Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012 Flashcards
The General Prohibition
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
States that no person can carry on a regulated activity in the UK or purport to do so, unless they are either authorised (by FCA or PRA) or exempt from the requirement to be authorised. Contravention is a criminal offence, maximum sanctions are two years imprisonment and an unlimited fine.
Prohibition Orders
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
Regulators can prohibit an individual from performing a specified function. Either regulator may do this if it considers the individual is not fit and proper person to perform the function. Order can relate to a specific activity or generally. Individual is liable for a fine.
Prohibition orders can be made against exempt persons (individuals and firms) such as designated professional bodies
Specified Investments of the RAO (Regulated Activities Order)
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
- Deposits
- Electronic Money
- Rights under contracts of insurance
- Shares
- Debentures
- Government and public securities
- Warrants (instruments giving entitlements to investments)
- Certificates representing certain securities
- Units in a collective investment scheme
- Rights under a stakeholder pension scheme
- Rights under a personal pension scheme
- Options
- Futures
- Contracts for differences
- Lloyds syndicate capacity and syndicate membership
- Rights under a funeral plan contract
- Rights under a regulated mortgage contract
- Rights under a home reversion plan
- Rights under a home purchase plan
- Rights under a regulated sale and rent-back agreement
- Credit agreements
- Consumer hire agreement
- Greenhouse gas emission allowance
- Alternative finance investment bonds (Shariah)
Regulated Activities of the RAO (Regulated Activities Order)
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
- Accepting deposits
- Issuing money
- Effecting or carrying out contracts of insurance as principal
- Dealing in investments as principal or agent (principal = own account)
- Arranging deals in investments
- Arranging regulated mortgage contracts
- Arranging home finance transactions
- Operating a Multilateral Trading Facility
- Operating a Organised Trading Facility
- Bidding in emission auctions
- Credit Broking
- Operating an electronic system in relating to lending
- Managing investments
- Assisting in the administration and performance of a contract of insurance
- Activities in relation to debt
- Safeguarding and administering investments
- Advising on investments
- Sending/allowing dematerialised instructions to be sent
- Managing UCITS, AIF or CIS
- Establishing/operating/winding up pension scheme
- Providing basic advice on stakeholder products
- Lloyd’s market activities
- Entering into a funeral plan contract
- Advising on home finance transactions
- Regulated credit agreements
- Agreeing to carry on specified kinds of activity
Exclusions for a person from the need for authorisation under FSMA to conduct regulated activity
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
- Absence of holding out (market makers)
- Exclusion for groups and joint enterprises (intra-group dealing)
- Exclusions for advice in newspapers
- Trustees, nominees and personal representatives
- Employee share scheme
- Overseas persons
Exemptions from the general prohibition in regulated activities for certain persons
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
- Appointed representations
- Recognised investment exchanges (RIEs) and Recognised Clearing Houses (RCHs)
- FSMA Exemption order 2001 (supranational bodies, central banks etc)
- Members of Lloyds
- Members of the Professions (DPB)
Authorisation via application
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
To be an ‘authorised person’ must apply to regulators (FCA/PRA) and will be granted part 4A permission. Part 4A permission specifies precisely which regulated activities the firm can carry on.
Authorisation process and application pack
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
Depending on the type of firm, a firm will need to submit an application pack to either the PRA and/or FCA. (if dual regulated, only PRA)
- Core details
- Controllers
- Business supplement, or regulatory business plan
- Disclosure of significant events
- Approved persons forms
- Checklist and declaration
The Threshold Conditions (TCs)
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
TCs are the minimum standards expected of authorised persons being, and remaining, authorised. Applicability of each condition depends on the firm (FCA or dual-reg), and on the condition.
- Legal status
- Location of offices
- Business to be conducted in a prudent manner
- Effective supervision
- Appropriate resources
- Suitability
- Business model
- Appointment of claims representatives
Tools of Supervision
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
- Diagnostic tools
- Monitoring tools
- Preventative tools
- Remedial tools
Supervisory Process
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
- Proactive firm supervision
- Reactive supervision
- Thematic
Emphasise the role of senior management with internal risk controls and management.
