Chapter 8: Regulation And Professional Integrity Flashcards
What is financial policy committee (FPC)?
Established in the Bank of England with responsibility for macro prudential regulation. It has the power to make recommendations on a comply or explain basis to the PRA and FCA
What is the prudential regulation authority? PRA
Part of the BoE and is responsible for prudential regulation of firms that manage significant risk on balance sheets.
Primary objective is to enhance financial stability by promoting safety and soundness of PRA-authorised firms in a way which minimises the disruption caused by any firms which do fail. Takes an ‘intrusive’ approach.
Supervised by the FCA.
Financial conduct authority (FCA)
Responsible for the conduct of all firms. Focuses on day to day regulation.
Responsible for:
- regulating standards of conduct in markets
- supervising trading infrastructures
- prudential supervision of firms that are not PRA-regulated
Three objectives :
1. Protect customers
2. Enhance integrity of UK financial system
3. Help maintain competitive markets and promote effective competition
European regulation
European banking authority (EBA) and the European securities and markets authority (ESMA).
Approach used in EU regulation
Lamfalussy Process:
- European council and parliament adopting a piece of legislation
- The laws then progress where specific committees and regulators advise and issue rules
- National regulators work on coordinating new rules with other nations
- Compliance and enforcement of the new rules and laws at a national level
The PRA’s 8 fundamental rules for firms:
- Integrity
- Skill, care and diligence
- Prudent manner
- Maintain adequate financial resources
- Have effective risk strategies and risk management systems
- Organise and control its affairs responsibly and effectively
- Deal with its regulators in an open and cooperative way
- Prepare for a resolution
The FCA’s 11 principles for business:
- Integrity
- Skill, care and diligence
- Management and control
- Financial prudence
- Market conduct
- Customers interests
- Communication with clients
- Conflicts of interest
- Customers: relationship of trust
- Clients assets
- Relations with regulators
Money laundering:
Turning dirty money into clean money. Handling proceeds of crimes such as fraud and tax evasion. Handling stolen goods.
Three stages:
1. Placement - placing illegal cash into bank account etc
2. Layering - moving the money around to make it difficult for authorities to link.
3. Integration - gone from clean to dirty
Identity fraud and theft
Fraud: to obtain goods or services by deception, forger driving licence or passport.
Theft: same as above but stolen documents.
Cybercrime
- Advanced cybercrime - sophisticated attacks against software
- Cyber enabled crime - financial crimes etc
Bribery Act provisions:
- Two general offences are created covering the offering, promising or giving of an advantage, and the requesting, agreeing to receive or accepting an advantage
- There is discrete offence of bribery of a foreign public official to obtain or retain business or an advantage in the conduct of the business
- A new offence is created, of failure by a commercial organisation to prevent a bribe being paid for or on its behalf
Bribery for companies:
A new offence - where if a company fails to prevent bribery they will be in trouble. A company needs to show it has rules and regs in place to prevent it.
Insider dealing:
When someone buy or sells shares in their company. It’s securities are:
- shares
- bonds
- warrants
- depositary receipts
- options
- futures
- contracts
Inside information:
Info that relates to particular securities or a particular issuer of securities and which:
- is specific or precise
- has not been made public
- if was public - would he be likely to have a significant affect on price of securities
Above is all referred to as ‘unpublished price sensitive information’ and securities are referred to as ‘price affected securities’
Market abuse:
A result of insider dealing and market manipulation, where investors have been unreasonably disadvantaged.
Three market abuse behaviours by FCA:
1. Insider dealing
2. Unlawful Public disclosure requirements
3. Market manipulation
