The FCA Handbook and Relvant Legislation Flashcards
(137 cards)
1
Q
How many blocks is the FCA handbook broken down to?
A
9
2
Q
Where were most of the content of the FCA hand book inherited from?
A
The FCAs predecessor the FSA
3
Q
What is block 1 of the FCA handbook?
A
High Level Standards
Sets out the main standards that every regulated firm or approved person should be aware of.
4
Q
How many sourcebooks make up block 1?
A
10
5
Q
What are the 12 principles for business in block 1
A
1 Integrity
2 Skill care and diligence
3 Management and control (organise appropriately and minimise risk)
4 Financial prudence
5 Market conduct
6 Customers interest
7 Communications with customers (clear, fair, not misleading)
8 Conflicts of interest (should be avoided)
9 Customer trust (ensure reliabilty)
10 Client assets (protect them if held)
11 Relationship with regulators (open, honest, transparent)
12 Consumer principles (will eventually replace 6 & 7)
6
Q
What are the 3 aims of principle 12?
What are the 4 outcomes?
A
Act in good faith
Avoid causing foreseeable harm
Enable and support retail customers to pursue their financial objectives
Communications
Products and services
Customer services,
Price and value.
7
Q
Senior management of a firm should ensure that there are what?
A
Robust systems and controls to protect consumers.
Senior staff should have clearly defined and written down roles to perform in relation to this.
These depend on the size and complexity of the firm but should meet the common platform requirements.
8
Q
What are the 10 common platform requirements?
A
General requirements
Employees and staff
Compliance
Risk control
Outsourcing
Record keeping
Conflict of interest.
Whistle blowing
Renumeration
Senior Managers Certification Regime
9
Q
What is the rule about general requirements?
A
Businesses should be set up in an appropriate manner with the right management structures and clear reporting lines. People should know their role.
10
Q
What is the rule about employment and staff?
A
Anyone working for a firm should have appropriate qualifications and experience to do their job.
11
Q
What is the rule about compliance?
A
The firm should be set up to ensure that it meets its requirements under the regulator’s rules and that there is sufficient internal audit process to ensure this happens.
(Specifically covers anti-money laundering and how the company will meet its obligation to organised crime.
12
Q
What is the rule about risk control?
A
There should be a robust process for measuring and controlling risk.
13
Q
What is the rule about outsourcing?
A
Where outsourcing care should be taken to ensure this does not introduce extra layers of risk. Due diligence is required on all providers of outsourced services.
14
Q
What is the rule about record keeping?
A
Records should be kept for appropriate length of time
15
Q
What is the rule about conflict of interest?
A
Steps should be taken to ensure that any potential conflicts of interest are controlled and managed.
16
Q
What rule is there about whistle blowing?
A
All staff should know how to whistle blow on bad practice and should have no fear of doing so.
17
Q
What is the rule about remuneration?
A
Staff should not be remunerated in a manner that could be contrary to consumers’ interests or encourage taking risks.
18
Q
How many points to the remuneration policy are there?
And what are the ones we should remember?
A
12
Aim to ensure that there are fair structures in place that don’t encourage anyone to take short-term risks for financial gain.
A significant number of bonuses should be deferred for a number of years, and performance related pay should be minimised.
Any remuneration code should be approved within the business and subject to scrutiny.
19
Q
What is covered in the senior management certification regime?
A
The way that senior managers within the FCA regulated firms gain and maintain certification to perform their roles as well as scope of responsibility.
This replaced the approved pensions scheme.
20
Q
What is covered in the code of conduct? (COCON)
A
The sets of codes for those subject to senior management and certification regime.
21
Q
What is rule in Threshhold Conditions? (COND)
A
If you want to conduct regulated business, you have to hit certain requirements.
22
Q
What are the requirements for conduct threshold (COND)
A
If the body seeking to operate is a corporate body registered in the UK, it must have a UK based Head Office and registered office. (Prevenents outside companies from setting up without a foot in and outside the regulator’s duristiction.)
