Chapter 1 - Regulatory Environment Flashcards
The FCA’s regulatory approach is best described as:
Outcomes focused. The FCA’s outcomes-focused intensive supervisory model has two key features. First, a significant enhanced analysis and risk identification capacity. Secondly, a greater focus on outcome testing.
Under the Senior Managers Regime, an SMF holder has a duty of responsibility to take reasonable steps to fulfil their prescribed responsibilities and also to:
Remedy breaches. The Senior Managers Regime includes a duty of responsibility on holders of senior management functions to take reasonable steps to fulfil prescribed responsibilities apportioned to them and prevent, stop or remedy breaches.
The regulator can require firms to retain customer telephone recordings for what prescribed additional duration beyond the standard retention period?
Two years. Firms need to be able to extend the retention period for recordings of telephone conversations for a further two years beyond the prescribed retention period if the regulator requires them to do so.
Which of the following do the internal and external audit functions have in common?
Both focus on the firm’s risk management. The internal audit function plays a crucial role in the maintenance and assessment of a firm’s risk management. External auditors also play a crucial role in the assessment of a firm’s risk and control infrastructure.
The provisions in the FCA Handbook are generally indicated by a single letter. Which letter is the provision set out in the FCA Handbook that is not a binding rule in its own right, but relates to another, binding rule?
E. Within the FCA Handbook, the type of provision denoted by the letter E (Evidential Provision) is a rule that is not binding in its own right. It will always relate to another binding rule. C is for situations that are conclusively not market abuse, D is for directions and requirements and G is for guidance.
The rules on the recording of telephone and electronic communications were introduced primarily to address what type of activity?
Market abuse. Preventing, detecting and deterring market abuse is the reason why the regulator developed rules requiring certain firms to record and retain telephone conversations and other electronic communications.
Where wording in a Financial Conduct Authority (FCA) Handbook is annotated by the single letter ‘R’, this indicates that the text is a:
Rule. R’ indicates Rules. These are binding on firms and, if a firm contravenes a rule, it may be subject to discipline.
Which one of the following is a statutory operational objective of the FCA?
Protecting and enhancing the integrity of the UK financial system. The Financial Services Act 2012 gave the FCA three statutory operational objectives: the consumer protection objective – securing an appropriate degree of protection for consumers; the integrity objective – protecting and enhancing the integrity of the UK financial system; and the competition objective – promoting effective competition in the interests of consumers in the markets for regulated financial services or services provided by a recognised investment exchange in carrying on regulated activities in respect of which it is exempt from the general prohibition.
A recent re-organisation of a common platform firm has resulted in confusion over management lines of control. This situation:
Is likely to be a breach of the FCA’s SYSC rules. In accordance with the Senior Management Arrangements, Systems and Controls section of the FCA Handbook, apportionment of responsibilities must be completed in such a way so as to ensure that it is clear who has which responsibility within a firm. For common platform firms, the requirements have the status of rules.
Horizon risk scanning, mystery shopping and on-site visits form what part of the FCA’s supervisory model?
Analysis and risk identification. The first feature of the outcomes-focused intensive supervisory model is a significant enhanced analysis and risk identification capacity which focuses on business model risk and interacts with macro-prudential analysis.
The risks arising from the types of products sold and to whom they are sold are BEST described as which type of risk?
Conduct risk. Although there is no single agreed definition of conduct risk, an important component of it is the firm’s interactions with its clients, and the potential for poor outcomes.
SYSC 5 (the ‘competent employees rule’) requires firms to employ personnel with the relevant skills, knowledge and:
Expertise. Firms must employ personnel with the skills, knowledge and expertise necessary for the discharge of their responsibilities. This is a very important requirement and is known as the competent employees rule.
Which of the following is TRUE in respect of the applicability of SYSC requirements? They are:
All legally binding on common platform firms; some are also legally binding on non-common platform firms. For firms that are subject to the Capital Requirements Directive (CRD) and the Markets in Financial Instruments Directive (MiFID), the requirements are known as the ‘common platform’ of organisational systems and controls. They have the status of rules, are legally binding on these firms and are expressed in the Handbook text. For firms that are not subject to the CRD and MiFID (and, hence, not common platform firms), some of the requirements have the status of being a rule (for example, the provisions relating to financial crime); however, other aspects apply as guidance.
To comply with senior management requirements, what action must a firm take before outsourcing critical operational functions to a third party?
Notify the Financial Conduct Authority (FCA). Firms must notify the FCA when they intend to rely on third parties for the performance of critical operational functions.
What is the strategic objective of the Financial Conduct Authority (FCA)?
To ensure that the relevant markets function well. The FCA has been given a single strategic objective within the Financial Services Act of 2012, which is to ensure that the relevant markets function well.
