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FCA 3: UK Financial Regulation > The Financial Services and Markets Act 2000 & Financial Services Act 2012 > Flashcards

The Financial Services and Markets Act 2000 & Financial Services Act 2012 Flashcards

1
Q

What is the general prohibition?

A

simply states that no person can carry on a regulated activity in the UK or purport to so unless they are either authorised or exempt from authorisation

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2
Q

what are the implications of contravening with the general prohibition?

A

criminal offence, any agreements made are unenforceable.

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3
Q

what is a prohibition order?

A

section 56 of the FSMA, gives the regulators the power to make an order prohibiting an individual from performing a specified order - either specific activities or activities generally

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4
Q

what are designated professional bodies?

A

allow professional firms e.g., accountants, solicitors and actuaries to undertake certain regulated activities under the supervision of their professional bodies i.e., SRA, ARA, rather than through direct authorisation from one of the regulators.

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5
Q

what does section 59 of the FSMA deal with?

A

an authorised person must take reasonable care to ensure that no person performs a role that requires approval from the regulators without receiving confirmation from regulators

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6
Q

what does section 71 of the FSMA deal with?

A

provides for circumstances whereby a private person or non-private person can sue for damages if they suffer loss because firms breach their duties under section 59

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7
Q

what statutory instrument clarifies what regulated activities are?

A

FSMA 2000 order 2001 (regulated activities order).

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8
Q

what are the specified investments within the RAO?

A

There are 26 in total, covering the entire range of products available via regulated firms:

  • deposits
  • electronic money
  • rights under contracts of insurance
  • shares
  • debentures (instruments creating or acknowledging indebtness)
  • government and public securities
  • warrants
  • securities certificates
  • units in a collective investment scheme
  • rights under a stakeholder pension scheme
  • rights under a personal pension scheme
  • options
  • futures
  • contracts for difference
  • Lloyds syndicate
  • rights under a funeral plan contract
  • home finance transactions
  • credit agreements
  • consumer hire agreement
  • greenhouse gas emissions allowance
  • alternative finance investments
  • rights to/interest in other specified investments
  • emissions allowances
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9
Q

what are the regulated activities specified in the RAO?

A
  • accepting deposits
  • issuing e-money
  • effecting or carrying out contracts of insurance as principal
  • insurance risk transformation
  • dealing in investments as principal or agent
  • arranging home finance transactions
  • operating MTFs
  • operating OTFs - MiFID
  • bidding in emission auctions
  • credit broking activities
  • operating an electronic system in relation to lending
  • managing investments
  • assisting in the administration and performance of insurance contracts
  • activities in relation to consumer credit
  • safeguarding and administering investments
  • advising on investments
  • sending dematerialised instructions
  • managing UCITS
  • establishing/operating a pension scheme
  • providing advice on stakeholder products and the conversion or transfer of pension benefits
  • advising on anything pension related
  • lloyds market activities
  • entering into a funeral plan contract
  • advising on home and land finance transactions
  • agreeing to carry on any specified kinds of activity
  • dormant account fund operator
  • specified benchmarks
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10
Q

what is the absence of holding out?

A

exclusion from dealing as principal, persons dealing for themselves in the hope of making profits are required to be authorised or exempt, they are restricted from the regulated activity of holding themselves out and regularly soliciting the public with the purpose of inducing them to deal

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11
Q

what are the other exclusions from dealing in principal?

A
  • banks providing finance to another person and accepting an instrument acknowledging debt
  • company or organisation issuing its own shares
  • using futures, options and CFDs for risk management purposes
  • entering into transactions as principal (as a trustee, sale of goods, between members of a group or joint enterprise)
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12
Q

what are the exclusions for group and joint enterprises?

A

firms undertaking intra-group dealing or activities or where there are joint enterprise relationships also benefit from the exclusion of dealing, managing and safeguarding investments as being regulated activities

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13
Q

what are the exclusions for advice in Newspapers?

A

if advice is contained n a newspaper, journal, magazine or other periodical publication, there is no need for publication

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14
Q

what are the exclusions for authorisation for trustees, nominees and personal reps?

A

if the person carrying out regulated activity is:
- acting as the representative of another party
- not holding themselves out as carrying on regulated activities
- not receiving additional renumeration for providing investment services

they are not required to be authorised

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15
Q

what are the exclusions from authorisation for employee share schemes?

A

in order to encourage companies to set up schemes enabling employees to hold shares in the company, there are exclusions from the need to be authorised to operate such schemes

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16
Q

what are the exclusions from authorisation for overseas persons?

A

provided that they do not carry out regulated activities from a permanent place of business in the UK, applies if the business is done through an authorised or exempt person domiciled in the UK

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17
Q

what is an appointed representative?

