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RO1 Feb 2021 > The FCA Objectives & Approach > Flashcards

The FCA Objectives & Approach Flashcards

1
Q

FCA Statutory Ojectives

A
  • protect consumers at an appropriate level / indirect and direct harm / promote social awareness
  • protect integrity of financial markets / abuse and reduce crime / anti money laundering regulations
  • to promote competition / appropriate / result in innovative products, appropriate costs and better choice
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2
Q

Scope of the FCA role

A

criminal offence to perform any kind of regulated activity without authorisation - known as Part 4a permission of financial services and markets act 2000

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3
Q

Key activities of FCA

A
  • authorisation of firms not covered by PRA
  • policemen for FS
  • monitoring bodies such as London Stock Exchange and Crest
  • Governance of product design
  • overseeing corporate culture
  • examination of sales process
  • risk management
  • prevention of crime
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4
Q

Not regulated by FCA

A
  • buy to let mortgages
  • occupational pensions
  • compensation claim handlers
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5
Q

Reporting lines

A
  • reports to treasury for actions
  • chancellor exchequer maintains overall responsibility
  • rule that whistle-blow on itself
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6
Q

Dotted lines

A
  • upper tribunal (tax and chancery chamber)
  • competition markets and authority
  • complaints commissioner (limitation on liability except if acted in bad faith or breached human rights act 1998) / further check operates several panels
  • financial services practitioner panel / senior figures act as sounding board
  • financial services consumer panel / represent cross section of population / input into FCA policy / insight how regulator impacting end consumer
  • markerts practitioner panel / control short selling
  • smaller businesses practitioner panel
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7
Q

Approach to regulation and supervision - operates in a risk based approach
Risk determined by

A
  • impact - how significant
  • probability - how likely

3 pillar approach to supervision

  • proactivity (treating customers fairly)
  • event driven reactive work (global events need immediate attention)
  • Thematic (common themes and diff sectors that might cause disadvantage)
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8
Q

Three pillar measurements

A
  • banning retail products for up to 12 months
  • withdrawing financial promotions (not misleading)
  • publishing enforcement action
  • gathering market intelligence
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9
Q

determination level of supervision for each

A
  • fixed portfolio (larger higher risk, pillar one proactive supervision)
  • flexible portfolio (pillar two event driven and pillar three thematic)
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10
Q

FCA 10 pillar approach

A
  • ensuring fair outcomes for consumer markets
  • being forward looking and pre-emptive
  • being focused not the big issues and causes of problems
  • taking a judgement-based approach
  • ensuring firms act in the right spirit
  • examining business models and culture
  • an emphasis on individual accountability
  • being robust when things go wrong
  • communicating openly with industry, firms and consumers
  • having a joined up approach
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11
Q

Enforcement Lower End

A
  • making public announcements
  • setting conditions for future business
  • ordering compensation to be paid to customers
  • deauthorise a firm
  • impose disciplinary action against either the firm or individual
  • requiring a report to be produced by skilled person
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12
Q

Enforcement extreme end

A
  • civil action = high court injunctions / compensation awards / insolvency orders
  • criminal prosecution = when claiming to be FCA authorised when not, failing to co-operate
  • insider dealing = example buying or selling shares
  • money laundering = sentence for 14 years
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13
Q

Offences that reach court

A
  • summary only (heard by magistrates)
  • indictable (heard by crown court with jury)
  • either way
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14
Q

Regulated Decisions committee RDC

A

Any disciplinary action recommended by relevant enforcement officers and put to RDC
- individual has right to appeal to upper tribunal (tax and chamber)

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15
Q

prudential regulation - larger firms and ‘stress tests’ response to financial crisis 2008
- tested annually

A
  • one key measure of capital adequacy used by insurers is free asset ratio (FAR) = measure of difference between reserves held by insurer and expected liabilities
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16
Q

FCA Handbook 9 blocks

- block 1 the high level standards

A

main big picture standards that the firm should follow

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17
Q

Block 1
Principles for business PRIN
- high level basic standards

A
  • integrity
  • skill care and diligence
  • management and control
  • financial prudence
  • market conduct
  • customers interest
  • communications with customers
  • conflicts of interest
  • customer trust
  • client assets
  • relationship with regulators
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18
Q

Block 1

Systems and controls SYSC

A

meet common platform requirements

  • general requirements
  • employees and staff qualifications
  • compliance
  • risk control
  • outsourcing
  • record keeping
  • conflict of interests
  • whistleblowing
  • remuneration
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19
Q

Block 1
Code of Conduct (COCON)
- Threshold conditions (COND)
- regulated requirements

A
  • UK based HO
  • supervised by FCA
  • appropriate level of resources
  • fit and proper
  • business model appropriate
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20
Q

Part 4a persmission

A

= right to operate and serious criminal office if transact without it

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21
Q

Block 1 statement of principles and code of practice for approved persons (APER)

A

Applies to firms which are not subject to the senior management and certification regime
- everyone else falling under new regime and being subject to COCON instead

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22
Q

Block 1 Fit and Proper Test for Approved Persons (FIT)

A
  • Under the APER you cannot be approved to be a FA until complete a form A for FCA
  • Under senior management & certification regime checks are performed in house
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23
Q

Block 1 Financial Stability and Market Confidence (FINMAR)

