The Regulatory Environment Flashcards
1
Q
what was the purpose for the FSMA 2001?
A
to provide stronger protection for consumers of financial services and products
2
Q
what did the Financial Services act 2012 introduce?
A
FCA and PRA
3
Q
what additional body does the regulatory framework also comprise of?
A
Financial Policy Committee of the BOE
4
Q
what did the FSMA establish?
A
- regulators (replaced FSA with FCA and PRA)
- Single ombudsman service (Financial Ombudsman service) for customer disputes
- single compensation scheme to provide a fund for consumer compensation when firms are unable to meet their liabilities
- penalties
- uk listings regime which replaced LSE powers (known as FCA primary market function)
5
Q
who is responsible for the authorisation and supervision of all financial institutions?
A
FCA
6
Q
What powers did the FCA take over from the FSA?
A
powers to investigate and prosecute insider dealing and market abuse
7
Q
who oversees the FOS?
A
FCA
8
Q
Who overseas the FSCS?
A
FCA and PRA.
9
Q
what is the FCA solely responsible for?
A
authorisation and supervision of all financial institutions
10
Q
what powers did the FCA inherit from the FSA?
A
powers to investigate and prosecute insider dealing and market abuse
11
Q
what is the difference between an authorised person and an approved person?
A
authorised person is a person that has been authorised by the PRA/FCA to carry out one or more regulated activities, an approved person is an individual that has been approved by the PRA and/or FCA to perform a role or carry out an activity
12
Q
who are the authorised persons?
A
- those who have been given permission to conduct regulated activity by the FSA up to 31 March and by PRA/FCA following on
- overseas firms in the EEA, UCITS qualifiers
- ICVCs, established under OEIC regulations 2001
- society of Lloyds (insurance)
13
Q
how can someone become an exempt person?
A
by way of specific sections within FSMA or through orders made by HM Treasury
14
Q
what are the two examples of exempt persons?
A
- appointed representatives of authorised persons
- recognised investment exchanges and recognised clearing houses
15
Q
can a person be authorised and exempt at the same time?
A
no, they cannot conduct regulated activities as an authorised person and others in the capacity of an appointed rep. of another firm
16
Q
what is the role of the FCA?
A
protect consumers, keep the industry stable and promote healthy competition
17
Q
what is the role of the PRA?
A
prudential regulation of banks, building societies, credit unions, major investment firms and promotes the safety and soundness of these firms
18
Q
what do the FCA and PRA have power over?
A
firms carrying on regulated activities, the financial exchanges that are used by those firms and individuals carrying out particular functions for those firms
19
Q
who has overall responsibility for the UK financial system?
A
HM Treasury
20
Q
what powers does HM Treasury have in relation to the FCA?
A
power to appoint of dismiss their board and Chairperson
power to commission reviews and enquiries into the FCA’s operations
21
Q
what does the FCA have to submit to HM Treasury once a year?
A
a report on their functions and the extent to which they have discharged their functions - laid out before parliament
22
Q
what are the two core purposes of the BoE?
A
Monetary stability (stable prices and confidence in the currency)
Financial stability (detecting and reducing threats to the financial system)
23
Q
what is the FCA’s strategic objective?
A
ensuring that the relevant markets function well.
24
Q
what are the FCA’s operational objectives?
A
Consumer protection, integrity and competition
25
what is the single general objective of the PRA?
promote the safety and soundness of PRA authorised persons.
26
how does the PRA advance their general objective?
- ensuring business of PRA- authorised persons doesn't adversely effect stability
- minimising the adverse effect of a failure of a PRA-authorised person
27
what are the levels of accountability the FCA is subject to?
- annual report to HM Treasury
- have to show how their rules help to meet objectives
- judicial review by the courts
- held accountable for regulatory failure
28
what was the secondary objective for the PRA and FCA brought in by FSMA 2023?
they must facilitate international competitiveness of the UK economy and medium/long-term growth
29
what is the FCA's supervisory function focused on?
conduct of dual authorised firms and prudential regulation of firms not directly authorised by the PRA
30
what is the credible deterrence framework?
part of the supervisory approach, includes a consistent and more transparent framework for calculating financial penalties.
31
what does the revised model of supervision across the UK mean for the FCA?
they must intervene in a proactive way when they believe that the results of a firm's actions will pose a risk to their statutory objectives. More intrusive and directional style
32
what are the two key features of the outcomes-focused intensive supervisory model?
- significant enhanced analysis and risk identification capacity
- outcome testing
33
what does a risk-based approach mean for the FCA?
they assess individual firms for the risk each one presents to its objectives
34
what three types of work is the FCA supervisory model based on?