A

can be any type of person who has entered into a contract with an authorised person for the purpose of conducting regulated activity

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18
Q

what is the relationship between the authorised person and the appointed representative?

A

authorised person becomes the principal and accepts legal responsibility for the regulated activity conducted by the appointed representative

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19
Q

what is the relationship between FCA/PRA rules and appointed reps?

A

they do not apply to appointed reps because they are not authorised persons but the principals themselves must have the relevant permissions for the activity being carried out

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20
Q

what are appointed representatives not allowed to deal in?

A

investments as principal or manage investments

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21
Q

what are the 2 main areas of change the FCA has identified in relation to the APR?

A
  • additional information on ARs
  • clarifying and strengthening the responsibilities and exemptions of principals
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22
Q

what rules did the FCA make regarding ARs?

A

information and notification requirements:
- notify the new AR appointment 30 days beforehand
- provision of information on ARs and their business
- Principals must provide info to ARs within 60 days of rules coming into force
- complaints and revenue data on ARs to be provided by principals

responsibilities of principals:
- enhanced oversight of ARs
- more effective responsibility for ARs
- annual review on ARs activities, business and senior management

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23
Q

what did the FSMA give the FCA in regards to clearing houses and exchanges?

A

the responsibility of recognising, regulating and supervising exchanges and clearing houses

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24
Q

what happens when exchanges and clearing houses become recognised?

A

they are recognised as being fit and proper and they become exempt form the general prohibition under FSMA in respect of regulated activity which is carried out as part of their business

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25
Q

what is the exemption order 2001?

A

established certain exemptions from the need to be authorised for particular persons, some of these exemptions are restricted in that they only apply in certain circumstances

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26
Q

what are some examples of the FSMA exemption order 2001/

A

supranational bodies are exempted from the need to be authorised to carry on regulated activity apart from effecting or carrying our contracts of insurance

certain bodies are exempted from the need to be authorised for the sole regulated activity of accepting deposits e.g., municipal banks, local authorities and charities

certain persons are able to perform limited regulated activities without the need to be authorised or exempt

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27
Q

what does part 20 of the FSMA provide for?

A

for five professions where individual firms are permitted to carry on particular activities without the need to apply to the regulators for authorisation e.g., solicitors, accountants, actuaries, chartered surveyors and licensed conveyancers

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28
Q

what are the questions that need to be considered when deciding if their activities require authorisation?

A

will they be carrying on with activities by way of business?
will they be managing assets of an occupational pension scheme?
do their activities include regulated activities in the UK?
Will they be exempt?
can they carry on their regulated activities without authorisation?
what is the scope of permission required?

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29
Q

what is the process by which firms are given permission and therefore authorised?

A

the regulators (FCA and PRA) are granted their powers of permission via part 4A of FSMA, once they grant these permissions to firms, the firm becomes an authorised person

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30
Q

what does the authorisation process consist of?

A

firms will need to submit an application pack to either the PRA and/or the FCA. if they’re dual regulated, they will submit a pack to the PRA as their lead regulator, but they can only authorise the firm once the FCA has also consented.

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31
Q

what does the authorisation application pack consist of?

A
  • core details (CIP docs, ownership, accounting year end)
  • customer controllers
  • business supplement or regulatory business plan
  • disclosure of significant events
  • approved persons forms (as part of SM&CR)
  • checklist and declaration
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32
Q

what is the process once the PRA/FCA receive an application?

A
  1. case officer reviews the case, asking for additional information if necessary
  2. line manager/team lead will notionally approve the application
  3. committee will sign off and the applicant will be notified that they are approved subject to formal notification
  4. applicants will then be authorised from a specified date, reporting pack is dispatched along with a confirmatory letter of categorisation
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33
Q

what are the statutory deadlines for regulators determining authorisation cases?

A

6 months for complete cases, 12 months for incomplete cases

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34
Q

what happens when a firm was unincorporated and decides to become incorporated?

A

the new entity will require authorisation, so long as there are no material changes, the regulator allows for a simplified pack to be submitted

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35
Q

what are the threshold conditions?

A

effectively the minimum standards expected of authorised persons being and remaining and authorised.

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36
Q

What did the FSMA order 2013 do?

A

FSMA (threshold conditions) order 2013 changed and redistributed responsibility for TCs between the FCA and PRA. FCA conditions wider in scope, greater degree of subjective

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37
Q

what is the last update to the TCs?

A

FCA business model threshold condition, businesses must be able to put forward an appropriate, viable and sustainable model with contingency plans

38
Q

what are the PRA additional conditions in the TCs/

A

conditions that apply to banks, building societies, credit unions and designated investment firms which are regulated by the PRA

39
Q

What are the specific PRA threshold conditions?

