Chapter Five: Responsibilities and Approach to Regulation

Question 1

What is the three characteristics of the way in which the PRA operates?

Answer 1

Judgement based
Forward looking
Focused

Question 2

What is the purpose of the FPC?

Answer 2

To scan emerging risks across the financial system and provide strategic direction for the entire regulatory regime

Question 3

What are the two PRA’s key objectives?

What is its secondary objective?

Answer 3

Promote safety and soundness of firms it regulates
securing an appropriate degree of protection for those who are or become policy holders (insurance providers).
Facilitate effective competition

Question 4

What are the two ways in which the PRA advances its objectives?

Answer 4

Regulation - sets standards and policies

Supervision - it assesses the risk that firms pose to the PRA’s objectives

Question 5

What is the role of the European Systematic Risk Board (ESRB)?

Answer 5

Macro prudential oversight of the EU financial system

Question 6

What are the macro prudential tools the FPC can use?

Answer 6

Setting countercyclical capital buffers - banks increase buffers in the good times, to protect in the bad

Variable risk weights - enforcing higher capital requirements on specific sectors or asset classes

Leverage limits - limiting excessive build up of on and off balance sheet leverage
(policies must not limit economic growth)

Question 7

Is the FPC allowed to disagree with recommendations from the HM Treasury?

Answer 7

Yes, it can reject recommendations

Question 8

What must the FPC publish?

Answer 8

Financial Stability report twice per year

Record of meetings within 6 weeks

Question 9

What are the PRC’s main contribution to economic policy?

Answer 9

Promote safety and the soundness of firms, support strong and stable economic growth

Question 10

What things does the PRC need to consider in their assessment of costs, burdens and benefits of rules or policies?

Answer 10

Competition
Growth
Competitiveness
Innovation
Trade
Better outcomes for customers

Question 11

What are the eight regulatory principles of the FCA?

Answer 11

Efficiency and economy
Proportionality
Sustainable Growth
Responsibility of consumers
Senior management responsibility
Recognising the differences in the businesses carried out by different regulated persons
Openness and disclosure
Transparency

Question 12

What are the the FCA’s principle related objectives?

Answer 12

Provide political and public accountability
Govern the way the FCA carries out its general function
Assist in providing legal accountability

Question 13

What are the FCA operational objectives?

Answer 13

Protecting customers
Protecting financial markets
Promoting competition

Question 14

What are the objectives for the FCA in relation to financial markets?

Answer 14

Soundness and resilience of trading infrastructure
Integrity of the financial markets
Combating market abuse
Address the extent to which the UK could be used for financial crime

Question 15

What are the objectives for the FCA in relation to promoting competition?

Answer 15

Firms must compete for business
Prices offered are in line with costs
New & innovative products are good innovation, not exploitative

Question 16

What does the competition element of the FCA allow them to do?

Answer 16

Enforce against and fine breaches - such as anti competitive agreements, cartels, breaches of domestic or EU law
Make a market investigation reference to the CMA (Competition Markets Authority)

Question 17

What is the authorisation to carry out one or more regulated activity called?

Answer 17

Part 4A permission

Question 18

What is the difference between the authorisations issued by the PRA and the FCA?

Answer 18

PRA - accepting deposits or insurance contracts

FCA - advise on or sell investments, home finance activities, general insurance

Question 19

What are the three core activities within the scope of the FCA?

Answer 19

Enforcement matters (policing the financial services system)
Supervision matters (monitoring the activities of the various recognised bodies)
Authorisation matters (direct authorisation and regulation of the UK financial services system)

Question 20

What other panels is the FCA required to maintain?

Answer 20

Financial Services Practitioner Panel
Consumer Panel
Smaller Business Panel Markets Panel

Question 21

What is the purpose of the FSPP (Financial Services Practitioner Panel)?

Answer 21

Convey the views of the regulated industries on policy from the FCA.
Provide early and effective input to policy development
Focus on those areas with the greatest impact on consumers and financial service firms

Question 22

What enforcement actions could the FCA take?

Answer 22

Withdrawing authorisation
Disciplining firms and approved persons
Imposing penalties for market abuse
Applying for injunction and restitution orders
Prosecuting offences

Question 23

What is the name of the FCA committee who consider cases put forward for enforcement action?

Answer 23

Regulatory Decisions Committee (RDC)

Question 24

Who handles appeals on RDC decisions?

Answer 24

Upper Tribunal (Tax and Chancery Chamber)

Question 25

What are the civil court actions the FCA can take?

Answer 25

High court injunctions Ordering the payment of restitution Grant insolvency orders

Question 26

What type of offences might result in criminal proceedings?

