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3. Regulation of Financial Markets and Institutions > UK Regulation > Flashcards

UK Regulation Flashcards

1
Q

Financial Conduct Authority (FCA)

A

Conduct of business regulator

Protects consumers and ensures markets are running well with competition

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2
Q

Scope of FCA activities

A

Conduct of business regulation for ALL firms, including PRA-authorised firms and firms passported into UK

Acts as lead prudential regulator for firms other than PRA-authorised firms (smaller FCA-authorised firms)

Regulate markets (with exception of systemic infrastructure such settlement systems and recognised clearing houses RCHs with are regulated by BoE/PRA)

Countering financial crime and ban misleading promotions
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3
Q

Prudential Regulation Authority (PRA)

A

Legal entity within BoE which regulates large firms, including banks, insurance companies and larger investment firms to ensure safety and soundness

Regulates firms in relation to their resilience (capital, liquidity, leverage)

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4
Q

Financial Policy Committee (FPC)

A

Macro-prudential regulator, sitting within the BoE

Monitors financial system as a whole and systemic risks to its stability

Can make recommendations / advice to PRA and FCA and has powers to intervene to ensure stability

Meets and record meetings quarterly and publishes 2 financial stability reports per year

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5
Q

Dual-regulated Firms and Application

A

Dual-regulated firms must meet both sets of threshold conditions.

Firms apply to the PRA, and follow one of two processes:

  1. Consent - when a firm applies to PRA for authorisation, if FCA does not give consent, the PRA must refuse
  2. Consult - when a firm applies for change in control, the PRA must consult the FCA, but is not bound by its response
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6
Q

FSMA 2000 as amended by FSA 2012 - authorised persons criteria

A

Anyone who undertakes investment business in the UK is required to be an FSMA ‘authorised’ or ‘exempt’ person

An authorised person is:

  • authorised because of Part 4A permission (must apply to FCA, unless systemically important then PRA)
  • qualifies for authorisation (authorised in EEA state and able to carry out investment business with passporting rules)
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7
Q

Criminal offences under FSMA 2000 (up to 7 year prison, fine or both)

A

Person neither authorised or exempt describing themselves as so

Misleading market / investors with dishonest statement of promise

In relation to benchmarks, make a false or misleading statement to the value of investment

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8
Q

Regulated Activities Order (RAO 2001) - Specified Investments

A

Include all investment instruments and right to instruments but exclude physical assets (e.g. land, commodities)

Provision of credit, regulated mortgages and lending where the dwelling is not the residence of borrower

Structured deposits and emission allowances following MiFID II.

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9
Q

Regulated Activities Order (RAO 2001) - Regulated Activities

A

There are several regulated activities, and authorisation/exemption is required if the activity is carried out in relation to one of the specified investments:

  • Accepting deposits
  • Issuing electronic money
  • managing investments
  • carrying out insurance contracts
  • arranging mortgage or home finance
  • MTFs and OTFs
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10
Q

Other Regulatory Bodies - Payments System Regulator (PSR)

A

Subsidiary of FCA which regulates payment systems

(payment systems embedded in trading systems, central counterparties or RCH are excluded as BoE)

BACS
CandC
CHAPS
FPS
LINK
Mastercard
NICC
VISA Europe
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11
Q

Other Regulatory Bodies - Competition and Markets Authority (CMA) - Tests, Investigations and Exceptional Circumstances

A

UK competition authority of merges, usually focusing on large listed companies

Turnover Test
- target company has UK turnover of > £70m

Share of Supply Test
- if merging parties will supply together 25% of goods or services in a substantial/whole part of UK

CMA has 40 days to study a merger, if it lessens competition a phase 2 investigation can prohibit or impose remedies

In exceptional cases of public interest (e.g. national security) the SoS for BEIS can intervene

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12
Q

Panel on Takeovers and Mergers (PTM) - Objectives, Financing and Drawback

A

Enforces the City Code on Takeovers and Mergers (‘the Code’)

