R01 Flashcards
(247 cards)
1
Q
Regulation of financial services
What does FSMA stand for?
A
Financial Services and Markets Act 2000
2
Q
Regulation of financial services
What did the FSMA create? (3)
A
- Single Regulator: Financial Services Authority (FSA)
- Single Ombudsman: Financial Ombudsman Service (FOS)
- One compensation scheme: Financial Services Compensation Scheme (FSCS)
3
Q
Regulation of financial services
What did the FSMA introduce?
A
General Rule of Prohibition
4
Q
Regulation of financial services
What are regulated activities under the FSMA?
A
Dealing, Arranging, Managing and giving advice on the following:
- Banking
- Home Finance
- Insurer
- Scheme Operator
- Investment Intermediary
- Insurance Intermediary
- Investment Manager
- Credit-rated
5
Q
Regulation of financial services
What did FSA 2012 do? (4)
A
Financial Services Act:
- Twin Peaks Regulation (PRA and FCA)
- Financial Policy Committee (FPC)
- Created SCOFS
- New supervision powers:
- banning products (up to 12 months)
- withdrawal of misleading financial promotions
- publication of enforcement action
- market intelligence gathering and research
6
Q
Regulation of financial services
What changes were introduced in the Financial Services (Banking Reform) Act 2013?
A
Rules of individual accountability
7
Q
Regulation of financial services
BOEFSA
- When was it introduced?
- What does it stand for?
A
- 2016
- Bank of England and Financial Services Act 2016
8
Q
Regulation of financial services
BOEFSA
What did it do? (4)
A
- Created Prudential Regulation Committee (PRC)
- Replaced PRA Board (Prudential Regulation Authority)
- FPC made statutory committee - with MPC (Monetary Policy Committee) and PRC
- BOE at heart of regulation
9
Q
Regulation of financial services
What does the Treasury do? (5)
A
- Investigates financial and economic policies for UK government
- Fiscal policy
- UK Budget
- Overall oversight of financial regulation
- Chairs SCOFS (Standing Committee of Financial Stability)
10
Q
Regulation of financial services
What are the aims of the Treasury? (3)
A
- Raise the rate of sustainable growth
- Sustainable jobs
- Achieve rising prosperity by creating economic opportunities
11
Q
Regulation of financial services
What does the Bank of England do? (4)
A
- UK central bank and lender of last resort
- Responsible for overall financial stability of the system
- Focused on reducing systemic risk (FPC and PRA)
- Responsible for Monetary Policy through Monetary Policy Committee
12
Q
Regulation of financial services
Financial Policy Committee (FPC)
When was it established?
What does the FPC do? (4)
A
Established in April 2013 - has macro responsibility
- Operates and runs within the Bank of England
- Protects and enhances the resilience of UK financial system by identifying action to remove or reduce systemic risk
- Supports UK Government economic policy
- Produces twice yearly Financial Stability Reports to the Treasury and European Regulators
13
Q
Regulation of financial services
Who chairs the FPC and how many members are there?
A
Chaired by Governor of the Bank of England with 13 members
14
Q
Responsibilities and approach to regulation
What are the FPC macro prudential tools and what do they do? (3)
A
- Setting countercyclical capital buffers - ensure banks increase their capital in good times so they have protection for the bad
- Variable risk weights - requiring banks to hold different levels for capital against assets depending on risk taken
- Leverage limits - reduce amount that firms use their balance sheet in order to borrow to reinvest in the market
15
Q
Financial services industry: an overview
What does the Monetary Policy Committee (MPC) do? (2)
A
- Enacts monetary policy
- Sets interests rates to meet inflation target set of the Chancellor of the Exchequer
16
Q
Monetary Policy Committee (MPC)
How far ahead does the MPC look when setting interests rates?
How often does it meet?
What is their target?
A
18-24 months
8 times a year
Achieve 2% inflation (CPI) set by UK Government
17
Q
Regulation of financial services
What does PRA stand for?
What does the PRA do? (2)
A
Prudential Regulation Authority
- Sits within the Bank of England
- Regulates 1700 most systemically important firms
18
Q
Responsibilities and approach to regulation
List the PRA charactersitics (3)
A
- Judgement based - uses own judgement to identify where most significant risk is
- Forward-looking - future rather than current risk
- Focused - looking at areas of highest systemic risk
19
Q
Responsibilities and approach to regulation
What are the objectives of the PRA? (3)
A
- Promote safety and soundness of firms
- Facilitate effective competition (2016)
- Secure an appropriate degree of consumer protection
20
Q
Responsibilities and approach to regulation
What does FCA stand for?
What does the FCA do? (2)
A
Financial Conduct Authority
- Independent limited company
- Oversees most UK firms’ conduct and prudential supervision
21
Q
Regulation of financial services
Who is the FCA responsible for? (3)
A
- FOS
- FSCS and CMCs
- Money and Pensions Service (MaPS)
22
Q
The FCA Handbook
Where does the FCA derive it’s power from?
A
FSMA 2000 and FSA 2012
23
Q
Regulatory advice framework
What did the Treasury declare in March 2016, which established a new guidance body at start of 2019?
A
Combining - Money Advice Service, Pensions Advisory Service and Pension Wise to make Money and Pensions Service (MaPS)
24
Q
Regulation of financial services
FCA has 1 strategic and 3 operational objectives - what are they?
A
Strategic - to ensure that the relevant markets function well
Operational -
- Protect Consumers
- Protect financial markets
- Promote competition
25
Responsibilities and approach to regulation
RDC
What does it stand for?
Who chairs it?
Regulatory Decisions Committee
An employee of the FCA
26
Responsibilities and approach to regulation
RDC
What does it do? (2)
* Decides on enforcement and supervisory actions
* Issues warnings, decisions and supervisory notices
27
Regulation of financial services
SCOFS
What does it stand for?
