Topic 17 (The FCA's aims and activities) Flashcards
What is meant by Regulation?
The body of rules created by various regulatory bodies, to which participants in the financial services industry must adhere
What is meant by Supervision?
The range of activities undertaken by regulators to ensure that participants adhere to the regulatory requirements
What has Legislation resulted from?
- Scandals/crisis
- Increase in consumers financial awareness
- Lifestyle changes
- Development in business methods
- Innovation to product design
- Increase in complex products
What was regulation like before the 1980’s?
- Banks were subject to government credit controls that limited mortgage lending
- Building societies could make mortgage advances but were limited to offering only simple, savings products
What did the FS act 1986 include?
It included an element of ‘self-regulation’ whereby participants could be responsible for the regulation and policing of their own operations
What is the Financial services authority?
A single regulator established because the old system wasn’t wholly successful and considered to be fragmented
What did the FSMA act 2000 do?
It brought together the regulation of all parts of the FS industry under one regulator = The FSA
What is the FPC?
Financial Policy Committee
- Looks at the economy in broad terms and identifies risks
What is the PRA?
Prudential Regulation Authority
- Responsible for day to day financial supervision of banks/financial institutions
What is conduct regulation?
Regulation requiring firms that provide products/services to consumers to ensure that those products and services meet the consumers needs and act appropriately
What is prudential regulation?
Regulations aimed at ensuring that a business is established and run on a sound financial basis. It aims to limit the risk of that business failing
What is systemically important providers?
Providers whose failure would have a significant adverse impact on the national or global financial system. Generally these would be providers with a large customer base.
What are the FCA’s 3 operational objectives?
- Protection of consumers
- Enhance the integrity of the UK financial systems
- Maintain competitive markets and promote effective competition in the interest of consumers
What are the 4 powers of the FCA?
- Competition powers (make referrals to the CMA)
- Product intervention powers (ban financial products)
- Power of disclosure
- Power to take formal action
What is CMA?
Competition and Markets Authority
- Promotes competition for the benefit of consumers
- It is responsible for investigating mergers that could restrict competition
What does the FCA handbook include?
- Rules - create binding obligations on authorised firms
2. Guidance - Not binding and there to explain the rules and how to comply with them
What are the 5 sections of the handbook?
- High level standards
- Prudential standards
- Business standards
- Regulatory processes
- redress/ specialist sourcebook
What is the FCS’s single strategic objective?
To ensure that relevant markets work well so that customers get a fair deal
What is redress?
The process for handling investor complaints and compensation
What is specialist?
Include arrangements for: credit unions, professional firms, collective investments, investment funds, investment changes, regulated covered bonds
What are senior management functions?
Key individuals within a firm who perform significant roles. Individuals must be pre-approved by the FCA/PRA before they’re appointed
What are certification functions?
Individuals who must be certified as fit and proper to carry out their role. Also known as significant harm functions, this includes mortgage/investment advisors
What must an ‘approved person’ do?
- Act with integrity
- Act with due skill, care and diligence
- Observe proper standards of market conduct
- Deal with the FCA and PRA in an open and cooperative way
What are the two drawbacks for the establishment of rules?
- People and organisations may make it their aim to comply with the letter of the law rather than to operate according to its spirit
The FCA intends fair treatment must be provided throughout the whole of life cycle of financial products such as:
- product design
- sales and marketing
- advice and selling
- administration
- post-sales activities
What is insider dealing?
A financial crime where a person who has information not available to other investors makes use of that information for personal gain
What is Market manipulation?
A financial crime where a person knowingly gives out false information in order to influence the price of the share
What is Money laundering?
The process of filtering the proceeds of criminal activity through a series of accounts or other financial products
What is whistle blowing?
Enables employees to report serious inappropriate circumstances or behaviour within the firm. Workers have the right to protection under the public interest disclosure act 1998
What are the 3 main areas the FCA seeks to control?
- Money laundering
- Fraud and Dishonesty
- Criminal market conduct