Proactive
Reactive
Thematic - wider diagnostic or remedy work
35
how can conduct risk be described?
the risks posed to customers and the wider integrity of the financial markets by the way in which authorised firms and their staff conduct themselves
36
what are the outcomes that are core to the FTOC initiative?
- fair treatment at all times
- products are there to meet peoples needs
- clear information
- creating no unreasonable barriers to change product, provider or make a complaint
37
how does the BCBS define operational risk?
risk of loss resulting from inadequate or failed internal processes, people and systems from external events
38
how can conduct risk issues be embedded fully within an organisation?
firms board needs to consider the conduct implications of the firm's strategy and put in place policies and procedures to support this throughout the organisation
39
how can conduct risk procedures be implemented into an organisation?
have an appropriate conduct policy that can be communicated through the organisation, devising training
40
what behaviours has the FCA emphasised that firm's do not undertake?
- prioritising profits over ethics
- tick-box and overly legalistic approach to compliance
- abiding by the idea that disclosure at the point of sale pardons the seller from their responsibility for ensuring a good consumer outcome
- complying only with the letter rather than the spirit of any laws
41
who else does the FCA look to for conduct risk failings aside from the board?
senior management
42
what three areas has the FCA focused on for vulnerable customers?
- reducing and preventing serious harm
- setting and testing higher standards
- promoting competition and positive change
43
what does part 9A of the FSMA empower the FCA to do?
make rules that are legally binding on all authorised firms concerning regulated/unregulated activities
44
what does the FSMA empower regulators to do?
- grant authorisation
- supervise authorised persons on an ongoing basis
- employ a range of disciplinary measures and sanctions
- enforce the regulatory framework
45
what areas did the FCA expect firms to be compliant with from 01/01/21?
- MiFID II transactional reporting
- EMIR reporting
- SFTR reporting
- certain MAR reporting
- CASS rules
- market-making exemption under short selling
46
who oversees regulation of financial services across Europe?
ESFS, European system of financial supervision
47
what three entities make up the ESFS?
- EBA
- ESMA
- EIOPA (European Insurance and Occupational Pensions authority)
48
what did the consultation published by the FCA in July 2022 focus on?
the equities market
49
what did the consultation published by the FCA in September 2022 focus on?
the trading venue perimeter
50
what did the July 2023 FCA consultation focus on?
a proposed framework for a consolidated tape for bonds
51
what is the point of the FSMA 2023?
start the process of revoking retained EU law relating to financial services and enable UK bodies to replace it with legislation designed specifically for UK markets
provide a new secondary objective for the PRA and FCA to ensure a greater focus on long-term growth and international competitiveness
52
what are the Edinburgh reforms?
published in December 2022, package of reforms to financial services regulation, build on the UK govts vision of an open sustainable and technology driven financial services sector
53
what are the main reforms as part of the Edinburgh reforms?
- replacing PRIIP rules (revoke the current regime for packaged retail and insurance-based investment products, replace with an alternative disclosure framework)
- design a new UK short selling regime
- review of the SM&CR
- enhanced remit for the FCA and PRA
- Investment research reforms
- reform securitisation regulation
54
what are the 12 FCA principles for business?
1. Integrity
2. skill, care and diligence
3. management and control (of risks)
4. financial prudence
5. market conduct
6. customers interests
7. communication with clients
8. conflicts of interest
9. customers: relationships of trust
10. clients assets
11. relations with regulators
12. consumer duty
55
what are the aims of the FCA's consumer duty principle?
higher and clearer standards of consumer protection across financial services and requires firms to put their customer's needs first - applies to products and services offered to retail customers.
56
what customer types does consumer duty apply to?
existing and prospective customers
57
what types of activities are excluded from consumer duty?
wholesale products that will not be leveraged by retail investors or participants of the market
58
what do cross-cutting rules require firms to do?
- act in good faith towards retail customers
- avoid foreseeable harm to retail customers
- enable and support retail customers to pursue their financial objectives.
59
what are the 'good' outcomes the FCA expects to see for retail customers?
- products and services meet the needs and objectives of a target group
- price and outcome of products is of 'fair value' for customers
- consumers understand the products and their outcomes through clear communication
- consumers are provided with support to meet their needs
60
what happens when firms are not in scope of the consumer duty?
they are subject to principles 6 & 7, conduct rule 6 will not apply to them
61
what have the FCA identified in the code of conduct rules?
- acting in good faith is standard of conduct expected
- firms and their individuals must avoid foreseeable harm to retail customers
- firms and their individuals must enable and support retail customers in their goals
62
where does FTOC apply?
where a firm is out of scope of consumer duty requirements, because they don't deal directly with retail customers and are unable to materially impact the good outcomes for retail customers
63
what principle do all firms regulated by the FCA have to adhere to?
principle 6 - due regard to the interests of their customers and treat them fairly
64
what does FTOC do specifically?
