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CISI > Unit 2 - FSMA and FSA > Flashcards

Unit 2 - FSMA and FSA Flashcards

1
Q

What is the general prohibition act?

A

No person may do regulated activity in/into UK unless they are authorised person (with part 4A permission) or exempt person (penalty = 2yrs jail/ unlimited fine)

Regulated activity - specified activity undertaken with specified investment e.g. (dealing or investing in investments)

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2
Q

What’s an example of an exempt person who can still conduct regulated activities?

A

BALD RR

Don’t need authorisation/ part 4A permission

  1. appointed reps i.e. they’ve been appointed by authorised firms to advise on its products only e.g. tied agents
  2. Lloyd syndicates members - people that gather together
  3. members of designated professional bodies e.g. lawyers, accountants, surveyors, actuaries, conveyancers but only bc the activities are incidental to main business
  4. recognised clearing houses i.e. intermediary between buyers and sellers of financial instruments e.g. euroclear UK + Ireland
  5. recognised investment exchanges e.g. LSE
  6. Other exempted bodies - Bank of England, central banks, supernationals (IMF, world bank)
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3
Q

How do you know if you need permission to conduct regulated activity?

A

Perimeter guidance manual (PERG) - has guidance to help you determine (not binding)

Permission notice (SUP) - FCA/PRA have power to grant and vary permission (it’s not a blanket permission i.e. specific to what you want to do). These are needed for controlled functions. Ppl who perform them = approved person

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4
Q

What happens if you conduct regulated activity if not authorised or exempt?

A

Criminal penalties - 2 years in prison +/or unlimited fine (in crown court in magistrates court it’s 6months in prison and £5k fine)

Civil law consequences - injunctions (shutting business down), restitution losses (Paying back losses), contracts are voidable at discretion of investor(

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5
Q

Examples of specified investments:

A

FEED RIH

  1. Shares/ depositary receipts (certificates that represent shares)/ warrants (rights to shares)
  2. debt instruments e.g. bonds, gilts (UK gov bonds), loan stock, debuntures (secured corporate bonds), t-bills, commercial paper
  3. units in collective investment schemes (run by portfolio manager) e.g. unit trusts, open ended investment company (OEIC), investment with variable capital (ICVC)
  4. derivatives - options, futures, CFDs
  5. Lloyd’s syndicates (ppl joining together to give money and accept insurance risk), insurance contracts and funeral plan contracts
  6. Pensions
  7. Regulated mortgages and home finance
  8. Deposits and electronic money
  9. Rights to specified investments
  10. loans and other forms of credit
  11. emissions auction products - emissions allowance offered for sale on an auction platform
  12. benchmarcks e.g. LIBOR - benchmark interest rate at which major global banks lend to one another
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6
Q

What specified investments have similar regulations in UK and EU i.e. MIFID investments?

A
  1. Shares/ depositary receipts (certificates that represent shares)/ warrants (rights to shares)
  2. debt instruments e.g. bonds, gilts (UK gov bonds), loan stock, debuntures (secured corporate bonds), t-bills, commercial paper
  3. units in collective investment schemes (run by portfolio manager) e.g. unit trusts, open ended investment company (OEIC), investment with variable capital (ICVC)
  4. derivatives - options, futures, CFDs
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7
Q

What type of derivatives are excluded from specified investments?

A

Derivatives used for commercial purposes e.g. hedging e.g. options on commodities except precious metal

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8
Q

What are specified MIFID activities?

A
  1. Dealing in investments
  2. arranging deals in investments
  3. managing investments
  4. advising on investments
  5. operating a MTF or OTF
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9
Q

What are non MIFID specified activities?

A
  1. safeguarding investments
  2. sending dematerialised instructions e.g. electronic money transfer
  3. Lloyds activities (advising and managing Lloyd syndicates), insurance activities and funeral plan contracts
  4. mortgages
  5. home finance activities
  6. managing dormant account funds
  7. accepting deposits and issuing electronic money
  8. providing credit
  9. starting / operating/ closing down collective investment scheme or pension scheme
  10. agreeing to do these regulated activities i.e. by advertising - need to be authorised first
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10
Q

Who/what carry out regulated activities but exempt so don’t need to apply for authorisation?