Acts as referee of fair conduct of takeover bids, to ensure all shareholders are treated fairly (not so much competition or public interest for CMA and BEIS)

Financed by ‘levy on share transactions’ and ‘charging fees’ (e.g. offer documents) and its rules apply to all publicly listed companies

However, once takeover has occurred, it is unable to take action retrospectively

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13
Q

PTM - Levy Value, Securities affected by Levy

A

Payable on trades in securities of companies incorporated in UK, CI or IoM and traded on UK-regulated market or MTF

Payable on:
-Equity share capital (or securities convertible to ESC)

Not payable on:

  • debt or permanent interest bearing securities
  • options, spread bets, swaps etc

Current levy is 100p per contract where total consideration is > £10,000

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14
Q

PTM - Bid Timetable (the Code)

A

Offer Document must be sent to Target company within 28 days of announcement of firms intention (the ‘put up or shut up’ deadline)

The offer must remain open for 21 days

The target company’s Directors have 14 days to ‘advise shareholders’ once offer document is sent

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15
Q

PTM - % Stake of Shares (the Code)

A

If bidder acquires 30% of voting rights, must make a cash offer for all other shareholders at the highest price they paid last year

If bidder’s stake reaches 50%, the company is required to keep offer open for acceptance by remaining shareholders

If Predator company reaches 90% stake, it can force minority’s shareholders to sell

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16
Q

Information Commissioner’s Office (ICO)

A

Promotes openness of official information and protection of private information

Data Protection Act
GDPR
Freedom of Information Act
Environmental Information Regulations
Privacy and Electronic Communications Regulations
17
Q

Trustee Act 2000

A

Allows a trustee to make any kind of investment within fund, but must consider proper advice and meet standard investment criteria:

  • Suitability to the trust of an investment
  • Need to diversify investment

Does not apply to occupational pension schemes, authorised unit trusts or certain schemes under Charities Act 2011

18
Q

Pensions Act 2004

A

Introduced developments relating to occupational pensions:

  1. The Pensions Regulator (TPR)
    - protect member benefits etc
  2. The Pension Protection Fund (PPF)
    - to compensate when a sponsoring employer of DB scheme becomes insolvent.
    - Covers 100% of existing pensioners and 90% of those yet retired
    - PPF funded by levy on all DB schemes
  3. Introduction of scheme-specific funding requirement for trustees of DB scheme
    - statement of funding principles every 3 years, actuarial reports, schedule of contributions and recovery plan when funding objective is not met
19
Q

Pensions Act 2008 and NEST

A

Requires all eligible job holders (22-state pension age with annual earnings over £10,000) to be enrolled in qualifying scheme

Creating of National Employment Savings Trust (NEST) so that all employers have access to a scheme

20
Q

2015 DC Pension Flexibility

A

Allowed benefits in a DC scheme to be accessed more flexibly from age 55:

  1. Uncrystallised Funds Pension Lump Sum (UFPLS)
    - money drawn directly from fund, without entering into annuity or drawdown plan, 25% tax free
  2. Life-time Annuity that will pay income till death.
    - PCLS of up to 25% can be accessed before the annuity is purchased
  3. Flexi-Access Drawdown
    - no limits to drawdowns each year and PCLS can be accessed
    - drawdown payments are taxed as income
21
Q

Pensions and Financial Advice Services

A
  1. Money Advice Scheme - free impartial advice on wide range of financial matters. Funded by levy on financial services firms
  2. Pension Wise - free impartial advice for those with DC schemes as part of flexibility
  3. Pensions Advisory Service - grant-aided by Department for Work and Pensions, on all pensions matters
22
Q

Statement of Investment Principals (SIP) for Pension Scheme Trustees

A

Sets out principals governing how investment decisions are made:

(Balance of investments, risk, ethics etc)

When drawing up SIP, trustees must

  • Obtain written advice from person of appropriate investment knowledge
  • Consult with scheme sponsor (consider views carefully, but is Trustees decision)

Must be reviewed every 3 years or after significant change in investment policy

3. Regulation of Financial Markets and Institutions (14 decks)

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