The person must be in a position where the FCA can supervise them effectively. (This would mean having due regard to any potential conflicts of interest.
The firm must have an appropriate level of resources for the type of buisness they are seeking to transact.
Individuals running the firm must pass the ‘fit and proper’ test.
The persons business model must be appropriate. (Nothing in there that is a detriment to the consumer).
23
Q
What is meant by person in the context of regulation?
A
Whoever the FCA is regulating so could be a company.
24
Q
If you fail to meet the threshold conditions, what could happen?
A
You can have your right to opperate removed.
Part 4a permission.
25
What are the statements of principles and codes of practice? (APER)
The approved person should opperate with skill, care, and diligence.
The approved person should deal with the regulator in an open and honest way.
Anyone acting in a senior management role should take extra care to ensure that their firm meets the standards as well as themselves. This is an extra layer of personal responsibility.
26
What does APER apply to?
Firms that are not subject to the Senior Management and Certification Regime, basically representatives. Everyone else falls under the new regime and is subject to COCON instead.
27
What is a Fit and Proper Test for Approved Persons (FIT)
A test that checks if you are OK to work in the financial services.
I.e. form A for financial advisors checks criminal record, financial position, employment history, and other reasons you may not be safe to advise clients.
28
Who are the FIT tests performed by under the Senior Management and Certification Regime?
In-house. Covers anyone who opperates in an approved role or certain specified roles where they could do significant harm.
29
What does financial confidence and stability cover? (FINMAR)
Rules around the maintenance of financial stability and the measures introduced in connection with short selling after a number of incidents caused significant harm in relation to this practice.
30
Why is training and competence (TC) in Block 1?
The FCA elevated it to here because of how seriously they take it.
31
What is covered in general provisions (GEN)
You shouldn't say you are authorised by the FCA unless you are.
If something happens and you need to breach FCA rules in an emergency, you can do that, but only for the length of that emergency and only if you do all you can to correct the issue.
All authorised firms must disclose their authorisation in the correct way. For an authorised firm, this is 'authorised and regulated by the financial conduct authority.' Other wordings apply where the firm is a representative or only involved in insurance mediation.
The FCA logo MUST NOT be used on a firm's literature, and the key facts logo can only be used in the manner laid down by the rules.
32
What can firms not do?
Insure themselves against penalties from the regulator.
33
How is the FCA funded?
A levy is paid by regualted firms as set out in the fees (FEES) sourcebook.
The 3 types of fees are:
Application fees
Periodic fees
Special project fees
34
How are application fees handled?
Paid when seeking authorisation or carrying permissions.
Simplified in 2022, stating at £2500 and are grouped into blocks depending on size and complexity of application.
£25000 max fee
Variation of permissions generally charged at a minimum of £250 and 50% for major variations.
Fees are payable even if rejected.
35
How are periodic fees handled?
Paid annually by each firm.
The fee is determined by FCA block and firm size.
Ie Tariff rate and Tarif data
Tariff data increases with size of firm and higher risk activity.
Fees are finalised in May, and bills are received in June/July.
The FCA has a deal with primium credit for payment instalments.
36
What is the formula for calculating the periodic fee rate?
Period fee=tarif data x tarif rate.
37
How are special project fees handled?
If a project requires significant input from the regulator, it needs to be paid for as it is not factored i to the normal running cost of the FCA I.e a merger of two banks.
38
What is held in block 2 of the FCA handbook?
Prudential standards.
This covers financial management of the firms, including the amount of capital the firm will be required to hold. (Capital adaquacy)
The amount of capital a firm must hold is called capital resource requirment
39
What are most larger firms subject yo since leaving the EU?
Investment Firms Prudential Regime (IFPR) (replaced capital requirements directive)
This lays out the risk assessment and stress testing required to evidence capital adaquacy in the UK.