Who chairs it?
The Standing Committee on Financial Stability
Treasury
28
Regulation of financial services
SCOFS
Composed of?
What does it do?
Treasury, Bank of England and FCA
Creates tripartite working practices relevant to financial stability
29
Regulation of financial services
What is passporting? (2)
* Once licensed for an activity in an EEA state a firm is allowed to carry out that activity in the EU
* Passporting rights arise under EU single market directive
30
Regulation of financial services
EU legislative acts can take different forms starting with treaties - what are treaties?
EU's primary form of legislation
Require member state government approval
31
Regulation of financial services
EU legislative acts can take different forms - Secondary after treaties is legislation - what is legislation? (Binding and non-binding)
Binding legal instruments: Decisions, regulations and directives
## Footnote
Non binding legal instruments: recommendations and opinions (UK has some discretion)
32
Regulation of financial services
EU legislative acts can take different forms - what are regulations?
Take effect?
No what?
* Usually concerned with day-to-day administration
* Take effect immediately in all member states
* No discretion as legally binding in their entirety
33
Regulation of financial services
EU legislative acts can take different forms - what are directives? (3)
* Focus on desired results, binding on member states from a set date
* Methods to achieve left to discretion of member state (eg MiFID)
* Need to be transposed into national law therefore require ratification
34
Regulation of financial services
EU legislative acts can take different forms - who is affected mostly by Directives?
Mostly affects Financial Services Industry
35
Regulation of financial services
EU legislative acts can take different forms - what are decisions and who do they effect?
Individual measures addressed to an individual or member state
36
Regulation of financial services
EU legislative acts can take different forms - Decisions are enforceable when?
Fully binding, enforceable immediately
37
Financial services industry: an overview
What percentage of FCA policy making comes from EU initiatives?
70%
38
Financial services industry: an overview
What is FSAP and what is its primary objective?
Financial Services Action Plan
Primary objective to improve single market for Financial Services
(42 measures, including 24 directives)
39
Financial services industry: an overview
What are the FSAP objectives? (3)
* Create a single EU wholesale market
* Achieve open and secure retail markets
* Create state of the art prudential rules and structure of supervision
40
Financial services industry: an overview
ESRB What does it stand for?
When was it established?
European Systemic Risk Board
Established in 201
41
Financial services industry: an overview
What does ESRB do? (3)
* Oversees financial system of the EU
* Monitors and assesses risks to stability of financial system as a whole
* Issues warnings and recommendations
42
Regulation of financial services
ESA
What does it stand for?
European Supervisory Authorities
43
Regulation of financial services
ESAs
Who do they work with to achieve what?
Work with the ESRB to ensure financial stability and to strengthen and enhance EU supervisory framework. Improve coordination between national supervisory authorities, including FCA to reduce risk
44
Regulation of financial services
What are the three main European Supervisory Authorities?
1. EBA - European Banking Authority
2. ESMA- European Securities and Markets Authority
3. EIOPA - European Insurance and Occupational Pensions Authority
45
Regulation of financial services
What is the ultimate aim of the ESA?
How is this achieved?
Create a single EU rulebook
Draft technical standards, issuing guidance and recommendations to member states
46
Regulation of financial services
What is the ESAs' role with member states? (6)
* Investigate to ensure compliance with EU law
* Ban financial activities
* Peer review to ensure consistency and share information
* Improve consistency of EU supervision
* Mediate disagreements
* Gather and share data
47
Regulation of financial services
What does the ESMA have direct supervisory responsibility over?
Credit rating agencies
48
Regulation of financial services
What are the key European Directives? (6)
* Markets in Financial Instrument Directive (MiFID)
* Insurance Mediation Directive (IMD)
* Capital Requirements Directive (CRD)
* Fourth Money Laundering Directive (4MLD)
* Alternative Investment Fund Managers (AIFMD)
* Mortgage Credit Directive (MCD)
49
Regulation in financial services
MiFID
What does it stand for and when did it come into effect?
Markets in Financial Instruments Directive
1 November 2007
50
Regulation in financial services
MiFID
What was its aim
What did it do? (5)
Essentially a maximum harmonisation directive
## Footnote
* More emphasis on senior management responsibility
* Concerned with the conduct of business and internal structure of investment firms
* Widen scope of core investment products
* Easier to trade across the EU
* Introduced capital requirements directive (CRD) - governing the reserves firms must hold
51
Regulation of financial services
MiFID II
When did it come into effect?
3 January 2018
52
Regulation of financial services
MiFID II
What did it do? (2)
* Improve functioning of financial markets following financial crisis and strengthen investor protection
* Greater transparency pre and post trading
53
Regulation of financial services
IMD
What does it stand for?
When did it come into effect?
Insurance Mediation Directive
January 2005
54
Regulation of financial services
IMD
What did it do? (2)
* Moved unregulated insurance business into the regulated world
* Set EU wide rules on introducing, concluding and assisting in insurance
55
Regulation of financial services
CRD
What does it stand for?
What is it also known as?
Capital Requirements Directive
Basel Accord
56
Regulation of financial services
CRD
Why was it introduced?
Help to strengthen the soundness and stability of the international banking system as a result of higher capital ratios
57
Regulation of financial services
CRD
What was the revised version and what did it do?
Basel II, further strengthened risk management practices of modern banking
58
Regulation of financial services
CRD
Introduced 3 Pillars of risk management and what are they?
Pillar 1: Minimum capital requirements for risk purposes
Pillar 2: View on whether additional capital above the minimum is required
Pillar 3: Requirement to publish firm's risk management details and capital levels
59
Regulation of financial services
CRD IV
What does it stand for and when was it introduced?
Capital Requirements Directive IV
1 January 2014
60
Regulation of financial services
CRD IV
What is its aim?
