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R01 Chapter 5B: The FCA Handbook > 5B.1 Financial Stability and prudential regulation / high level standards (HLS) > Flashcards

5B.1 Financial Stability and prudential regulation / high level standards (HLS) Flashcards

1
Q

Until the new ‘twin peaks’ arrangement came into force, what one source document did the rules and principles of regulation mainly come from?

A

The FSA Handbook.

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2
Q

What happened to the handbook following the disbandment of the FSA?

A

The book has been split in 2, with the FCA and PRA having their own handbooks. Generally, the content has remained the same.

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3
Q

Since the UK left the EU, the FCA published details of changes to its rules. What do we have in place currently?

A

A Temporary Transitional Power (TTP).

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4
Q

What does a temporary transitional power (TTP) allows the UK regulators to do?

A

Delay or phase in change to UK regulatory requirements.

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5
Q

Regulators and firms are going through an ONSHORING PROCESS, what is this?

A

This is where they amend EU legislation and requirements so that they work in a UK only context.

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6
Q

When was the onshoring completed?

A

31st March 2022.

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7
Q

All rules are made under powers given to the FCA by who?

A

The Financial Services and Markets Act 2000 (FSMA).

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8
Q

What did the Finance Act 2012 do?

A

Although the FSMA act initially created the FSA, the act remains valid and the powers it bestowed on the FSA have transferred to the FCA and PRA.

The Finance Act 2012 simply paved the way for the change in the regulatory framework. Many of the rules are similar to those under FSMA 2000.

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9
Q

How many blocks is the FCA handbook content split into?

A

9 distinct sections called ‘blocks’ or ‘tiers’.

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10
Q

What does Block 1 High level standards cover?

A

General standards that apply to all firms / approved persons.

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11
Q

What does Block 2 Prudential standards cover?

A

Sets out prudential standards for firms.

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12
Q

What does Block 3 Business standards cover?

A

Day to day requirements for firms.

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13
Q

What does Block 4 Regulatory process cover?

A

FCA’s autorisation, supervisory, and disciplinary functions.

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14
Q

What does Block 5 Redress cover?

A

Complaint-handling and compensation

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15
Q

What does Block 6 Specialist sourcebooks cover?

A

Requirements for individual business sectors.

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16
Q

What does Block 7 Listing, prospectus and disclosure cover?

A

UK listing authority rules

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17
Q

What does Block 8 Handbook guides cover?

A

Provides an overview of certain topics

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18
Q

What does Block 9 Regulatory guides cover?

A

Guides to regulatory topics.

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19
Q

What is each block or tier made up of?

A

Different manuals known as sourcebooks.

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20
Q

In Block 1, what does the sourcebook Principles for business (PRIN) include?

A

General statements about a firm’s regulatory obligations.

The 12 principles

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21
Q

In Block 1, what does the sourcebook Systems and controls (SYSC) include?

A

Rules and guidance on the systems and controls required and how senior management should approach them.

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22
Q

In Block 1, what does the sourcebook Code of Conduct (COCON) include?

A

Rules that relate to the conduct of individuals who fall under the Senior Managers and Certification Regime (SM&CR)

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23
Q

In Block 1, what does the sourcebook Threshold conditions (COND) include?

A

The minimum standards individuals, firms, and markets must satisfy to become and remain FCA authorised.

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24
Q

In Block 1, what does the sourcebook Approved persons rules (APER) include?

A

The behaviours and standards expected by the FCA of individuals within an appointed representative or a non-SM&CR firm.

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25
Q

In Block 1, what does the sourcebook Fit and proper testing (FIT) include?

A

Sets out FCA criteria to assess suitability of those performing a senior management or controlled function within authorised firms and markets.

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26
Q

In Block 1, what does the sourcebook Financial stability and market confidence (FINMAR) include?

A

Rules that relate to a firm’s financial stability, market confidence and short selling.

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27
Q

In Block 1, what does the sourcebook Training and Competence (TC) include?

A

Requirements concerning staff competence within an authorised firm or market.

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28
Q

In Block 1, what does the sourcebook General provisions (GEN) include?

A

The legal framework of FCA regulation in relation to status disclosure.