40
How many sourcebooks are in block 2?
6
41
What should be noted about the capital resource requirements
They will vary depending on the type of firm and the corresponding risk inadequate resources would pose.
42
What firms have the lowest CCR?
MiFID exempt firms.
43
What is covered under the MIFID prudential sourcebook? (MIFIDPRU)
Financial requirements for MIFID relevant firms that are subject to the new IFPR.
These look at:
credit risk
market risk
concentration risk
counter party risk
Liquidity
44
What is covered under the Mortgage/home finance firms and insurance intermediaries (MIPRI) source book?
Professional indemnity insurance and capital resource requirements for firms transacting home finance business or acting as general insurance intermediaries.
Minimum standards apply in respect of both areas.
45
What is covered in the interim prudential sourcebook for investment business (IFPRU-INV)
Adaquacy against liabilities and potential stresses that might come about in the future for non-MiFID investment firms.
46
What are the final 2 sourcebooks for block 2?
Prudential sourcebook for insurers (INSPRU)
Prudential sourcebook for friendly societies and insurers (IPRU-FSOC/IPRU-INS
47
What has MIFIDPRU generally been replaced by but might still exist?
GENPRU
48
What is covered in block 3
Buisness standards
49
What is covered by the conduct of business sorce book? (COBS)
Rules that govern and control the day-to-day work of financial advisors in the 'life and pensions arena'
50
What were COBS under the FSA.
Conduct of businesses (COB) but were changed after including when MiFID requirements were added.
51
What is covered in the Insurace:conduct of buisness source book. (ICOBS)
Both general insurance and pure protection products. (Income protection, term insurance, and critical insurance)
52
What is the difference between the old ICOB and the new ICOBS.
ICOBS is far more principle based and high-level.
53
What goes ICOBS do?
Splits businesses into 3 groups and, where appropriate, both new businesses and renewals are treated with the same protection.
54
What are the 3 groups for ICOBS
Genral insurance - cars, motors, etc
Pure protection - term, income protection, critical
Payment protection - payment/mortgage protection insurance
55
What are the principles that apply to all ICOBS?
Customers should be given certain information before advice is given.
Where a sale is advised, the intermediary should obtain enough information to ensure that they can demonstrate sutability.
Most products come with a right to cancel.
Renewal notices should be sent within a reasonable timescale so that the customer can shop around for the best deal on their renewal.
Where insurers sell their products through an intermediary, they should ensure the intermediary has the necessary authorisation to operate in this capacity.
Customers should be informed about the claims process under their contract, and no claims should be unreasonable refused.
56
How were customers given information before advice initially? How is it done now?
Through either an Initial Disclosure Document (IDD) or Terms of business (ToB) or both.
Can now be given in any durable medium the firm chooses.
57
What is the information that should be given before giving advice?
Basis of the advice
Restrictions on providers (including providers on the panel if operating this way)
Fees and commission
Complaints procedure
58
What is the name of the record of sutability an advisor should do with a client?
Demands and needs statement
(Enough information still needs to be required even if the sale is non-advised)
59
What classes of business (not limited to) do not have a right to cancel?
Traded endowment policies
Short-term life polices with 6 months or less.
Polices sold to non residents.
60
What is the cancellation period for general insurance? And what is it for pure protection and PPI?
General Insurance - generally 14 days
Pure protection and PPI - generally 30 days
61
How long before should a renewal notice be sent?
Three weeks (21 days)
62
Why is it important that customers are informed about the claims process and that no claims should be unreasonably refused?
Consumer confidence is significantly dented by stories of claims being rejected. Therefore, claims should not be refused on the grounds of non-disclosure if the customer could not have reasonably been expected to know the non-disclosed information.
63
What is covered by mortgage and home finance: conduct of business. (MCOB)
Covers home loan business including:
Mortgage advice and lending
Home reservations and lifetime mortgages in the field of equity release and sale and rent back agreements.
