Responsibilities To Regulation Flashcards
(32 cards)
1
Q
Prudential
A
- it is governed by the PRC in the Bank of England
- it is responsible for authorisation sepervisation and regulation of credit unions banks and providers
- they promote the soundness of the firms it regulates
- they are supposed to facilitate effective competition in the market
- they are also supposed to protect policy holders
- they are suppose to promote a stable system and safety and soundeds and focus primarily on the harm that firms can cause to the stability of the UK financial system.
2
Q
How does the PRA Advance it’s objectives
A
- regulation - it sets standard or policies that it expects firms to meet
- it asses the risks that firms pose to the PRAs objectives and when it’s necessary take action to reduce them
The approach to regulation is outcomes based judgement based and focused
3
Q
Financial policy commiteee
A
- tan by the Bank of England
- it has macro prudential supervision
- the FPC also has to take steps to take that the policies it takes can’t limit economy growth
- it is responsible for spotting the systemic risks attributed to structural features of the antsy and distribution of risk’ it is also responsible for identifying unsuistaubabke levels of leverage debt of credit growth
- it sets leverage limits - limiting the excessive build up of on and off balance sheet leverage since measures of risk can be unreliable a levaeegw ration could act as a back stop to risk weighted requirements
- a macro prudential tool it used is variable risk weights enforcing targeted capital requirements in specific sectors or asset classes; this includes requiring banks to hold money as a buffer
- they set the counter cyclical capital buffers making banks increase their capital when they are doing well so that they have protection when they are doing bad. This should have an effect of tempering lending dying a boom reducing the damoening affect of a credit cycle
4
Q
What is the FOCs relation to other regulators
A
- it is made up of 13 members and chaired by the governor of back of England
- members of prudential sit there
- the fca chief executive sits there
- there are also 5 independent members chosen by the chancellor
- hm treasury also sit on it
- the FPC has to respond to any treasury recommendations and if it does not choose them has to show what alternatives it took
- they can always reject it and they also have to show why they did in their rejections
5
Q
FCA thematic approach
A
The face can test themes to test if they are able to help the customer. They can generate reports on this in general
6
Q
The FCAs early intervening besides enforcement
A
- they act on banning products
- they use market intelligence
- they withdraw any misleading info
7
Q
Fca supervision.
A
1) proactive / form supervision - they have a designated FCA contact
2) event driven supervision - ie thru are doing this because of misconduct and because of trends
3) thematic approach - they pool all together for different sectors
8
Q
Form categorisation
A
The firms are either fixed or flexible
- fixed ones are small
- the others have a more reactive approach.
9
Q
Less proactive
A
— the FCA will act when rules are not followed
- they get reports from firms and will act on these
- the FCA will review a firm and can not be obstructed
10
Q
Fca and compliance
A
- they are reactive on some issues
- The FCA investigates peroebnel matters
- The firms compliance officer is in charge of all the breaches complaints and any issues with the FCA inspection
-the fca also require most firms to have a senior manager that holds the formal comps Locke oversight senior management function
11
Q
PRA
A
- they regulate the banks credit unions and major investment
- the PRA wants to encourage conditions we’re dialling firms don’t cause significant distribution to the rest of the financial services
12
Q
Prudential regulation
A
- the PRA prudential let regulates band and insures
- the fca prudential let ewfulates smaller solo regulates firms and regulates the conduct of all firms
- firms need to ensure they maintain overall financial resources including capital resources and liquidity resources which are adequate
- principle 4 means that they have to maintain adequate financial resources. The FCA ( and PRA where applicable) are concerned with the adequacy of energy financial resources that a firm needs to hikd in order I be able to meet its liabilities as they fall due.
- they can impose higher capital requirements if it’s result
- prudential tests should be carried out annually and more often when there is a significant change in future estimates occur
13
Q
Financial Strength of Regulated Firms
A
- banks would not be allowed to take in new business if they fell below financial strength
- after 2008 shows how big banks still need the government to implement rules about how much spare capital they are required to hold
- The FAR is calculated on the Herod if total assets - liabilities over 100
14
Q
The PRA
A
- initial one is to promote the safety and soundness of the firms if regulates
- the PRA promotes competition
- The PRA helps achieve things through supervising and regulating
- the PRAs approach to this us through the below ;
- focused approach - the PRA focuses on those issues and firms that pose the biggest risk to the UK finsnical system
- outcomes based approach - they asses firms against currrnt turns and also against those Thad could plausibly arise in the future . When the PRA deems it necessary to intervene it tends to do so earlier
-Judgement - the PRA uses judgement in determining whether financial forms are safe and sound whether insurers provide appropriate protection for policyholders and whey therapy firms confine to meet all thresholds
15
Q
The Prudential Regulation Committee
A
- the Treasury makes recommendations to the PRC each parliament.