Fixed portfolio = firms who pose greatest risk to FCA statutory objectives (largest banks, insurers etc). (proactive supervision)
Flexible portfolio = subject to event driven reactive and thematic supervision only.
The Process for Approved Persons
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
FSMA requires persons fulfilling controlled functions to first be approved by the regulator as fit and proper, do this by candidate submitting a ‘Form A’ allows regulator to assess. Then to comply with the Statement of Principles and Code of Practice for Approved Persons.
Controlled Functions
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
SIFs (Significant influence functions)
- Governing functions
- Required functions
- Systems and control functions
- Significant management functions
Non SIF
5. Customer function
The Approval Process for Firms Subject to the SM&CR (SMF)
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
Under SM&CR, an individual may be permitted to perform a senior management function only after they have been granted approved person status (Form A). Individuals must be approved by the regulator to be fit and proper.
- Honesty, Integrity and Reputation
- Competence and Capability
- Financial Soundness
Annual basis after for ongoing assessment of fit and proper by auth firm.
Prescribed Responsibilities
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
List of responsibilities that must be allocated among senior managers. Regulators expect that each responsibility will be allocated to a single senior manager. If responsibility is shared, then regulator expects roles to be clearly articulated in the Responsibilities Map.
The Directory
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
In 2020, FCA introduced the Directory, a new public register for checking the details of key people working in the financial services industry.
Training and Competence (and supervision)
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
From Principles of business, The firm must, clearly, ensure that any employee involved in a regulated activity achieves and maintains the competence needed for this role. Firms must make sure there are policies and procedures in place to review competence of personnel on a regular basis. This high-level approach is supplemented by the Training and Competence (TC) Sourcebook (for firms dealing with retail clients) which also includes appropriate qualifications list. Firms must also conduct appropriate supervision of specified activities
Legal and regulatory basis for whistleblowing
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
Public Interest Disclosure Act (PIDA) 1998, legislation to protect whistleblowers from retaliation. In 2016 FCA posted (binding for deposit taking firms) guidance on rules for whistleblowers. Key Regulatory Requirements include: records, reports, training etc.
Appoint a whistleblower champion, an individual who is responsible for ensuring integrity, individual should have certain level of authority and independence.
An EU whistleblowing directive came in in 2019.
DEPP and RDC
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
DEPP = Regulatory handbook for decisions on disciplinary matters.
RDC = Regulatory Decisions Committee
RDC is a committee of the FCA’s board, and is accountable to that board, however, it is independent to the extent that it is outside the FCA’s management structure. RDC has statutory decisions on: Refuse/cancel part 4A permission, refuse/withdraw app for approved person, etc.
EDMC
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
The Enforcement Decision Making Committee
Is a committee of the BOE, ensures separation between the banks investigation teams and its decision makers. EDMC is independent of the BOE.
Oversees: 1. Prudential regulation, 2. Financial market infrastructure 3. Resolution
Statutory Notices
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
Warning notices
Decision notices
Supervisory notices
Notices which aren’t statutory:
Notice of discontinuance
Final notices
The Regulatory Enforcement Process (3 sanctions, 2 more low key)
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
3 forms of formal disciplinary sanctions
- public statements of misconduct (individuals)
- public censures (firms)
- financial penalties
Can take lower key approach is needed
- issue private warning
- take supervisory action
Any person who receives a decision notice has the right to refer the regulators decision to the Upper Tribunal.
Criteria and measures of disciplinary action
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
Criteria
- nature and seriousness of the suspected breach
- conduct of the firm after the breach
- previous regulatory record of the firm or approved person
measures
- private warning
- variation of permission (part 4a)
- withdrawal of a firms authorisation
- withdrawal of approval
- prohibition of individuals
- public censure and statement of misconduct
- financial penalties
FCA’s powers of intervention (FSA 2012)
Unit 1 - 2. The Financial Services and Markets Act 2000 and Financial Services Act 2012
FSA 2012 provided the FCA with additional enforcement powers on:
- short selling disclosure rules
- power to suspend firms and individuals
- power to impose financial penalties on individuals who carried out controlled functions without approval
- financial stability information-gathering power
