Unit 6 - FCA/PRA Supervisory Objectives (7 of 80) Flashcards
How does FCA define supervision?
the continuing oversight of regulated firms and of individuals controlling these firm, to reduce actual and potential harm to consumers and markets
What are the FCA’s 2 methods of supervision for larger and smaller firms?
1) Supervision by portfolio – most (smaller) firms are supervised as members of a ‘portfolio’ of firms that share a common business model. The FCA analyses each portfolio and agrees a strategy to take action on firms posing the greatest harm
2) Dedicated supervision teams – a dedicated supervision team look after firms with the greatest potential to have an impact on consumers and markets. This team has a view of the whole firm across all sectors it operates in, it assesses the potential harm that the firm may cause
What are the FCA’s 8 supervisory principles?
1) Forward looking = Pre-empt poor conduct so that the risk does not materialise
2) Focus on strategy and business models = Assessment of firms’ business models and strategies
3) Focus on culture and governance = Assess the drivers of behaviour within firms.
4) Focus on individual as well as firm accountability = Hold to account senior individuals
5) Proportionate and risk based = target firms whose misconduct could cause harm.
6) Two-way communication
7) Coordinated = supervision teams work closely with other FCA departments.
8) Put right systematic harm that has occurred and stop it happening again
How does the PRA supervise firms?
assess whether they are safe and sound, and whether they meet, and are likely to continue to meet, the Threshold Conditions.
Whos is on the PRA board and who are they accountable to?
the Governor of the Bank of England (BoE)
the Deputy Governor for Financial Stability
the Deputy Governor for Markets and Banking
the Chief Executive Officer of the PRA
the independent nonexecutive members of the board
- Accountable to Parliament
What is the purpose of the PRA’s Enforcement Decision Making Committee (EDMC)?
- The EDMC is a committee of the Bank of England (BoE). It helps the BoE to ensuring that there is a functional separation between the investigations teams and the decision makers in contested enforcement cases.
- Members of the EDMC will be independent of the BoE’s executive and will not be employees of the BoE. They will be appointed by the Court of the BoE and will serve for a term of three years. They will not be permitted to serve more than two three-year fixed terms
What is the FCA’s belief about culture?
good culture and behaviour is driven by senior management and reinforced by effective corporate governance and the role of the board
How does the FCA issue it’s informal guidance?
via speeches, public statements and Dear CEO letters rather than formal consultations
How does the FCA punish non-serious misconduct?
the FCA has the ability to use powers available to them under Part 4A of FSMA to vary a firm’s permission, impose requirements or change individuals’ approvals
What is the punishment for carrying out regulated activities when unauthorised?
a maximum sentence of two years in prison and/or an unlimited fine
What is the role of the FCA’s Regulary Decisions Committee (RDC)?
rather than allowing the FCA’s enforcement team to make the decisions which are implemented in the statutory notices, these decisions are made by a relatively independent committee called the Regulatory Decisions Committee (RDC)
What is the RDC and who is in it?
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.
Only the chairperson is an FCA employee; the rest of the members represent the public interest and are either current or retired practitioners with financial services knowledge and experience, or non-practitioners
What sanctions can the RDC enforce?
- specify a narrower description or limit a regulated activity than that applied for in a Part 4A permission
- refuse/can an application for/cancel an existing Part 4A permission
- refuse an application for/withdraw approved person status
- make a prohibition order for a person gaining approved person status,
- exercise the FCA’s powers to impose a financial penalty, make a public statement on the misconduct of an approved person, issue a public censure against an authorised person, or make a restitution order against a person.
What notices does the FCA have the power to issue?
- Warning notices = give the recipient details about the proposed action and why. The FCA can announce publicly that it has begun disciplinary action against a firm or individual. . However, the FCA will have to consult with the recipient of the warning notice before publishing the details.
- Decision notices = give details of the action that the FCA has decided to take
- Supervisory notices = give the recipient details regarding the action the FCA has taken, or proposes to take. e.g. limit a firm’s Part 4A permission
- Further decision notices = when they have agreed with the recipient to take a different action from that proposed in the original decision notice
- Notices of discontinuance = where the FCA has decided not to proceed with the relevant action.
- Final notices = set out the terms of the final action which the FCA has decided to take
What are the FCA’s 3 forms of disciplinary sanctions?
- public statements of misconduct (individuals)
- public censures (authorised persons, ie, firms)
- financial penalties (fines).
What are some examples of when the FCA may cancel a firm’s Part4A permission?
- non-compliance with an FOS award against the firm
- material non-disclosure in an application for authorisation or approval, or material nonnotification after authorisation or approval has been granted.
- failure to have or maintain adequate financial resources
- non-submission of, or provision of false information in, regulatory returns
- non-payment of FCA fees o
- failure to provide valid contact details
- repeated failures to comply with rules or requirements
- a failure to cooperate with the FCA
What is the criteria for assessing the size of financial penalties?
- Enough to remove any profit from their breach,
- An amount reflecting the seriousness of the breach
- Admission of guilt and full/immediate cooperation may lessen the financial penalty.
- A poor disciplinary record or compliance history may increase the likelihood of a financial penalty, as a deterrent for the future.
What are the possible defences against FCA sanctions?
1) The activity of accepting deposits will not be regarded as carried on by way of business if they do not hold themselves out as accepting deposits on a day-to-day basis
2) A person managing assets on a discretionary basis while acting as trustee of an occupational pension scheme
3) A person who carries on an insurance mediation activity
What is the Upper Tribunal and how is it structured?
- any person who receives a decision notice (including a supervisory notice) has the right to refer the FCA’s decision to the Upper Tribunal.
- The Upper Tribunal is independent of the FCA and is appointed by the government’s Ministry of Justice.
How long does an individual/firm have to appeal to the Upper Tribunal?
- The individual or firm has 28 days in which to do so
- during this period FCA cannot take the action it has proposed
- it must give the person or firm the full 28 days to decide whether to refer the decision.
What is the 5 step penalty-setting framework?
1) Removing any profits made from the misconduct.
2) Setting a figure to reflect the seriousness of the breach.
3) Considering any aggravating and mitigating factors.
4) Achieving the appropriate deterrent effect.
5) Applying any settlement discount.
If the FCA requires information/documents, when should they be provided?
within a reasonable period.
What are the temporary product intervention rules?
The FCA can prohibit or ban any product that it considers is causing, or will cause, consumer protection problems for up the 12 months
What are the Financial Promotions rules?
the FCA can ban misleading financial promotions. and remove them immediately without having to go through the enforcement process.
