Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CISI Unit 1 > Unit 1 - 1. The Regulatory Environment > Flashcards

Unit 1 - 1. The Regulatory Environment Flashcards

1
Q

Note why FSMA2000 came about, how it has changed in recent years.

Unit 1 - 1. The Regulatory Environment

A

FSMA 2000 came into effect in 2001 to create a new structure of regulation to replace the largely self-regulated financial services industry. The FSA 2012 (Financial Services Act) introduced the twin peaks structure to replace the FSA. Creating two new regulatory bodies, the FCA (Financial Conduct Authority) and PRA (Prudential Regulation Authority). The framework now includes the BOE and FPC (Financial Policy Committee)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does the FCA do

Unit 1 - 1. The Regulatory Environment

A

The FCA is responsible for protecting consumers, keeping the industry stable, and promoting healthy competition between financial services providers. The FCA is a private company, funded by fees paid by the firms it regulates. The FCA is solely responsible for the authorisation and supervision of all financial institutions not regulated by the PRA. The FCA has powers to prosecute insider dealing and market abuse. It oversees the FOS and (jointly with PRA) FSCS.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is general prohibition

Unit 1 - 1. The Regulatory Environment

A

Section 19 of FSMA. It is a criminal offence to conduct regulated activity by way of business in the UK unless a person is either authorised to do so, or is an exempt person. Contravention of general prohibition is punishable by a max sentence of two years and/or an unlimited fine.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

State the difference between an authorised person and an approved person

A

Authorised person refers to firms that have been authorised by the PRA and/or FCA to carry out one or more regulated activities. An approved person is an individual that has been approved by the PRA and/or FCA to perform a role, or carry out an activity, which requires regulatory approval.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Explain Part 4A of FSMA

Unit 1 - 1. The Regulatory Environment

A

enables businesses to apply directly to the FCA and/or PRA for permission to conduct regulated activity in the UK. If granted, they become an authorised person with Part 4A permission to conduct regulated activities. It is a legally binding relationship.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Examples of authorised persons and exempt persons

Unit 1 - 1. The Regulatory Environment

A

Authorised: part 4A, certain firms under special provisions (EEA, treaty firms and UCITS qualifiers)

Exempt: appointed representatives of authorised persons, recognised investment exchanges (RIEs), recognised clearing houses (RCHs), BOE and other central banks, operators of MLT systems exercising certain rights.

Can’t be both auth and exempt at same time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What does the PRA do

Unit 1 - 1. The Regulatory Environment

A

Prudential Regulation Authority, PRA is now part of the BOE and is directly accountable to them. PRA’s focus is on the prudential regulation of banks, building societies, credit unions, insurers, and systemically important investment firms, and promotes the safety and soundness of these firms. PRA sits below the FPC. The PRA makes sure the firms it supervises hold adequate levels of capital.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Describe the overall picture of regulation of financial services in the UK.

Unit 1 - 1. The Regulatory Environment

A

HM Treasury and Parliament sit at the top. BOE just below. The BOE has the FPC and under that PRA. FPC also has direction on FCA. FCA is independent private company. PRA is for prudential regulation of dual-regulated firms (deposit takers and systemically important investment firms). FCA is conduct of all other regulated firms.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the statutory objective of the FCA
What is the operational objectives of the FCA
What is the PRA’s single general objective

Unit 1 - 1. The Regulatory Environment

A

FCA Strategic objective: ensure that all relevant markets function well.
Operational objectives: 1. Consumer protection Objective, 2. Integrity Objective, 3. Competition Objective

PRA has single general objective of promoting the safety and soundness of PRA-authorised persons. PRA also has an insurance objective (protection for policyholders)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

FCA’s accountability
(4 ways in which the FCA is held accountable)

Unit 1 - 1. The Regulatory Environment

A
  1. Annual report to the Treasury
  2. FCA must show its rules relate to its statutory objective
  3. Judicial review, FCA can be challenged in courts
  4. Regulatory failure, FAC/PRA held accountable if breaches of objectives occur and are made worse by the regulator
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the FCA’s regulatory philosophy, what was the FSA’s

Unit 1 - 1. The Regulatory Environment

A

FSA’s would only intervene if something went wrong.

FCA’s is a risk based approach (risk to its objectives), it is more intrusive, confrontational and direct regulatory style. 1. enhanced analysis and risk identification capacity 2. outcome testing

FCA supervisory approach is greater scrutiny of the competence of senior management of authorised firms. Also aim to deliver credible deterrence, eg framework of financial penalties.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the FCA’s Supervisory Principles (8 plus supervisory model (3))

Unit 1 - 1. The Regulatory Environment

A
  1. Forward looking (pre-empt poor conduct/risk)
  2. Focus on business model/strategy
  3. Culture and Governance
  4. Focus on individual as well as firm accountability
  5. Proportionate and risk-based
  6. Two-way communication
  7. Coordinated (other regulators even overseas)
  8. Put right systemic harm, stop happening again

Supervisory model

  1. proactive
  2. reactive
  3. thematic
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is conduct risk and Fair Treatment of Customers (FTOC) (6)

Unit 1 - 1. The Regulatory Environment

A

Conduct risk: Conduct risk is concerned with the ‘fair treatment of consumers, rather than the detail of the rules’ eg outcomes for consumers matter more and is the principle concern for regulators. SM held accountable.