To minimise the negative effects of firms failing by ensuring they hold enough financial resources to cover risks associated with their business
61
Regulation of financial services
MLDs
What does it stand for?
What does it focus on?
Money Laundering Directives
Fighting financial crime & terrorist financing
62
Regulation of financial services
What does 4MLD do? (4)
* Bring guidance up to date
* Provided a common EU basis for implementing the Financial Action Task Force (FATF) recommendations
* Factors in new risks and practices developed since previous directives
* Making industry best practices into mandatory requirements
63
Regulation of financial services
How was 4MLD introduced in the UK
The Money Laundering Regulations 2017 implemented the 4MLD directive in the UK
64
Regulation of financial services
4MLD
What did it change?
Introduced new concepts allowing firms to be more risk-based in their approach of Simplified & Enhanced due diligence
65
Regulation of financial services
When did 5MLD become effective in the UK?
24 July 2020
66
Regulation of financial services
5MLD
Amendments to include what providers? (2)
* crypto asset exchange
* custodian wallet
67
Regulation of financial services
AIFMD
What does it stand for?
Alternative Investment Fund Managers Directive
68
Regulation of financial services
AIFMD
What does it do? (2)
* Concerned with management, administration and marketing of alternative investment funds (AIFs)
* Regulates the alternative investment fund manager (AIFM)
69
Regulation of financial services
MCD
What does it do?
When was it implemented?
Mortgage Credit Directive is an EU Framework of conduct rules for mortgage firms
21 March 2016
70
Regulation of financial services
PRIIPs
What does it stand for?
When was it implemented?
Packaged Retail and Insurance-based Investment Products Regulation
1 January 2018
71
Regulation of financial services
PRIIPs
What does it do?
Help investors to better understand and compare the key features, rewards and costs of different PRIIPs, through the Key Information Document (KID)
72
Regulation of financial services
PRIIPs
When should a KID be provided to the consumer?
In good time before a transaction is concluded
73
Regulation of financial services
TPR
What does it stand for?
What year was it introduced?
The Pensions Regulator
2005
74
Regulation of financial services
TPR
What are its objectives? (6)
* Protect the benefits of members of occupational pension schemes
* Protect the benefits of members of personal pension schemes where there is a direct payment arrangement
* Promoting smooth operation of work based pension from an admin perspective
* Reduce the risk on the pensions protection fund
* Enforcing auto-enrolment for employer compliance with work based pensions
* Minimise any adverse impact on the sustainable growth of an employer
75
Regulation of financial services
TPR remit extends to? (5)
* Employers
* Trustees
* Managers
* Administrators
* Anyone else running work based pension schemes
76
Regulation of financial services
What is the Occupational Pensions Registry (OPR)?
Helps individuals trace old company schemes
77
Regulation of financial services
OPR
What else does the OPR keep a register on?
Anyone who is prohibited in acting as a scheme trustee
78
Regulation of financial services
TPR
Has the power to do what? (3)
* Remove, suspend and appoint new trustees
* Fine individuals up to £5,000 and fine companies, employers and trustees up to £50,000
* Wind up schemes if best for members
79
Regulation of financial services
TPR
Appeals against decisions of the TPR are made to whom?
Pensions Regulator Tribunal
80
Regulation of financial services
Information Commissioner's Office (ICO)
What is its main duty?
Independent public body who oversees and enforces compliance with the General Data Protection Regulation (GDPR) and Data Protection Act 2018
81
Regulation of financial services
Information Commissioner's Office (ICO)
Breaches are.....?
Breaches are punishable in a court of law
82
Financial Services industry: an overview
Payments Systems Regulator (PSR)
When did it become operational?
April 2015
83
Financial Services industry: an overview
Payments Systems Regulator (PSR)
What are its strategic objectives? (3)
* Promotes interests of businesses and consumers
* Promote competition
* Promote development and innovation
84
Financial Services industry: an overview
Payments Systems Regulator (PSR)
What is its purpose?
Make payment systems work well in retail market
85
Financial Services industry: an overview
Payments Systems Regulator (PSR)
What is it a subsidiary of?
Subsidiary of the FCA, independent with own Director and Board
86
Financial Services industry: an overview
Payments Systems Regulator (PSR)
How is it funded?
By industry
87
Financial Services industry: an overview
Payments Systems Regulator (PSR)
Who is it accountable to?
Parliament
88
Regulation of financial services
The Competition and Markets Authority (CMA)
What does it do?
Ensures fair competition between UK companies to benefit consumers, businesses and UK economy
89
Regulation of financial services
The Competition and Markets Authority (CMA)
Who does it work closely with?
Treasury and FCA
90
Regulation of financial services
The Competition and Markets Authority (CMA)
What are its key responsibilities? (6)
* Investigating mergers and effect on competition
* Conduct market studies and investigating markets e.g. whether sufficient competition and consumers
* Investigating anti-competitive behaviour
* Enforcing consumer protection legislation aimed at removing market market practices and conditions which result in less choice for consumers
* Criminal prosecution of cartel offences
* Co-operating with other regulators
91
Responsibilities and approach to regulation
FCA
What are the 8 regulatory principles?
* Efficiency and economy
* Proportionality - burdens on firms proportional to outcomes
* Sustainable growth
* Senior management responsibility
* Recognition of business differences
* Openness and disclosure
* Transparency
* Consumer responsibility
92
Responsibilities and approach to regulation
FCA
List the Supervision principles? (10)
* Ensure fair outcomes for consumers
* Forward looking and pre-emptive
* Focus on the big issues
* Judgement based approach
* Ensure firms act in the right spirit
* Examine business models and culture
* Individual accountability
* Be robust when things go wrong
* Communicate openly
* Joined up approach
93
Responsibilities and approach to regulation
FCA
Ultimately accountable to whom?
