1.1 The Regulatory Environment Flashcards
Who are the two regulators that together make up the twin peaks of UK financial services regulation and how do their responsibilities differ?
FCA - independent regulatory body solely responsible for authorisation and supervision of all financial institutions not regulated by PRA
private company (not government body)
main focus is conduct and market related issues
focuses on conduct and prudential regulation for all firms not regulated by PRA (FCA solo-regulated firms)
PRA - focuses purely on prudential issues
making sure controls and funding in place to manage risk that firms carry
PRA regulates banks (deposit takers), insurers and large investment firms
To which government body is the FCA accountable
Accountable to HMT
(whereas PRA is not accountable to any government body - it is part of BoE and directly accountable to them)
What are the statutory objectives of FCA and PRA
FCA - 1 strategic 3 operational objectives
strategic - to ensure relevant markets function well
operational:
- The consumer protection objective
- securing appropriate degree of protection for customers - The integrity objective
- protecting and enhancing integrity of UK financial system - The competition objective
- promoting effective competition in interest of consumers in markets for regulated financial services
systemic vs systematic risk
systemic - risk that a company- or industry-level risk could trigger a huge collapse (risk to industry)
systematic - risk inherent to the entire market, attributable to a mix of factors including economic, socio-political, and market-related events
What is conduct risk?
FCA does not provide precise definition
generally understood as risk posed to customers and wider integrity of financial markets by way in which authorised firms and their staff conduct themselves
3 examples of regulators powers in addition to rule making
- grant/vary/withdraw part 4A authorisation of firms/approval of individuals/recognition of other bodies (exempt persons)
- rule making for the above
- supervision, enforcement, sanctions and disciplinary action
- prosecution for financial crime (has no criminal enforcement powers but has right to ask criminal court system to use its powers)
List 12 Principles for Business (PRIN)
pneumonic: I see many fair maidens at the 5C’s Regatta (+consumer duty)
- Integrity
- Skill, care and diligence
- Management and control
- Financial prudence
- Market conduct
- Customer’s interests
- Communications with clients
- Conflicts of interest
- Customers: relationship of trust
- Client’s assets
^(the 5 Cs are linked to COBS and CASS) - Relationship with regulators
- Consumer Duty
Which PRINs does PRIN 12 replace where firms are in scope of Consumer Duty
6 - customer’s interests
7 - communications with clients
What is the likely outcome for a firm that breaches PRIN
- legally binding, breach leads to sanctions
- 2 years max./unlimited fine
What does FCA strategy for conduct risk focus on
3 key areas:
- Reducing/preventing serious harm
- dealing w problem firms, improving redress process, tackling fraud and poor treatment - Setting and testing higher standards
- ESG, consumer needs first, impact that authorised firms actions have on consumers and markets - promoting competition and positive change
- use competition as force for better consumer and market outcomes
- preparing financial services for future (preparing for digital market)
What is a management responsibilities map and what is its purpose
Documentation of a firm’s management and governance and how prescribed responsibilities have been allocated
Purpose:
- provide enhanced transparency of individual accountability
- increase reporting line + quality and specificity of management information requirements
What type of individuals within an authorised firm would be subject to Certification Regime and how must firms assess this
Certification Regime requires firm to asses both at recruitment stage and on annual basis fitness and propriety of employees within firm who could pose risk of significant harm to firm or any of its customers
- includes material risk takers, those performing risk of significant harm functions, anyone supervising a certified person
What is the purpose behind FCA requirements for senior management
To encourage directors to take personal responsibility for firms arrangements of regulatory matters
Amplify PRIN 3 to organise and control affairs responsibly and effectively
Vest responsibility for the above in specific director and senior managers
Create a common platform of organisational systems and controls
- so all firms in financial services organising themselves in same/similar way
- common platform firm = MiFID firms or those that follow CRD regulations
Where does consumer duty apply
When dealing with UK RCs only (otherwise PRIN 6 and 7 apply)
How do requirements of SYSC apply to non-common platform firms
some of the SYSC requirements have status of being a rule (eg. those relating to financial crime)
others apply only as guidance (not legally binding)
NOTE: for common platform firms (MiFID and CRD) all SYSC requirements have status of rules - legally binding