Answer 26

Falsely claiming to be FCA authorised Carrying out regulated activity without authorisation Making misleading statements to induce investments Failing to cooperate with FCA investigations

Question 27

Name 3 types of market abuse that would the FCA prosecute?

Answer 27

``` Insider dealing Improper disclosure Misuse of information Manipulating transactions Manipulating devices Dissemination Distortion or misleading behaviour ```

Question 28

What are the potential penalties for market abuse?

Answer 28

Seven years in prison Unlimited fine Public statement about the behaviour

Question 29

If someone was prosecuted for concealment under the Proceeds of Crime Act (POCA), what would be the maximum penalty

Answer 29

14 years in prison and an unlimited fine

Question 30

If a person failed to report suspicions of money laundering, what would be the maximum penalty?

Answer 30

5 years in prison and or a fine

Question 31

What describes the FCA's approach to risk based supervision?

Answer 31

Product intervention and governance Super-complaints Competition powers

Question 32

How does the FCA prioritise potential risks?

Answer 32

Impact and probability analysis

Question 33

What are the three pillars of the FCA's supervision model?

Answer 33

Proactive firm/group supervision Event driven, reactive supervision Thematic approach - issues and products supervision

Question 34

If you worked in a Fixed Portfolio firm as categorised by the FCA, what supervision would you be subject to?

Answer 34

You would require the highest level of supervision and would have a named supervisor to conduct continuous assessment

Question 35

The first 5 FCA supervision principles are; ``` Ensuring fair outcomes Forward looking and pre-emptive Focused on big issues and causes Judgement based approach Firms act in the right spirit ``` What are the remaining 5?

Answer 35

``` Business models and culture Individual accountability Robust when things go wrong Communicating openly Joined up approach ```

Question 36

What type of examples demonstrate the FCA's intervention to prevent detriment & address root cause?

Answer 36

Banning products Withdrawing misleading financial promotions Publication of enforcement action Market intelligence gathering and research

Question 37

What are the three groups that the FCA uses to categorise firms it solely regulates?

Answer 37

P1 - firms whose failure would cause lasting damage P2 - firms whose failure would cause damage but are more easily dealt with P3 - firms failure would be unlikely to cause significant harm to consumers

Question 38

If you worked in a P2 firm for FCA prudential testing, how often would you expect them to assess the firm?

Answer 38

Every 48 months

Question 39

During an FCA visit by an enforcement officer, what areas would they typically check?

Answer 39

Business operations Personnel matters Customer matters

Question 40

In what sense is the FCA a reactive regulator?

Answer 40

It receives regular reports from authorised firms, any information that is of concern within the report may result in action by the FCA

Question 41

What is a life offices' FAR (free asset ratio) and why would this be of interest to an adviser?

Answer 41

The surplus assets held by a life office over the value of its liability as a %. Could be used as a measure of a firms financial strength

Question 42

What UK regulatory bodies have specific responsibility for financial stability?

Answer 42

The Bank of England (Including FPC) PRA FCA

Question 43

Name the 3 supervisory bodies that compromise the European System of Financial Supervision (ESFS)?

Answer 43

1. The European Banking Authority (EBA) 2. The European Securities & Markets Authority (ESMA) 3. The European Insurance and Occupational Pensions Authority (EIOPA)

Question 44

``` Insider Dealing, Improper Disclosure, Misuse of Information, Manipulating Transactions, Manipulating Devices, Dissemination, Distortion and Misleading Behaviour, ``` Are all examples of?

Answer 44

Market Abuse.

Question 45

What is the punishment for failing to report any knowledge or suspicion of Money Laundering under the Proceeds of Crime Act 2002 (POCA)?

Answer 45

Up to five years imprisonment and / or a fine.

Question 46

Under the Fourth Money Laundering Directive (4MLD), what penalties can the FCA levy?

Answer 46

1. Penalties on the registered business. 2. Prosecution of the officer of a registered business which if convicted, can result in a two year prison sentence and / or a fine.

Question 47

What is a fixed portfolio firm?

Answer 47

They are determined that due to size, market presence or customer footprint require higher levels of supervision. They are pro-actively supervised and have an INDIVIDUAL SUPERVISOR assigned to them. (Pillar 1)

Question 48

What is a flexible portfolio firm?

Answer 48

These make up the majority of firms and are pro-actively supervised by a mixture of EVENT DRIVEN REACTION (Pillar 2) or a THEMATIC APPROACH (Pillar 3) and use the FCA CONTACT CENTRE as their point of contact with the FCA.