Treasury
94
Responsibilities and approach to regulation
FCA
Practitioner Group Panels provide feedback to the FCA - who are they? (4)
* FSPP - Financial Services Practitioner Panel
* FSCP - Financial Services Consumer Panel
* SBPP - Smaller Business Practitioner Panel
* MPP - Markets Practitioner Panel
95
Responsibilities and approach to regulation
FCA
The FCA has to.......but don't have to......?
FCA has to LISTEN but not ACT
96
Responsibilities and approach to regulation
FCA
Subject to several additional bodies? (3)
* Upper Tribunal
* Complaints Commission
* Competition and Markets Authority
97
The FCA Handbook
General Rule of Prohibition
What is it?
To conduct a regulated activity a firm must be either authorised or exempt
98
The FCA Handbook
General Rule of Prohibition
What happens if this is breached?
This is a criminal offence, punishable by up to 2 years in prison and an unlimited fine
99
The FCA Handbook
General Rule of Prohibition
What is an authorised person?
The firm
100
The FCA Handbook
General Rule of Prohibition
What is an exempt person?
Appointed Representative (AR)
AR - firm or individual gains regulation from authorised person rather than FCA
101
Responsibilities and approach to regulation
FCA
What are its three divisions and what do they do?
* Enforcement - investigates breaches of FCA rules using a risk based approach and reports findings to Regulatory Decisions Committee (RDC)
* Authorisation - Grant, vary, cancel authorisation and permitted activity
* Supervision - day to day relationship with firms, devise rules, refer to enforcement division
102
Responsibilities and aproach to regulation
FCA
Enforcement Division has the option of civil or criminal proceedings - explain the difference?
Civil law - defines the rights of parties in a transaction. Restitution is normally in the form of damages/ compensation to the innocent party
Criminal Law - defines the rights of the public and their safety. Punishment is usually fines and imprisonment. Criminal proceedings take longer and are more costly
103
Responsibilities and approach to regulation
FCA
Normal sanctions for civil action? (3)
* Injunctions to stop future activity
* Restitution payments
* Granting insolvency orders - ordered to wind up firm
104
Responsibilities and approach to regulation
FCA
Normal sanctions for criminal proceedings?
An unlimited fine and/ or a prison sentence up to a maximum of 7 years
105
Responsibilities and approach to regulation
FCA
What are criminal misconduct offences? (4)
* Falsely claiming to be FCA-authorised
* Carrying on a regulated activity without authorisation
* Making misleading statements to induce investments
* Failing to co-operate with FCA investigations
106
Responsibilities and aproach to regulation
FCA
What are the maximum prison sentences for the following?
* Money Laundering
* Failure to report suspicion
* Misleading conduct or insider dealing
* Proceeds of Crime Act 2002 offences
* Tipping off
* 2 years
* 5 years
* 7 years
* 14 years
* 6 months
107
Responsibilities and approach to regulation
FCA
What does the Upper Tribunal do?
Independent judicial body that handles appeals for those who do not agree with the Regulatory Decisions Committee (RDC)
108
Responsibilities and approach to regulation
FCA
Who controls the Upper Tribunal?
Lord Chancellor, part of the court of appeal on point of law only
109
Responsibilities and approach to regulation
FCA
What are the 3 Pillars of Supervision?
* Firm systemic framework - pro-active firm supervision, forward looking
* Event driven reactive supervision - issues emerging and already emerged
* Thematic approach - Issues and product supervision - reviews drivers of poor consumer and market outcomes as they take place
110
Responsibilities and approach to regulation
FCA
What are the two categories of firm & how does the FCA supervise them?
* Fixed Portfolio firms - small numbers of large higher risk firms. Pillar 1: Proactively supervised with a named supervisor. Continual assessment approach.
* Flexible Portfolio firms - most firms in the UK do not carry significant risk to financial stability. Contact FCA via contact centre. Pillar 2 and 3 supervision
111
Responsibilities and approach to regulation
FSB
What is it?
When was it set up?
Financial Stability Board - International Board
April 2009
112
Responsibilities and approach to regulation
FSB
What does it do? (2)
* Monitors and makes recommendations on global financial systems
* Promotes international financial stability by coordinating financial authorities
113
Responsibilities and approach to regulation
FAR
What does it stand for?
What does it do?
Free Asset Ratio
Measures the financial stability of organisations
114
Responsibilities and approach to regulation
FAR
Calculate FAR?
Company has assets of £30 million and liabilities of £12 million
Current Surplus Assets/ Current assets x 100
## Footnote
30-12 = 18/30 x 100 = 60% FAR
115
The FCA Handbook
What are the first 5 blocks of the FCA handbook?
* High level Standards
* Prudential Standards
* Business Standards
* Regulatory Process
* Re-dress
116
The FCA Handbook
In Block 1 what is:
PRIN?
Principles for Business - General statements about a firm's regulatory obligations
117
The FCA Handbook
In Block 1 what is:
SYSC?
Senior Management Arrangements, Systems and Controls - Rules and guidance on these and how Senior Management should approach them
118
The FCA Handbook
In Block 1 what is:
COND?
Threshold Conditions - Minimum standards a firm must satisfy and maintain for FCA authorisation
119
The FCA Handbook
In Block 1 what is:
FIT?
Fit and Proper Testing - Criteria for Approved Person's suitability
120
The FCA Handbook
In Block 1 what is:
FINMAR?
FINMAR: Financial Stability and Market Confidence Rules - Rules for stability, confidence and short selling
121
The FCA Handbook
In Block 1 what is:
TC?
Training and Competence - the commitments and requirements concerning staff competence
122
The FCA Handbook
In Block 1 what is:
GEN?
General Provisions - legal framework for status disclosure
123
The FCA Handbook
In Block 1 what is:
FEES?
