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Ro1 Regulations And Ethics Of The Finanacial System > The Regulation Of The UK Financial Service > Flashcards

The Regulation Of The UK Financial Service Flashcards

1
Q

What did the Financial Act 2000 do?

A

Brought all the aspects of the UK financial services into one framework.

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2
Q

What did the Financial Services Act 2000 introduce?

A

The financial services authority (FSA)
The financial ombudsman (FOS)
The financial services compensation scheme (FSCS)

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3
Q

Why was the financial services act 2012 introduced.

A

To restore faith in the system after the 2007 crisis due especially from short comings of the FSA.

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4
Q

What does the law require for regualtors?

A

Regulators work together to protect the financial market.

FCA, PRA, treasury, BOE must all work together.

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5
Q

What is the HM treasury?

A

The Echequer- government department for public finance and economic policy.

Sets tax and spending.

Headed by the chancellor of the exchequer.

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6
Q

What is the relationship the exchequer has to the BOE and the FCA.

A

Not responsible for either of them but works closely with them and, to a large extent, controls the environment they operate in.

They meet monthly for the UK Standing Committee, which the HM treasury chairs, and they discuss threats to the UK economy.

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7
Q

What is the Bank of England

A

The UKs central bank.

One of the oldest central banks in the world, over 300 years old.

The lender of last resort. (Stands behind other banks in case of a disaster bringing stability to the system)

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8
Q

What are the 2 main responsibilities of the BOE

A

Monetary stability - responsible for hitting government directed inflation level by regulating interest levels.
When the target is missed, the governor of the bank writes to the chancellor to say why.

Financial stability - i.e., through early warning systems to detect threats or acting as lender of last resort.

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9
Q

What tends to dampen/increase inflation?

A

Rising interest rate dampens
Lowering increases

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10
Q

What is the prudential regulation authority? (PRA)

A

A limited company owned by the BOE.
Formed as part of the review of financial services after the banking crisis.
Integrated into the bank as part of the Bank of England and financial services act 2016, which also replaced the PRA board with the prudential regulation Committee.

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11
Q

What is the PRA responsible for overseeing?

A

The largest financial institutions in the UK and overseas.
The prudential regulation and supervision of 1700 banks, building societies, credit unions, insurers, and investment firms.

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12
Q

What are the two statutory objectives of the PRA? And its 3rd objective under these.

A

Promote the safety and financial soundness of the firms under its regulation.

To help secure an appropriate level of protection for customers in respect to insurers

Facilitate effective competition.

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13
Q

How does the PRA do its work?

A

Aims to do it at the level of each individual firm.

Proportional to the risk represented by the firm with those posing most risk getting most attention.

Carries out its work using the thin powers of regulation and supervision.

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14
Q

What is the PRAs approach to regulation?

A

Judgment based - is the firm sound.

Forward looking - what problems may arise now and in the future.

Focused - which firms pose most risk

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15
Q

Who is included in the board of the PRA?

Who are they answerable/overseen by?

A

The governor of the BOE.

Parliament and the 3 European ESAs.

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16
Q

Due to the significance of firms supervised by the PRA, what must it do?

A

Engage with peers on the international scene and attempt to ensure global security.

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17
Q

What is the financial policy committee?

A

A macro-level commitee of the Bank of England.

Tasked with looking at the entire financial system and determining risks.

Early warning system for upcoming problems.

Identifies problems and takes action to restore stability. I.e. increasing amount of capital firms are expected to keep and limiting the level of borrowing.

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18
Q

How often does the financial policy committee meet?

Who is the chair?

How many members does it have?

A

Quarterly

Governor of the BOE

13 members, including chief executive of the FCA and BOE deputy for prudential regulation.

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19
Q

What is the secondary objective of the FPC?

A

Support the government’s economic policy.

The treasury gives guidance, and the FCP considers this and responds with its views and proposed action.

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20
Q

What is the financial conduct authority? (FCA)

A

Second of the twin peaks of UK regulation, along with the PRA.

Covers sales and marketing conduct of all organisations.

Gives prudential regulation to smaller firms.

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21
Q

How is the FCA financed?

A

Independent of the government and financed by a levy on regulated firms.

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22
Q

What does the FCA focus on?

A

Regulation and conduct of firms.

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23
Q

What are the FCAs 4 objectives?

A

Make markets function well ‘guide dog for the industry’

Protection for the customer (caveat customer should be responsible for their own protection)

Ensure integrity of the UK financial system.

Promote competition.

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24
Q

What are the 8 principles of good regulation that the FCA follow?

A

Efficiency and economy- action should not waste money.

Proportionality - to the risks.

Sustainable growth

Customer responsibility

Senior management responsibility - each firm should act appropriately and should be held accountable if not.

