Topic 17 Flashcards
In relation to financial services, what are some key aims of regulation
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
What has legislation often resulted from in the past?
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
In terms of regulation what is the bank of England’s role?
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
What is the Financial Policy Committee (FPC) role?
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.
What is the Prudential regulation authority (PRA) role?
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
What is prudential regulation?
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
Who exercise’s the powers of Prudential regulation authority (PRA)?
Prudential regulation committee (PRC)
What is the Financial conduct authority (FCA) role?
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
Who does the FCA oversee for conduct and prudential regulation?
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.
Give examples of systemically important firms covered by the prudential regulatory authority (PRA)
Systemic infrastructure
Deposit takers
Insurers
Some investment firms
What are the three operational objectives of the FCA?
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
In seeking to promote competition, how does the FCA use its powers?
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
What are two key principles for co-operation between FCA and PRA?
Each regulators supervisory judgements will be base on all relevant information
Supervisory activity will not usually be conducted jointly
Who is responsible for the Financial Services Compensation Scheme (FSCS)
Both the FCA and PRA are responsible
Who is responsible for the Financial Ombudsman Service (FOS)
The FCA
What are 4 of the FCA’s powers
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
What is the Competitions and markets authority (CMA)
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
What two things does the FCA handbook mainly consist of?
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.
What are ‘Evidential provisions’
These are rules that are not binding in their own right, but relate to a binding rule.
What are the 10 FCA high-level standards?
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
What are the 10 FCA high-level standards?
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
Name the 4 ‘conduct of business sourcebooks’
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)
What and who does the market conduct sourcebook apply to
This concerns investment markets and is therefore primarily of interest to investment firms. It covers issues such as insider dealing
What is ‘Client assets sourcebook’
Contains the requirements relating to holding client assets and safe custody of client assets
