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CII: R01 2020-21 > 5 - Responsibilities and Approach to Regulation > Flashcards

5 - Responsibilities and Approach to Regulation Flashcards

1
Q

FCA - THREE operational objectives

A
  • protection consumers
  • protecting financial markets
  • promoting competition
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2
Q

FCA - EIGHT regulatory principles

A
  • efficiency and economy
  • proportionality
  • sustainable growth
  • responsibility of consumers
  • senior management responsibility
  • recognising the differences in the businesses carried out by different regulated persons
  • openness and disclosure
  • transparency
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3
Q

Part 4A permission

A

As set out in the FSMA - any person wishing to carry out one or more regulated activities by way of business, must apply to the appropriate regulator for direct authorisation (unless they can abide by the terms of exclusion or are exempt)

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4
Q

Who are the FCA and the PRA answerable to for the way they carry out their duties?

A

The Treasury

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5
Q

Who bares ultimate responsibility for the regulatory system?

A

The Chancellor of the Exchequer

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6
Q

FSB

A

The Financial Stability Board
Established to:
- address vulnerabilities; and
- to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability

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7
Q

Role of the PRA

A

The Prudential Regulation Authority (PRA)

  • Part of the BoE
  • responsible for the authorisation, prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms
  • Sets standards and supervises financial institutions at the level of the individual firm
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8
Q

Objectives of the PRA

A

The Prudential Regulation Authority (PRA)

  1. to promote the safety and soundness of the firms it regulates; and
  2. (specific to insurance firms) to contribute to ensuring that policy holders are adequately protected.
  3. (since 2014) to facilitate effective competition
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9
Q

Who governs the PRA?

A

The PRC = Prudential Regulation Committee

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10
Q

Who is the PRC accountable to?

A

Parliament

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11
Q

ESFS

A

The European System of Financial Supervision - oversees the regulation of financial services across Europe. Comprised of:

  1. The European Banking Authority (EBA) - PRA is the UK representative
  2. The European Securities and Markets Authority (ESMA) - FCA represents the UK
  3. The European Insurance and Occupational Pensions Authority (EIOPA) - PRA is the UK representative
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12
Q

ESRB

A

The European Systemic Risk Board - an independent EU body responsible for macro-prudential oversight of the EU financial system.
The BoE is a voting member on the ESRB

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13
Q

FSMA section 118

A

Outlines civil penalties for market abuse, can be any of several types of behaviour

  1. insider dealing
  2. improper disclosure
  3. misuse of information
  4. manipulating transactions
  5. manipulating devices
  6. dissemination
  7. distortion and misleading behaviour
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14
Q

FSMA

A

Financial Services and Market Act (2000)

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15
Q

Market abuse punishments

A

maximum of 7 years imprisonment or an unlimited fine

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16
Q

4MLD

A

the Fourth Money Laundering Directive - supervisors have been required to have the power to impose effective. proportionate and dissuasive sanctions for non compliance.
The FCA can:
- levy penalties on registered businesses that are in breach of the ML regs
- prosecute an odder of a registered business that is in breach of certain ML regs. Conviction may result in prison for <2 years, a fine or both

17
Q

POCA

A

the Proceeds of Crime Act 2002 - the acquisition, possession, use, concealment, disguise, conversion, transfer or removal of criminal property, or assisting another person to do these things, is an offence under POCA. Punishable by up to 14 years in prison and/or an unlimited fine

18
Q

Failure to report any knowledge or suspicion of money laundering

A

up to 5 years imprisonment and/or a fine

19
Q

FCA approach

A
  1. proactive firm/group supervision
  2. event driven, reactive supervision
  3. thematic approach - issues and products supervision
20
Q

Fixed portfolio firms

A

small population of firms (based on factors such as size, market presence and customer footprint) require the highest level of supervisory attention - subject to FCA approach pillar 1 [proactive firm/group supervision]

21
Q

Flexible portfolio firms

A

the majority of firms - proactively supervised through a combination of FCA approach pillars 2 & 3 [event driven, reactive supervision & thematic approach]

22
Q

Who is the FCA accountable to?

A

required to report annually to the Gov and Parliament

23
Q

what is the free asset ratio (FAR)

A

surplus assets / total assets x 100 (i.e. as a percentage)

24
Q

who do the principles of approved persons apply to?

A

anyone who is individually registered

25
Q

how is the FCA funded?

A

through levies on the financial services industry

  • larger companies do pay additional charges but this is not the sole funding
  • they are separate from the government
26
Q

what fees are due for authorised firms?

A
  • periodic fees (FCA)
  • application fees (FCA)
  • special project fees (FCA)
  • FOS
  • FSCS
  • Money Advice Service fees
27
Q

if a provider gives any benefits or inducements to an intermediary how long must they keep records for?

A

5 years

28
Q

what is pure protection?

A
  • term assurance
  • critical illness
  • income protection
29
Q

how does ICOBS categorise insurance products

A
  • pure protection
  • general insurance
  • payment protection insurance (PPI)
30
Q

under ICOBS who is responsible for ensuring an intermediary is authorised to deal with the insurer?

A

the insurer

31
Q

when are mortgages regulated?

A

the first, second or subsequent mortgage on UK land is regulated when 40% or more of the property is used by the borrower as their home
not commercial

32
Q

Sale and Rent back (2010)

A
  • introduced to protect customers
  • ensuring tenancy agreements are set for at least 5 years
  • introduced independent valuers
  • banned terms such as ‘mortgage rescue’
  • banned cold calling
33
Q

Consumer Credit Act (1974)

A

regulates:

  • debt restructuring services
  • credit card issuers
  • payday loan companies
34
Q

when does the FCA not notify of investigation?

A
  • insider dealing
  • market abuse
  • misleading statements
35
Q

FPC

A

Financial Policy Committee

  • a committee within the BoE
  • responsible for horizon scanning from emerging risks
  • providing strategic direction
  • power to use macro prudential tools to counteract systematic risk (risk to the whole market not just an individual firm)
36
Q

PRA key tools & approach

A
  • regulation
  • supervision

Approach:

  • judgement based
  • outcomes based
  • focused approach
37
Q

FPC: macro-prudential tools

A
  • setting countercyclical capital buffers
  • variable risk weights
  • leverage limits
38
Q

competition concurrency

A

the FCA has concurrent competition powers, meaning it can:

  1. under the competition act (1998) - enforce against and fine for breaches of domestic and EU competition law
  2. under the consumer rights act (2015) - make a market investigation reference to the Competition and Markets Authority (CMA)

CII: R01 2020-21 (9 decks)

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