REGULATORY FRAMEWORK Flashcards

Question

Changes to the AR system that came into effect in December 2022?

Answer 1

Additional information on ARs and notification requirements for principals: -- will allow the FCA to identify potential risks --it was also help to assess whether the principal has the expertise, systems and controls to oversee the ARs --the FCA will be able to target its supervisory intentions more effectively Clarifying and strengthening the responsibilities and expectations of principals: --Providing guidance for principals on their responsibilities --Providing FCA expectations on how they should act and oversee their ARs

Answer 2

- the Bank of England -central banks of EEA member states -European Central Bank -European Investment Bank -International Bank for Reconstruction and Development -International Monetary Fund -European Bank for Reconstruction and Development

Answer 3

The FCA expects the activities to be supervised and executed by the Society of Lloyd's and therefore additional FCA authorisation of members is unnecessary. Members who ceased to be an underwriting member at any time on or after 24 December 1996 is disapplied. They can carry out insurance contracts underwritten at Lloyd's without need for authorisation.

Answer 4

- accepting deposits -dealing in investments as principal -establishing, operating or winding up CISs or stakeholder pension schemes -effecting or carrying out contracts of insurance -providing funeral plan contracts -issuing electronic money -providing basic advice on stakeholder products -establishing a pension scheme

Answer 5

- adding a regulated activity for which it gives permission -removing a regulated activity from those which it gives permission -cancelling a requirement imposed on Section 43 -varying such a requirement Regulator may exercise its powers in relation to an authorised person if it appears so - failing or likely to fail -they have failed during a period of 12 months to carry on a regulated activity for which they have a permission

Answer 6

- Publishing statements - Imposing financial penalties in respect of a contravention -Suspend or impose limitations on the authorised person, for a period of time while the regulator conducts an investigation -FSMA dictates that the authorities must provide a warning notice to the authorised person if the regulators will take disciplinary action - If a firm/individual is carrying out market abuse, the FCA is responsible for applying to the courts to seek an injunction agaisnt any individual or firm conducting market abuse. FSMA provides the FCA with the power to impose penalties for insider dealing and inside information.

Answer 7

- the handling of client money - requirement for firms to have a renumeration policy - recovery and restitution plans for banks - insurance business rules - price stabilising rules including the manner in which they are permitted - financial promotions rules -money laundering rules - control of information rules - modification of waiver - contravention of rules, including evidential provisions - procedural provisions, including the notification of rules to the Treasury

Answer 8

Financial Services Act 2010 effective from 8 June 2010 gave additional powers to the then regulator - power to impose suspensions or restrictions on authorised persons under s206A FSMA on approved persons under s66 FSMA (the suspension order) - the power to impose penalties on persons which perform controlled functions without approval under s63A FSMA

Answer 9

It enables the regulator to suspend any permissions the person may have to carry on a regulated activity or impose restrictions on that person carrying on a regulated activity Can be imposed for a period of 12 months and on an approved person for 2 years alternative to a financial penalty which could be imposed by the regulator the regulator states that it would only use this power when it considers that the imposition of a suspension would be the most effective and persuasive deterrent,

Answer 10

Regulatory Decisions Committee (RDC)

Answer 11

The regulator is able to impose a financial penalty on a person, of an amount it sees as appropriate, when it is satisfied that - the person has at any time performed a controlled function without approval and - at that time the person knew or could be expected to have known that they were conducting an activity without approval

Answer 12

makes provisions for the constitution, regulation, financial arrangements for the BoE To protect and enhance the stability of the financial systems of the UK

Answer 13

- the Banks objective - monitoring the extent to which the Bank's financial management has been met in relation to the court's set objectives for the directors of the Bank - keeping the internal controls of the Bank under review, with a view to securing the proper conduct of its financial affairs The Bank must provide HMT with a copy of reports prepared by the oversight committee. Before determining or revising the Bank’s financial strategy, the court of directors must consult on the revised strategy with the Financial Policy Committee (FPC) and HMT.