Different businesses have different needs - different forms of regulation

Openness and disclosure - both to and from regulator

Transparency

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25
Q

How many firms is the FCA responsible for?

Who else is it responsible for?

A

70000

The financial ombudsman service
Money advice service
Financial services compensation scheme

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26
Q

What is the pensions regulator (TPR)

A

Regulator for workplace pensions in the UK.

Extends beyond what we currently think of workplace pensions in connection with auto-enrolment and covers all pensions set up by employers.

Has a brief to consider stakeholder pensions.

Also responsible for occupational pensions registry, which contains details of all pensions schemes with more than 2 members.

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27
Q

Where does the TPR get funding?

A

The pension schemes themselves.

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28
Q

What are those running workplace pensions required to do?

A

Notify the TPR of any breaches of regulation.

Trustees, administrators, and employers.

29
Q

What can the TPR do in breach of the law? And how is this done.

A

Issue penalties.

Individual- max £5000

Firm- max £50000. Can remove trustees. Take over the scheme or require further action to rectify issues.

These can be appealed through the pensions regulator tribunal.

30
Q

What are the competion and Markets Authority? (CMA)

A

A non-ministerial governmental department, set-up to ensure markets work competitively in the best interests of consumers, businesses, and economy.

31
Q

How does the CMA ensure competition is kept in the market?

A

Avoid conclusion between major companies looking at proposed mergers and takeovers.

Act when action might be detrimental to the consumer interest.

Can extend beyond the UK where action would have an impact on UK consumers.
Ie a foreign country many buy8ng a UK one.

32
Q

What are the 5 strategic goals of the CMA?

A

Delivering effective enforcement
Extending competition frontiers
Refocusing consumer protection
Achieving professional excellence
Developing integrated performance

33
Q

Where can more information about the CMA be found?

A

www.gov.uk/government/organisations/competition-and-markets-authority

34
Q

Who will be held accountable by the FCA for a firms conduct.

A

Senior management

35
Q

What should management do?

A

Ensure that their systems and controls are appropriate to the needs of the business and their customer base and should take all reasonable steps to comply with regulation.

This will extend through the business from recruitment through training to treat customers fairly.

36
Q

What does the regulator expect from management?

A

To make good use of management information, especially key performance indicators (KPI), inevaluating a firms performance.

37
Q

Why is an external compliance consultant useful?

A

Provide a good source of support for a management firm as it is hard to keep up with all regulatory requirements when management is busy with day-to-day running a business.

Gives security and peace of mind that the business is following the most up to date regulations.

38
Q

Is an external compliance consultant responsible for compiling to the rules.

A

No, this is still the company, but they may have legal action taken against them if what they do results in damages.

39
Q

What should a firm do when selecting a compliance service?

A

Undertake a full due diligence process.

40
Q

Why are accountants required?

A

Because of rules around capital adequacy and financial strength, it’s important that a firm draws up accounts properly, accurately, and in line with regulation. This is extremely complex and requires an accountant with the correct skills and experience to know how it should be demonstrated.

41
Q

What is the purpose of an auditor?

A

An independent check on the work of the company.

Gives everyone the security of knowing a second set of eyes have checked and confirmed data.

42
Q

Who will be required to appoint an independent auditor?

A

Most financial firms except small companies outside of the scope of the MiFID and other EU directives.

Any firm that had permission to hold clients’ money must have its accounts audited.

43
Q

What trustees have special oversight requirements?

A

The trustees of pension schemes ensure the employer and the administrator act in accordance with the scheme rules and in the interest of members.

Under TPR rules, they are required to whistle blow if they become aware of breaches.

44
Q

What is covered in the public interest disclosure act 1998 and in the FCA handbook?

A

Staff should not be afraid to whistle blow and should be backed by and prevented from retribution by the employer on any practices that concern them.

This should be written into policy and made public for all staff.

45
Q

What do the European Supervisory authorities (ESA) do?

A

Work with the European Systemic Risk Board (ESRB) to ensure financial stability and strengthen the EU supervisory framework.

Charged with overseeing financial services regulation in the EU.

Have the power to draft law, oversee local regulators, and ensure they are acting within EU law, in serious cases ban certain activities if it has a detrimental effect on the EU economic markets.

Not responsible for th UK, but keep an eye on the FCA and PRA.

46
Q

What are the 3 ESAs?

A

European Securities and Markets Authority (ESMA)

European Banking Authority (EBA)

European Insurance and Occupational Pensions Authority (EIOPA)

47
Q

What parts of EU law must the UK the government makesure are applied to?

A

Treaties
Legislation
Decisions
Directives
Regualtrions

48
Q

What are EU treaties?

A

Fundamental building blocks of the EU.

Require collective agreement from member states and take a long time to negotiate.

Once voted through at the EU, they will have to be voted through at each members’ Parliament.

49
Q

What is EU legislation?

