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FSRE - Josh > Topic 6 - The development of UK financial services regulation > Flashcards

Topic 6 - The development of UK financial services regulation Flashcards

1
Q

What are the 3 core objectives of financial regulation

A
  • Sustain systemic stability
  • Protect the consumer
  • Maintain safety and soundness of financial institutions
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2
Q

What are the 2 categories of regulation in financial services

A
  • Prudential
  • Conduct of business
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3
Q

In terms of regulation timeline, what happened in June 1998

A
  • Responsibility of regulation of uk banking sector transferred from BoE to FSA
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4
Q

In terms of regulation timeline, what happened in December 2001

A
  • FSMA Act 2000 created regime where FSA responsible for almost all of the industry
  • Mortgages (2004) and General insurance (2005) regulated by FSA
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5
Q

In terms of regulation timeline, what happened in April 2013

A
  • Financial services Act 2012 amended FSMA and made new framework
  • BoE have overall responsibility of system
  • FPC, FCA and PRA created - PRA made a part of the BoE
  • BoE given more power to oversee monetary policy and financial stability
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6
Q

In terms of regulation timeline, what happened in January 2020

A
  • EU withdrawal Act 2018 amended by EU withdrawal agreement Act 2020
  • Aimed to retain EU law until UK had left
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7
Q

In terms of regulation timeline, what happened in April 2021

A
  • Financial services Act 2021 started
  • Ensured taking back control of post-brexit regulation
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8
Q

Give some examples of what matters are covered in FSMA

A
  • Solvency
  • Capital adequacy
  • Sales and marketing practices
  • Prevention of crime
  • Competence of managers and sales staff
  • Complaints and compensation
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9
Q

What body did FSMA put in almost complete control of the industry

A
  • Financial services authority (FSA, now FCA)
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10
Q

What 3 bodies were a part of the ‘tripartite’ system

A
  • BoE
  • FSA
  • Treasury
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11
Q

What 2 bodies were given specific responsibility in the ‘twin-peaks’ setup during the Financial services Act 2012

A
  • FCA
  • PRA
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12
Q

What is the Treasury’s position around regulation

A
  • Ultimate responsibility for oversight
  • Responsible for financial services policy
  • FCA accountable to the treasury
  • Works with regulators and BoE on regulatory matters
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13
Q

What institutions are the BoE responsible for prudential regulation through the FPC

A
  • Banks
  • Building societies
  • Credit unions
  • Insurers
  • Major investment firms
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14
Q

What is the FPCs key role

A
  • Maintaining stability of the system through macro prudential supervision
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15
Q

What is macro prudential supervision

A
  • Looking at the ‘big picture’
  • Identifies risks to the system as a whole
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16
Q

What are the FPCs 2 main powers

A
  • To make recommendations to the FCA and PRA
  • To direct regulators to take action through adjusting macro prudential tools
17
Q

What are the 2 main macro prudential tools

A
  • Counter-cyclical buffer (CCB) - Requiring banks to increases capital whilst profits are high for ‘safety net’
  • Sectoral capital requirements (SCR) - FPC has power to adjust SCR for banks’ exposure to residential/commercial property and other areas of the sector
18
Q

Who are the most important decisions for the PRA made by

A
  • Prudential regulation committee (PRC)
19
Q

What does the PRA do

A
  • Responsible for prudential regulation for bigger firms in the sector
  • Focus is on the future - whether firms are vulnerable and how to stop them
20
Q

Is the FCA a government department

A
  • No, but works closely with the government and BoE etc.
21
Q

Who appoints the FCAs board

A
  • Treasury
22
Q

What is the FCA responsible for

A
  • Conduct of business regulation for retail and wholesale markets
  • Prudential regulation for smaller firms who are not PRA regulated
23
Q

Who do you require authorisation from to carry out regulated activities

A
  • FCA, PRA or both
24
Q

What are the thresholds for a firm applying for permission to carry out regulated activities

A
  • Legal status
  • Location of firms offices (UK based)
  • Adequate resources
  • Adequate capital and liquidity
  • Sustainability of firm and staff
  • Firm’s business model
  • Effective supervision
25
Q