A

NIGGA U FED Out
1. Newspapers - give incidental advice
2. info providers e.g. bloomberg, reuters
3. unpaid trustees
4. employee share schemes
5. group/ joint enterprises
6. absence of holding out e.g. buying shares for yourself, company selling their shares / buybacks, derivatives for risk management (commercial purposes/ hedging)
7. foreign exchange i.e. currencies
8. Gov securities - national savings & investments, premium bond (government run lottery ticket), gold
9. Overseas person dealing as principle of Uk person approaches rhek

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11
Q

What are threshold conditions?

A

Shows us how we can get part 4A permission by setting out the minimum requirement:
BRUSSeL
1. Legal status (PRA make sure legally are a company)
2. UK office
3. Effective supervision - i.e. who holds significant shares in business (controlling interest)
4. appropriate resources - right financial resources, non-financial resources (FCA), right staff, prudent conduct
5. suitability - are senior managers fit and proper
6. business model - is it geared towards principles of FCA (on medium term)

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12
Q

What are authorisation with limitations?

A

Authorised for some activities you apply for not all

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13
Q

How do EU companies gain authorisation?

A

Apply with their local regulator and passport this into other EEA states (doesn’t exist with UK firms)

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14
Q

What is the upper tribunal?

A

tax and chancery chamber the upper tribunal is part of of ministry of justice who look at appeals made by:
1. tax and charity cases
2. FCA/ PRA
3. pensions regulator

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15
Q

What are the 4 levels of staff in an orginsation?

Who are subject to conduct rules?

Who are subject to fit and proper assessment?

A

4 levels of staff:
1. Senior management functions - need pre-approval by regulator - inc non-execs
2. certification functions (=sig. harm functions) - certificate issued by firm
3. other conduct rules staff - compliance, legal, middle office
4. ancillary staff

fit and proper assessment (annually):
SMF + CF

conduct rules:
SMF + CF + Other conduct rules staff

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16
Q

Who are likely senior manager functions?

What is their duty of responsibility?

A

Smaller firms - chief, chair, director, compliance oversight, money laundering reporting officer (MLRO).

larger firms - responsibilities map

Duty of responsibility:
- fulfil prescribed responsibilities which is set out in statement of responsibilities (SoR) which they sign and send to regulator.
- there are also 9 conduct rules that apply to senior managers
- evidence they tried to prevent, stop and remedy breaches

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17
Q

Who are certification functions?

A
  • anyone who poses risk to customer, firm or markets e.g.
    1. material risk takers
    2. supervisors of certification functions
    3. customer dealing functions e.g. client advisor
  • firms who assess fitness and propriety
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18
Q

How often are senior manager functions and certification functions assessed?

A

On appointment and at least annually

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19
Q

What are the parts to fit and proper test?

A
  1. honest, integrity and reputation
    - 6 yrs employment history
    - criminal convictions
    - breaches to FCA/ PRA rules
    - complaints
  2. competence and capability
  3. financial soundness
    - bankruptcy
20
Q

How do people get approved to perform Senior manager function?

A

Firms use Form A to apply on behalf of senior managers to approved by FCA/ PRA to prove they are fit and proper

21
Q

What are the 5 conduct rules that apply to all staff except ancillary?

A
  1. how we behave
    - integrity - observe proper standards of market conduct
    - skill, care and diligence - avoid deliberate or careless breach
  2. must be open and co-operative with FCA/PRA
  3. impact of behaviour
    - did it impact customers
    - did it impact market conduct
22
Q

What are the conduct rules that apply just to senior manager functions?

A

how do the senior manager manage the operations of the firm and inform regulators where they should

23
Q

What are the general requirements of Training and competency sourcebook?

A

Employees of firms carrying out specified activities with/for retail customers must
- DEMONSTRATE competence (exams passed within 30 months)
* if overseas + 3yrs relevant experience can just sit reg module
*must pass reg exam before dealing with retail clients
- with the right supervision (at all times)
- competence is regularly reviewed

24
Q

What is the public interest disclosure act (PIDA) 1998 ?

A

Protects whistleblowing and states that firms should make sure employees are aware of how to disclose and that they will be protected (comes under SYSC)

There should be a senior manager for this (Senior manager function)

25
Q

4 features of the whistleblowing procedures?