64
What was MCOB revised and updated alongside?
The mortgage market review (MMR)
65
What range of new measures were introduced to MCOB?
A shift from earnings multiples to affordability based lending.
The requirement for lenders to undertake affordability tests rather than relying on each other.
Outlawing self-certification mortgages
Protecting those in arrears from punative charges would make their situation worse.
Re-emphasising that repossession of property should be a last resort.
66
What aspects of the market are covered by MCOB?
Advising and arranging
Lending
Administration
67
What groups do advisors fall under in MCOB?
Whole market
Restricted - panel
Restricted - single lender
68
What level should mortgage sellers and advisors have?
Level 3
69
What should happen if a sale is to be advised?
The advisor should make clear the basis upon which it will offer.
The information for this will be contained within the disclosure given to the customer.
70
What is the difference between advice and information?
Information - factual information
Advice - expression of opinion in relation to the most appropriate product for a customer.
71
Why is it important for the regulated that the FCA makes special provisions for Morgage Lending Administration?
It allows them to monitor risk undertaken.
72
What is debt capitalization?
Where mortgage payments have gone into arrears, but arrears are added to the total debt because the property value is more than the mortgage. Needs to be disclosed when this happens.
73
What are the different regulatory states for firms under MCOB?
Firms are directly authorised by the FCA - all regulations required
Appointed representatives - responsible for compliance.
Introducers - no need for authorisation, as does no more than pass on leads, so does not advise.
74
What are regualted contracts under MCOB?
Those where the loan is made to either an individual or a trustee, secured by first legal charge and at least 40% of the property is used as a dwelling by the borrower or related person.
75
By association, what would not be a regulated contract under MCOB?
Loans to companies
Buy to let - unless so-called customer buy to let.
76
Undder the EU Mortgage Credit Directive rules were introduced to do what?
Bring further protection to the second charge mortgage market.
77
What extra permissions to the standard mortgage permissions do second charge mortgages have?
Provide an adequate explanation of a products essential features
Issue a binding order
Provide a 7 day (minimum) reflection period.
Give customers a European standardised information sheet (ECIS) disclosure document. (Like key features document)
Advice must be given if there is any kind of dialogue between the firm and customer of where debit consolidation is the purpose of the loan.
78
Describe a rule for how contract variations are treatment.
A change on repayment vehicle on a mortgage loan.
79
What are the standard definitions of common terms within MCOB?
Higher lending charge (a levy on high to value loans to cover risk attached for lender)
Early repayment (particularly relevant to fixed rate loans)
Lifetime mortgage (a form of equity release)
80
Under MCOB rules, anyone advising on equity release or sale and rent back agreements should what?
Make a recommendation for these contracts where it can be demonstrated that the benefits of the recommendation outweigh any negative effects of state benefit entitlement.
Important as many may lose their entitlement to benefits due to being given a lump sum.
81
What do most advisors have?
A limited understanding of state benefits.
82
What is not allowed due to inherent risk attached to equity release and sale and rent back agreements?
To be sold without advice.
Cold-call
83
What is covered under client assets (CASS)
Protection of clients' assets and money. Must be followed by anyone who handles clients' money.
84
What is required under CASS?
Identify risk
Assess risk
Mitigate risk
85
How long after putting in risk management processes in to place is an audit performed?
At least once a year.
86
What is required with client money?
Should be separated from other funds.
Any money paid should be banked by the close of the following business day.
Reconciliation of client funds should be done regularly (as often as necessary), and discrepancies rectified.
87
How often do firms do a reconciliation?
Daily.
88
Where is most regulator focus due to disproportionate holding of client assets?
On firms that look after client assets of more than £100bn and cash of more than £1bn.
89
Why is CASS important to all 3 of the FCA operational objectives?
CASS protects consumers' assets and money when firms fail
CASS enhances the integrity of the financial system by giving participants confidence that their money is protected upon insolvency.
