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R01 Chapter 5A: Responsibilities and approach to regulation > 5A.2 FCA - The basics > Flashcards

5A.2 FCA - The basics Flashcards

1
Q

What type of body is the FCA?

A

An independent body

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2
Q

Who does the FCA report to?

A

Annually into parliament, and more regularly to the Treasury.

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3
Q

What were the FCA objectives originally set up under and what amended them?

A

Set up originally under the Financial Services and Markets Act 2000 (FSMA) and amended by the Financial Services Act 2012.

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4
Q

What is the sole overarching strategic objective of the FCA?

A

Ensuring that the relevant market functions well.

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5
Q

What are the 3 FCA operational objectives?

A
  1. To secure an appropriate degree of PROTECTION for consumers.
  2. To protect and enhance the INTEGRITY of the UK financial system.
  3. To promote effective COMPEITION in consumer interests.
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6
Q

What is consumer protection?

A

Whether it is bank accounts, mortgages, credit cards etc. virtually every UK adult is a consumer of financial services. One FCA objective is to ensure an appropriate degree of protection for them.

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7
Q

How will the FCA act to achieve consumer protection?

A

It will act to ensure that a firm has its customers at the heart of how it does business, giving them appropriate products and services and putting their protection above profits or remuneration.

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8
Q

To make sure that consumers are protected and treated fairly, what does the FCA do?

A

It monitors which individuals, firms, and markets can enter the financial markets, making sure that they meet set standards before they receive ‘Part 4a’ permission. They are then supervised in how they work.

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9
Q

Why is Part 4a permission required?

A

It is required to carry out regulated activities, otherwise this is a criminal offence.

The FCA can act to stop those that are not meeting these standards from carrying out regulated activities.

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10
Q

What is the FCA’s greatest responsibility?

A

To retain clients: so ‘Mr, Mrs and Ms Average’.

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11
Q

How does the FCA protect and enhance the integrity of the UK financial system?

A

The FCA does not hold sole responsibility for UK financial stability. That lies with several different bodies.

The soundness of the markets’ infrastructure, integrity of the markets, and combating crime and market abuse will be central to its aims.

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12
Q

Why are competitive markets hugely important to the FCA?

A

Because firms must offer quality products, better value, prices should be linked to costs, and they should promote innovation.

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13
Q

What is the FCAs view to compeition?

A

When competition works well, consumers are empowered as well as informed.

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14
Q

What two statutes does the FCA have concurrent competition powers from?

A
  1. Competition Act 1998
  2. Consumer Rights Act 2015
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15
Q

What must consumers be able to do in terms of compeition?

A

Must be able to make sense of the information they receive and take their business elsewhere if they are not happy.

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16
Q

What must firms strive to do in terms of competition and what does this help generate?

A

Firms strive to win custom based on service, quality, price and innovation.

It helps generate better outcomes for consumers, which is another key regulatory requirement.

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17
Q

What body does the FCA promote healthy markets in conjunction with?

A

The Competition and Markets Authority (CMA)

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18
Q

How do CMA activities impact on the role of the FCA?

A

The CMA can investigate how FCA rules are affecting market competition and get them changed if they are non-competitive.

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19
Q

What is an easy way to remember the 3 operation objectives of the FCA?

A

PIC - The FCA constantly picking at what we do day to day.

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20
Q

What are all actions taken by the FCA in pursuit of?

A

Achieving its objectives.

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21
Q

What are the 8 regulatory principles of the FCA?

A
  1. Efficiency and economy
  2. Proportionality
  3. Sustainable growth
  4. Consumer responsibilities
  5. Senior management responsibilities
  6. Recognition of business differences
  7. Openness and disclosure
  8. Transparency
22
Q

What does the FCA aim to do with these 8 regulatory principles?

A

Aims to follow these principles when carrying out its various functions and they consider these principles when carrying out their day-to-day role of micro-prudential supervision.

23
Q

What does the regulatory principle ‘Efficiency and economy’ mean?

A

Use its resources in the most efficient way and offer value for money.

At any point, the Treasury can commission value-for money reviews to check this.

24
Q

What does the regulatory principle ‘Proportionality’ mean?

A

Any FCA burden or restriction considers the expected benefits.

It will take costs to firms and consumers into account as well.

25
Q

What does the regulatory principle ‘Sustainable growth’ mean?

A

To ensure effective regulation still retains a desire for medium to long-term sustainable growth in the UK economy.

26
Q

What does the regulatory principle ‘Responsibility of consumers’ mean?

