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Financial Markets And institutions > UK Financial Services Regulation > Flashcards

UK Financial Services Regulation Flashcards

1
Q

What was the result of the creation of the FSA as the main statutory regulator?

A

It brought together regulation of investment insurance and banking

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2
Q

For what did the FSA take responsibility for after being made the main statutory regulator?

A
  • prudential supervision of all regulated firms which involves monitoring adequacy of management, financial resources, internal systems and controls
  • conduct of business regulations which involves, overseeing firms dealing with investors to ensure items e.g. information are clear and not misleading
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3
Q

What caused the role of the FSA to diminish?

A

The EU single market directives such as Mifid. This happened as the FSA began applying rules made a a European level

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4
Q

What were the changes made to the UK regulatory structure for the BOE?

A

BOE gets more power and has a remit of preventing a build-up of risk in the financial system

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5
Q

What were the changes made to the UK regulatory structure for the PRA?

A

It was created as a subsid of the BOE as the prudentail regulator responsible for ensuring the safe operation of over 1,000 deposit taking institutions as well as insurers, investment banks and others

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6
Q

What were the changes made to the UK regulatory structure for the FCA?

A

It was formed from the legal entity of the FSA and became responsible for

  • consumer protection
  • regulation of conduct of business including firms regulated by the PRA
  • market conduct
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7
Q

What were the changes made to the UK regulatory structure for the ESA?

A

ESMA has the task of drawing up European standards including rules for consumer protection and financial innovation.

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8
Q

What were the changes made to the UK regulatory structure for the ESMA?

A

FCA will be lead UK authority in ESMA and will work with ESA’s, EBA, EIOPA in consumer protection activity

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9
Q

What is dual regulation and to whom does it apply?

A

It applies to banks insurers and major investment firms meaning they are regulated by both the PRA and FCA

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10
Q

How do the PRA and FCA work together?

A

They have different objectives and act separately but coordinate internally and share data.

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11
Q

What is the authorisation process?

A
  • PRA and FCA have different authorisation function but there is a single process for dual-regulated firms.
  • They apply to PRA for authorisation unless directed to the FCA.
  • In applications for authorisation, variation of permission and approval of persons carrying out controlled functions, the FCA will either give or refuse consent
  • If the FCA doesn’t consent then the PRA must reject the application
  • For the following the PRA must consult the FCA but isn’t bound by their response
  • changes in control
  • pass-porting to EEA countries
  • cancellation of permission

The FCA and PRA have different authorisation threshold conditions

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12
Q

When taking enforcement actions against a dual regulated firm what must the FCA do?

A

It will consult the PRA before and it will be decided if there will be a joint or separate investigation.

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13
Q

What are the supervision models for the FCA and PRA

A

Prudential supervision has dedicated resources supervising firms
Conduct supervision focuses more on thematic and less firm specific work.

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14
Q

What does the FCA do?

A
  • looks across all financial services
  • will be more interventionist than FSA through use of product intervention power where it can intervene in a product or feature that will likely cause significant consumer detriment
  • seeks to deal with roots of problems rather than reacting
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15
Q

What is product approval by firms sometimes also known as?

A

NPDD

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16
Q

What can the FCA do as well as the PRA?

A

They can both make public certain info relating to enforcement investigations at warning notice stage instead of when final notice is published.

Financial services have argued earlier publication could cause reputation damage and undermine consumer confidence

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17
Q

Which firms does the PRA regulate?

A

Banks, insurance and large investment firms

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18
Q

What is the general objective of the PRA?

A

promote safety and soundness of PRA-authorised persons - it does this by minimising potential adverse impact of firm happenings on the stability of the UK financial system

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19
Q

What is the PRA’s specific objective with regards to insurance?

A

Try to ensure appropriate protection for current or future policy holders

20
Q

How does the PRA focus on system stability?

A

Through supervision of individual firms and with close co-ordination with FPC who manage overall system risks.

21
Q

On what do the PRA’s supervisory efforts focus?

A

On large international banks - when an overseas branch is in the UK, links to the parent company are important to the supervisory assessment

22
Q

How does the PRA identify risk to a firm?

A

Through

  • baseline monitoring
  • investigation and assurance
  • macroeconomic and business context
23
Q

What is the PRA’s approach to supervision?