CASS rules set a minimum standard of protection that allows for competitive market investment and custodial services. (Not competing on cost but quality of services provided)
90
What is each firm required to do for integrity under CASS?
Produce a CASS Resolution Pack.(CASS RP)
91
What is in the CASS RP?
Sets out the important information that would be required by an insolvency practitioner in the event of a firm failing.
92
Who does the FCA place responsibility for under CASS?
Individuals for their own actions and those of their firms.
93
How was Market Conduct (MAR) recently revised to include market abuse regulation rules in July 2016?
Insider dealing
Unlawful disclosure - disclosing to oustsiders
Dissemination (false/misleading)
Market manipulation (including atrempted)
Suspicious transactions
Whistle blowing - both firms and regulators
94
Give an example of insider trading
Clarifying that cancelling a deal because of inside information still constitutes insider trading
95
What size fine can the fca give for market abuse?
Unlimited
96
Other than market abuse, what do the other sections of the MAR source book look at?
Technical aspects of market conduct, including, the way in which the FCA will support the work of the panel for takeovers and mergers.
97
What is set out in the environmental, social, and governance sourcebook? (ESG 2)
Rules and guidance concerning ESG. This is new and being developed.
Includes recommendations for portfolio managers on governance, strategy, risk management, and metrics.
98
What does ESG 2 fall in line with?
Re mendacious from the Task Force on Climate Related Finanacial Disclosures
99
What is covered in Product Intervention and Product Governance (PROD)
Rules from the FSMA that layout specific guidance on product governance by regualted firms.
How products are designed
Approved
Marketed
Managed
100
What is the point of PROD governance?
So that products meet the needs of identifiable target markets, sold to clients by appropriate distribution channels, and deliver appropriate clinent outcomes.
101
How did MiFID build on the PROD guidance?
Understand the financial instruments they distribute.
Assess compatability between clients and products
Distribute only when in the best interests of the client
102
What is contained in Block 4
The regulatory processes.
103
What is covered under the supervision sourcebook?
A manual that covers the way in which the FCA ensures firms are complying with their rules.
104
When the FCA decideds to investigate someone, what should happen?
The FCA notifies the person that an investigation is commencing and the nature of the investigation.
Subsequent change to the scope of the investigation should then be subject to further notification.
The exemption to this is where notification would prejudice the investigation.
105
What appeals can the Upper Tribunal (Tax and Chandery Chamber) respond to?
Disciplinary action
Declined applications for permissions or variations of permissions.
Withdrawing permissions
Prohibition orders
106
How can the Upper Tribunal be appealed to?
Via the court of appeal, but such an appeal can only be made on a point of law.
I.e you believe the original choice was at odds with the law.
107
What is covered under redress and compensation?
The process a firm should follow when handling complaints.
Including details of the right of a complaint to take their concerns to the Finanacial ombudsman service if the firm is unable to resolve the matter.
Also covers consumer redress schemes for identified wide-ranging failures.
Looks at compensation, including the work of the fiancial services compensation scheme for failed firms.
108
Can complaints be made against the FCA?
Yes
109
Who takes complaints made against the FCA?
The Complaints Commissioner (cc)
110
What does the CC do?
Examines the substance of complaints and makes recommendations for a course of action.
This can include recommendations for the FCA to pay compensation, though there's no requirement on the FCA to accept the findings.
If a complainant took legal action against the FCA guidance from the CC would be considered.
111
What's is block 6
Specialist source book.
Contains books relating to certain business sectors. For example, COLL covers collective investment schemes
112
What is Block 7
Listing prospectus and disclosure
Sets out the rules for listing in the UK.
113
What is block 8
Handguide book for specialist areas
Guides an overview of certain topics and where to find more information within the handbook
114
What is in block 9
The regulatory guide
Contains regulatory topic eg financial crime.
115
What are the most important regulatory topics to this exam?