- It operates as part of the Bank of England.
- The Committee wants to help the Bank of Englands aims in promoting the soundness of firms enhancing financial stability.
- they also want to promote competition, consumer outcomes, growth,competitiveness, trade and innovation.
16
Q
Scope and how the FCA us Accountable
A
- the FCA regulates firs that’s are authorised
- directs the authorisation for firms that apply for Part 4A permission
- the PRA authorises firms that accepts deposits or accept insurance and the FCA authorises smaller firms which advise and sell investments
- they minute all the activities of various recognised bodues such CREST, London Stock Exchange,NASDAQ and chartered accounts
- they also ensure the activities are carried out by advisers
- The FCA is accountable to the treasury
- Annual Review is sent to Parliament
- The FCA maintains panels for markets practitioners and others
17
Q
penalties of the FCA
A
- the fca has powers to take on insider dealing
- the criminal justice ask gives power to the FCA.
- Anyone who is giving out advice when they are not authorised will be punished by the FCA.
- if the FCA takes action that an individual does not agree with they can appeal to theUpper Tribunal (Tax and Chancery)
-The FCA can ask the high court for an injustion to stop someone who is not authorised to carry out activities or stop them seeking misleading promotions - insider dealing is also prohibited
- to profit from crime is prohibited and is punishable by the proceeds of crime act which is punishable by up to 7 Years inside and a fine. The fine can be unlimited as well
18
Q
FCA Principles for business
A
- they are a general strategy of the fundamental obligations of all authorised firms under the regulatory system
19
Q
Senior management arrangements
A
- The senior Management of authorised business must have an adequate structure of systems and controls for the business
- clear structure and who repaid Sri who should be written so people know
-people employed must have appropriate skills - they need to have reoustvanle management and appropriate practices.
- they should be able to keep good records and be able to document all client transactions.
20
Q
Remuneration principles
A
- there are quite a few
- good structure in palace in respect of renumeration.
-polices ate thought through - fair remuneration that take in to account future risks and the quality is the business undertaken
- bonus payments should be based on long term performance
- avoid an over-reliance on performance related pay as opposed to standard salaries
- consider deferring a significant portions is bonuses to that they are paid overtime thus reducing the risk of shied term high risk practices
21
Q
Financial and market confinence
A
- provides rules and guidance in relation to short selling in order to protect consumer
- reduce short selling by impairing restrictions when there are violent movements in price there is false information and there is evidence of unordinary trading
22
Q
Training and competence
A
- oversees of advises
- they apply to those that provide advice or general insurance advisers, investment adviser and mortgage advisers
- oversees and first line managers in life office departments such as claims , pensions, transfers of ISAs,
claims and death benefits
23
Q
General
A
- can’t use FCA
- can’t say the FCaA approves of their business
- can’t insure against financial penalties
- application fees are out to the FCA
- public purse is not used to fund the FCA
- periodic fees are how the FCa is funded. Each firm is put into a fee group.
- special project fees are when the firm asks the FcA for advice - they have to pay for this ie mergers of insurance and demutualisation of building societies
24
Q
Prudential - capital adequacy
A
- most large firms are subject to the capital adequacy directive
- firms must be able to find the day to day operating costs
- large organisations such as insurance companies and banks are subjected to very vigorous monitoring of their financial position.
- there are detailed solvency requirements for insurance companies now overseen by the PRA
- capital can be quantified in a umber of ways depending on how hindivusal or types of assets and liabilities are valued or incorporated from calculation.
25
Prudential - gen
GENPRU1 - deals with free meal requirements for adequacy of financial resources and valuation of those resources.
GENPRU2 - deals with capital resources
GENPRU2 - also deals with minimum amount of capital that has to be hold - this is the CRR
Requirements for insured and BIPRU firms are given in this chapter. It contains monitoring requirements that requires all firms to have systems in place to enable them to be certain that they have adequate capital resources.