Fees Manual - Framework for funding the FCA, FOS and FSCS
124
The FCA Handbook
In Block 1 what is:
COCON?
Code of Conduct - rules about the conduct of approved persons
125
The FCA Handbook
FCA
What are the 11 Principles for Business?
* Conduct business with integrity
* Due skill, care and diligence
* Management systems and controls
* Financial prudence (adequate financial resources)
* Proper standards of market conduct
* Consumers' interest
* Clear communication, fair and not misleading
* Must manage conflict of interest
* Suitability of advice
* Protection of client assets
* Open and co-operative with regulator
126
The FCA Handbook
SYSC - Systems and Controls applies to?
Applies to senior management of an authorised person
127
The FCA Handbook
SYSC
SYSC 2?
Senior Management Arrangements - appoint individuals and apportion and record significant responsibilities among Directors and Senior Managers
128
The FCA Handbook
SYSC
SYSC 3?
Systems and Controls - appropriate and regularly reviewed
129
The FCA Handbook
SYSC
SYSC 4?
General Organisational Structure - clear structure for risk, governance
130
The FCA Handbook
SYSC
SYSC 5?
Employees, agents and other relevant persons - staff must be skilled, knowledgeable and experienced
131
The FCA Handbook
SYSC
SYSC 6?
Compliance, internal audit and financial crime - maintain procedures for regulatory requirements
132
The FCA Handbook
SYSC
SYSC 7?
Risk Control - establish and maintain risk management policies
133
The FCA Handbook
SYSC
SYSC 8?
Outsourcing - manage operational risk arising through outsourcing
134
The FCA Handbook
SYSC
SYSC 10?
Conflicts of Interest - systems to identify and manage this
135
The FCA Handbook
SYSC
SYSC 9?
Record Keeping - must be maintained and anti-money laundering
136
The FCA Handbook
SYSC
SYSC 10A?
Recording telephone calls and electronic communications - that relate to financial instruments
137
The FCA Handbook
SYSC
SYSC 18?
Whistle Blowing - must be protected and inform employees of procedures
138
The FCA Handbook
SYSC
SYSC 19?
Remuneration Code - remuneration policies consistent and promote effective risk management. E.g. Avoid performance related pay
139
The FCA Handbook
SYSC
SYSC 11-17?
Specific to different types of regulated firms
140
The FCA Handbook
SYSC
SYSC 24?
Prescribed responsibilities - given to a senior manager
141
The FCA Handbook
COND
List Threshold Conditions? (5)
* Location of offices - Head office and registered office must be in the UK
* Effective supervision - FCA must be satisfied it can supervise
* Appropriate resources
* Suitability - must have Fit and Proper persons
* Business model - must be in interests of consumers and UK financial system
142
FCA
FIT
Fit and proper test? (6)
* Honesty
* Integrity
* Regulation
* Competence
* Capability
* Financial soundness
143
The FCA Handbook
SPS
What does it stand for?
Certified by?
Statement of Professional Standing
Certified by the Personal Finance Society (PFS)
144
The FCA Handbook
SPS
What must you do to be certified? (3)
* Level 4 qualified
* 35 hours of CPD - 21 structured and 14 unstructured hours. (including 15 hours IDD)
* Subscribe to Code of Ethics
145
The FCA Handbook
Block 2: Prudential Standards (PRU)
What does it set out?
Sets outs prudential framework for banks, building societies, insurers and investment firms
146
The FCA Handbook
Block 2: Prudential Standards
GENPRU?
Prudential sourcebook for banks, building societies, insurers and investment firms sets out adequacy for financial resources, minimum capital requirements and types of eligible capital
147
The FCA Handbook
Block 2: Prudential Standards
BIPRU?
BIPRU - Calculation factors - e.g. Capital Requirements Directive (CRD)
148
The FCA Handbook
Block 2: Prudential Standards
MIPRU?
Sourcebook for mortgage and home finance firms and intermediaries
149
The FCA Handbook
Block 2: Prudential Standards
IPRU-INV?
IPRU-INV - Sourcebook for investment businesses
150
The FCA Handbook
Block 2: Prudential Standards
INSPRU?
Insurers and UCITS firms
151
The FCA Handbook
Block 2: Prudential Standards
IPRU-FSOC?
Sourcebook for friendly societies
152
The FCA Handbook
Block 2: Prudential Standards
IPRU-INS?
Sourcebook for insurers
153
The FCA Handbook
Block 3: Business Standards
COBS?
Conduct of Business (Investment firms) - Day to day rules and requirements
154
The FCA Handbook
Block 3: Business Standards
ICOBS?
Insurance Conduct of Business
155
The FCA Handbook
Block 3: Business Standards
MCOB?
Mortgage Conduct of Business
156
The FCA Handbook
Block 3: Business Standards
BCOBS?
Banking Conduct of Business
157
The FCA Handbook
Block 3: Business Standards
CASS?
Client Assets - holding client money
158
The FCA Handbook
Block 3: Business Standards
MAR?
Market Conduct - conduct and abuse
159
The FCA Handbook
Block 3: Business Standards
PROD?
Product Intervention and Product Governance
160
The FCA Handbook
In Block 3 you will find Inducements within which business standard?
What are they?
COBS
Indirect benefits, gifts, extras - they cannot be offered to customers, solicited or accepted
161
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ICOBS:
What product categories does it cover? (3)
Year?
Covers General Insurance, Pure Protection and PPI
## Footnote
14.01.2005
162
The FCA Handbook
ICOBS:
Grandfathering allowed?
No - had to apply for authorisation under FSA, couldn't migrate authorisation
163
The FCA Handbook
ICOBS:
Requirements? (4)
* Initial Disclosure Document (IDD) or TOB
* Production of demands and needs statement
* Suitable requirements
* Confirming cancellation rights
164
The FCA Handbook
ICOBS
Cancellation periods:
Pure protection policies?