A
  1. legal status (only certain legal forms acceptable for a firm wishing to undertake certain authorised activities
  2. location of offices (companies established under UK law must have head and registered offices in the UK if they are authorised)
  3. business to be conducted in a prudent manner
  4. effective supervision
  5. appropriate resources
  6. suitability
  7. business model (firms strategy for doing business must be suitable for its regulated activities)
  8. appointment of claims representatives
40
Q

what is the role of the supervisory approach?

A

has to work to ensure statutory objectives are met, need to ensure that the supervision does not impose an unnecessary restrictions on authorised firms

41
Q

what is the aim of the design of a structured approach to supervision?

A
  • identifying, measuring, mitigating and monitoring risks
42
Q

what work is the FCA’s approach to supervision approach based on?

A
  1. proactive firm supervision
  2. reactive supervision
  3. thematic approach
43
Q

what are the firm’s that require the most supervision known as?

A

fixed portfolio firms- pose the most risk to statutory objectives. subject to a programme of firm or group specific supervision (pillar 1)

44
Q

who are the flexible portfolio firms?

A

firms that pose less of a risk to statutory objectives, subject to event-driven supervision

45
Q

what does fixed portfolio supervision comprise of?

A

a 12-36 month cycle covering meetings, reviews of information and management, an annual strategy meeting and other proactive firm work.

46
Q

what is the PRA’s PIF and how does it work?

A

proactive intervention framework. captures their assessment of the proximity of each of it’s authorised firms to failure - draws from a variety of elements including business risk, management/governance, controls and capital/liquidity.

47
Q

why is the PRA more proactive in their approach to supervision as opposed to the FCA?

A

since the PRA authorises and regulates all deposit taking institutions, this could cause risk to the integrity of the financial system as a whole as opposed to the FCA which is focused on protecting consumers and client assets

48
Q

what are the supervisory tools regulators have available to them?

A
  • identification
  • diagnostic
  • remediation
  • evaluation
49
Q

when can individuals be permitted to perform a SM function?

A

only after the regulator has granted them approved person status, candidate completes Form A which includes a comprehensive list of questions to establish their employment history, fitness and proprietary

50
Q

what are the main aspects of the application process to the SM&CR?

A
  • firms must take all reasonable steps to obtain a regulatory reference from a candidates current employer and anyone who has employed them over the past 6 years
  • firms need to include a statement of responsibilities setting out the aspects of the firm’s affairs for which the person will be responsible for managing
51
Q

what factors do the firms look at in the fit and proper test?

A
  • honesty, integrity and reputation
  • competence and capability
  • financial soundness
52
Q

what are third-country firms and what are they required to have under SMF?

A

(formerly passporting into the UK),

  • SMF16 - compliance oversight
  • SMF 17 - MLRO function
  • SMF 21 - EEA Branch Senior Manager Function
53
Q

what is the FCA approach to FCA solo-regulated firms?

A

adopted a more tailored approach for solo regulated firms than what applied to banks and deposit takers

54
Q

what are the different types of scope for different firms under the FCA’s application of the SM&CR?

A

limited scope: fewer requirements
core: will have a baseline of SM&CR requirements applied
enhanced: will have to apply to extra rules

55
Q

what SMFs do core and enhanced firms have to have?

A
  • SMF1 – Chief executive
  • SMF3 – Executive director
  • SMF27 – Partner
  • SMF9 – Chair
  • SMF16 – Compliance oversight
  • SMF17 – MLRO
  • SMF18 – Other overall responsibility (enhanced firms only).
56
Q

what happens once a SM&CR application has been submitted?

A

it will be reviewed by the FCA or by PRA and the FCA if the firm is dual regulated. they are required by statute to reach a determination on a person’s fitness and propriety within 90 days, this can be stopped if they require further information to assist with their consideration for the application

57
Q

how often do firms have to demonstrate an individual is fit and proper under the SM&CR?

A

on at least an annual basis

58
Q

what is the directory?

A

a public register for checking the details of key people working in the financial services industry, also know as the financial services register

59
Q

what is the competence requirements firms have to adhere to?

A

firms must employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them

60
Q

what is the role of the the TC Sourcebook?

A

emphasises the outcomes which should be achieved by firms through their internal training and competence arrangements

61
Q

what does the TC sourcebook say in terms of assessing competence?

A

requires that firms do not assess an employee as competent to carry on one of the specified activities until that employee has demonstrated the necessary competence to do so and has attained an appropriate qualification

62
Q

what is the relationship between activities requiring a qualification and commencing activity?

A

as long as the individual has attained the regulatory module of the appropriate qualification, they may commence the activity under supervision

63
Q

what are the rules on activity and supervision?

A

firms must not allow an employee to carry on any of the specified activities without appropriate supervision at all times

64
Q

what are the stipulations to firms on maintaining competence?

A

firms are required to review on a regular basis their employees competence and to take appropriate action, where needed to ensure that the individual remains competent in their role.

65
Q

what act of parliament correlates to whistleblowing?

A

Public interest disclosure act 1998 protects individuals from retaliation if they inform the regulatory authorities of concerns that might come to their attention at work

66
Q

who do the whistleblowing rules implemented by the FCA in 2015 apply to?

A

deposit-takers with assets over £250 million in assets, became effective in 2016

67
Q

what is the role of the whistleblowers champion?

A

responsible for ensuring and overseeing the integrity, independence and effectiveness of the firm’s policies and procedures on whistleblowing.

68
Q

what are the stipulations for the whistle-blower’s champion?

A

they should have a level of authority and independence within the firm, including access to appropriate resources and information sufficient to enable them to carry out their responsibility

69
Q

where are procedures on discipline set out?

A

the section of the regulatory handbook called decisions, procedures and penalties manual (DEPP)

69
Q

what does DEPP cover?

A
  • various statutory notices which the FCA or PRA may issue
  • regulatory decisions committee
  • settlements, penalties and the power to impose suspensions or restrictions
  • FCA/PRA policy on assisting overseas regulators
70
Q

what is the role of the RDC?

A

regulatory decisions committee - make the decisions which are implemented in the statutory notices. committee of the FCA Board and is accountable to them but isn’t part of the FCA management structure.

71
Q

what is the role of the EDMC?

A

Enforcement Decision Making Committee

committee of the BOE, aim is the strengthen the enforcement process by ensuring functional separation between the investigation teams at the BOE and the decision makers in contested enforcement cases

72
Q

what are the 3 statutory regimes operated by the BOE?

A
  1. prudential regulation
  2. financial market infrastructure
  3. resolution
73
Q

what are statutory notices?

A

where the FSMA gives the FCA the power to issue a variety of notices to authorised firms or approved persons

74
Q

what are warning notices?

A

where the FCA provides a recipient with details about the action they propose to take and why they are doing it, can be done publicly. also allows the recipient the right to make representation as to why the FCA shouldn’t take the action proposed

75
Q

what are decision notices?

A

where the FCA provides details of the action they have decided to take, allowing the recipient the opportunity to appeal. further decision notices may follow if both parties agree to a different course of action

76
Q

what are supervisory notices?

A

where the FCA provides recipients details on the action they have taken or propose to. This may include limiting their permissions, they would most likely also alert the public to this taking place

77
Q

what are final notices?

A

set out the terms of the final action which the FCA has decided to take and the date from which it will take effect - can be published on the FCA website but they must get approval from the recipient first

78
Q

what came as a result of the FCA looking to streamline their decision making process in 2021?

A

some specific decision making would be moved from the RDC to the Authorisations, Supervision and Enforcement division. Uses the decision making framework to utilise its existing executive procedures

79
Q

what are the three possible forms of disciplinary sanction?

A
  1. public statements of misconduct
  2. public censures
  3. financial penalties
80
Q

what are the lower-key approaches the FCA can take when engaging in regulatory enforcement?

A
  • issue a private warning
  • take supervisory action e.g., varying or cancelling their permissions, withdrawing approvals, prohibiting an individual from performing a particular role
81
Q

what are the circumstances considered when regulators are taking regulatory enforcement?

A
  • nature and seriousness of the suspected breach
  • conduct of the firm after the breach
  • previous regulatory record of the firm or approved person
82
Q

how long do persons have to refer the regulators decision to the upper tribunal?

A

28 days, during this time the regulator cannot take the action it has proposed

83
Q

how does the process within the upper tribunal work?

A

involves a full rehearing of the case and will determine on the basis of all available evidence whether the regulators decision was appropriate, their decision is binding. they are independent of the regulator so are prepared to challenge when they see fit

84
Q

what additional enforcement powers did the FSA 2012 provide the FCA with?

A
  • short-selling disclosure rule making powers and the power to impose financial penalties on those in breach of short-selling rules
  • power to suspend firms and individuals
  • power to impose financial penalties
  • financial stability information-gathering power
85
Q

what is the intention of the suspension power?

A

only if the suspension will be a more effective and persuasive deterrent than the imposition of a financial penalty alone

86
Q

what section of the FSMA gives powers in relation to information?

A

165, gives wide-ranging powers to require and request information

87
Q

what does section 166 of the FSMA give the FCA?

A

power to obtain a view from a third party on aspects of a firm’s activities if the FCA requires further analysis

88
Q

what powers does section 167 of the FSMA give regulators?

A

further information gathering powers. require an authorised firm to appoint a competent person to provide a report on any information the regulator has requested

89
Q

what powers does section 168 of the FSMA give?

A

permits either regulator to appoint competent persons to carry out investigations on its behalf.

FCA 3: UK Financial Regulation (4 decks)

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