Calculations and deductions are made at different stages when it calculates its capital rescourse. This is to reflect the fact that capital may not be available to the firm or that assets are if an uncertain value.
Different capital instruments Bart in the protection they offer a form and it’s customers so restrictions or limits are placed on the amount of capital a firm can hold in lower tiers of capital.
26
Prudential
B rules
BIPRU dels with firms subject to capital.
B3A Liquifity are designed to require those coughs by them to ensure that their model had sufficient amounts of liquid capital built in and they they require the firm will be able to continue to functions if certain external stresses are applied.
They require firms to ;
- Be self sufficient and maintain adequate liquid resources.
-put in pace and maintain enhanced stamens and controls for the management of liquidity risk and
- comply with a new wuantative regime which permits reliance on a small range of liquid assets.
the liquidity rules apply to all remaining BIPRU firms - simpler managing investment firms
IFPRU - IFPRU deals with firms subject to capital adequacy and covers specific elevate relating to capital resources calculations.
Liquidity - the rules are defined to ensure that the relevant firms have sufficient amounts of liquid capital bill in thei business model and that the firms will be able to continue to function if certain external stresses are applied.
27
Other capital requirements
MIPRU - sets out professional indemnity insurance PII and CRRs for home finance providers and intermediaries, and general insurance intermediaries.
IPRU- INV IPRU-INV sets out the PII and CRRs for simple investment firms bring further divided into securities firms, increment management firms and personal investment firms. This sourcebook also covers the enhanced requirements for excellence CAD firms, as well as important information on the additional capital requirements for firms with exclusions or excesses that apply to their PII
28
COBS 1 & 2
- COBS 1 related to general business guidance for firms. It incorporates MIFID and is designed to produce a more principles based firm. They apply to investments such as unit trusts and long term insurance. Home insurance and general insurance has the insurance based handboook
COBS 2 relates to all gifts and how firms should only take monetary remuneration. Volumes based commission is overrides for unit trusts open needed investments and any pensions. The goal of the FCA is to prevent intermediaries being swayed in their recommendations by incentives other than straight money amounts ideally. Providers can pay for travel and put on seminary’s but any potential conflicts must be kept for five years
29
ICOBS
- the rules for insurers
- must have terms of business
- must send cancellation notice for life policies and annuities
- there are no cancellation notices for clients who don’t like in the UK
- there are no cancellation notices for corporate bodies.
- cancellation period is 14 days for general insurance and 30 days for pure protection contracts.
- there is no rule on how many days the client should have cancellation notice for but it’s generally 21 days.
30
MCOB
- these are rules for home advice
- Direct authorisation - the firm or individual that is wholly responsible for complying with MCOBS and other requirements.
- appointed representatives - the responsibility for compliance lies either the principle lender this could be an intermediary.
- inteocuer Status - the firm or indicual passes on leads to an authorised person who will then pay the introductory fees
31
Regulated mortagages
- the FCA regulates mortgages were 40% of the propert is to be used as a dwelling for someone who is not related to the borrower.
- information is only facts we’re as advice is giving opinion on the benefits of a product.
Principle 6 requires that’s. Firm must pay due regard to the interests of its customers and treat them fairly.
- home purchase plans - these are equity release we’re the home over stays until death or moved out. They have to be sold though advice.
- sale and rent - this is when they sell the product and rent it back to the consumer this use to be Oher about 6 months but now it’s a 5 year lease.
- mortgage market review meant that lenders can disregard stringent interest only profits for existing cut owes as long as they are not borrowing more.
All mortgage products now have to have an affordability assessment to make sure no client is borrowing what they can’t afford
- the mortgage credit directive made FCa regulates firms need a seven day reflection period, explain a products essential features and made them have nre subject disclosure requirements
32
Cass
- these are designed to stockrssing of clients assets
- CASS Resolution packs are required in the event of insolvency
- firms that don’t handle the money am often don’t need to follow the rules if all cheques are lid straight to a provider.
- CASS small firms don’t need to complete a client money and asset return (CMAR)
- Bussiness with over £1 million in assets have to submit them each month.
-They also need to make a director or senior manager responsible for the separation of funds