General insurance?
Renewal of terms?
Travel insurance?
Policies \< 1 month?
Policies where performance already completed?
Pure protection - 30 days
General insurance - 14 days
Renewal of terms - 21 days
All others - no cancellation rights
165
The FCA Handbook
MCOB - statutory regulation from 2004
What is a regulated mortgage contract?
Lender provides credit to individual or trustee which is secured by legal charge on UK land, on which at least 40% of the dwelling must be used by the borrower or related person
166
The FCA Handbook
MCOB
What is a non-regulated mortgage contract?
Borrower is a company and Buy-to-Let mortgages where the house dweller is not the borrower or related person. Exception if borrower intends to occupy the property at some stage
167
The FCA Handbook
MCOB
What impact did the Mortgage Credit Directive (MCD) have on Buy-to-lets (BTL) from March 2016
Where customers were not intending to be landlords, accidental via inheriting or couldn't sell - have to now be treated as regulated contracts
168
The FCA Handbook
MCOB
Equity Release - what are the 2 types?
Home Reversion Plans - buys all or part of a customer's home at a discount (20%-60% of market value), in return given a lump sum or income. Customer pays nominal rent and can live in it until they die or move out
Lifetime mortgage - Money is secured against home, so customer retains ownership and borrows a lump sum, drawdown facility or combination. Apart from roll up and fixed repayment they pay interest on the loan monthly
169
The FCA Handbook
MCOB
What is Sale and Rent Back?
Individuals sells home, usually at discount, obtains an agreement to remain in the property for a set period
170
The FCA Handbook
MCOB
What did SRB regime introduce? (7)
* A fixed term tenancy agreement of at least 5 years
* Introducing a cooling off period 14 days
* Banning cold-calling
* Prohibiting use of emotive marketing terms e.g. 'fast sale'
* Ensuring independent valuation where valuer owes a duty of care to the consumer
* Customers have adequate information to make an informed decision
* Ensuring customers have checked their on-going entitlement to benefits
171
The FCA Handbook
MCOB: UK Mortgage Market Reforms: Mortgage Market Review
When?
What did it seek to provide? (2)
April 2014
## Footnote
* Provide a more stable and fairer lending environment so that borrowers are less likely to get into negative equity or default
* Strengthen the affordability test and responsibility of the lender
172
The FCA Handbook
MCOB: UK Mortgage Market Reforms: Mortgage Market Review
What did it abolish?
Self-certification (where you declare your income)
173
The FCA Handbook
MCOB: Mortgage Credit Directive
What is it and when was it implemented in UK?
EU framework of conduct rules for mortgage firms applies to 1st and 2nd charge mortgages
21 March 2016
174
The FCA Handbook
MCOB: Mortgage Credit Directive
Introduced ESIS - what is it and what did it replace?
ESIS - European Standard Information Sheet replaced KFI (21 March 2019) - show mortgage at highest interest rate in 20 year period
175
The FCA Handbook
MCOB: Mortgage Credit Directive
Reflection period?
7 days - where adviser is not allowed to contact client (in addition to post sale cooling off period)
176
The FCA Handbook
MCOB
What qualification does the FCA require mortgage sellers and advisers to have?
Level 3 qualification
177
The FCA Handbook
What is the difference between advice and information?
Information - is accurate and neutral facts, with no comment or opinion
Advice - involves giving an opinion on the merits of a particular product and/ or its suitability for a particular customer
178
The FCA Handbook
CASS
What did it do?
Segregated client money from firm's own assets
179
The FCA Handbook
CASS
How long to pay in?
Interest belongs to?
Close of business the next working day
## Footnote
Client
180
The FCA Handbook
CASS
Reconciliation?
Reconciliation to be performed 'as often as necessary'. In practice the FCA expect it to be done daily
181
The FCA Handbook
CASS
CMAR - Client Money Asset Register - who completes?
CASS small firms don't need to complete a CMAR, but large firms do via Gabriel every month
182
The FCA Handbook
Market Conduct (MAR)
What prohibitions does the FCA include in MAR? (3)
* Disseminating false or misleading information
* Giving a false or misleading impression
* Making artificial transactions
183
The FCA Handbook
Market Conduct (MAR)
Is their a limitation on fines?
No
184
The FCA Handbook
Market Conduct (MAR)
What is MAD?
Market Abusive Directive - resulted in EU wide market abuse regime
185
The FCA Handbook
PROD
What is good product governance? (3)
Products that:
## Footnote
* Meet the needs of one or more identifiable target markets
* Are sold to clients in the target markets by appropriate distribution channels
* Deliver appropriate client outcomes
186
The FCA Handbook
Block 4: Regulatory Process - describes the FCAs supervisory and disciplinary functions
AUTH?
Authorisation - whether this is needed and how to apply for it
187
The FCA Handbook
Block 4: Regulatory Process - describes the FCAs supervisory & disciplinary functions
SUP?
Supervision - How FCA ensures firm's compliance
188
The FCA Handbook
Block 4: Regulatory Process - describes the FCAs supervisory and disciplinary functions
DEPP?
Decisions, Procedure and Penalties
189
The FCA Handbook
Block 5: Re-dress
DISP?
Complaints - Procedures firms have in place to handle complaints
190
The FCA Handbook
Block 5: Re-dress
CONRED?
Re-dress - requirements for Arch Cru fund advice
191
The FCA Handbook
Block 5: Re-dress
COMP?
Compensation - information about FSCS
192
THE FCA Handbook
Block 5
Office of Complaints Commissioner
What does it investigate?
Complaints against UK regulators - FCA, PRA and Bank of England
193
THE FCA Handbook
Block 5
Office of Complaints Commissioner
What is the complaint acknowledgement period?
