The Regulatory Environment Flashcards
FCA Key Features
Responsible for the conduct of all firms Responsible for the prudential supervision of all non-PRA firms Has a rulebook (the FCA Handbook) Is a company limited by guarantee Has a board appointed by the Treasury
PRA Responsibility
Deposit takers Insurers Significant firms Has a rulebook (the PRA Handbook) Is the BoE
Dual regulated firms
Prudential regulation from PRA and conduct regulation from the FCA
Overview of regulatory regime
PRA and FCA cooperate and coordinate. PRA has veto power over the FCA. FPC issues directions to the PRA and the FCA.
FCA accountability
Accountable to parliament and HMT
FCA Strategic Objectives
Ensure relevant markets function well
FCA Operational Objectives
I-C-C
Integrity
Consumer protection
Competition
PRA General Objectives
Promote the safety and soundness of PRA-authorised persons.
Business is carried on in a way that avoids adverse effects on stability and minimise adverse effects if failure occurs.
FCA’s risk-based approach to supervision
Based on potential impact to FCA’s objectives. More effort allocated to firms posing largest threat to consumers or market integrity
FCA Pillar 1
Proactive firm supervision (Firm systematic framework)
- Business Model Strategy Analysis
- Proactive engagement
- Deep dive assessment
- Firm Evaluation
FCA Pillar 2
Event driven work
-Reactive supervision
FCA Pillar 3
Issues and Products supervision
-Thematic reviews
How firms are categorised by FCA
Fixed portfolio - continue to be subject to a programme of firm or group-specific supervision (Pillar 1)
Flexible portfolio - subject to event-driven reactive supervision (Pillar 2) and thematic or product supervision (Pillar 3) only
Tools of supervision
- Diagnostic: Identify, assess and measure risks
- Monitoring: Track the development of identified risks
- Preventative: Limit or reduce identified risks to prevent them from crystallising
- Remedial: Respond to risks when they have crystallised
Outcomes focused regulation
Greater reliance on outcome-focused rules The conduct risk approach Allows for: Innovation and development Accessibility for smaller firms Focus on the purpose of regulation
Powers of regulators under FSMA 2000
Part 4A authorisation of firms, approval of individuals, recognition of other bodies (e.g exchanges)
Supervision, Enforcement, Sanctions and disciplinary action
Rule making
Prosecution of financial crime
Treating customers fairly outcome 1+2
1 The fair treatment of customers is central to the corporate culture
2 Products and services meet the needs of identified consumer groups
Treating customers fairly outcome 3+4
3 Consumers are provided with clear information before, during and after the point of sale
4 The advice is suitable
Treating customers fairly outcome 5+6
5 Consumers are provided with what firms have led them to expect
6 Consumers do not face unreasonable post sale barriers
PRA Fundamental rules 1-4
- Integrity
- Skill, care and diligence
- A firm must act in a prudent manner
- Adequate financial resources
PRA Fundamental rules 5-8
- Effective risk strategies and risk management systems
- Organise and control its affairs responsibly and effectively
- Open and cooperative way with regulators
8 Prepare for resolution
Management information
Firm must have management information arrangement to monitor effectiveness
TCF
TCF is an outcomes-based regime focusing mainly on retail products
Principles for businesses 1-3
- Integrity
- Skill, care and diligence
- Management and control (SYSC)
Principles for businesses 4-7
- Financial prudence (CRD)
- Market conduct (MAR)
- Customers’ interests (COBS/CASS)
- Communication with clients (COBS/CASS)
Principles for businesses 8-11
- Conflicts of interest (COBS/CASS)
- Customers: relationship of trust (COBS/CASS)
- Clients’ assets (COBS/CASS)
- Relations with clients
Consequence of breaching PfB
If a firm breaches any of the Principles for Businesses it will be liable to disciplinary sanctions as they are legally binding on firms
Senior management arrangements, systems and controls - Purpose
- Encourage directors to take responsibility for the firm’s arrangements on regulatory matters
- Amplify PfB 3 to organise and control its affairs responsibly and effectively
- Vest responsibility for effective and responsible organisation in specific director and senior managers
- Create a common platform of organisational systems and controls (MiFID/CRD)
SYSC 4 -General requirements
- Sound governance
- Experienced management
- Receive written reports on compliance and internal audit ANNUALLY
- Apportionment of responsibilities must be CLEAR and APPROPRIATE
SYSC 5 - Employees, Agents and other relevant persons
- Skills, knowledge and expertise
- Segregation of duties
- Awareness of procedures
- Monitoring
SYSC 6
- Compliance, audit and financial crime
Competition and Markets Authority - Powers
- To investigate and block takeovers or mergers if in the interests of completion and consumers
- Enforce consumer protection legislation (cooperation and coordination in the financial sector)
- Prosecute unlawful cartel members
Information Commissioner’s Office
- To uphold information rights in the public interest
- To ensure data provides for individuals (DPA)
- To promote openness by public bodies (FoIA)
Pensions Regulator
To protect the members of work- based pension schemes (Occupational Pension Scheme)
BoE Statutory objective
Contribute to protecting and enhancing the stability of the financial systems of the UK
Financial Policy Committee
Identify, monitor and take action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system.
FPC meetings
Meets 4 times per year, and issues biannual Financial Stability Reports
HMRC
Primary tax revenue raising agency of Government. ISA -> tax efficient wrapper
The Upper Tribunal (Tax and Chancery Chamber)
Hears appeals against FCA, PRA or pensions regulator decisions
S138 FSMA 2000
Gives legal effect to the rules and guidance of the regulators set out in their Handbooks
Binding provisions of FCA/PRA handbook
(R) Rules - rules are binding on authorised persons
(D) Directions - binding on those whom they relate, these dictate behaviour to be taken
(P) Statements of Principle - binding upon approved persons
(EU) Text from EU legislation
(UK) Text from UK law
Non-binding provisions of FCA/PRA handbook
(E) Evidential provisions - non-binding, but show evidence required to demonstrate compliance with a rule
(G) Guidance - non-binding, recommends means of compliance or courses of action to take
(C) Conduct - behaviour that does not amount to market abuse
Who funds the FCA
Funded by annual levies on its member firms
