The FCA Objectives & Approach Flashcards
FCA Statutory Ojectives
- 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
Scope of the FCA role
criminal offence to perform any kind of regulated activity without authorisation - known as Part 4a permission of financial services and markets act 2000
Key activities of FCA
- 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
Not regulated by FCA
- buy to let mortgages
- occupational pensions
- compensation claim handlers
Reporting lines
- reports to treasury for actions
- chancellor exchequer maintains overall responsibility
- rule that whistle-blow on itself
Dotted lines
- 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
Approach to regulation and supervision - operates in a risk based approach
Risk determined by
- 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)
Three pillar measurements
- banning retail products for up to 12 months
- withdrawing financial promotions (not misleading)
- publishing enforcement action
- gathering market intelligence
determination level of supervision for each
- fixed portfolio (larger higher risk, pillar one proactive supervision)
- flexible portfolio (pillar two event driven and pillar three thematic)
FCA 10 pillar approach
- 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
Enforcement Lower End
- 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
Enforcement extreme end
- 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
Offences that reach court
- summary only (heard by magistrates)
- indictable (heard by crown court with jury)
- either way
Regulated Decisions committee RDC
Any disciplinary action recommended by relevant enforcement officers and put to RDC
- individual has right to appeal to upper tribunal (tax and chamber)
prudential regulation - larger firms and ‘stress tests’ response to financial crisis 2008
- tested annually
- 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
FCA Handbook 9 blocks
- block 1 the high level standards
main big picture standards that the firm should follow
Block 1
Principles for business PRIN
- high level basic standards
- 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
Block 1
Systems and controls SYSC
meet common platform requirements
- general requirements
- employees and staff qualifications
- compliance
- risk control
- outsourcing
- record keeping
- conflict of interests
- whistleblowing
- remuneration
Block 1
Code of Conduct (COCON)
- Threshold conditions (COND)
- regulated requirements
- UK based HO
- supervised by FCA
- appropriate level of resources
- fit and proper
- business model appropriate
Part 4a persmission
= right to operate and serious criminal office if transact without it
Block 1 statement of principles and code of practice for approved persons (APER)
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
Block 1 Fit and Proper Test for Approved Persons (FIT)
- 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
Block 1 Financial Stability and Market Confidence (FINMAR)
rules around maintenance of financial stability and measures introduced in connection with ‘short selling’ after a number of incidents
Block 1 Training & Competence (TC)
taken seriously by FCA
Block 1 General Provisions (GEN)
- 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
Block 1 Fees (FEES)
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
Block 2 Prudential Standards
- PRA responsible for the prudential regulation of largest 1700 firms but FCA responsible for the rest
- 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)
7 sourcebooks in this block
General prudential sourcebook (GENPRU)
- covers banks building societies insurers and investment firms
Detailed sourcebook (BIPRU)
Complex rules for calculation of capital adequacy outlines in GENPRU
- stress tests
Prudential Sourcebook for investment firms (IFPRU)
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
Block 3 Business Standards Conduct of Business Sourcebook (COBS)
- rules govern and control day to day to day work of advisers in life and pensions arena
Block 3 Business Standards Conduct of Business Sourcebook (COBS)
- 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)
Insurance conduct of business sourcebook (icobs)
general insurance and pure protection products
Insurance conduct of business sourcebook (icobs)
general insurance and pure protection products (income protection, term insurance and critical illness)
ICOBs split into 3 distinct groups
- general insurance (car motor)
- pure protection (term, income protection, critical illness)
- payment protection insurance (loans, / cards and mortgage payment protection)
Principles apply to ICOB
- 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
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
- 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
regulatory status MCOB
- 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
non regulated MCOB
- loans to companies
- buy to let
- second charges
Client assets (CASS)
- more important regulator
- identify risks
- assess risks
- mitigate risks
- client money should be banked by close of play the following business day
- reconciliation done regularly
Insurance Company have capital adequacy assessed by
PRA
Regulates Sale of lifetime mortgages
FCA
Capital Resource Requirement of £15K
exempt MiFID firm
Timing of interest has an impact on return a standardised measure
AER
Established under the banking act 2009
Failing banks
FCA high level standards SYSC manual
Systems and controls
Following 9 blocks relevant to all firms
FC
FCA Fees start
1.5K
Lifetime mortgage
Generic term for equity release products
FCA Approach to regulation is both
A and B
FCA required to consider matters
principles of good regulation
MCOB
Mortgage and home finance conduct of business
Insurer issue renewal terms
In good time
Giving false info to the FCA
A criminal offense
FSB
Financial Stability Board
Rules around liquidity in IFPRU7
Be self sufficient and maintain adequate liquid resources
Paying FCA fine
Not acceptable from profits of business
Exempt from requirements of consumer credit act 1974
Building Societies
FCA visit
Does not have to give any warning to prepare
