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FSRE - Josh > Topic 7 - The PRA and FCA responsibilities and approach to regulation > Flashcards

Topic 7 - The PRA and FCA responsibilities and approach to regulation Flashcards

1
Q

What are the 3 elements are there for regulators to approach a principles-based regulation

A
  • Regulators establish rules and guidance where needed (focus on outcome rather than method)
  • Regulators assess potential risks and produce rules to help prevent them
  • Regulators should be proactive, monitoring problems before they arrive
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2
Q

What principles of regulation must the FCA and PRA follow when carrying out responsibilities

A
  • the efficient and economic use of its resources
  • proportionality – burdens or restrictions placed on a firm should be proportionate to the expected benefits
  • the desirability of sustainable growth in the UK in the medium or long term
  • consumer responsibilities
  • senior management of regulated firms have a responsibility to comply with the regulatory framework
  • each regulator should exercise its functions in a way that recognises the differences in the type of businesses and their objectives
  • openness and disclosure
  • transparency – the PRA should carry out its work as openly as possible
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3
Q

What types of institutions are the PRA responsible for

A
  • Banks
  • Building societies
  • Credit unions
  • Insurers
  • Major investment firms
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4
Q

What are the PRA’s 3 statutory objectives

A
  • Promote safety and soundness of the firms they regulate
  • Contribute to securing an appropriate degree of protection for insurance policyholders
  • Facilitate effective competition between firms
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5
Q

What activities are included in a firm’s ‘baseline’ level of supervision

A
  • Ensuring the firm’s compliance with capital prudential standards
  • Liquidity, value of assets, provisioning and reserves
  • An annual assessment of risks posed to PRA’s objectives
  • Assessment of firm’s contingency plans for recovery and potential exit of market
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6
Q

What is the FCA’s 1 strategic objective

A
  • To ensure that the relevant markets function well
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7
Q

What 3 operational objectives do the FCA have to support the strategic objective

A
  • Secure appropriate degree of protection for consumers
  • Protect and enhance he integrity of the UK financial system
  • Promote effective competition in the interests of the consumers
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8
Q

What are the supervisory principles outlined by the FCA

A
  • Forward looking
  • Focus on strategy and business models
  • Focus on culture and governance – identifying what drives behaviour in firms.
  • Focus on individual as well as firm accountability
  • Proportionate and risk based – using intelligence to target firms where misconduct would cause most harm and be most significant.
  • Two-way communication – engaging directly with consumers and their representatives to understand issues facing them
  • Co-ordinated – supervision teams working closely with other functions to share information and reach robust decisions
  • Put right systematic harm that has occurred and stop it happening again
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9
Q

In terms of supervision, the FCA categorise firms by potential risk they pose, what are these categories and what is the difference between them

A
  • Fixed and Flexible portfolio firms
  • Fixed for bigger firms and have a relationship with a specific team from the FCA
  • Flexible supervised by general FCA team
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10
Q

The FCA supervision approach is based on 3 types of work, which are

A
  • Proactive - dealing with issues before they happen
  • Reactive - dealing with issues as or after they happen
  • Thematic - dealing with issues across a number of firms, where potential harm becomes a THEME
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11
Q

What 3 key elements of financial crime does the FCA oversee and have power of

A
  • Fraud
  • Money laundering
  • Bribery and corruption
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12
Q

When are the 3 times that the FCA can intervene with financial markets

A
  • When there is evidence they are not operating in interests of consumer or wider economy
  • Risks of product outweigh the benefit
  • Sales and marketing processes are to the customers detriment and not up to standard
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13
Q

Name the 7 actions the FCA can take on firms that breach their rules

A
  • Variation of firm’s permissions
  • Withdrawal of approval to carry out some or all functions
  • Injunction
  • Restitution - if someone benefited from breach of rules, profits paid back to FCA
  • Redress - same as restitution but payment to customers who are victim to breach of rules
  • Criminal prosecution
  • Disciplinary action
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14
Q

With prudential regulation, there are different types of supervision based on the level and nature of the firm, which are split into 3 categories which are

A
  • P1 - Prudentially critical firms - failure would have significant impact on the market they operate in
  • P2 - Prudentially significant firms - failure would have significant impact on the market, but they hold less client money/assets
  • P3 - Prudentially non-significant firms - failure unlikely to have significant impact on the market
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15
Q