A

Consumers should take responsibility for their decisions.

It is not a ‘one-way responsibility street’ with all the fault lying with advisers, firms, and markets.

27
Q

What does the regulatory principle ‘Responsibility of senior management’ mean?

A

To comply with the regulatory framework

To lead by example and set the ‘tone at the top’

Senior management have huge responsibilities here.

28
Q

What does the regulatory principle ‘recognition of business differences’ mean?

A

To exercise the regulator functions, whilst also recognising that individuals, firms, and markets work in a variety of ways, with different objectives.

29
Q

What does the regulatory principle ‘openness and disclosure’ mean?

A

The FCA will publish information about regulated activities with a view to improving consumer knowledge of financial matters.

30
Q

What does the regulatory principle ‘transparency’ mean?

A

The FCA aims to be transparent in its role, and accessible to regulated individuals, firms, markets and to the general public.

31
Q

What are the 3 overall objectives of the regulatory principles?

A
  1. To provide political and public accountability (The FCA annual report outlines progress to Parliament)
  2. Govern the way the FCA carries out its functions.
  3. Assist in providing legal accountability (If the FCA fails here, this can result in court action).
32
Q

What 3 main powers does the scope of the FCA cover?

A
  1. Authorisation
  2. Supervision
  3. Enforcement
33
Q

What is the power ‘authorisation’?

A

Granting, varying and cancelling authorisations as necessary.

34
Q

What is the power ‘supervision’?

A

Devising rules for conduct of business, co-operating with other regulatory bodies.

35
Q

What is the power ‘enforcement’?

A

Policing the industry and imposing penalties as necessary - both civil and criminal.

36
Q

What does the FCA also monitor?

A

The activities of the stock exchanges, clearing houses (such as CREST), investment changes, and can ‘step in’ to stop firms from carrying out unauthorised business.

37
Q

As a result of the Financial Services Act 2012, what was the FCA granted and why?

A

Granted wider, more far-reaching powers. This was necessary to prevent a repeat of the financial crisis.

38
Q

What 5 things did the new powers include?

A
  1. Banning inappropriate retail products for up to 12 months.
  2. Insisting on the withdrawal of misleading financial promotions (adverts).
  3. Publication of any enforcement action (sanctions against individuals, firms, and markets).
  4. Market intelligence gathering and researchl through a new Policy, Risk and Research Division.
  5. A new whistleblowing team, allowing individuals to report their suspicions confidentially if they think a firm or individual is involved in wrong-doing within an area that the FCA regulate.
39
Q

A Policy, Risk and Research division exists within the FCA - what does this act as?

A

Its ‘radar’ This is to help the FCA be forward-looking.

40
Q

In exam questions when asked about FCA penalties, if the words ‘accidental’ or ‘inadvertently’ crop up, what should I do?

A

Be more lenient with your FCA sanctions. Don’t always choose the most severe FCA penalty.

41
Q

What can the FCA ‘police’ and industry do in extreme cases?

A

Can close businesses down and bring criminal prosecutions against them.

42
Q

The FCA is accountable to who for the way it carries out its duties?

A

HM Treasury

43
Q

What does it have that is designed to feedback to the regulator the views of practitioners, consumers, small businesses, and the markets?

A

Four ‘panels’. The regulator listens to these views but does not have to act on them.

44
Q

What do the panels do for the FCA?

A

They are another way that the FCA tries to be more proactive and use ‘forward-looking’ judgements to try and uncover key risks before they turn into a real problem.

45
Q

What are the 4 panels?

A
  1. Financial Services Practitioners Panel (FSPP)
  2. Financial Services Consumer Panel (FSCP)
  3. Small Business Practitioner Panel (SBPP)
  4. Markets Practitioner Panel (MPP)
46
Q

What is the remit of the Financial Services Practitioners Panel (FSPP)?

A

The views and concerns of the industry.

47
Q

What is the remit of the Financial Services Consumer Panel (FSCP)?

A

The interests of consumers.

48
Q

What is the remit of the Small Business Practitioner Panel (SBPP)?

A

The interests of small businesses.

49
Q

What is the remit of the Markets Practitioner Panel (MPP)?

A

The markets and investment exchanges.

50
Q

What other additional bodies is the FCA also subject to?

A

The Upper Tribunal, CMA and Complaints Commissioner.

51
Q

Who is responsible for the FCA?

A

The Treasury

R01 Chapter 5A: Responsibilities and approach to regulation (4 decks)

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