Must acknowledge complaint in 3 working days and have deal with complaint within 4 weeks - report to the complainant and the FCA
194
THE FCA Handbook
Block 5
Office of Complaints Commissioner
What are the options when dealing with a complaint? (5)
* Exclude
* Choose not to investigate
* Defer
* Not uphold
* Uphold
195
THE FCA Handbook
Block 5
Office of Complaints Commissioner
If a complaint is upheld what are the options? (4)
* Regulator apology
* Steps to remedy
* Change to procedure
* Compensation payment
196
What are specified regulated activities which require FCA authorisation?
* Banking
* Home Finance
* Intermediary Insurer
* Scheme Operator
* Investment Intermediary
* Insurance Intermediary
* Investment management
* Credit-related
197
Record Keeping
What are the standard periods for keeping client records and T&C records after an adviser has left the business
Non MiFID - 3 years
Life & Pensions - 5 years
Financial Promotions - 6 years
Pension Transfers, FSAVCs & Opt Outs - forever
198
The FCA Handbook
COCON
What are the individual conduct rules and who do they apply to? (5)
* Integrity
* Due skill, care and diligence
* Open and co-operative with the regulators
* Consumer Interests
* Market Conduct
All employees not just regulated individuals - set basic standards of good personal conduct
199
The FCA Handbook
COCON
What are Senior Management conduct rules? (4)
* Firm controlled effectively
* Compliant
* Appropriate delegation of responsibilities
* Disclose appropriate info to regulators
200
Principles and rules
SM&CR
What is it and when and what did it replace?
Senior Management and Certification Regime
Replaced Approved Person Regime, changing how people working in financial services are regulated. Effective December 2019 for FCA solo regulated firms. Originally introduced to banks and BS on 7 March 2016
201
Principles and rules
SM&CR
What are its aims?
Aims to reduce harm to consumers and market integrity by making individuals more accountable for their conduct and competence
202
SM&CR
What are the two types of Senior Management Function?
* Executive functions
* Oversight functions
203
SM&CR
What are the key features? (3)
* Senior Managers Regime
* Certification Regime
* Conduct Rules
204
SM&CR
Senior Managers Regime - focuses on?
Senior individuals who hold key roles
205
SM&CR
What do firms need to do? (4)
* Statement of Responsibilities (SoR) - for each key role which sets out areas of personal accountability
* Firm Responsibilities Map - knits SoRs together
* All SMs are pre-approved by the regulators before carrying out their roles
* Assess for Fitness and Propriety at least annually
206
Principles and rules
SM&CR
Certification Regime - applies to
Applies to material risk takers (ie staff who are subject to the Remuneration Code) and staff who pose a risk of significant harm to firm or customers (e.g. Advisers)
207
Principles and rules
SM&CR
What do firms need to do once identified certified individuals? (4)
* Assess them as fit and proper
* Issue a certificate to each
* Re-assess annually and issue new annual certificate
208
Principles and rules
SM&CR
Conduct Rules - who do they apply to?
Applies directly to nearly all staff
209
Principles and rules
SM&CR
What is a grandfathering notification?
Allowed existing staff from old Approved persons regime to be 'grandfathered' to an equivalent senior manager function without fresh pre-approval
210
Principles and rules
SM&CR
What is the 12-week rule?
Allows someone to cover for a Senior Manager without being approved, where absence is temporary or reasonably unforeseen, and is for less than 12 consecutive weeks
211
Principles and rules
SM&CR
Notifying FCA about Conduct Rule Breaches, how do you do it and what is the timing? (3)
* For SM, notify FCA within 7 business days of concluding disciplinary action using Form D
* Other individuals, notification yearly via GABRIEL
* A firm needs to make an annual notification about Conduct Rules even if there haven’t been any breaches
212
Serving the retail customer
Priority order of client needs? (7)
* Budgeting
* Managing debt
* Borrowing
* Protection
* Retirement planning
* Savings and investing
* Estate and tax planning
213
Principles and outcomes-based regulation
Key corporate cultural drivers? (6)
* Leadership
* Strategy
* Decision making and challenge
* Controls
* Recruitment and Training and Competence
* Reward
214
Ethics and professional standards
4 key components of a firm's ethical culture? (4)
* Leadership - from the top
* Practices - e.g. promtion, rewards, recruitment
* Narratives - what the firm is trying to acheive
* Capabilities - how well equipped a firm is towards ethical behaviours
215
Ethics and professional standards
Ethics framework? (4)
* Commitment - code of ethics
* Leadership - role of leaders
* Operational - policies
* Oversight - progress is monitored and reviewed
216
Ethics and professional standards
CII code of ethics? (5)
* Complinace
* Integrity
* Best interest of the client
* High standards
* Fairness
217
Ethics and professional standards
CSR
What is it?
What is a materiality assessment?
Corporate Social Responsibility
## Footnote
Identify stakeholders prioritise them and focus on important issues
218
Principles and rules
Complaints
Total compensation?
For complaints and actions after 01.04.2019?
For actions pre-Apr-19 but complaints after?
£350,000 + interest & costs
## Footnote
£160,000 + interest & costs
£150,000 + interest & costs
219
Principles and rules
Complaints
FOS eligible complainants from 01.04.19?
* Consumer
* micro-enterprise with\< 10 employees + £2 m t/o
* Charity \< £6.5 m annual income
* Trustee of a trust with NAV \< £5 m
* CBTL
* Guarantor
* Small business \<50 employees and £6.5 m t/o or £5 m on balance sheet
220
Principles and rules
How is FOS funded? (2)
* A general levy paid by all firms
* A case fee payable by the firm to which the complaint relates
221
Principles and rules
When can complaints be made to FOS?
