Chapter 6 - Legal And Regulatory Environment Flashcards
FCA
PRA
FPC
FCA - takes care of consumer protection and market regulation
PRA - responsible for solvency and stability of institutions important to financial services such as banks and insurers
FPC - watches for systemic risks which impact whole industry
Objectives of PRA
- Promote the safety and soundness of PRA regulated persons
Secondary
- ensuring people behave in way which avoids adverse effect on stability of UK financial system
- minimising adverse effect of the above
- facilitating competition (subordinate to promoting safety)
Insurance
- contributing to securing protection for policyholders
- protection for reasonable expectations of policyholders as to the distribution of surplus under with-profits policies
PRA threshold conditions
- head office to be in UK
- business conducted in prudent manner
- firm fit and proper and appropriately staffed
- firm and group capable of being supervised
PRAs Risk Assessment Framework - 3 elements
3 elements
- potential impact on policyholders
- macroeconomic and business risk context in which firm operates
- mitigating factors (risk management and governance)
PRAs Risk Assessment Framework - Baseline level of supervision
- ensuring compliance with prudential standards for capital
- liquidity, asset valuation, provisioning and reserving
- annual review of risks posed by firms or sectors to the PRAs objectives
- assessing firms planned recovery actions and how it may exit market
FCA objectives
- ensure the relevant markets function well
Secondary
- Consumer protection
- Integrity
- Competition
Both FCA and PRA must have regard to efficient and economic use of resources
- proportionately
- consumer responsibilities
- transparency
FCA authorisations and approvals
Focuses on proposed business model governance and culture, and systems and controls firm intends to use especially over:
- product governance
- end to end sales processes
- prevention of financial crime
Applicants must have good understanding of good outcomes through:
- corporate culture
- conduct risk management
- product design
FCA supervision
Changes to model since 2015
How it classifies firms as fixed or flexible
Fixed = Require highest level of supervision. Small population. Named individual supervisor
Flexible = proactively supervised through market based thematic work and programmes of communication engagement and education. Firms use FCA Customer Contact Centre as 1st point of contact
FCA Risk Framework - 3pillars
- Firm systematic framework: are customer interests at heart?
- Event driven work
- Issues and products - flexible approach
FCA responses
Banning products in retail
Withdrawing misleading financial promotions
FCA reports to Government and Parliament
4 statutory panels representing view of consumers, regulated firms, smaller regulated firms and market practitioners
11 Principles for Business
- Integrity *
- Skill, care, diligence *
- Management and control *
- Financial prudence *
- Market conduct
- Customers interests
- Communications with clients
- Conflicts of interest *
- Customers: relationship of trust
- Clients assets
- Relationship with regulators *
* = PRA
Fair treatment of customers through product cycle
- product design and governance
- identifying target market
- marketing and promoting product
- sales and advice process
- after sales information
- complaint handling
Difference between consumer and commercial customers
Consumer - natural person acting for something outside trade or profession
Commercial- acting in trade or profession
Consumers expected to take responsibility for their decisions when purchasing
Senior Management Arrangements, Systems, and Controls (principle 3)
Rules in principle 3 for controlled functions
“Apportionment and Oversight Officer” responsible for allocation and monitoring of regulated activities within the firm.
Requirement for insurers to appoint a Money Laundering Officer
Public Interest Disclosure Act 1998 (PIDA)
Whistle blowing
Those who make disclosures have the right not to suffer detriment
Disclosures:
- criminal offence
- failure to comply with legal obligation
- miscarriage of justice
- putting off health and safety of someone in danger
- damage to environment
- deliberate concealment of above
