers. Designed to give the regulator insight into the effects of policy.

Markets practitioner panel - made up of people involved in markets to protect the interests of markets.
(Includes insues arrising from FCA controls on short-selling)

Smaller businesses practitioner panel - acts to ensure smaller businesses can thrive.

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19
Q

How often do the financial services practitioner panel meet?

A

Every month and where appropriate subgroups are formed to look at specific issues.

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20
Q

What is the remit of the financial services practitioner panel?

A

Consider matters that impact regualted firms, providing a sounding board and early input to FCA on policy matters.

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21
Q

Who should be appointed to the services consumer panel?

A

People who represent a broad cross-section of the population and provide input on FCA policy - both proposed and implemented.

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22
Q

Why is the smaller business practitioner panel important?

A

Without it, larger firms would act as pressure groups and protect their own interests at the expense of thousands of smaller firms.

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23
Q

What are the panels at the FCA for?

A

Part of the commitment to transparency and disclosure which extends to wider consultation on rule making and grater publication of data.

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24
Q

Will all data be disclosed by the FCA.

A

Not if doing so would prefljudice their work but in general there is a principle that the public should be made aware.

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25
Q

What is an overarching way of looking at the FCAs approach to regulation?

A

Looking to intervene as early as possible wilst promoting effective competition whilst listening to and monitoring complaints.

26
Q

What is meant by risk-based approach regarding the way the FCA operates?

A

They concentrate their resources on those firms and those activities that represent the greatest risk for consumers.

27
Q

How is the risk of firms and activities under the FCA determined?

A

Impact
Probability

28
Q

In the 3 pillar approach to supervision, what is meant by proactivity?

A

Proactivity - Does the firm have fair treatment of customers at the centre of everything it does?

Proactive supervision usually involves taking a market based approach and reviewing the sector as a whole but may also involve activities with a small number of the largest firms.

29
Q

In the 3 pillar approach to supervision, what is meant by event-driven reactive work?

A

Acting in the moment when the need arises.

Maybe because risk has been missed or an issue has arisen or because of global events.

Can opperate at industry or firm level - acting on events affecting the whole industry or picking up on concerns/trends within firms.

Activity under this pillar changes due to the FCAs appetite for risk.

30
Q

In the 3 pillar approach to supervision, what is meant by thematic?

A

Pick up on common themes and different sectors to identify issues that might cause consumers to be disadvantaged.

A theme may become a major focus within firms under the regulator.

31
Q

In addition to the 3 pillar approach, what else do the FCA focus on?

A

Communication and education

32
Q

What steps can the FCA take to ensure issues are identified and acted early?

A

Banning retail products
Withdrawing financial promotions
Pushing enforcement action - making its actions public.
Gathering market intelligence - trends, issues, and anything reported through the FCA whistle-blower channels

33
Q

How long can the FCA ban a product before doing a full analysis of the impact of the ban?

A

12 months

34
Q

What must a fiancial promotion follow, or may it be banned by the FCA

A

Clear, fair and not-misleading

35
Q

How does the FCA determine the le el of each firms supervision?

A

Fixed portfolio - for larger, higher risk firms that will be subject to close proactive supervision as well as event-driven thematic work. Each firm in this category will have a named supervisor who will have responsibility.

Flexible portfolio - will not have the same level of scrutiny but will be subject to event-driven thematic work.

36
Q

What is the 10 principle approach applied to for flexible portfolio firms?

A

Ensuring fair outcomes for consumers and markets - assessed on impact of both.

Forward looking and preemptive. - identify potential risk.

Focused on big issues and causes of problems - resources concentrated

Judgment-based approach - aiming for the right outcomes.

Ensuring firms act in the right spirit - consider the impact they have rather than them just following the law.

Examining business models and culture - and their impact. (FCA is interested in how firms make their money as this can drive risk.)

Emphasis on individual accountability - fundamental to the new certification regime. Senior management has responsibility. FCA holds them accountable.

Being robust when things go wrong - fix problems, protect and compensate, address poor behaviour.

Communicating openly with industry, firms, and consumers.

Joined up approach - work with other regulating agencies for consistent messaging.

37
Q

Who is responsible for thier own compliance measures?

