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Flashcards in Chapter 1 Deck (13):
1

FCA general duties

Strategic objective: ensuring that financial markets work well
Operational objetives:
Consumer protection
Integrity (of the UK financial system)
competition (effective competition in the interests of consumers)

2

Other powers and accountability of FCA

-grant authorisations for persons applying for part 4A permission
-supervise authorised persons on an ongoing basis
-employ a range of disciplinary measures or sanctions to punish or limit activities of firms
-enforce the regulatory framework

FCA objectives also provide a degree of accountability:
-annual report to the Treasury of how how well they met their statutory objectives
-rules: has to show how the rules it makes relate to statutory objectives
-judicial review: if FCA fails to consider the objectives, it can be challenged in the courts
-regulator failure

3

PRA statutory objectives

-a general objective to promote the safety and soundness of the firms regulated
-an objective specific to insurance firms
-secondary objective of effective competition

4

PRA uses 3 characteristics

-judgement based approach: using judgement in determining whether firms are safe and sound (threshold conditions have to be met)
-a forward looking approach: wanting to intervene sooner rather than later
-a focused approach: focusing on those firms that pose biggest risks

5

Principles for Business
*if a firm breaches any of the principles that apply to it, it will be liable to disciplinary action

1) Integrity
2) Skill, care and due diligence
3) Management and control
4) Financial prudence (adequate financial resources)
5) Market conduct
6) Customers interests
7) Communications with clients
8)Conflicts of interests
9) Customers: relatonship of trust
10) Client assets
11) Relations with regulators

6

FCA risk assessment process

1) FSF (firm systematic framework) assesses firm's culture throughout the advisory process
2) event driven work (dealing faster with emerging problems and securing customer redress
3) issues and products (fast, intensive campaigns on sectors on the market of products that are putting consumers at risk)

Firms are now categorised either as fixed of flexible porfolio and within these categories FCA utilised 3 approaches:
Pillar 1: proactive supervision f the biggest firms
Pillar 2: event driven, reactive supervision of actual or emerging risks
Pillar 3: thematic work focusing on risks and issues affecting multiple firms or a sector as a whole

7

FSF assessment has 4 modules

-governance and culture (how the risk is managed)
-product design (are customer needs met accordingly?)
-sales or transaction processes (systems and controls)
-post sales/ services and transaction handling (to see how effectively ensures its customers are treated fairly

Overall:
BMSA (business model and strategy analysis) shows where there are areas of heightened risk
assessment of how the firm embeds fair treatment of customers

8

Statements of Principle for Approved persons

1) act with integrity
2) due skill, care and diligence
3) observe standards of market conduct
4) deal with FCA and regulators in an open and cooperative way
/apply to all approved persons performing controlled functions/

Additional principles for SIFs:
5) take steps to ensure that the business of the firm for which they are responsible in their function so it can be controlled effectively
6) exercise due skill, care and diligence
7) take steps to ensure that their business complies with the regulatory standards
/apply to SIF only/

9

Senior Management Arrangements, Systems and Controls

SYSC 2: appointment of significant responsibilities among directors and senior managers (keep records for 6 years from any change)
SYSC 3: a firm must take reasonable care to establish systems and controls that are appropriate to the business: compliance function, MLRO

10

What are the requirements imposed by FCA for the directors and senior managers of authorized firms?

1. senior management responsibility
2. effective organisation and control
3, apportionment of responsibility
4.common standards (common platform firms)

11

What are the types of significant influence functions?
Both customer and SIF are controlled functions

Governing functions:
-directors
Required functions:
-compliance oversight, MLRO
Systems and controls:
-finance, risk and audit
Significant management functions
head of equities


12

What are customer functions?

investment adviser, i.e. client facing roles
dealing with retail and professional clients
dealing with assets of retail and professional clients

13

new (accountability) regime

two distinct categories of senior management funcitons (SMFs) and significant harm functions (SHFs)
Gitness and propritory assessed for SMF by regulat and for SHFs by the firm. Verification sent to regulator every year. Regulator issues a certificate. code of conduct governs the conduct for all relevant employees.