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29
Q

In Block 1, what does the sourcebook Fees manual (FEES) include?

A

Fees framework for funding the FCA, FOS, FSCS and MaPS (MoneyHelper).

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30
Q

Who can be an authorised person?

A

An individual, firm, or market that has been granted and retains Part 4a permission.

This is required under general prohibition rules. There is also a new Consumer Duty Principle that has been introduced from July 2022.

31
Q

What are PRIN - Principles for Business?

A

11 general statements about an authorised person’s obligations.

32
Q

How is the Systems and Controls (SYSC) split?

A

Split into over 20 different sub-sections and chapters. It applies to senior management within an authorised person.

33
Q

What must a firm do in relation to SYSC?

A

Must take reasonable care to establish and maintain such systems and controls as are appropriate to its business.

34
Q

What must the senior management of authorised businesses have?

A

An adequate structure of systems and controls for their business. Each senior manager should have written responsibilities.

35
Q

What are Threshold Conditions (COND)?

A

These are the minimum conditions that a firm must satisfy at all times if it is to retain its Part 4a permission to carry out regulated activities in the UK.

36
Q

What are the 5 threshold conditions?

A
  1. Location of offices
  2. Effective supervision
  3. Appropriate resources
  4. Suitability
  5. Business model
37
Q

In relation to threshold conditions, what does ‘Location of offices’ mean?

A

Head office and registered office must be in the UK.

38
Q

In relation to threshold conditions, what does ‘Effective supervision’ mean?

A

The FCA must be satisfied that it can supervise the firm, and that any close links with other organisations (particularly those in non EEA countries) do not create any legal issues that the FCA cannot enforce.

39
Q

In relation to threshold conditions, what does ‘appropriate resources’ mean?

A

Resources must be appropriate for the nature of the business undertaken.

40
Q

In relation to threshold conditions, what does ‘suitability’ mean?

A

The person concerned must be a fit and proper person, according to FCA rules.

41
Q

In relation to threshold conditions, what does ‘business model’ mean?

A

Must be in place and appropriate for the nature of the business undertaken, in the interests of consumers and for the integrity of the UK financial system.

42
Q

What is APER - FCA statements of principle and code of practice for approved persons?

A

In short, there are principles for individuals, known as approved persons, as well as firms. These individuals carry out a significant role (also known as controlled functions) within an authorised person (non-SM&CR firms now).

43
Q

What are APER subjecto?

A

The 11 principles of business and an additional 7 Approved Person Principles.

44
Q

What is FIT - Fit and Proper test for employees and senior personnel in short?

A

A senior manager or individual subject to Certification must be, and remain, fit and proper for their role. So, it is not a one-off test.

45
Q

What are the 3 parts to the FINMAR - Financial stability and market confidence?

A
  1. Gives the FCA the power to gather any financial information it requires to meet its objective.
  2. Provides rules and guidance on short selling.
  3. Links with the Banking Act 2009 re failing or potentially failing banks.
46
Q

What is short telling?

A

This is where a trader ‘borrows’ some shares and speculates on their price movements. This is a very risky strategy, where huge sums can be made but also lost.

47
Q

What happened to TC - Training & Competence in 2011?

A

T&C activity was ‘promoted’ to the high-level standards in 2011 to reflect its increased importance.

48
Q

What does T&C mean?

A

Means that any authorised person has responsibility to ensure that all their employees and representatives have the appropriate qualifications and partake in continuous professional development (CPD) keeping up to date with current legislation, products, market changes etc. i.e. their competence is maintained.

49
Q

What are a lot of the legality of the FCA, including disclosure of status, fall into what area?

A

GEN - General Provisions. Unless you are legally allowed to do so, you cannot claim that any of your activities have the approval of the FCA.

50
Q

In case of an event that could, or does, lead to any FCA rule not being adhered to, what must a firm do?

A

The firm must inform the FCA immediately, outlining the steps it is taking to eradicate the issue.

51
Q

What does statutory status disclosure require all authorised firms to do?

A

Disclose their ‘statutory status’.

52
Q

Consumers must know the status of the adviser they are dealing with. What does this mean for firms?