FTOC

  1. Central to corporate culture
  2. products that meet consumers needs
  3. giving clear information
  4. creating no unreasonable barriers to changing product, switching provider or making a complaint.
  5. customer receives advice which is suitable for their circumstances
  6. Products perform as expected
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

FCA Rule Making Power (PRA too)

Unit 1 - 1. The Regulatory Environment

A

part 9A of FSMA allows FCA to make legally binding rules on authorised firms concerning regulated activity and also activity that is not regulated. PRA has similar but only for PRA-auth persons.

Either regulator can:

  • grant 4A permission or cancel it
  • supervise to ensure following handbook
  • enforce regulatory framework
  • employ disciplinary measures
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Describe EU legislation and relation to UK since Brexit

Unit 1 - 1. The Regulatory Environment

A

UK left EU in start of 2020, transition period until end of 2020. Now UK firms lost passporting rights. UK onshored ‘UK MiFID legislation’ and ‘MiFID’. So UK now on same legislation as EU firms.

EU financial services are regulated by European System of Financial Supervision (ESFS).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

11 FCA’s The Principles for Business

Unit 1 - 1. The Regulatory Environment

A
  1. Integrity
  2. Skill, care and diligence
  3. Management and control
  4. Financial prudence
  5. Market conduct
  6. Customers’ interests
  7. Communications with clients
  8. Conflicts of interest
  9. Customers: relationships of trust
  10. Clients’ assets
  11. Relationship with regulators
17
Q

PRA Fundamental Rules (8)

Unit 1 - 1. The Regulatory Environment

A
  1. Conduct business with integrity
  2. Conduct business with due skill, care and diligence
  3. Act in prudent manner
  4. Must at all times maintain adequate financial resources
  5. Must have effective risk strategies and risk management systems
  6. Must organise and control its affairs responsibly and effectively
  7. Must deal with its regulators in open/cooperative way, and disclose to PRA anything which PRA would expect notice of
  8. Must prepare for resolution, so can be resolved with minimum disruption to critical services.
18
Q

Define the Approved Persons’ Regime (APER)

Unit 1 - 1. The Regulatory Environment

A

Approved persons are individuals that perform certain roles with the UK financial services firms. The roles are ‘controlled functions’. This is split into two categories, Significant influence functions (SIFs) and customer dealing functions. SM&CR since 2016 has gradually rolled out to replace APER, most persons are subject to SM&CR now. SM&CR goes beyond APER for enhanced responsibility.

19
Q

Code of Practice for Approved Persons -
Statement of Principle (4)

Unit 1 - 1. The Regulatory Environment

A

Applies to all Approved Persons regardless of function.

  1. act with integrity
  2. act with due skill, care and diligence
  3. observe proper standards of market conduct
  4. deal with PRA/FCA in open and cooperative way, disclose info which regulator would reasonably expect notice of.
20
Q

Code of Practice for Approved Persons - All Controlled Functions additional (further rules for SIFs)

Unit 1 - 1. The Regulatory Environment

A

Further principles are for SIFs (significant influence function)

    1. reporting lines, 2. authorisation levels and job descriptions, 3. suitability of individuals.
  2. exercise due skill, care and diligence in managing the business
  3. comply with relevant requirements and standards of the regulatory system.
21
Q

SM&CR

Unit 1 - 1. The Regulatory Environment

A

The Senior Managers & Certification Regime. Introduced…

SMR = senior manager regime
Certification Regime = for bank staff who do not hold SMF but who’s actions could significantly harm the bank
Conduct rules = applicable to wider range of employees than those subject to regulatory approval.

  1. Core scope (SM&CR firms subject to baseline requirements)
  2. Limited scope (fewer requirements)
  3. Enhanced scope (greater requirements)
22
Q

Senior Managers Regime (SMR)

Unit 1 - 1. The Regulatory Environment

A

Applies to certain individuals performing defined SMFs. These are individuals performing specific responsibilities. They are subject to annual fitness and propriety assessments which firm undertakes.

  1. Prescribed Responsibilities
  2. Management Responsibilities Map
  3. A Duty of Responsibility
23
Q

Certification Regime

Unit 1 - 1. The Regulatory Environment

A

Firms are required to assess both at recruitment stage and annually the fitness and propriety of certain employees within the firm who could pose a risk of harm to the firm or any customers. This captures a large number of individuals. Firms senior management must attest on an annual basis that those captured by the Regime remain fit and proper through evidence.

24
Q

The Conduct Rules (5 normal, 4 additional for SM)

Unit 1 - 1. The Regulatory Environment

A

Framework for behavioral standards to all individuals (not ancillary staff)
Conduct Rules:
1. Must act with integrity
2. Must act with due skill, care and diligence
3. Must be open and cooperative with the FCA, PRA and other regulators.
4. Must pay due regard to the interests of customers and treat them fairly.
5. Must observe proper standards of market conduct.

