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Chapter 1: The Regulatory Environment > Authorised and Approved Persons > Flashcards

Authorised and Approved Persons Flashcards

1
Q

What is an approved persons? (1)

A
  • A firm that has been approved to be regulated and carry out regulated activities/investments
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2
Q

What are the 2 ways a person can be authorised?

A
  • Part 4a permission under MiFID
  • Passporting
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3
Q

In what document can guidance for Part 4a authorisation be found?

A

FCA Perimeter Guidance Manual (PERG)

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4
Q

What part of the FCA handbook does Part 4a permission fall under? (3)

A
  • FIT (fit and proper)
  • COND (outlines the threshold conditions needed to be met to be authorised and approved - this is reinstated in Block 4 - SUP)
  • APER (approved or exempt)
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5
Q

What must the applicant apply in respect to? (1)

A

The regulated activity they wish to carry. Authorisation must be specific not general

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6
Q

What are assessment criteria for meeting threshold conditions for part 4a permission? (8)

A
  • Legal status
  • Location of offices - head office must be registered in the UK
  • Effective supervision - relates to the effect of a group or a controlling shareholder who prevents authorisation. Regulator must be satisfied that a close link is not hindering regulation - a close link has 20% or more of voting share.
  • Appropriate resources
  • Appropriate non-financial resources
  • Prudent conduct
  • Suitability
  • Business model
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7
Q

What is defined as the EEA under MiFID?

A
  • All European Union countries plus Norway, Iceland and Liechtenstein
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8
Q

What is passporting? (4)

A
  • Temporary Transitional Power issued by the Her Majesty’s Treasury
  • Allows firms to continue operating in the UK without Part 4a permission/authorisation
  • UK firms cannot be passported into the EEA (ended in March 2022)
  • All other firms in the EEA can move freely without permission
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9
Q

What new rules did MiFID II and MiFIR introduce in 2018? (4)

A
  • Market infrastructure - regulation of traditionally unregulated exchanges such as OTFs, algorithmic trading
  • Transparency of OTFs and OTC derivatives
  • Market stability - position limits on commodity derivatives
  • Consumer protection - product disclosures and governance e.g. KIIDs
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10
Q

Who does MiFID apply to? (2)

A
  • All firms that are headquartered and registered in the same EEA country
  • Firms that are carrying the core and ancillary services recognised by MiFID
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11
Q

What are the core services that can be passported under MiFID? (7)

A
  • Dealing on personal account
  • Dealing on behalf of a client
  • Transmission and reception of 1 or more financial products
  • Underwriting and placement of financial products
  • Investment advice
  • Portfolio management
  • Operating MTFs and OTFs
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12
Q

What are the ancillary services covered by MiFID? (6)

A
  • Custody over core services
  • Granting loans to an investor (firms not involved)
  • FX services
  • Investment research and financial analysis
  • Services related to underwriting
  • M+A advice
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13
Q

What instruments are covered by MIFID?

A
  • Transferable securities
  • Money market instruments
  • Units in CIS
  • Derivatives in securities, currencies, interest rates and yields
  • Currency derivatives
  • CFDs
  • Other derivatives
  • Emissions allowances
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14
Q

What products specifically are not covered by MiFID?

A
  • Retails products
  • Pensions
  • Insurance
  • Mortgages
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15
Q

Once a company is passported, which regulators is it liable to?

A

Regulators in both the home and host state

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16
Q

What is the home state regulator responsible for? (4)

A
  • Authorisation
  • Prudential supervision
  • Custody
  • Conduct of business
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17
Q

What is the host state responsible for?

A
  • Conduct of business rules when doing business in host state
  • Other rules, such as approval of controlled functions
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18
Q

Who is exempt from authorisation? (6)

A
  • Lloyds members
  • Appointed representatives
  • Members of professional bodies
  • Government organisations e.g. BoE
  • RIEs and RCHs
  • Supranational organisations e.g. IMF
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19
Q

What exchanges are recognised by the FCA?

A
  • LSE
  • AQSE
  • ICE Futures Europe
  • London Metals Exchange
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20
Q

Who are the 2 main RCH?

A
  • LCH
  • CREST operated by Euroclear
21
Q

Is Lloyds authorised?

A

The Society of Lloyds requires authorisation but members of Lloyds Syndicates are exempt.

22
Q

What are the 11 Principles of Business? (acronym: I see more for my rights, C x 6)

A
  • Integrity
  • Skill, care, diligence
  • Management and control
  • Financial prudence
  • Market conduct
  • Relationship with regulator
  • Consumer duty
  • Client assets
  • Conflict of interest
  • Consumer interest
    -Client relationship: trust
23
Q

What is SYSC? (3)

A
  • Senior management, systems and controls
  • Block 1 of FCA handbook
  • Purpose is to encourage directors and senior management of authorised firms to take appropriate responsibility when organising the firm
24
Q

How many managers are needed for an Alternative Investment Fund?