A
  1. ensure concerns escalated where appropriate
  2. provide feedback to WB where it’s possible + appropriate
  3. allow for disclosures through range of methods
  4. annually prepare report on effectiveness of procedures
26
Q

What are the powers of the enforcement officers?

What section is this?

A
  • enter premises of authorised firms without notice and demand copies of documents etc/ interview employees
  • Section 165
27
Q

What is the difference between S167 and S168?

A

S167 - FCA/PRA can appoint competent person to give them the info they need for Ix

S168 - appoint 3rd party

28
Q

What happens if authorised firms dont comply with giving regulators info they require?

A

S177 states it’s criminal offence (2yrs in prison/ unlimited fine)

Giving false/ misleading evidence also a crime

29
Q

What is the regulators enforcement process?

A

Ix –> preliminary findings –>
1. Private warning (on firms record)
2. Regulatory decisions committee
- Warning notice - decision notice - final decision - disciplinary measure
- supervisory notice (preventative measure = could be limiting firms part 4Aa permission with immediate effect) — final supervisory (supporting actions)
- notice of discontinuance (at any time)

Firm can respond after warning notice/ supervisory notice and again after decision notice/ 2nd supervisory notice

30
Q

Who are the regulatory decisions committe?

A

They are an independent body but appointed by FCA and report to FCA who issue notices to firms (note FCA can also issue notices if urgent)

31
Q

How are the upper tribunal involved in regulator’s enforcement process?

A

Firms (appointed 3rd party) can appeal after decision notice/ 2nd supervisory notice within 28 days to the upper tribunal who will then hear all evidence and encourage RDC to issue final decision/ final supervisory/ notice of discontinuance

32
Q

What notices can firms appeal against? To whom?

Which decisions would be published by RDC?

Which decisions could be published with consent?

A
  1. Decision notice/ supervisory notice. to upper tribunal
  2. Final decision/ final supervisory
  3. Warning notice
33
Q

What is a further decision notice?

A

Firm has been given a decision notice by regulator and enter into a discussion + decide on different course of action and issue further decision notice (requires consent of participant).

Can still be appealed like a decision notice

34
Q

What are the statutory notices (i.e. written down in FSMA 2000)?

A
  1. Warning notice - what disciplinary action is planned
  2. supervisory notices
  3. Decision notice
35
Q

What are the 5 disciplinary measures that can be taken on a firm?

A
  1. withdraw authorisation or approval, vary authorisation
  2. prohibition order (S56) - i.e. individual can’t work in certain area or all areas again
  3. Restore order - have to restore customers
  4. public statement detailing their misconduct (on approved person) or public censure on authorised person (firms) + financial penalties
  5. prosecute
36
Q

When might the FCA not publish a final notice?

A

When FCA believes it could be unfair to that person or not in interests of customer

37
Q

Can a final decision from Upper tribunal be appealed?

A

Yes by court of appeal and then supreme court but only if it’s a legal issue

38
Q

What are the powers of intervention and enforcement?

A

FCA can ban products/ financial promotions that are risky to customers for up to 12 months (during this time they’ll do normal enforcement process)

39
Q

What is s71 of FSMA 2000 (private person rule)

A

A private person can sue an authorised firm for allowing a unapproved/banned person for doing a controlled function

40
Q

What is a multilateral trading facility?

A

A system that brings together multiple parties that are interested in buying and selling financial instruments and which allows them to do so

41
Q

what is a recognised investment exchange?

A

An exchange which is given a recognition order by the local competent authority to conduct its activities in a Pan-European forum

42
Q

What is a public censure and when is it issued?

A

Public censure = public statement of firms misconduct. Issued when they’ve not followed conduct rules/ senior conduct rules. They’ll factor in
- breach reckless/ deliberate
- if firm profited/ avoided loss
- impact on customers and markets etc

43
Q

What is the purpose of Enforcement Decision Making Committee?

A

Set up by BoE as a separate function to strengthen its enforcement processes

44
Q

What’s the purpose of the FCA directory?

A

Key info on regulated ppl e.g. SM + CF to enhance transparency

45
Q

How long do firms have to produce info for an FCA inspection?

A

‘Reasonable time period’ = usually 48h

46
Q

What is the purpose of FSMA?

A
  1. FSMA = provide a framework for protecting financial services consumers. it introduced FCA/ PRA (as regulators), FOS, FSCF, penalties for market abuse

CISI (5 decks)

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