5 - Responsibilities and Approach to Regulation Flashcards Preview

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FCA - THREE operational objectives

- protection consumers
- protecting financial markets
- promoting competition


FCA - EIGHT regulatory principles

- 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


Part 4A permission

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)


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

The Treasury


Who bares ultimate responsibility for the regulatory system?

The Chancellor of the Exchequer



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


Role of the PRA

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


Objectives of the PRA

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


Who governs the PRA?

The PRC = Prudential Regulation Committee


Who is the PRC accountable to?




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



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


FSMA section 118

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



Financial Services and Market Act (2000)


Market abuse punishments

maximum of 7 years imprisonment or an unlimited fine



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



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


Failure to report any knowledge or suspicion of money laundering

up to 5 years imprisonment and/or a fine


FCA approach

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


Fixed portfolio firms

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]


Flexible portfolio firms

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


Who is the FCA accountable to?

required to report annually to the Gov and Parliament


what is the free asset ratio (FAR)

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


who do the principles of approved persons apply to?

anyone who is individually registered


how is the FCA funded?

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


what fees are due for authorised firms?

- periodic fees (FCA)
- application fees (FCA)
- special project fees (FCA)
- Money Advice Service fees


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

5 years


what is pure protection?

-term assurance
-critical illness
-income protection


how does ICOBS categorise insurance products

-pure protection
-general insurance
-payment protection insurance (PPI)


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

the insurer