A

For firms, this means ‘authorised and regulated by the FCA’ and for appointed representatives ‘x is an appointed representative of y, which is authorised by the FCA’.

53
Q

Can the FCA be shortened?

A

No, the Financial Conduct Authority should not be shortened to FCA and firms cannot display the FCA logo on their materials.

54
Q

What logo is used on all disclosure documents and must not be used on any other documents?

A

The keyfacts logo

55
Q

Why can you not use the keyfacts logo on any other documents?

A

Because it may give the false impression that they are FCA approved.

Firms also cannot indemnify themselves against FCA fines.

56
Q

How is the FCA funded?

A

By levies on the financial services industry.

57
Q

Why are firms placed in ‘fee blocks’?

A

Firms are placed in ‘fee blocks’ which group together similar firms, reflecting the risk they pose to FCA objectives. It is common for firms to be in more than one fee block if they carry out numerous activities.

58
Q

Firms also subject to fees and levies imposed by who?

A

The FOS, FSCS and MaPS, which are collected separately.

59
Q

What are the FCA application fees?

A

Application fees levied on new firms start at £2,500 for basic applications and rise significantly for complex authorisations.

Any firm that wishes to vary their authorisation and in doing so falls into new fee blocks, is charged a ‘variation of permission’ fee which is 50% of the equivalent application fee.

60
Q

What application fee does variations such as adding authorisation but not moving into a new fee block attract?

A

A £250 flat fee.

61
Q

When is an FCA application fee required?

A

An application fee is required, whether you are successfully awarded Part 4a permission or not.

62
Q

When are FCA periodic fees paid and what do they represent?

A

Paid annually, this represents the largest income from authorised firs.

63
Q

What do FCA periodic fees cover and what are they made up of?

A

Day to day FCA costs and are made up of different fee blocks. These are calculated by splitting the agreed Annual Funding Requirement (yearly running costs) declared in each year’s FCA budget between each fee block.

64
Q

With periodic FCA fees, how much is allocated to each fee block?

A

This depends on the estimated FCA costs in regulated activities per block. Each fee block groups together similar firm types - so the greater the regulatory activity, the higher the periodic fee will be.

65
Q

What is the ‘individual tariff data’ in the FCA periodic fees?

A

Each fee block has a ‘tariff-base’ which is a size of business measure, so your total fee per year is determined by the number of fee blocks you are in, and the size of your business. This is called your ‘individual tariff data’. Tariff data varies across the different fee blocks and is a measure of a firm’s activities. And the greater the activity the greater the regulation the higher the costs the higher the ultimate periodic charge.

66
Q

In simple terms what is a periodic fee?

A

= A firm’s tariff base (such as annual income) x fee-block rates.

67
Q

What are the FCA’s special project fees?

A

Meets the costs that the FCA incurs when dealing with special requests from fee paying individuals, firms, and markets e.g. mergers, de-mutalisation etc.

68
Q

When are application and periodic fees usually paid?

A

In advance, not in arrears. There is now an option to pay in instalments, rather than all in one go.

69
Q

What is an easy way to remember FCA fees?

A

SAP - Special, Application, Periodic.

This of it as FCA fees sapping our budgets.

70
Q

What 3 documents MUST a firm declare their statutory status on? i.e. authorised and regulated by the Financial Conduct Authority.

A
  • Letters to customers
  • E-mail footers
  • Fax headers
71
Q

What 2 documents is it BEST PRACTICE for a firm to declare their statutory status on? i.e., authorised and regulated by the Financial Conduct Authority.

A
  • Business Cards
  • Compliment slips
72
Q

What 2 documents should a firm NOT declare their statutory status on? i.e., authorised and regulated by the Financial Conduct Authority.

A
  • Bank statements
  • Text messages
73
Q

What systems and controls are present in a financial services business? (Just examples)

A
  • Structure chart
  • Role profiles
  • Risk heat-maps
  • Management information
  • Fit and proper declarations
  • Sales data
  • 1:1 review documents
  • Business continuity processes
  • HR files on personnel
  • Significant event registers

R01 Chapter 5B: The FCA Handbook (7 decks)

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