What are the names of the 2 tools used in the FCA handbook

A
  • Rules
  • Guidances
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16
Q

What is the difference between rules and guidances in context of the FCA handbook

A
  • Rules - obligations that must be met, they are binding
  • Guidances - explain the rules and indicate ways of completing them, not binding
17
Q

Where can you find the rules applying to anyone holding clients money/assets

A
  • Clients assets sourcebook (CASS)
18
Q

What are the basic rules and requirements for someone holding clients money

A
  • Must be held in a clearly separate client account
  • Must be with a separate institution (Bank etc.)
  • Money must be used immediately or transferred into said bank account
19
Q

What does it mean if a firm/IFA was to ‘pay away’ a clients money or assets

A
  • Money can be paid/assets transferred to registered charity
  • If the asset/money hasn’t seen any activity for 6 years (money) or 12 years (assets)
20
Q

What 3 components are there in the Senior Managers and Certification Regime (SM&CR)

A
  • Senior managers regime
  • Certification regime
  • Conduct rules
21
Q

In recognition that firms differ in size, there are 3 categories of firms relating to SM&CR

A
  • Limited scope - Applying to firms already exempt due to approved persons regime
  • Core - Firms have to comply with ‘baseline’ requirements (majority of firms fall here)
  • Enhanced - Firms whose size and complexity require more attention (will have additional requirements)
22
Q

What is the main function of the SM&CR regime

A
  • Ensures accountability of senior staff whose failings could threaten the company and other staff
  • Main aim is to reduce harm to consumers and raise standards within the industry
23
Q

What is the definition of a ‘senior manager’

A
  • One whose function has responsibility for aspects of a regulated firm’s affairs that involves risk for the firm
24
Q

What is meant by ‘senior management functions’ (SMFs), and give some examples from the FCA

A
  • Descriptions of roles that are covered by the regime
  • Compliance oversight
  • Money laundering report officer
  • Chief executive
  • Executive director
  • Chairperson
  • Partner
25
Q

When a firm applies for approval for an individual in a SMF, what must they provide to the regulator

A
  • Statement of responsibilities
26
Q

What is the certification regime and what are some of the roles covered by the regime

A
  • For employees who do not carry out any SMF’s, but carry out a ‘significant harm function’
  • Significant management functions
  • Functions subject to qualifications
  • Client-dealing functions
  • Material risk takers
27
Q

What 2 tiers of conduct rules are there

A
  • Individual conduct rules - for most individuals within a firm
  • Senior conduct rules - only apply to senior managers
28
Q

Individual conduct rules

A
  • Rule 1: You must act with integrity.
  • Rule 2: You must act with due skill, care and diligence.
  • Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators.
  • Rule 4: You must pay due regard to the interests of customers and treat them fairly.
  • Rule 5: You must observe proper standards of market conduct.
29
Q

Senior conduct rules

A
  • SC1 – You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
  • SC2 – You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
  • SC3 – take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibilities effectively.
  • SC4 – You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
30
Q

SM&CR requires firms to ensure that individuals who are covered by the regime are fit and proper, what are the criteria needed for this

A
  • Honesty, integrity and reputation (judged by criminal record, insolvency check etc.)
  • Competence or capability (including meeting FCA’s competence requirements)
  • Financial soundness (based on current financial position, previous bankruptcy etc.)
31
Q

What is an appointed representative (AR)

A
  • People and firms who undertake regulated activities as a contractual agent of a firm directly authorised by the FCA (authorised firm known as ‘principal’)
32
Q

Who is ultimately responsible for an appointed representatives (AR) activities

A
  • The principle
33
Q

What are the principals responsibilities in terms of AR’s

A
  • AR directors, partners, proprietors, managers and relevant staff meet the fitness and propriety requirements
  • AR is solvent and suitable to act as an agent of the principal
  • Principal has appropriate control over the AR’s activities
  • AR’s appointment does not prevent the firm from meeting the threshold conditions
  • Principal is able to monitor and enforce compliance with relevant requirements
34
Q

Within in an AR, what are the certain roles called that require the holder to be an ‘approved person’

A
  • Controlled functions
35
Q

Who approves an approved person, and what requirements must they meet

A
  • FCA
  • Fitness and propriety

FSRE - Josh (18 decks)

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