Answer 14

The Banking Act 2009 created a Special Resolution Regime (SRR) which gave the UK regulators a permanent framework, providing the regulatory resolution tools for dealing with UK banks and building societies at serious risk of failure. The SRR powers came into force in 2009.

Answer 15

- protect and enhance the stability of the UK financial system - protect and enhance public confidence in the system - protect depositors and investors covered by relevant compensation schemes - protect client assets - protect public funds and minimise reliance on public financial support - avoid interfering with property rights - ensure the continuity of the banking services and credit services

Answer 16

- transfer all or part of a bank's business (assets and liabilities) to a private sector purchaser -transfer all or part of a bank's business to a bridge bank - place a bank into temporary public ownership - apply to place a bank into the bank insolvency procedure designed to allow for rapid payments to the Financial Services and Compensation Scheme - apply to use the bank administration procedure to deal with part of a bank The Treasury decides whether to place a bank into temporary public ownership.

Answer 17

Ended the status of the PRA as a subsidiary of the BoE by making the BoE the PRA. The Act also creates the Prudential Regulation Committee (PRC), through which the BoE must exercise its functions as the PRA.

Answer 18

Contribute to the promotion of the stability of the UK financial system through the microprudential regulation of those firms within the regulatory remit. Overall objective to promote the safety and soundness of regulated firms and will meet this objective by seeking to minimise adverse effects of firm failure on the UK financial system.

Answer 19

- firstly, to secure an appropriate degree of protection for policyholders - minimise the adverse impact that the failure of an insurer or the way an insurer carries outs its business could have on the stability of the UK financial system.

Answer 20

- aiming to avoid failures which are a cost to the UK economy - emphasizing resolution planning in order to permit orderly failure - cooperating closely with the FPC and the FCA to ensure macro and micro prudential regulation is aligned across all markets - working with the FCA to ensure the UK authorities have a strong voice in international - particularly European - policy-making.

Answer 21

To ensure relevant markets for financial services in the UK function well.

Answer 22

- secure an appropriate degree of protection for consumers - protect and enhance the integrity of the UK financial system - promoting effective competition in the interests of customers Also has a seperate duty to minimise the extent to which businesses may be used for purposes connected to financial crime

Answer 23

- focuses on the conduct regulation of all firms, covering their dealings with retail customers, through to their activities in the wholesale markets. - responsible for prudential supervision of firms not prudentially supervised by the PRA - regulates trading infrastructure, including investment exchanges - taken on the FSA's responsibilities as the UK Listing Authority - responsible for overseeing the UK's Financial Ombudsman Service. - criminal powers to investigate insider dealing

Answer 24

Contains the clauses

Answer 25

Contains the Schedules to the Act

Answer 26

In addition to a Governor, there should be a deputy governor for financial stability and monetary policy. No more than 9 Non-Executive Directors Instead of 'contributing' to protecting and enhancing the UK financial system, the Bank is now tasked to 'protect and enhance the UK financial system'. Financial stability and strategy / Financial Policy Committee (FPC) - The BoE created a subcommittee (Oversight committee) consisting of the non-executive directors to review the Bank's strategy, the bank's performance in comparison to its objectives, the duty of the FPC and the bank's strategy.

Answer 27

The FCA's strategic objectives - secure an appropriate degree of protection for consumers - protect and enhance the integrity of the UK financial system - competition objective should promote effective competition in the markets/services provided by RIEs. FCA must maintain arrangements to supervise, monitor and take appropriate enforcement action against authorised persons. The FCA must consult a practitioner to ensure their policies are consistent with general duties. FCA must establish a practitioner panel, smaller business practitioner panel and a markets practitioner panel. PRA's objective is to promote the safety and soundness of the PRA-authorised persons. This objective is sought to be satisfied by looking to ensure that PRA authorised persons carry out activities that do not have adverse effects on the stability of the UK financial system. The PRA has an additional objective to protect those who become policyholders of insurers.