Senior Manager Conduct Rules(in addition):
SC1. Ensure business is controlled effectively.
SC2. Ensure firm complies with relevant requirements and standards of the regulatory system.
SC3. Ensure delegation of responsibilities is to an appropriate person and oversee it.
SC4. Disclose any info which the FCA/PRA would reasonably expect notice.

25
Q

Recall all SYSC

Unit 1 - 1. The Regulatory Environment

A

SYSC = Senior Management Arrangements, Systems and Controls. If firm is common-platform, these systems/controls are requirements. If not, then some SYSC are guidance.

SYSC 4 = General Requirements (sound governance, experience of SM, apportionment of responsibilities)

SYSC 5 = Compliance, audit and financial crime

SYSC 7 = Risk control
SYSC 12 = Group Risk Systems and Controls

SYSC 8 = Outsourcing

SYSC 9 = Record keeping (durable medium, midid 5 years)

SYSC 10 = Conflicts of interest

SYSC 10A = recording telephone conversations and electronic cummunications (keep for 5 years)

26
Q

FOS

Unit 1 - 1. The Regulatory Environment

A

Financial Ombudsman Service (FOS)
Deals and investigates disputes between consumers and financial services firms. FCA appoints chair of FOS, but it is independent. Complaint before April 2020, max award was £150k, not its £355k. Consumer can take to courts if unhappy with FOS.

27
Q

FSCS

Unit 1 - 1. The Regulatory Environment

A

Financial Services Compensation Scheme (FSCS)
If authorised financial services firm (like bank) is unable to pay claims against it (due to insolvency) can make a claim to FSCS for compensation for loss. Comp limit is £85k

28
Q

CMA

Unit 1 - 1. The Regulatory Environment

A

Competition Markets Authority (CMA)
Promotes competition for the benefit of consumers both within and outside of the UK. Its main aim is to make markets work well for consumers, businesses and the economy.
CMA has 5 strategic goals.
CMA is responsible for investigating mergers that could restrict competition. Also cartels.

29
Q

ICO

Unit 1 - 1. The Regulatory Environment

A

The Information Commissioner’s Office (ICO)
Independent official body for upholding information rights. Responsible for provision of Data Protection Act (DPA) 2018 and Freedom of Information Act 2000.

DPA supplemented EU General Data Protection Regulation (GDPR)

30
Q

The Pension Regulator and The Pension Protection Fund (PPF)

Unit 1 - 1. The Regulatory Environment

A

The Pension Regulator is the UK regulator of work-based pension schemes. The Pension Protection Fund protects UK individuals who belong to defined benefit (final salary) pension schemes. Pays out if firm goes insolvent and pension scheme cannot afford promised pension.

31
Q

The Upper Tribunal (Tax and Chancery Chamber)

Unit 1 - 1. The Regulatory Environment

A

Is an agency of the Ministry of Justice. Aims to assist those who wish to appeal against decisions made by:

  • financial services regulators
  • pension regulator

FCA can decide to not authorize a firm, withdraw authorization or vary scope of firms permission. Can also impose penalties for market abuse etc. All these issues can be referred/appealed to the Upper Tribunal.

32
Q

The Panel on Takeovers and Mergers (POTM)

Unit 1 - 1. The Regulatory Environment

A

Independent body whose main function is to administer the City Code on Takeovers and Mergers (The Code). The code is not concerned with the competitive aspects of a merger. The POTM is there to ensure all involved have a fair say.

33
Q

The FCA Handbook/ PRA Rulebook and Status of Provisions

Unit 1 - 1. The Regulatory Environment

A

FSMA gives legal effect to the rules in both FCA handbook and PRA rulebook. PRA rulebook is made up of rules, FCA handbook is provisions. There are 8 status of provisions, important as it affects the legal effect on the firm.

R = Rules (binding on firm)
E = Evidential provisions (not binding in own right)
G = Guidance (not binding)
D = Directions and requirements (binding on who they address)
UK. = UK legislative material
EU. = EU legislative material
P. = The statements of principle for approved persons (binding on approved persons)
C. = Conduct (market abuse behaviour)
34
Q

The Unfair Terms in Consumer Contracts Regulation 1999

Unit 1 - 1. The Regulatory Environment

A

Under Consumer Rights Act 2015, the FCA has the statutory power to challenge unfair terms in financial services consumer contracts. Can amend or remove unfair terms, stop firm enforcing old term in court.

35
Q

CISI Code of Conduct Principles (8)

Unit 1 - 1. The Regulatory Environment

A

Membership of CISI requires compliance with CISI’s own code.

  1. Personal Accountability
  2. Client focus
  3. Conflict of interest
  4. Respect for market partners
  5. Continue to learn
  6. Aware of capabilities
  7. Respect others and the environment
  8. Speak up and listen up
36
Q

Internal audit, external audit and trustees.

Unit 1 - 1. The Regulatory Environment

A

Internal audit ongoing management of firms internal controls, risk management and governance systems and processes.

External audit are independent and assess a firms risk and control infrastructure.

Trustees (Usually a board of trustees or committee) have overall responsibility for the investment of funds

CISI Unit 1 (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions