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CII - R01 > 6 - Regulatory Framework > Flashcards

6 - Regulatory Framework Flashcards

1
Q

Authorisation

General Prohibition

Punishment

A

The general prohibition (FSMA S.19) says it is an offense for someone to carry out a regulated activity unless authorised or exempt.

A breach may be a criminal offence, punishable by up to 2 years in jail and/or a fine.

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2
Q

Authorisation

Authorisation by PRA/FCA of firms previously authorised under old legislation

A

Firms authorised under old legislation were automatically authorised by the FSA for their previously authorised activities, and by the FCA & PRA since 1/4/13.

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3
Q

Authorisation

Who to appeal to if refused authorisation?

A

Can appeal to the Upper Tribunal (Tax and Chancery Chamber).

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4
Q

Authorisation

8 items in Part II of Regulated Activity Order (RAO)

A
  • Banking
  • Home Finance
  • Insurer
  • Scheme Operator
  • Investment Intermediary
  • Insurance Intermediary
  • Investment Management
  • Credit-related
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5
Q

Authorisation

Additional S.22 FSMA requirement for an activity to be a regulated activity

A

It must be carried out ‘by way of business’ to be a regulated activity.

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6
Q

Authorisation

3 types of exempt firm

A

Appointed Representatives have a contract drawn up with a regulated firm (the principal) who take responsibility for their actions. Can be a full advice AR or just an introducer appointed representative (IAR), restricted to making introductions and distributing advertisements.

Designated Professional Bodies (DPB) don’t need FCA authorisation for regulated activities which are incedental to their professional services. They’re known as Exempt Professional Firms (EPFs) and are listed separately on the Financial Services Register. If they want to do extra stuff they must register and become Authorised Professional Firms (APF).

Some specific bodies are exempt (BofE, ECB, local authorities, various government bodies).

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7
Q

Applications

Application type for regulated activities

Time limit for FCA response

A

Any person wishing to carry out one or more regulated activities must apply for Part 4A permission (unless they are exempt or can abide by terms of exclusion).

FCA have 6 months to respond, or 1 year if there was information missing from the application.

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8
Q

Applications

Insurance Firms

Which regulator do insurers apply to?

What the regulator assesses

A

Insurance firms apply to the PRA.

The PRA assess them from a prudential perspective and determine if they meet the threshold conditions.

The FCA assess them from a conduct perspective.

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9
Q

Applications

Change of legal entity

A

If a regulated firm has a change of legal entity type it must reapply for authorisation (between sole trader and partnership is fine).

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10
Q

Controlled Functions

Difference between an authorised person and an approved person

A

The authorised person is the business that carries on the regulated activity.

The approved person is the individual who has been approved to carry out a controlled function within the business.

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11
Q

Controlled Functions

Requirement for individuals carrying out controlled functions

3 types of controlled function

A

Must be individually approved and registered.

Controlled functions involve one of:

  • A significant influence over the conduct of an authorised persons activities;
  • Dealing with customers in connection with regulated activities; or
  • Dealing with the property of customers in connection with regulated activities.
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12
Q

FCA Controlled Functions

5 high level controlled function types

A
  • Governing Functions
  • Required Functions
  • Systems and Controls Functions
  • Significant Management Functions
  • Customer-dealing Functions
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13
Q

FCA Controlled Functions

Governing Functions - 3 groups

A
  • Director (including Director, NED, CEO, director of unincorporated assocation)
  • Partner
  • Small friendly society
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14
Q

FCA Controlled Functions

6 Required Functions

A
  • Apportionment and Oversight
  • Compliance oversight
  • CASS operational oversight
  • Money laundering reporting
  • Benchmark submission
  • Benchmark administration
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15
Q

PRA Senior Management Functions

2 types

A
  • Executive Functions
  • Oversight Functions
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16
Q

PRA Senior Management Functions

7 Executive Functions

A
  • Chief Executive
  • Chief Finance
  • Chief Risk
  • Head of internal audit
  • Head of key business area
  • Group entity senior manager
  • Credit union SMF
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17
Q

PRA Senior Management Functions

6 Oversight Functions

A
  • Chairman
  • Chair of risk committee
  • Chair of audit committee
  • Chair of remunderation committee
  • Senior independent director
  • Head of overseas branch
18
Q

PRA Senior Management Functions

Individual Registration issue

A

Since PRA doesn’t have any customer functions (due to it’s nature as a regulator), individual registration may be necessary for some people.

This gives the FCA disciplinary powers over the individual as well as the firm.

19
Q

Appointed Representatives

Typical activities

If already an authorised person?

Client assets

A

Typical activities are:

  • Advising on investments;
  • Arranging deals in investments.

There is no ‘dual status’, you can’t be an AR if you are already an authorised person.

You can’t hold client assets for longer than required to deal with them (28 day max), can NEVER hold client money.

20
Q

Appointed Representatives

Appointment

3 requirements for the principal

A

Before appointing an AR the principal must establish on reasonable grounds that:

  • the appointment doesn’t prevent the firm from satisfying threshold conditions;
  • the person is solvent, suitable to act for the firm and has no close links preventing their effective supervision;
  • the firm has adequate controls over ARs regulated activities and is ready and organised to comply with any applicable requirements.
21
Q

Appointed Representatives

Appointment

Rules

A

Directors and senior managers of the AR must be approved persons.

Principal must accept responsibility in writing for the ARs activities. Must be signed by both parties before work starts.

22
Q

Appointed Representatives

Appointment

Multi-principals

Termination

A

A firm carrying on investment business may only be the AR of one principal firm.

The contract can be terminated in writing by the principal. The FCA must be notified within 10 business days.

23
Q

Record Keeping

COBs rules for record keeping

A

Indefinitely - Pension transfers, pension opt-outs and free standing additional voluntary contributions (FSAVCs).

Five years - Life policies and pension contracts, most other items.

Six years - Financial promotions for the above products.

Three years - Non-MiFID firms in some circumstances.

24
Q

Reporting

Items to be reported to FCA

A
  • Details of major holdings of limited companies (>10%);
  • Details of organisations with close links (20% subsidiaries, sister companies);
  • Financial resources, accounts etc;
  • Complaints received by the firm.

Also

  • Amounts held in client bank accounts and value of client discretionary fund assets;
  • Types of business undertaken;
  • Staff undertaking certain roles.
25
Q

Reporting

Additional reporting requirement

Punishment for late/non-reporting

A

In addition the FCA principals require firms to be open and cooperative with FCA, so other non-specified items should be reported at the discretion of the firm.

Fines can be imposed for late returns, but enforcement or removal of authorisation can occur for failure to report.

26
Q

Competence

Record keeping requirements for training records

A

From termination of appointment:

3 years - non-MiFID firms.

5 years - MiFID firms.

Indefinitely - pension transfer specialists.

27
Q

Money Laundering

Identification for individuals

Indentification for firms

A

For individuals, first obtain basic information such as name, address, DOB. Then verify this information through the use of reliable independent documents or information.

For firms, obtain information relevant to the entity (such as company registration number) and evidence that individuals have the authority to act for the business. Information must be from reliable independent sources.

28
Q

Money Laundering

Enforcement

Regulatory Powers

Punishment for partners/directors

A

Regulators have the right to enter and inspect premises and take copies of documents.

They may impose ‘appropriate’ civil penalties.

If partners/directors are personally responsible they may be fined (up to statutory max), imprisoned for up to 2 years or both. Then they are not liable to a civil penalty on top.

29
Q

Money Laundering

Record Keeping requirement

Reporting requirement

A

Records must be kept for 5 years after the end of the customer relationship, or 5 years from when the transaction was completed.

Firms must undertake an annual review of their MLR systems by obtaining a report from the MLRO.

30
Q

Money Laundering

Civil Recovery

A

The Proceeds of Crime Act established the Assets Recover Agency (ARA) which can confiscate the proceeds from criminals.

31
Q

Money Laundering

When is CDD not required?

A

Identification not required for:

  • Life policy with annual premium <eur>
    </eur><li>Pension contract with no surrendur value that can't be used as collateral for a loan</li><li>Pension scheme where members can't assign their rights</li>

</eur>

32
Q

Data

What does the Data Protection Act Apply to?

Main requirement

A

Applies to ‘relevant filing systems’, so not only computers but also manual or paper records.

Firms are required to register with the Public Register of Data Controllers (maintained by the Information Commissioner’s Office ICO). Processors using only manual records are exempt.

33
Q

Data

Maximum fees for data requests

A

Mostly £10 fee, but paper based health or education records can be up to £50.

34
Q

Complaints

Eligible complainants

Where it should be directed

A
  • Consumer
  • Micro-enterprise (<10 employees AND turnover or annual balance sheet < Eur2m)
  • Charity (<£1m annual income)
  • Trust (<£1m NAV)

Should be directed initially to the firm providing the service. Sale of contracts by an intermediary should go to the intermediary first.

35
Q

Complaints

Right to appeal to firms decision

FCA expectation on resolution time

Other timing requirements

A

Can appeal within 6 months to FOS

FCA expects 8 week resolution time. If it isn’t possible the firm must send a written response indicating why and that they can at that point refer to FOS for the next 6 months.

Also required to acknowledge receipt of the complaint on a timely basis and regularly update them on the status.

36
Q

Complaints

Record keeping requirement

Reporting requirement

A

Records kept for 5 years for MiFID, 3 years for non-MiFID.

Firm must supply complaints data to the FCA twice per year via the GABRIEL online reporting system.

37
Q

Complaints

Financial Ombudsman Service (FOS)

Time limit

Maximum monetary award

A

Time limit is soonest of 6 months after the firms response, or 6 years after the event complained about or 3 years after they should have known they could complain. Can be extended in exceptional circumstances.

£150k is the max payment, plus costs and interest.

38
Q

Complaints

Financial Ombudsman Service (FOS)

Pensions ombudsman

A

Agreement with pensions ombudsman relating to personal pensions and small occupational schemes, is that FOS takes care of sales and POS looks at management or administration of the schemes.

39
Q

Complaints

Financial Services Compensation Scheme

Purpose

Scope

Who claims for the dead, trusts

A

Purpose is to compensate claimants where authorised persons (or ARs) are unable to satisfy claims against them.

Must relate to a protected deposit, protected insurance contract or protected investment business.

Personal representatives can claim on the behalf of deceased and trustees on behalf of a trust.

40
Q

Complaints

FSCS

Amounts payable

A

Deposits: 100% of first £75k

Investments: 100% of first £50k

Long-term Insurance: 100% of claim from product providers, 90% from intermediaries

General Insurance: For compulsory insurance 100% of valid claims or unexpired premiums, 90% of the claim for non-compulsory.

Home Finance: 100% of £50k

41
Q

Authorisation

Deputisation of approved person by non-approved person

A

This is possible, but only for up to 12 weeks out of any 12 month period.

CII - R01 (9 decks)

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