- helps customers understand the financial products they buy
- minimises the sale of unsuitable products
65
what 6 consumer outcomes does the FTOC initiative define?
1. consumers can be confident in their dealings with firms
2. products and services marketed are designed to meet specific needs
3. consumers will be provided with clear information
4. advice received by consumers is suitable for their circumstances
5. consumers are provided with products that perform as firms have led them to expect
6. consumers don't face unreasonable post-sale barriers
66
what are the PRA's 8 fundamental rules?
1. acting with integrity
2. due skill, care and diligence
3. act in a prudent manner
4. maintain adequate financial resources
5. have effective risk strategies and management
6. control affairs responsibly and effectively
7. deal with regulators openly and cooperatively
8. prepare for resolution
67
what is APER and who does it apply to?
approved persons regime, applies for FCA-approved persons who are approved to perform a controlled function such as appointed representatives.
68
what are the controlled function categories that apply to APERs?
significant influence functions and customer dealing functions
69
what does the SM&CR comprise of?
Senior Manager and Certification Regime.
- senior managers regime
- certification regime
- conduct rules
70
what are the 3 categories of scope for the
core scope: firms subject to baseline requirements
limited scope: firms subject to fewer requirements
enhanced scope: firms subject to significantly greater requirements
71
when will a senior manager be guilty of misconduct?
if the FCA is able to demonstrate that the senior manager failed to take reasonable steps to prevent a regulatory breach from occurring
72
what individuals does the SMR capture?
those performing defined SMFs, i.e., C-suite, MLRO, head of compliance and internal audit.
73
what are individuals performing as SMFs required to do?
complete annual fitness and proprietary assessments
74
what are the different classifications of responsibilities as part of the SMR?
- prescribed responsibilities
- management responsibilities map
- duty of responsibility
75
what tasks are senior managers under when it comes to consumer duty?
- consumer duty should be reflected in the firms' strategies
- senior managers must ensure that their firm has appropriate oversight of customer outcomes
- senior managers will be held accountable for delivering good consumer outcomes
- firm's must appoint a consumer duty champion at board level
76
what is the certification regime?
requires firms to asses employees who may pose a risk to customers at recruitment and on an annual basis
77
what individuals are captured by the certification regime?
material risk-takers and the senior managers who must attest that those individuals remain fit and proper
78
what are conduct rules?
a framework of behavioural standards introduced against which individual conduct is judged
79
what are the 6 conduct rules?
1. integrity
2. skill, care and diligence
3. open and cooperative with regulators
4. pay due regard to the interests of customers
5. proper standards of market conduct
6. act to deliver good outcomes for retail customers
80
what are the 4 senior manager conduct rules?
1. reasonable steps to ensure the business of the firm is controlled effectively
2. ensure that the business of the firm complies with relevant requirements
3. take reasonable steps to ensure delegation is done appropriately
4. disclose appropriately any information to regulators
81
what is the SYSC sourcebook?
part of the FCA handbook, places requirements on directors and senior managers of financial services firms in relation to systems, controls and their businesses
82
what is the purpose of the requirements in the SYSC sourcebook?
1. encourage firms' senior managers to take responsibility for their firms arrangements
2. amplify principle for business 3, where firms have to take reasonable care to organise
3. encourage firms to vest responsibility for an effective and responsible organisation
4. create a common platform of organisational systems and controls for firms
83
how do systems and controls requirements apply to firms?
for firms that are subject to capital requirements directive and MiFID the requirements are a common platform
for firms not subject to CRD and MiFID, some apply as rules, other aspects apply as guidance - not legally binding
84
what does SYSC 4 (general requirements) deal with?
- sound governance arrangements
- persons who direct the business must be of good repute and sufficiently experienced
- senior personnel must receive frequent written reports on compliance and internal audit
- apportionment of responsibilities must be completed so that it is clear
85
what does SYSC 5 (employees, agents and other relevant persons) deal with?
- skills, knowledge and expertise of the relevant people, ensuring they are competent to perform their role
- segregation of duties
- awareness of procedures
- monitoring
86
what does SYSC 6 (compliance, audit and financial crime) deal with?