A

The PRA have a forward looking and judgement based approach to supervision. Monitoring is undertaken for all firms which includes

  • a review of resolvability at least once a year
  • analysis of financial position
  • dicussions with management
  • ensuring compliance with minimum standards for - capital, liquidity, large exposures and early interventions driven by PIF

PRA also provides data upon which the FCA makes decisions

24
Q

What did the BOE act 98 do for the FSA and BOW?

A

The FSA became the new banking regulator whilst the BOE gained the power to set interest rates.

25
Q

What is the FPC a part of?

A

BOE

26
Q

For what is the special resolution unit responsible for in the BOE?

A

responsible for resolving failing banks under SRR

27
Q

What are the two main purposes of the BOE?

A

monetary stability

financial stability - detects and reduces threats.

28
Q

What else can the bank do?

A

QE
make interventions in the currency market
open market operations
lender of last resort

29
Q

What two entities merged to form the FPC?

A

Council for Financial stability and BOE Financial Stability Comittee

30
Q

What is the structure of the FPC?

A

It has 11 members and external representation?

31
Q

When does the FPC meet?

A

4 times a year and in times of crisis

32
Q

What issues does the FPC address?

A

financial stability at a Macro level - Macro-prudential risks - a lack of focus on this helped cause the financial crisis

33
Q

What does S9C BOE Act 98 as amended by FSA 2012 state with regard to the FPC?

A

FPC should

  • help BOE with financial stability objective
  • support gov economic policies
34
Q

What does S2A BOE Act 98 state?

A

BOE stability objective is - to protect and enhance the stability of the financial system in the UK

35
Q

What is the FPC objective with regards to the stability objective of the BOE?

A

Aid it, by identifying, monitoring and taking action to remove or reduce systematic risks.

36
Q

What examples of systematic risk the FPC may focus on?

A
  • risks attributed to structural features of financial markets e.g. connections between institutions
  • risks attributed to distribution of risk
  • unsustainable levels of leverage, debt or credit growth
37
Q

What tool does the FPC have at its disposal?

A
  • set system wide cyclical capital requirements, reducing capital buffers required in a crisis while toughening them in more favourable economic times
  • altered risk weights, enabling the Bank to force banks to hold more capital against specific classes of assets in apparently frothy markets
  • setting limits on leverage as a back stop against excessive lending where changin risk weights might not be effective
  • requiring forward looking provisioning to prepare for future losses when lending growth is strong
  • setting limits on borrowing
  • setting limits on lending through regulation
38
Q

Who has responsibility for financial crisis management?

A

BOE-when it is clear that public funds may be put at risk the governor of the BOE has a statutory duty to tell the chancellor

39
Q

What does the crisis management MoU address?

A
  • The responsibilities of the Bank and HM Treasury in a crisis
  • The duty of BOE to notify the treasury of a risk to public funds
  • the chancellors exercise of power of direction over the bank in a crisis
40
Q

As powers of last resort what can the treasury direct the Bank to do

A
  • provide liquidity support during a financial crisis
  • exercise its powers under the special resolution regime

A Jan 12 ‘New approach’ paper states this power is only exercisable where they is real risk to financial stability or public fund have already been used, and that the BOE retains operational autonomy when managing threats to stability in which public funds are not at risk

41
Q

What is the aim of the Treasury?

A

raise the rate of sustainable growth and achieve rising prosperity and a better quality of life, with economic and employment opportunities for all

42
Q

Who determined the BOE should have an inflation target of 2%?

A

The treasury

43
Q

The DMO is an agency of what organisation?

A

The treasury

44
Q

Who is overall responsible for the Treasury?

A

Chancellor under FSMA 2000

45
Q

Who is the FCA accountable to?

A

The Treasury - it will judge the regulator against the requirement laid down in FSMA 2000 which includes a requirement to ensure that the burdens imposed on the regulated community are proportionate to the benefits it will provide?

46
Q

What is the Accountability of the FCA to the Treasury?

A
  • Treasury has the power to appoint of dismiss the Board and Chairman of the FCA
  • Treasury requires FCA submit an annual report covering such matters as the discharge of its function and the extent to which the regulatory objectives have been met
  • Treasury also has powers to commission and publish an independent review of the economy, efficiency and effectiveness of the FCA’s use of resources and to commission official enquiries into serious regulatory failures

Financial Markets And institutions (14 decks)

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