Topic 17 (The FCA's aims and activities)

Question 1

What is meant by Regulation?

Answer 1

The body of rules created by various regulatory bodies, to which participants in the financial services industry must adhere

Question 2

What is meant by Supervision?

Answer 2

The range of activities undertaken by regulators to ensure that participants adhere to the regulatory requirements

Question 3

What has Legislation resulted from?

Answer 3

• Scandals/crisis
• Increase in consumers financial awareness
• Lifestyle changes
• Development in business methods
• Innovation to product design
• Increase in complex products

Question 4

What was regulation like before the 1980’s?

Answer 4

• 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

Question 5

What did the FS act 1986 include?

Answer 5

It included an element of ‘self-regulation’ whereby participants could be responsible for the regulation and policing of their own operations

Question 6

What is the Financial services authority?

Answer 6

A single regulator established because the old system wasn’t wholly successful and considered to be fragmented

Question 7

What did the FSMA act 2000 do?

Answer 7

It brought together the regulation of all parts of the FS industry under one regulator = The FSA

Question 8

What is the FPC?

Answer 8

Financial Policy Committee

- Looks at the economy in broad terms and identifies risks

Question 9

What is the PRA?

Answer 9

Prudential Regulation Authority

- Responsible for day to day financial supervision of banks/financial institutions

Question 10

What is conduct regulation?

Answer 10

Regulation requiring firms that provide products/services to consumers to ensure that those products and services meet the consumers needs and act appropriately

Question 11

What is prudential regulation?

Answer 11

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

Question 12

What is systemically important providers?

Answer 12

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.

Question 13

What are the FCA’s 3 operational objectives?

Answer 13

1. Protection of consumers
2. Enhance the integrity of the UK financial systems
3. Maintain competitive markets and promote effective competition in the interest of consumers

Question 14

What are the 4 powers of the FCA?

Answer 14

1. Competition powers (make referrals to the CMA)
2. Product intervention powers (ban financial products)
3. Power of disclosure
4. Power to take formal action

Question 15

What is CMA?

Answer 15

Competition and Markets Authority

• Promotes competition for the benefit of consumers
• It is responsible for investigating mergers that could restrict competition

Question 16

What does the FCA handbook include?

Answer 16

1. Rules - create binding obligations on authorised firms

2. Guidance - Not binding and there to explain the rules and how to comply with them

Question 17

What are the 5 sections of the handbook?

Answer 17

1. High level standards
2. Prudential standards
3. Business standards
4. Regulatory processes
5. redress/ specialist sourcebook

Question 18

What is the FCS’s single strategic objective?

Answer 18

To ensure that relevant markets work well so that customers get a fair deal

Question 19

What is redress?

Answer 19

The process for handling investor complaints and compensation

Question 20

What is specialist?

Answer 20

Include arrangements for: credit unions, professional firms, collective investments, investment funds, investment changes, regulated covered bonds

Question 21

What are senior management functions?

Answer 21

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

Question 22

What are certification functions?

Answer 22

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

Question 23

What must an ‘approved person’ do?

Answer 23

• 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

Question 24

What are the two drawbacks for the establishment of rules?

Answer 24

1. People and organisations may make it their aim to comply with the letter of the law rather than to operate according to its spirit

Question 25

The FCA intends fair treatment must be provided throughout the whole of life cycle of financial products such as:

Answer 25

• product design
• sales and marketing
• advice and selling
• administration
• post-sales activities

Question 26

What is insider dealing?

Answer 26

A financial crime where a person who has information not available to other investors makes use of that information for personal gain

Question 27

What is Market manipulation?

Answer 27

A financial crime where a person knowingly gives out false information in order to influence the price of the share

Question 28

What is Money laundering?

Answer 28

The process of filtering the proceeds of criminal activity through a series of accounts or other financial products

Question 29

What is whistle blowing?

Answer 29

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

Question 30

What are the 3 main areas the FCA seeks to control?

Answer 30

1. Money laundering
2. Fraud and Dishonesty
3. Criminal market conduct