- firms must have adequate policies to ensure compliance with obligations
- internal audit function must be applied in a proportionate manner
- firms must establish systems and controls to identify and monitor money laundering risks
87
what do SYSC 7 and 12 (risk control) deal with?
ensuring firms have the ability to manage risk and have arrangements for assessing risks for the firm and for specific group risks
88
what does SYSC 8 (outsourcing) deal with?
if a third party is engaged to provide an operational support, the firm must ensure they do not incur additional operational risk
89
what does SYSC 9 (record keeping) deal with?
requires firms to maintain orderly record of it's business and internal organisation and transactions to enable regulators to monitor the firm's compliance with all regulatory requirements - must be maintained on a 'durable medium'
- MiFID, 5 years
- an additional 2 years as requested
90
what does SYSC 10 (conflicts of interest) deal with?
requires firms to maintain policies for identifying and managing conflicts of interest
91
what does SYSC 10A deal with?
Recording of Telephone Conversations and Electronic
Communications in a durable medium for a period of 5 years and be able to extend this for a further 2 years. Applies to all firms engaging with clients and carrying out transactions.
92
who does SYSC 10A not apply to?
- activities carried out between operators/depositories of the same CIS
- corporate finance business
- corporate treasury functions
93
what is the FOS?
Financial ombudsman service. single scheme for dealing with disputes between consumers and financial services firms
94
how do the FCA and FOS interact?
FCA appoints the chair and other directors but maintain independence, specify who is eligible to use the FOS
95
what is the role of the FSCS?
Provide a safety net for customers of financial services firms when those firms become unable to repay them. client's can make claims under the FSCS for comp. on any loss up to certain limits
96
what is the role of the CMA?
promotes competition for the benefit of consumers, within and outside the UK, works closely with the FCA. Ensure consumers get a good deal when buying goods and services and businesses operate within the law
97
what is the role of the ICO?
information commissioners office
independent official body for upholding information, entails promoting access to official information and protecting people's personal data
98
what is the role of the TPR?
the pensions regulator, regulator of work-based pension schemes, given objectives under the pensions acts 2004 and 2008
99
what is the role of PPF?
The pension protection protection fund
public, set up by the pensions act 2004, run by an independent board. report to parliament through Sec. of W&P, protects people who belong to defined benefit pension schemes
100
what is the role of HMRC?
primary revenue raising agency in the UK, understand changes to tax and identify any significant issues undermining objectives.
101
what is the role of the BoE?
- Monetary policy and Financial stability
102
what is the role of the upper tribunal?
agency of the ministry of justice, aims to assist those who wish to appeal against decisions made by the first tier tribunal and regulators
103
what types of cases does the upper tribunal handle?
- authorisation and permission
- penalties against persons
- disciplinary measures
- official listing
104
what is the role of the POTM?
independent body, established in 1968, whose main functions are to issue and adminiter the city code on takeover and mergers
105
what is the use of the status of provisions?
given legal effect through the FSMA, several types of provisions, they determine the legal effect on a firm
106
what are the different types of provisions?
R.E.G.D.UK.P.C
Rules
Evidential provisions (required evidence firms are expected to show)
guidance (explain the implications of other provisions)
Directions and requirements
UK legislative material (indicate Acts of Parliament and statutory instruments and changes made to the UK text)
statement of approved persons
conduct (behaviours that don't amount to market abuse)
107
What is a confirmation of industry guidance and what is it's status?
encourages the financial services sector to develop its own practice by giving official recognition. does not create any new tier of regulation, it has the same status as the regulators own guidance.
108
what are the implications of the CRA 2015?
consumer rights act. the FCA has the statutory power to challenge unfair terms in financial services consumer contracts.
109
what is the CISI code of conduct?
where members of the CISI have an obligation to meet set standards specified within the CISI principles. If they breach, they will have to discontinue their membership.
110
what are the CISI code of conduct principles?
- personal accountability
- client focus
- conflict of interest
- respect for market partners
- continuous learning
- awareness of capabilities
- respect for others and the environment
- speak up and listen up
111
what is the role of the internal audit?
plays a crucial role in the ongoing maintenance and assessment of a firm's internal controls and risk management. Expected to develop an independent and informed view of the risks faced by a firm based on their access to all records and data
112
what is the role of an external audit?
assess a firm's risk and control infrastructure, must be able to respond to risks, be objective, ensure reporting is conducted properly
113
what is the role of compliance?
starts at the top, should be part of the culture of the organisation. Compliance function within a firm should be independent from the business areas that it oversees and monitors.
113
what is the role of a trustee?
they have overall responsibility for the investment of funds, can delegate to an investment committee who advise and report to the trustee board
113
what are industry bodies?
similar to trade associations, in that they have members and that they work for their members, they do not tend to be product specific and more generalist in nature. Champion and support the success of the financial services sector
114
what are professional bodies?
membership brings important benefits to individuals concerned and to the public interest, membership is voluntary and members are bound by the codes of conduct and upheld vigorously.
115
what is the role of trade associations?
provide representative and other collective services to firms, generally in a specific sector, with common interests. work with their members in the development of markets and rules.