FSMA 2000 (regulated activities) order 2001 lists activities for which you must be authorised, these are

A
  • accepting deposits;
  • effecting and carrying out insurance contracts
  • dealing in and arranging deals in investments;
  • managing investments;
  • establishing and operating collective investment schemes;
  • establishing and operating stakeholder pension schemes and personal pensions
  • advising on investments
  • mortgage lending and administration
  • advising on and arranging mortgages
  • advising on and arranging general insurance
  • conducting regulated consumer credit activities
26
Q

Regulated activities order 2001 lists regulated investments, these are

A
  • deposits
  • electronic money (e‑money)
  • insurance contracts, including funeral plans
  • shares, company loan stocks and debentures, and warrants
  • gilt‑edged stocks and local authority stocks
  • units in collective investment schemes
  • rights under stakeholder pension schemes
  • options and futures
  • mortgage contracts
27
Q

What are the 2 categories regulated investments are divided into

A
  • Investments - shares, bonds, gilts
  • Contractually based investments - life policies, personal pensions, options and futures etc.
28
Q

What are the 8 principles of regulation for the FCA and PRA

A
  • the efficient and economic use of resources
  • proportionality of regulation
  • the desirability of sustainable growth in the UK economy
  • consumer responsibilities
  • firms’ senior management responsibility to comply with the regulatory framework
  • each regulator should exercise its functions in a way that recognises the differences in the types of businesses and their objectives when exercising regulatory duties
  • openness and disclosure
  • „transparency
29
Q

The financial services Act 2012 requires the FCA and PRA to co-ordinate use of their functions by which 2 rules

A
  • Consult each other where use of a function may have an effect on other regulators objectives
  • Seek advice from one another where they might have relative information
30
Q

What is the name of the regulatory body that promotes competition in markets and how does it achieve its regulation

A
  • Competition and markets authority (CMA)
  • Investigate corporate mergers to maintain competition
  • Prevent anti-competitive behaviour
  • Protecting consumers from unfair trading practices
31
Q

What type of pensions does the pensions regulator take care of, and what are its statutory objectives

A
  • Workplace/occupational
  • Protect benefits of members
  • Promote good administration
  • Reduce risk of situations that may lead to compensation claims
  • Maximise employer compliance with their duties (minimum contributions and automatic enrolment)
32
Q

The pensions regulator has powers that protect security of members benefits. These fall into 3 categories, which are

A
  • Putting things right
  • Investigating schemes to identify and monitor risks
  • Acting against avoidance from employers
33
Q

Who must complaints go to from members for workplace pensions and what is the timeframe of a complaint once made

A
  • Scheme trustee/administrator
  • Then they are required to have formal complaints procedure, known as the Internal Dispute Resolution Procedure (IDRP)
  • Trustee must issue response within 4 months of submitted complaint
  • Once decision has been made, complainant must be notified within 15 days
34
Q

What are the 4 things that the Payment Systems Regulator (PSR) ensure the UK’s systems are

A
  • Reliable
  • Efficient
  • Competitive
  • Innovative
35
Q

What are the 3 main oversight groups in financial services

A
  • Auditors
  • Trustees
  • Compliance officers
36
Q

What is the difference between internal and external auditors

A
  • Internal - in-house or outsourced member of staff that reviews how company manages risks to evaluate for improvements
  • External - independent of the institution, concerned mainly by the published Financial statements and accounts to ensure following of legislations and appropriate accounting standards
37
Q

What does a compliance officer do

A
  • Must be appointed by any FCA regulated company
  • Oversees firm’s compliance with relevant regulations
38
Q

What are a compliance officers main responsibilities

A
  • Production and publication of compliance manual
  • Maintenance of compliance records (complaints register)
  • Assisting firm’s compliance with FCA and advising where necessary
  • Responding to the FCA on compliance matters
  • Ensuring staff meet FCA requirements (recruitment training, supervision and selling practices)

FSRE - Josh (18 decks)

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