A

The firms themselves as the FCA can supervise but will not know what is going on day-to-day.

38
Q

What is the basis of the FCA source book formed from?

A

The procedures and processes firms are expected to follow.

39
Q

What should each firm have?

A

A compliance officer with sufficient seniority to push through policy.

Operating in this role is a specific controlled function/ senior management function. (CF10/SM16 - compliance oversight)

Larger firms usually have compliance departments to act as custodians of FCA rules.

40
Q

When can the FCA visit? And what happens?

A

Any time without notice.

Staff will be expected to fully co-operate and may be interviewed.

The FCA may decide to remove files and documentation. To do this, it will require a warrant.

41
Q

What can filing to adaptability monitor compliance lead to?

A

Disaplinary action that could bring bad publicity.

42
Q

What does the FCA have charged against wrongdoing?

A

An enforcement division.

43
Q

What is the lower end of enforcement the FCA can apply?

A

Make public announcements - naming and shaming

Set conditions for future business

Ordering compensation to be paid to customers

Deaithorise a firm - continuing to act in a regulated area would be a criminal offence.

Impose disciplinary action against either the firm or an individual - various sanctions such as fines/bans.

Requiring a report to be produced by a skilled person - (section 166 report) provides an outside view of action. Can be used to ID issues or for punishment.

44
Q

What extreme measures can the FCA take?

A

Civil actions
Criminal prosecution

45
Q

What actions can be taken through the civil courts?

A

High Court injunctions - prevent action from being taken.

Compensation awards

Insolvency orders

46
Q

Who normally brings up criminal proceedings in the UK

A

The crown prosecution service, but in some cases, the FCA can.

47
Q

Under what circumstances can the FCA bring up criminal procedings

A

Claiming to be FCA authorised or acting in an authorised area when they are not.

Failing to cooperate or attempting to desive the FCA

Insider dealing - may also be dealt with as a minor matter

Money laundering can result in 14 years, and the FCA can act against individuals and firms regardless of FCA authorisation. Lower level sanctions are also available.

48
Q

What terms are used in courts?

A

Summary only - a case heard by magistrates
Indictable - case heard by Crown Court with a jury
Either way - heard in either court

49
Q

A case committed by a company is also what?

A

Is also committed by an officer of the company if they can be proven to have consented or acted negligently

50
Q

How should all action be applied?

A

Fit the crime, be proportionate, be equally applied to all firms.

51
Q

Any disciplinary action should be taken will be recommended by what?

A

The relevant enforcement officers and put to the Regulatory Desicions Committee (RDC) who will approve or reject the action.

52
Q

Who can a firm appeal to for an independent review?

A

The upper tribunal (Tax and Chamber)

53
Q

What are the conditions for individuals and firms to settle before going to the RDC?

A

Terms require agreement by 2 FCA officers.

54
Q

What is the purpose of prudential regulation?

A

To make sure larger firms have enough capital to cover liabilities and to have enough to pass a stress test that shows they can handle unforseen events.

55
Q

How often should stress tests be performed?

A

Annually or more.

56
Q

What is there no guarantee of?

A

That there is an equal amount of capital to cover firms’ liabilities and that the adequacy is enough for total consumer safety.

57
Q

What is Free Asset Ratio (FAR)?

A

Key measure of capital adequacy used by insurers.

Expresses a percentage measuring the difference between liabilities and reserves.

Too low= not enough reserves
High= stronger insurer
Very high= too high, and too many reserves are held back.

58
Q

What can ratings agencies do?

A

Provide a guide for financial strength but should only be used as part of the bigger picture as these failed to predict the 2008 crash.

59
Q

On the international scene, what is made up of various national bodies, central banks, and experts from major financial centres?

A

The financial stability board. (FSB)

60
Q

What does the FSB represent and aim to do?

A

A development of the old pre-cash approach.

Prevent a repeat of 2008

61
Q

Who sits on the council for financial stability from the UK?

A

FCA
Bank of England (through PRA)
The treasury

62
Q

What provided the UK regulatory authorities with a framework for dealing with failing banks?

A

Special Resolution Regime (under the Banking Act 2009)

Ro1 Regulations And Ethics Of The Finanacial System (14 decks)

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