PERG
EG
FC
MG2 - The MiFID 2 onshoring guide
116
What's in PERG
Perimeter guidance - specifies which activities require authorisation and who might be exempt from authorization
117
What's in EG
The enforcement guide - how the FCA will exercise its enforcement powers under various legislation.
118
What's under FC
A guide to financial crime - explains what can be done within firms to reduce the risk of being exposed to financial crime. Applicable to all regualted firms.
119
What's in th M2G
Looks at MiFID post-brexit in two areas
Onshoring for trading venues and data reporting service providers.
Onshoring of senior management arrangements and systems and controls obligations.
120
What are the 3 primary pieces of legislation regarding consumer credit?
Consumer Credit Act 1974
Consumer Credit Act 2006
Consumer Credit Directive
121
What is the consumer credit act 1974?
First piece of UK legislation in relation to consumer credit.
Set out regulations for anyone providing credit of up to £25000 or advising on debt management.
122
What exemption is there for the consumer credit act 1974
If the loan is secured land, it is possible to apply for exemption.
Blanket exception on building societies die to having thier own legislation.
123
What aspects of credit are covered in the consumer credit act 1974?
Mandatory requirements for advertisements. Including a requirement to include an APR figure, which is calculated on a statutory basis. (Now, including fees arranging the loan)
The customer must be given a copy of the loan agreement to keep. Hence, 2 arrangements will be given.
The customer should be given the right to cool off.
-This extends to 14 days for most loans and credit cards.
-Cancellation rights can be extended by 5 days after the second copy of the credit agreement is received
The action can be taken by lenders in the event of default if set out.
124
What did the consumer credit act 2006 do?
Extended legislation to sole traders and partnerships with three or fewer partners as well as unincorporated associations.
Brought consumer credit under FOS
Removed the £25000 cap so it broadly applies to all loans other than business loans and borrowers meeting the definition of high net worth.
Extended protections to peer to peer lending.
125
How does the FCA regulate the operating of electronic systems in relation to lending? I.e. peer to peer sites
Assessing an investors knowledge and experience
Provision of information to investors
Governace arrangements, systems and controls.
126
What is the consumer credit directive?
A European directive that applies to all contracts regulated under the Consummer Credit Acts (except those secured on land)
127
What changes were implemented due to the consumer credit directive?
A shift from typical APR to representative APR.
Browers can request a statement of account for a fixed loan as long as they don't do so more often than once a month.
Lenders are now obligated to notify borrowers of a change of interest rate before the change takes place.
128
What is the difference between typical and representative APR?
Representative APR only has to be offered to 51% of applicants, meaning that over half of all applicants will not get the advertised rate.
129
Who must now obtain a consummer credit licence from the FCA?
Anyone offering credit, including pay-day loans, pawnbrokers, and peer-to-peers lending markets.
130
What is AER?
Annual equivalent rate.
Interest rate for savings accounts only.
Looks at the rate of return achieved on savings over a year and your compounded amount.
Allows savings accounts to be compared against each other irrespective of variances as to when interest is added.
131
What impact does the new consumer rights act 2015 on UK consumers?
Gives more protection and clarity to consumers.
Allows the FCA to act upon unfair contract terms, although primary responsibility for ensuring compliance lies with the Competion and Markets Authority (CMA)
132
What should not be challenged with insurance contracts on the grounds of unfairness?
The main provisions ie exclusions
133
What can be challenged on grounds of unfairness?
Terms that are not transparent or prominent.
Ie not written in plain terms or hidden in the small print.
134
What is the test to be met in relation to transparency and prominence?
Would the customer understand/be able to find the term.
135
What is a customer defined as in law?
One who is well informed, observant, and circumspect.
136
What are the consequences for the customer if the FCA deem a contract term unfair?
The customer will not be binded to it but can still rely upon it if it is in their interest.
137
If unfair terms are challenged in court, what will happen?
The court will have the power to vary an agreement if a term is judged to be unfair.
