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Flashcards in Section 12 Deck (11)
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1

FCA Use of Principles and Outcomes

•FCA Principles for Businesses
•Firms must comply with eleven general statements on fundamental obligations:

1 Integrity
2 Skill, care and diligence
3 Management and control
4 Financial prudence
5 Market conduct
6 Customers’ interests
7 Communication with clients
8 Conflicts of interest
9 Customers: relationship of trust
10 Clients’ assets
11 Relationship with regulators

2

Principles-Based Regulations

•No rule for every situation
•Instead general terms on required behaviours

3

Outcomes-Based Regulations

•Development following financial crisis
•To make judgments regarding the future
•Assessment of risk
•Analyse at firm level
•Supervisors supported by specialists in prudential and conduct risk
•This integrated supervisory approach underpins Supervisory Enhancement Programme (SEP)

4

Corporate Culture

•Key cultural drivers:
o Leadership - direction to middle management and ‘tone at the top’
o Strategy - clear vision supporting fair treatment of customers
o Decision-making and challenge - use external feedback
o Controls - collect and interpret MI
o Recruitment/training and competence - behaviours and values are at the core
o Reward - not heavily focused on production targets

5

Leadership

•Should walk the talk
•Use MI to be sure delivering fair outcomes to customers

•Good practice:
o Demonstrate commitment to FTC
o Implement strong FTC leadership
o Maintain high FTC standards
o Listen to and act on staff feedback

•Poor practice:
o Meaning of FTC not identified
o FTC inappropriately delegated
o Communication ineffective
o Outcomes inconsistent with strategy
o FTC risks not identified/dealt with

6

Corporate Governance

•Governance, risk management and compliance (GRC)
•Whole system of corporate governance
•Connects risk, compliance, ethics to principles-based approach

7

Code of Conduct (COCON)

•Replaces approved persons regime for SM&CR firms
•Individual conduct rules
o Integrity
o Due skill, care and diligence
o Open and cooperative with regulators
o Treat customers fairly
o Proper standards of market conduct

•Senior manager conduct rules
o Effective control
o Regulatory compliance
o Responsible delegation
o Disclosure to regulator

8

Statements of Principle for Approved Persons (non SM&CR firms, ARs)

•Statements of Principle for Approved Persons (those carrying out controlled functions)
•Accountable higher management function - additional principles 5 - 7 apply

•Statements of Principle for Approved Persons:
o Principle 1 - Integrity
o Principle 2 - Skill, care and diligence
o Principle 3 - Market conduct
o Principle 4 - Open and co-operative
o Principle 5 - Organisation and control
o Principle 6 - Skill care and diligence in managing
o Principle 7 - Compliance

9

Code of Practice for Approved Persons

•Expands on each of above principles and describes the conduct expected in more detail.

10

Fit and Proper Test for Employees and Senior Personnel

•Applies to senior managers and approved persons (regulator determines), and certification functions (firm determines)

•Must remain fit and proper under criteria:
o Honesty, integrity and reputation
o Competence and capability
o Financial soundness
o For senior managers, firm needs clear, appropriate and recorded apportionment of significant responsibilities
o FCA can take action against an individual
o If a firm believes that an individual under SM&CR is no longer fit and proper, it must take the appropriate action and inform the FCA straight away

11

Conflicts of Interest

•Conflict identification (need to take a broad view)
•Conflict mitigation
•Overall policy must be owned by senior management, monitored and followed up