Once exhausted internal complaints procedure of the firm
Refer to FOS within the earliest of:
* 6 months of date of firm's final decision letter
* 6 years after the event
* 3 years after the complainant knew they had cause to complain
222
Principles and rules
Reporting requirements to FCA (SUP 16)
What is the online reporting system called?
Gabriel
223
Principles and rules
Reporting requirements to FCA (SUP 16)
How often should complaints be reported to the FCA?
How should they be broken down? (4)
Twice a year
Number of complaints: -
* Closed within or \< 4 weeks
* Closed within 8 weeks
* Closed \> 8 weeks
* Total outstanding at the end of the reporting period
224
Pinciples and rules
Reporting requirements to FCA (SUP 16)
When do you need to report an adviser to the FCA? (4)
* Adviser who is no longer considered competent
* Adviser who fails to attain appropraite qualification in time limit prescribed
* Adviser who doesn't comply with Statment of Principle
* Adviser who carries out regulated activity before demonstrating necessary competence and without supervision
225
Principles and rules
Money Laundering and Financial Crime
What is the three stage process for large scale money laundering? (3)
* Placement - getting money in
* Layering - moving money via complex web
* Integration - absorbs into the economy e.g. property
226
Principles and rules
Money Laundering
How long should you keep records of a client's ID? (2)
5 years after the end of a customer relationship
OR
5 years from when the transaction was completed
227
Principles and rules
Money Laundering
Customer Due Diligence must be carried out under ML 2017 Regulations? (4)
* Establishes a business relationship
* Carries out an occasional transaction
* Suspects money laundering or terrorist financing
* Doubts about the integrity of previously obtained customer information
228
Principles and rules
Money Laundering
When would you carry out enhanced CDD? (2)
* When the customer is not present for the transaction
* When the customer is a politically exposed person (PEP)
229
Principles and rules
Money Laundering
Explain the customer identification process? (2)
* Identify client by obtaining name, address, date of birth
* Verify information through independent documents
230
Principles and rules
Money Laundering
When would you carry out simplified due diligence?
Business relationship or transaction is low risk
231
Principles and rules
Complaints
Definition?
Any expression of dissatisifaction, whether oral or written and, whether justified or not, alleges that the complainant suffered financial loss, material distress or material inconvenience
232
Principles and rules
Complaints
Rapid resolution complaints?
How long should complaint records be kept?
Complaints addressed within 3 business days
## Footnote
MiFID business - 5 years
Non-MiFID - 3 years
233
Principles and rules
Complaint
On receipt of a complaint what is the procedure?
* Acknowledge promptly in writing
* Send copy of firm's complaints procedure
* Assign someone to handle the complaint
* Provide contact details
234
Principles and rules
Financial Services Compensation Scheme (FSCS)
What are the limits of compensation?
* Deposits?
* Investments?
* Long-term insurance?
* General Insurance?
* Home Finance/ mortgages?
* 100% £85,000 per person
* 100% of £85,000
* 100% of claim with no upper limit
* Compulsory - 100% of claim. Non-compulsory 90% of claim with no upper limit
* 100% of £85,000
235
Principles and rules
FSCS
What is the deposit protection limit for temporary high balances?
Up to £1 million for 6 months
236
The FCA Handbook
FCA FEES? (3 types)
* Application Fees - £1,500 straight forward new firm. Significant variation in permissions (VOP), falls into new fee block at 50% of application fee. £250 flat fee for other VoPs. All non-refundable.
* Periodic Fees - (tariff base applied to fee -block tariff rates) cover costs FCA expects to incur in undertaking its functions. Annual Funding Reuirement (AFR) is derived annually from FCAs budget. Split into an AFR per fee-block. E.g. mortgage firm = fee-block A018.
* Special project fees
237
Principles and rules
GDPR
Rights of individuals? (8)
* Informed
* Access
* Rectification
* Erasure
* Restrict processing
* Data portability
* Object
* Automated decision making and profiling
238
Principles and rules
GDPR
Data Protection Principles? (6)
All personal data:
## Footnote
* Processed lawfully, fairly and transparent
* Collected for specified, explicit and legitimate purpose
* Adequate, relevant and limited
* Accurate and kept up to date
* Not kept for longer than is required
* Secure
239
Principles and rules
GDPR
Who does it apply to? (2)
* Data processors
* Data controllers
240
Principles and rules
GDPR
When was it adopted?
25 May 2018
241
Regulatory advice framework
Client agreements
When is it not needed? (3)
* Direct offer financial promotions
* Life offices selling life and pensions as a principal
242
Regulatory advice framework
Client agreements
What must they out? (12)
* Basis for conducting business
* Services provided
* Payment
* Status
* The giving of instructions
* Accounting
* Withdrawal rights
* Conflicts of interest
* Risk warnings
* Complaints
* Compensation
* Termination
243
Regulatory advice framework
Client Agreements
When must they be given to a retail client? (2)
* Before conducting business
* Immediately afterwards if business conducted by distance communication
244
Regulatory advice framework
Status disclosure
What must a firm provide to a retail client on first contact? (7)
* Firm's regulatory status
* Firm's status as independent, focused-independent or restricted
* Details of services
* Details of how they are paid
* Details of loans and ownership
* How to complain
* Coverage by the FSCS
245
Regulatory advice framework
Client's cancellation rights
14 day cancellable investment agreements? (5)
* Cash ISA
* Collective Investment Schemes
* Transferring a CTF
* ISA new or transfer
* EIS
246
Regulatory advice framework
Client's cancellation rights
30 day cancellable investment agreements? (5)
* Life policies
* Most pension annuities
* Personal pensions or stakeholders
* Pension transfer
* Wrappers which include life policies
247
Regulatory advice framework
Types of service? (5)
* Best execution
* Execution only
* Limited advice
* Non-advised sales
* Insistent clients
