Chapter 1. The Regulatory Environment

Question 1

Section 1.2

Who are the two regulators that together make up the twin peaks of UK financial services regulation?

Answer 1

The FCA and the PRA.

Question 2

Section 1.2

How do the FCA and PRA differ

Answer 2

FCA vs PRA:

The FCA protects consumers, ensures market integrity, and promotes competition.

The PRA ensures banks, insurers, and other major firms are financially sound to protect the stability of the UK financial system.

Question 3

Section 1.3

To which government body is the FCA accountable?

Answer 3

HM Treasury (HMT)

The FCA is directly accountable to HM Treasury, and, therefore, ultimately Parliament, through a variety of mechanisms.

Question 4

Section 2.1

What are the statutory objectives of the PRA?

Answer 4

General objective (safety and soundness of firms), and insurance objective (policyholder protection).

**Secondary objective **to support competitiveness and growth.

Question 5

List the components of the forward-looking approach.

Answer 5

Judgement-based, forward-looking, risk-based supervision including proactive, reactive, and thematic elements. Horizon-scanning and outcomes testing are included.

Question 6

What is conduct risk?

Answer 6

Conduct risk refers to the risk of poor outcomes for consumers or market integrity due to how a firm conducts its business, including behaviours of staff and firm culture.

Question 7

Give three examples of the regulators’ powers in addition to rule-making.

Answer 7

Investigations, enforcement actions, imposition of financial penalties, direction and restriction powers, and withdrawal of authorisation.

Question 8

List the 12 Principles for Businesses.

Answer 8

1. Integrity; 2. Skill, care and diligence; 3. Management and control; 4. Financial prudence; 5. Market conduct; 6. Customers’ interests; 7. Communications with clients; 8. Conflicts of interest; 9. Customers: relationships of trust; 10. Clients’ assets; 11. Relations with regulators; 12. Consumer Duty.

Question 9

What is the likely outcome for a firm that breaches a Principle?

Answer 9

The firm may be subject to enforcement action and sanctions, including public censure and financial penalties.

Question 10

What are the Consumer Duty ‘Outcomes’?

Answer 10

Products and services outcome; Price and value outcome; Consumer understanding outcome; Consumer support outcome.

Question 11

When would Principle 12 apply to a firm?

Answer 11

Principle 12 (Consumer Duty) applies when a firm is dealing with retail customers in the UK or when overseas activities may affect UK retail customers.

Question 12

To whom does the ‘Fair Treatment of Customers’ initiative apply?

Answer 12

It applies to all authorised firms across all sectors and to all parts of their business that involve the treatment of customers.

Question 15

What is a Management Responsibilities Map?

Answer 15

A document showing how responsibilities are allocated across senior managers, including reporting lines and management structures.

Question 16

What type of individual within an authorised firm would be subject to the Certification

Answer 16

Individuals performing a significant harm function but not subject to Senior Managers Regime, such as client-facing roles or those with a material impact on firm risk.

Question 17

Regime?

Question 18

What is the purpose behind the FCA requirements for senior management?

Answer 18

To ensure individual accountability of senior managers for the conduct of their areas and promote a culture of personal responsibility.

Question 19

How do the requirements of SYSC apply to non-common platform firms?

Answer 19

SYSC applies in a proportionate way to non-common platform firms. While not all detailed rules apply, they must still maintain adequate systems and controls.

Question 20

List five areas covered by SYSC.

Answer 20

1. General organisational requirements; 2. Compliance, audit and risk; 3. Outsourcing; 4. Record keeping; 5. Conflicts of interest.

Question 21

What is the relationship between the FCA and the FOS?

Answer 21

The FOS handles complaints unresolved by firms and can award compensation. FCA sets its jurisdiction. Decisions are binding if accepted by the complainant.

Question 22

What is the purpose of the FSCS?

Answer 22

To provide compensation to consumers where a firm has failed and is unable to meet claims, protecting clients of financial services firms.

Question 23

What is the role of each of the following: the CMA, the ICO, The Pensions Regulator?

Answer 23

CMA: Promotes competition and investigates anti-competitive practices; ICO: Regulates data protection and privacy; The Pensions Regulator: Oversees workplace pension compliance and governance.

Question 24

What is the purpose of the Upper Tribunal and to whom does it report?

Answer 24

The Upper Tribunal hears appeals on regulatory decisions and reports to the Ministry of Justice. It provides an independent judicial forum.

Question 25

What provision is indicated by the letters: G, D, P, E, R, C?

Answer 25

G – Guidance; D – Direction; P – Principle; E – Evidential provision; R – Rule; C – Code of Conduct.

Question 26

What is the difference between a rule and an evidential provision in the FCA Handbook or the

Answer 26

Rules are binding requirements. Evidential provisions are non-binding but illustrate how to comply with rules.

Question 27

PRA Rulebook?

Question 29

What is the status of FCA- or PRA-confirmed industry guidance?

Answer 29

Industry guidance confirmed by the FCA or PRA is not mandatory but shows recognised ways to comply and is taken into account in supervisory assessments.

Question 30

What are members of the CISI expected to do should they be required to act in a manner contrary to the Principles?

Answer 30

CISI members are expected to refuse to act in a way that breaches Principles and must report concerns where appropriate.

Question 31

What are the consequences of non-compliance with The Pensions Regulator’s rules on occupational pension schemes?

Answer 31

Non-compliance can lead to fines, enforcement notices, and backdated contributions, with potential legal recovery through courts if unpaid.

Question 32

# Section 2.1 What is the single strategic objective of the FCA

Answer 32

Ensuring that the relevant markets function well

Question 33

# Section 2.1 What are the three operational objectives of the FCA

Answer 33

Securing an appropriate degree of protection for consumers. Protecting and enhancing the integrity of the UK financial system. Encouraging healthy competition in financial services and investment markets to benefit consumers, even when some firms are exempt from needing full authorisation.