Topic 6 - The development of UK financial services regulation Flashcards
What are the 3 core objectives of financial regulation
- Sustain systemic stability
- Protect the consumer
- Maintain safety and soundness of financial institutions
What are the 2 categories of regulation in financial services
- Prudential
- Conduct of business
In terms of regulation timeline, what happened in June 1998
- Responsibility of regulation of uk banking sector transferred from BoE to FSA
In terms of regulation timeline, what happened in December 2001
- FSMA Act 2000 created regime where FSA responsible for almost all of the industry
- Mortgages (2004) and General insurance (2005) regulated by FSA
In terms of regulation timeline, what happened in April 2013
- 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
In terms of regulation timeline, what happened in January 2020
- EU withdrawal Act 2018 amended by EU withdrawal agreement Act 2020
- Aimed to retain EU law until UK had left
In terms of regulation timeline, what happened in April 2021
- Financial services Act 2021 started
- Ensured taking back control of post-brexit regulation
Give some examples of what matters are covered in FSMA
- Solvency
- Capital adequacy
- Sales and marketing practices
- Prevention of crime
- Competence of managers and sales staff
- Complaints and compensation
What body did FSMA put in almost complete control of the industry
- Financial services authority (FSA, now FCA)
What 3 bodies were a part of the ‘tripartite’ system
- BoE
- FSA
- Treasury
What 2 bodies were given specific responsibility in the ‘twin-peaks’ setup during the Financial services Act 2012
- FCA
- PRA
What is the Treasury’s position around regulation
- Ultimate responsibility for oversight
- Responsible for financial services policy
- FCA accountable to the treasury
- Works with regulators and BoE on regulatory matters
What institutions are the BoE responsible for prudential regulation through the FPC
- Banks
- Building societies
- Credit unions
- Insurers
- Major investment firms
What is the FPCs key role
- Maintaining stability of the system through macro prudential supervision
What is macro prudential supervision
- Looking at the ‘big picture’
- Identifies risks to the system as a whole
What are the FPCs 2 main powers
- To make recommendations to the FCA and PRA
- To direct regulators to take action through adjusting macro prudential tools
What are the 2 main macro prudential tools
- 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
Who are the most important decisions for the PRA made by
- Prudential regulation committee (PRC)
What does the PRA do
- Responsible for prudential regulation for bigger firms in the sector
- Focus is on the future - whether firms are vulnerable and how to stop them
Is the FCA a government department
- No, but works closely with the government and BoE etc.
Who appoints the FCAs board
- Treasury
What is the FCA responsible for
- Conduct of business regulation for retail and wholesale markets
- Prudential regulation for smaller firms who are not PRA regulated
Who do you require authorisation from to carry out regulated activities
- FCA, PRA or both
What are the thresholds for a firm applying for permission to carry out regulated activities
- 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
FSMA 2000 (regulated activities) order 2001 lists activities for which you must be authorised, these are
- 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
Regulated activities order 2001 lists regulated investments, these are
- 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
What are the 2 categories regulated investments are divided into
- Investments - shares, bonds, gilts
- Contractually based investments - life policies, personal pensions, options and futures etc.
What are the 8 principles of regulation for the FCA and PRA
- 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
The financial services Act 2012 requires the FCA and PRA to co-ordinate use of their functions by which 2 rules
- 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
What is the name of the regulatory body that promotes competition in markets and how does it achieve its regulation
- Competition and markets authority (CMA)
- Investigate corporate mergers to maintain competition
- Prevent anti-competitive behaviour
- Protecting consumers from unfair trading practices
What type of pensions does the pensions regulator take care of, and what are its statutory objectives
- 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)
The pensions regulator has powers that protect security of members benefits. These fall into 3 categories, which are
- Putting things right
- Investigating schemes to identify and monitor risks
- Acting against avoidance from employers
Who must complaints go to from members for workplace pensions and what is the timeframe of a complaint once made
- 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
What are the 4 things that the Payment Systems Regulator (PSR) ensure the UK’s systems are
- Reliable
- Efficient
- Competitive
- Innovative
What are the 3 main oversight groups in financial services
- Auditors
- Trustees
- Compliance officers
What is the difference between internal and external auditors
- 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
What does a compliance officer do
- Must be appointed by any FCA regulated company
- Oversees firm’s compliance with relevant regulations
What are a compliance officers main responsibilities
- 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)
