Topic 17 Flashcards

1
Q

In relation to financial services, what are some key aims of regulation

A

ensuring that those businesses operating in the industry are authorised to do so and conduct their business in a manner that ensures the fair treatment of their customers

ensuring that businesses have the necessary financial arrangements in place to minimise the risk of loss to their customers

establishing and understanding accountability at a senior level within financial service organisations

ensuring that individuals carrying out defined regulated activities have the competence and capability to do so

the ongoing development of the skills and knowledge of individuals working in the industry

ongoing supervision to ensure that regulatory requirements are adhered to and to try to prevent problems

actions to be taken when problems arise

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2
Q

What has legislation often resulted from in the past?

A

Particular scandals or crises

An increase in consumers financial awareness and a demand for a more customer focused business approach

The need to respond to changes in lifestyle

Developments in business methods

Innovation in product design

The increasing number and complexity of financial products

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3
Q

In terms of regulation what is the bank of England’s role?

A

They are responsible for protecting and enhancing monetary and financial stability, aiming to maintain economic stability. The bank has a central role in the regulation of financial services in the UK

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4
Q

What is the Financial Policy Committee (FPC) role?

A

The FPC is a committee of the BOE.
The FPC looks at the economy in broad terms to identify and address risks that may threaten the stability of the whole economy.

The FPC has no direct regulatory reasonability for particular sectors of the financial services industry but has various powers to take action if needed.

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5
Q

What is the Prudential regulation authority (PRA) role?

A

The PRA is within the BOE, although is operationally independent.

The PRA has sole responsibility for the day to day financial supervision of banks and other financial institutions

The PRA authorises large, systemically important providers of financial services such as banks, insurance companies and building societies

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6
Q

What is prudential regulation?

A

Regulation aimed at ensuring that a business is established and run on a sound financial basis. This aims to limit the risk of that business failing and, if a failure does occur, to limit any adverse impact on consumers and the wider economy

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7
Q

Who exercise’s the powers of Prudential regulation authority (PRA)?

A

Prudential regulation committee (PRC)

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8
Q

What is the Financial conduct authority (FCA) role?

A

The FCA has responsibility for the conduct of all retail and wholesale financial firms.

The FCA also undertakes prudential supervision of firms that are not regulated by the PRA

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9
Q

Who does the FCA oversee for conduct and prudential regulation?

A

FCA is responsible for conduct regulation of ALL firms.

FCA is responsible for prudential regulation of firms that are not considered to be systemically important.

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10
Q

Give examples of systemically important firms covered by the prudential regulatory authority (PRA)

A

Systemic infrastructure
Deposit takers
Insurers
Some investment firms

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11
Q

What are the three operational objectives of the FCA?

A

To protect consumers - By securing an appropriate degree of protection

To protect financial markets - By protecting and enhancing the integrity of the UK financial system

To promote effective competition - By promoting effective competition in the interests of consumers

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12
Q

In seeking to promote competition, how does the FCA use its powers?

A

There are no undue barriers to entry - In other words, to ensure that the required regulatory standards are not set so high that new providers are unable to enter the market

Consumers are empowered to engage in such a way as to drive competition - for instance, by being able to switch providers easily if a product they hold becomes uncompetitive

No single or small group of firms dominates the market

Firms focus on consumers genuine needs and ensure that recommendations made are suitable

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13
Q

What are two key principles for co-operation between FCA and PRA?

A

Each regulators supervisory judgements will be base on all relevant information

Supervisory activity will not usually be conducted jointly

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14
Q

Who is responsible for the Financial Services Compensation Scheme (FSCS)

A

Both the FCA and PRA are responsible

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15
Q

Who is responsible for the Financial Ombudsman Service (FOS)

A

The FCA

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16
Q

What are 4 of the FCA’s powers

A

Competition powers - To open up competition, carry out market studies and make referrals to the Competition and markets authority (CMA)

Product intervention powers - To ban or restrict financial products

Power of disclosure - To publish details of warning notices issues and disciplinary action taken

Power to take formal - Action against misleading financial promotions

17
Q

What is the Competitions and markets authority (CMA)

A

They aim to promote competition for the benefit of consumers.

They investigate mergers that could restrict competition, carry out investigations into markets where competition may not be working effectively.

Enforce consumer protection legislation

It has powers to impose financial penalties and in the case of cartels, bring criminal proceedings

18
Q

What two things does the FCA handbook mainly consist of?

A

Rules - Most of the rules in the handbook create binding obligations on authorised firms. If a firm contravenes a rule, it may be subject to enforcement action and in certain circumstances to an action for damages.

Guidance - The purpose of guidance is to explain the rules and indicate ways of complying with them. The guidance is not binding and firms can not be subject to disciplinary action because it has ignored them. Compliance with the rules is the key consideration and firms have discretion as to how they achieve this.

19
Q

What are ‘Evidential provisions’

A

These are rules that are not binding in their own right, but relate to a binding rule.

20
Q

What are the 10 FCA high-level standards?

A

Code of conduct

Threshold conditions

Statements of principle and code of practice for approved persons

Fit and proper test for employees and senior personnel

Senior management arrangements, systems and controls

21
Q

What are the 10 FCA high-level standards?

A

Code of conduct

Threshold conditions

Statements of principle and code of practice for approved persons

Fit and proper test for employees and senior personnel

Senior management arrangements, systems and controls

Principles for businesses

Financial stability and market confidence sourcebook

General provisions

Fees manual

Training and competence

22
Q

Name the 4 ‘conduct of business sourcebooks’

A

Conduct of business sourcebook (COBS)

Banking: Conduct of business sourcebook (BCOBS)

Insurance: Conduct of business sourcebook (ICOBS)

Mortgages and home finance: Conduct of business sourcebook (MCOB)

23
Q

What and who does the market conduct sourcebook apply to

A

This concerns investment markets and is therefore primarily of interest to investment firms. It covers issues such as insider dealing

24
Q

What is ‘Client assets sourcebook’

A

Contains the requirements relating to holding client assets and safe custody of client assets

25
Q

What does the ‘redress’ section of the FCA handbook cover?

A

Including regulatory standards for dealing with complaints and the provision of compensation

26
Q

What does the ‘specialist sourcebooks’ section of the FCA handbook cover?

A

Including arrangements for credit unions, professional firms such as solicitors and accountants, collective investments (COLL) , consumer credit (CONC), investment funds, recognised investment exchanges and regulated covered bonds

27
Q

What are ‘Senior management functions’

A

Key individuals within a firm who perform significant roles. Individuals must be pre-approved by the FCA/PRA before they are appointed.

28
Q

What are ‘Certification functions’

A

Individuals who must be certified as fit and proper to carry out their role. Also known as significant harm functions, this includes mortgage and investment advisers

29
Q

What are the 11 FCA principles for business?

A

Integrity
Skill, care and diligence
Management and control
Financial prudence
Market conduct
Customers interests
Communications with clients
Conflicts of interests
Customers: Relationships and trust
Clients assets
Relations with regulators

30
Q

What is the life cycle of a financial product?

A

Product design
Sale and marketing
Advice and selling
Administration
Post-sales activities, including claims handling and dealing with complaints

31
Q

When producing a new financial product, what areas and behaviours does the FCA suggest a firm should consider?

A

Considering specific target markets when developing products

Ensuring that communications are clear and do not mislead

Honouring promises and commitments that it has made

Identifying and eradicating root causes of complaints

32
Q

What are the FCA’s ‘six outcomes’ to ensure fair treatment of customers?

A
  • Consumers will be confident that the firms they are dealing with are committed to fair treatment of customers
  • Products are designed to meet the needs of properly identified customer groups
  • Consumers are provided with clear information at all stages, before, during and after a sale
  • Any advice given is suitable for the customer, taking account of their circumstances
  • Products perform as customers have been led to expect, and associated services are of an acceptable standard
  • There are no unreasonable barriers to switching product or provider, making a claim or complaining.
33
Q

What is ‘Management information’

A

Data or statistics used to measure business performance and drive necessary change.