A

A level down from treaties.
Compromise binding and non-binding elements.
Put in place by different bodies of the EU to implement agreements under treaties.

50
Q

What are EU decisions?

A

Concren individual countries and will be legally binding on that country in full and immediately.

Does not apply to other countries.

51
Q

What are EU directives?

A

The outcome to be achieved is binding. However, it is up to each country how this will be brought into effect.

52
Q

What are EU regulations?

A

Impact all member states and come into force immediately and do not need to be individually implemented into each countries law.

Generally cover day to day administrative matters within the EU but have the binding force of the law.

53
Q

What major EU directives affect the UK?

A

Markets in financial instuments directive (MiFID)
Capital requirements directive (CRD)
Instument management directive (IMD)
Third money laundering directive (3MLD)
Alterantive Investment Fund Management Directive (AIFMD)
Insurance distribution directive (IDD)
General data protection regulation

54
Q

What is the markets in financial instruments directive?

A

The mother load of EU financial services legislation.
Maximum harmonisation directive
The aim was to create a single Europe-wide market for financial services and remove barriers.

55
Q

How does the MiFID affect the UK?

A

Bug worry for BREXIT due to loss of barrier-free market.

Most MiFID rules have been lifted and placed into the FCD rules, meaning the UK market is naturally compliant.

One exception is that certain firms will be exempt from MiFID requirements. Generally, advisory firms only advising UK based customers as there is no need for EU wide rules.

These companies can apply for article 3 MiFID exemption as long they don’t hold client money.

56
Q

What did MiFID II impacr after it came into effect on 3rd Jan 2018?

A

How costs and charges are disclosed
How market losses are reported - especially 10%+ dips in value.
Hoe products are governed
How advise services are described
How conversations are recorded
How inducements are treated
Sutability

57
Q

What did the international basal agreement set out to do?

A

Bring stability to the international banking system by setting out capital adequacy standards to be met by banks. This was later refined to the Basal 2 agreement and introduced into European law by the CRD.

58
Q

What does the capital requirements directive do?

A

Covers the larger institutions like banks and building societies certain other firms and sets out three pilars of capital adequacy that firms should consider and act upon.

Aims to prevent firms do not fail and bring down the financial system.

59
Q

What are the 3 pillars of the CRD?

A

Pillar one - the minimum capital a firm needs.

Pillar two - any additional capital that the management of the firm believes to be necessary over pillar one to meet other liabilities.

Pillar three - the production and publication of documents detailing a firm’s risks, capital adequacy, and approach to managing risks.

This has gone through more than one iteration with successive elements added over time.

60
Q

What does the investment management directive do? (IMD)

A

Introduced common standards across the EU for introduction, conclusion, and administration of contracts of insurance.

Introduced minimum levels of professional indemnity insurance (PI) for firms working in the insurance market.

61
Q

What does the Third Money Lundering Directive do?

A

An international body called the financial action task-force (FATF) set out a range of measures that should be followed to prevent money laundering.

The 3MLD is an EU-wide means of implementing these measures.

In the UK these measures were bought into law by the Money Laundering Regulations 2007 and updated guidance from the Joint Money Laundering Steering Group.

62
Q

What does the alterantive investment fund management directive (AIFMD) do?

A

Covers the running, sales, and marketing of alterantive investment funds, which are broadly collective funds not covered by the undertaking for collective investment transferable securities (UCITS) regime.

AIFMD regulates specialist funds (hedge funds and private equities) at the management level, ensuring that the managers of this type of fund act in an appropriate manner.

This was accepted into UK law 1st Jan 2021 with the UK version of the AIFMD

63
Q

What is the UK version of AIFMD.

A

Alteranative investment fund managers regulation 2013.

64
Q

What does the insurance distribution directive do?

A

Came into force in febuary 2014, extending the single market for financial services across the EU.

Focused on non-life (general insurance) businesses.

Basic requirements apply to all member states, though each may gold plate these requirements by adding additional layers of protection.

Some requirements cover disclosure, ongoing CPD for insurance workers, and minimum levels of indemnity insurance.

65
Q

How many hours of CPD per annum is mandatory under IDD?

A

15 hours for all staff handling insurance based investments.

66
Q

What requirement for general insurance firms is there under IDD?

A

Produce an insurance product information document (IPID)

This covers a products key features.

67
Q

What are the requirements for indemnity insurance that intermediaries that give advice on insurance based products require?

A

€1,300,380 for a single claim and the higher of €1,924,560 or an amount equivalent to 10% of annual income (subject to maximum of £30 million) aggregate (as of March 2023)

68
Q

What is general data protection regulation?

A

Regulation that came into force in the UK in May 2018 replacing the data protection act 1988.

It introduced significantly tougher penalties for misuse of data and extended the rights of data subjects.

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

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