Answer 28

- Where a regulated activity is carried out by way of business - A persons financial standing and the setting of financial benchmarks (this occurred as a result of the LIBOR scandal)

Answer 29

DESIGNATION OF ACTIVITIES REQUIRING PRUDENTIAL REGULATION BY THE PRA - HMT could specify which regulated activities could be supervised by the PRA PERMISSION TO CARRY ON REGULATED ACTIVITIES regulated permission to carry out permitted regulated activities must be made to the appropriate regulator - being dual regulated PROHIBITION ORDERS FSMA Section 56 amended so that both the FCA and PRA with powers so the regulators are allowed to make a prohibition order to evidence an individual is not FIT AND PROPER. RULES AND GUIDANCE (general making powers of the FCA and the PRA) allows them to make rules for authorised persons with the respect to the carrying on by them of regulated activities. POWERS FOR RIE AND CLEARING HOUSES - FCA is appropriate regulator for RIE and the BoE is appropriate for clearing houses. POWER TO TAKE DISCIPLINARY MEASURES AGAINST RECOGNISED BODIES Provides public censure powers to both bodies to publish a statement if they consider a recognised body has contravened a reg requirement. DISCIPLINE AND ENFORCEMENT Where HMT considers it necessary, no public disclosure will be made in respect of a warning notice made by the regulators. PROVISIONS ABOUT CONSUMER PROTECTION AND COMPETITION - designated consumer body to make a complaint to the FCA if it believes a feature or combination of features appears to be damaging the interests of customers

Answer 30

DUTY OF BANK TO NOTIFY THE TREASURY OF POSSIBLE NEED FOR PUBLIC FUNDS - The BoE must notify the Treasury of a potential material risk - may have to provide financial assistance -there will be an exercise of the respective powers provided under parts 1 to 3 of the Banking Act 2009 - when the manager of the FSCS may request a loan from the National Loans Fund or financial assistance from HMT

Answer 31

HMT, the BoE and the PRA must discharge their functions so far as they relate to the stability of the UK Financial system

Answer 32

HMT, the BoE and the PRA must prepare a memorandum describing how they plan to coordinate their supervisory activities

Answer 33

HMT, the BoE and the PRA must prepare a memorandum how they intend to coordinate the exercise of their relevant functions so far as they relate to the European Supervisory Authorities

Answer 34

HMT may arrange seperate inquiries relating to events occurring in respect of CISs. a person carrying out regulated activity, selling of securities, issuer of listed securities when events pose a threat to the UK financial system

Answer 35

Power to appoint a person to hold an inquiry Powers of appointed person and procedure

Answer 36

It is the duty of the FCA and PRA to investigate cases there may have been regulatory failure - it is up to the regulators to decide best on how to carry out investigations. HMT may direct the regulators however in relation to the scope and period over which the investigation is to be carried out. - these policies must be released in a policy statement and the policy intentions in relation to the exercise of functions under the duty to conduct the investigation

Answer 37

Part 6 requires both the FCA and the PRA to make necessary arrangements for the investigation of complaints arising with the connection of the exercise or failure to exercise any of their regulatory functions. Investigation of complaints - provides regulators with the power to decide if a complaint should be reviewed and dealt with differently - such as referring it to a Tribunal

Answer 38

Implemented some recommendations provided by the Independent Commission on Banking and key recommendations of the Parliamentary Commission on Banking Standards - Rules on the ring-fencing requirements for the banking sector - Creation of individual accountability through creation of SM&CR (part 4) - Creation of the criminal offence of mismanagement of a bank - created bail in Stabilisation Regime through the SRR (part 3) - created the Payment Systems Regulator (part 5) - further powers for the FCA to limit the special resolutions regime

Answer 39

It is to insulate the banking system from any financial shocks It seperates retail banks from investment banking. UK-incorporated regimes are subject to the regime unless it is a institution which is exempt such as certain categories of deposit taking institutions such as building societies, credit unions and institutions which hold below £25 billion. UK branches of non-UK banks are not subject to the ringfencing requirements, although UK incorporated branches are subject. Came into effect 2019 - altered by Edinburgh reforms

Answer 40

SM&CR individual accountability initially applied to banks, insurance firms but extended to all regulated firms