A

rules around maintenance of financial stability and measures introduced in connection with ‘short selling’ after a number of incidents

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24
Q

Block 1 Training & Competence (TC)

A

taken seriously by FCA

25
Q

Block 1 General Provisions (GEN)

A
  • elements that don’t fit anywhere else
  • shouldn’t say you are authorised
  • only breach for length of emergency
  • authorised firms disclose in the correct way
  • FCA logo not used on firms literature
  • firms must not insure themselves against penalties from the regulator
26
Q

Block 1 Fees (FEES)

A

FCA funded by a levy on regulated firms and amount you pay is set out in the fees sourcebook (3 broad groups)

  • application fees regardless of whether application successful or not
  • periodic fees- annually by each firm formula = periodic fee = tariff data for firm x block tariff rate (based on size of firm, higher risk have higher tariff rates)
  • special project fees, example merger between two banks, complex and require extra FCA resource
27
Q

Block 2 Prudential Standards

- PRA responsible for the prudential regulation of largest 1700 firms but FCA responsible for the rest

A
  • sets out requirements for prudential management for both PRA and FCA
  • amount capital firm expected to hold to meet obligations - measure known as ‘capital adequacy’
  • mim capital a firm is known as capital resource requirements (CRR)
28
Q

7 sourcebooks in this block

General prudential sourcebook (GENPRU)

A
  • covers banks building societies insurers and investment firms
29
Q

Detailed sourcebook (BIPRU)

A

Complex rules for calculation of capital adequacy outlines in GENPRU
- stress tests

30
Q

Prudential Sourcebook for investment firms (IFPRU)

A

Like BIPRU but for firms that are subject to capital requirements directive IV

  • stress firm have sufficient resources
  • for montage / home finance firms and insurance intermediaries (MIPRU) covers professional indemnity
  • interim prudential sourcebook for investment businesses (IPRU-INV) capital resource for smaller businesses
31
Q

Block 3 Business Standards Conduct of Business Sourcebook (COBS)

A
  • rules govern and control day to day to day work of advisers in life and pensions arena
32
Q

Block 3 Business Standards Conduct of Business Sourcebook (COBS)

A
  • rules govern and control day to day to day work of advisers in life and pensions arena
  • sep rules for mortgages (mob)
  • sep rules for general insurance (icob)
33
Q

Insurance conduct of business sourcebook (icobs)

A

general insurance and pure protection products

34
Q

Insurance conduct of business sourcebook (icobs)

A

general insurance and pure protection products (income protection, term insurance and critical illness)

35
Q

ICOBs split into 3 distinct groups

A
  • general insurance (car motor)
  • pure protection (term, income protection, critical illness)
  • payment protection insurance (loans, / cards and mortgage payment protection)
36
Q

Principles apply to ICOB

A
  • customers given certain info (initial disclosure document (IDD) terms of business (TOB)
  • info to demonstrate suitability known as demands and needs statement s
  • right to cancel (general insurance 14 days, pure protection and PPI, 30 days)
  • Renewal 3 weeks
37
Q

Mortgages and home finance conduct of business (mcob)
new range of measures

  • recommendation for contracts benefits must outweigh the negative effects on state benefit entitlement
A
  • shift from earnings to affordability lending
  • undertake affordability tests
  • outlawing self certification
  • protecting those in arrears

advisers fall into various groups

  • whole of market
  • restricted - panel
  • restricted - single lender
38
Q

regulatory status MCOB

A
  • firms authorised by FCA
  • Appointed representatives
  • introducers - no need to be authorised
  • loan made to individual or trustee secured by first legal charge and at least 40% of property
39
Q

non regulated MCOB

A
  • loans to companies
  • buy to let
  • second charges
40
Q

Client assets (CASS)

  • more important regulator
  • identify risks
  • assess risks
  • mitigate risks
A
  • client money should be banked by close of play the following business day
  • reconciliation done regularly
41
Q

Insurance Company have capital adequacy assessed by

A

PRA

42
Q

Regulates Sale of lifetime mortgages

A

FCA

43
Q

Capital Resource Requirement of £15K

A

exempt MiFID firm

44
Q

Timing of interest has an impact on return a standardised measure

A

AER

45
Q

Established under the banking act 2009

A

Failing banks

46
Q

FCA high level standards SYSC manual

A

Systems and controls

47
Q

Following 9 blocks relevant to all firms

A

FC

48
Q

FCA Fees start

A

1.5K

49
Q

Lifetime mortgage

A

Generic term for equity release products

50
Q

FCA Approach to regulation is both

A

A and B

51
Q

FCA required to consider matters

A

principles of good regulation

52
Q

MCOB

A

Mortgage and home finance conduct of business

53
Q

Insurer issue renewal terms

A

In good time

54
Q

Giving false info to the FCA

A

A criminal offense

55
Q

FSB

A

Financial Stability Board

56
Q

Rules around liquidity in IFPRU7

A

Be self sufficient and maintain adequate liquid resources

57
Q

Paying FCA fine

A

Not acceptable from profits of business

58
Q

Exempt from requirements of consumer credit act 1974

A

Building Societies

59
Q

FCA visit

A

Does not have to give any warning to prepare

RO1 Feb 2021 (7 decks)

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