A

2

25
Q

What is whistleblowing?

A

A personal who informs on a person or firm on regulated activity

26
Q

What does SYSC cover? (4)

A
  • Apportionment of responsibility (records kept for 6 years)
  • Effective internal procedures to ensure employees concerns are met
  • Remuneration codes
  • Establish and maintain systems and control
27
Q

What are the FCAs executive senior management roles?

A
  • Executive director
  • Compliance oversight
  • Money laundering officer
  • Senior manager
28
Q

What are the 3 types of staff under the Senior Management and Certification Regime?

A
  • Senior management e.g. Mary Ann
  • Cerftification staff e.g. Ed Coley
  • Conduct staff e.g Tim Gibbons
29
Q

What are the PRAs executive senior management roles?

A
  • C level execs
  • Head of internal audit
  • Head of key business area
  • Group entity senior manager
30
Q

What are the PRAs non-executive senior management roles?

A
  • Chairman of risk/audit/remuneration
  • Senior independent director
31
Q

Which types of organisations can apply to be passported or receive Part 4a permission? (4)

A
  • Sole trader
  • An indiviudal
  • A corporation
  • An unincorporated association (not an authorised person, but wants to carry out regulated activity)
32
Q

What are the assessment thresholds for single and dual regulated firms? (8)

A

Legal status - PRA only for dual regulated firms
Location - FCA for single regulated, PRA for dual regulated
Effective supervision - FCA for single regulated, FCA and PRA for dual regulated
Appropriate resources - FCA for single regulated only
Appropriate non-financial resources - FCA for dual regulated only
Prudential conduct - PRA for dual regulated only
Suitability (fit and proprietary) - FCA for single regulated and FCA and PRA for dual regulated
Business model - FCA for single regulated and FCA and PRA for dual regulated

33
Q

What are the 3 objective of MiFID?

A
  • Cost effective execution venues are available across EEA
  • Best trade execution across EEA
  • Increase post-trade transparency across EEA
34
Q

What is MiFID? (1)

A
  • Markets in Financial Instruments Directive
  • Onshored into UK law via EU Withdrawal Act 2018 aka UK MiFID
35
Q

What are the remuneration codes? (3)

A
  • At least 40% of bonus must be deferred for 3 years
  • If significant amount, at least 60% must be deferred
  • At least 50% should be in shares or non-cash instruments
36
Q

What is a bonus based on? (3)

A
  • How well the company/team performs
  • Risk-adjusted e.g inflation
  • Assessed in respect to financial and non financial factors
37
Q

What activities can an employee not carry without passing tests?

A
  • Advising and dealing activities
38
Q

What is retail distribution review? (5)

A
  • To improve the trust of retail investment sector through
    1. Ethical standards
    2. A higher level qualification
    3. CPD (minimum 35 hrs every year, 21 hrs of these should be structured)
    4. Statements of Professional Standings (SPS)
    5. Prohibition on commission
39
Q

What is the Fit and Proper test? (3)

A
  • Financial soundness
  • Honesty, integrity, reputation
  • Competence and capability
40
Q

How long should training and comepetence records be kept? (3)

A
  • 5 years for MiFID business
  • 3 years for non-MiFID business
  • Indefinitely for pensions transfer specialist
41
Q

After resigning, how long must fit and proper records be kept for approved persons?

A

3 years - liable still for any wrongdoing after resignation

42
Q

Who is responsible for assessing the capability of individuals?

A

Firms

43
Q

What are the CFA ethics? (7)

A
  • Profesionalism
  • Integrity to capital markets
  • Duty to clients
  • Duty to employers
  • Investment analysis, recommendations and action
  • Conflict of interest
  • Responsibilities as a CFA institutional member or CFA candidate
44
Q

Who does RDR not apply to? (4)

A
  • Non advised services
  • Execution only business
  • Advice on stocks and share or structured deposits
  • Basic advice where advisors still have the ability to earn commission
45
Q

What is FCA Perimeter Guidance manual for?

A

Guidance on Part 4a permission

46
Q

What is a close link?

A
  • When a shareholder has 20% or more of the voting share capital
47
Q

What are the key differences between ethics and compliance?

A

Ethics
- Prevention
- Spirit of law
- Value driven
- Principles based
- Implicit
- Discretionary

Compliance
- Detection
- Letter of law
- Fear driven
- Rule based
- Explicit
- Mandatory

48
Q

To gain Part 4a permission, where must the head and register office be located?

A

UK

Chapter 1: The Regulatory Environment (10 decks)

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