Answer 41

Third major piece of legislation the government made to reform the financial sector SECTION 21 - extending to authorised persons provisions of Part 5 of FSMA which applies only to relevant authorised persons SECTION 22 - provides powers to the FCA and the PRA to make transitional provisions SECTION 23 - inserts the FCA and the PRA as the administrators of the Senior Manager Scheme SECTION 24 - rules of conduct (minor cosmetic changes) SECTION 25 - misconduct SECTION 26 - decisions causing a financial institution to fail: meaning of insolvency

Answer 42

The UK's first step to post-Brexit but aiming the UK to remain a 'open and dynamic financial centre' Received Royal Assent on April 2021 Part 4A Permissions Consumer Duty Money Laundering Debt Respite Scheme Help to save Buy now, pay later products

Answer 43

UK PRUDENTIAL FRAMEWORK - Investment firms prudential scheme - Basel III and 3.1 standards ACCESS TO FINANCIAL MARKETS - Overseas fund regime -UK MiFIR equivalence - PRIIPS - UK EMIR INSIDER DEALING - personal data -maintaining insider lists IBOR -providing FCA with appropriate power to manage the cessation of critical 'LIBOR' benchmarks to protect consumers

Answer 44

It follows the EU's Investment Firms Directive and Regulations, which came into effect in June 2021, given the UK was involved in the legislation. came into effect 1 January 2022. Approach is to consider the harm an FCA investment firm can cause to others based on the activities it carries out and ensures that the amount of capital and liquid assets it holds is sufficient to undertake an orderly wind down.

Answer 45

A prudential regime that is aligned to the way that investment firms run their business: - taking into account different business models of FCA investment firms - better protecting customers and markets from the harm firms may pose FCA firms are subject to meaningful and consistent prudential requirements FCA investment firms spend less time on complex capital requirement calculations that do little to help them manage risk Prudential rules that are understandable and accessible, with most rules brought under a single sourcebook

Answer 46

The FCA removed the current definitions of investment firms in BIPRU, IFPRU and exempt-CAD Rather 'SNI' or non-'SNI'

Answer 47

Prudential consolidation will apply when there is an investment form group that comprises of a UK Parent undertaking and its subsidiaries

Answer 48

Types and treatment of own funds under the IFPR will follow same requirements to comprise the following three classes: - Common Equity Tier 1 (or CET1) capital - Additional Tier 1 (or AT1) capital - Tier 2 (or T2) capital

Answer 49

Permanent minimum capital requirement (PMR) and requirements based on the activities and services the fund undertakes number of transitional provisions to assist firms - especially when there is a large increase from previous capital requirements

Answer 50

General provisions on monitoring and control of concentration risk apply to all firms with limited exceptions Provisions on limits and own funds requirements for concentration risk (K-CON) only apply to firms with a trading book, ie, trading as principal.

Answer 51

FSMA defines what is meant by the arrangements for and identifies the restrictions in place in relation to the promotion of CISs. FSMA also provides powers in order to review, approve and refuse applications on authorised unit trust schemes.

Answer 52

UCITS directive aimed at security a common set of regulatory standards for open-ended funds known as OEICs and unit trusts in the UK or SICAVs. Put simply, if a collective fund is set up in accordance with the UCITS rules then it should be able to be sold across the EU, subject to only local tax and marketing laws. So, a UCITS scheme can gain a simple authorisation from the home state regulator and need not apply for further authorisation in other member states.

Answer 53

- scheme has to be solely invested in transferable securities - no more than 10% of the fund can be in shares or bonds of a single issuer - no more than 5% of the assets of the scheme are allowed to be invested in other CISs. - scheme was only able to hold money in bank deposits as ancillary liquid assets and not as a major part of the investment strategy - scheme was only able to invest in, utilise financial derivatives for efficient portfolio management or hedging purposes As a result, some UK CISs were UCITS compliant and some were not Demand for a wide variety of funds put some of these requirements as out of date

Answer 54

- one affecting the operators of funds (management directive) - one broadening the range of underlying investments and strategies that could qualify as UCITS (the products directive)