Unit 2 - FSMA and FSA Flashcards
(46 cards)
What is the general prohibition act?
No person may do regulated activity in/into UK unless they are authorised person (with part 4A permission) or exempt person (penalty = 2yrs jail/ unlimited fine)
Regulated activity - specified activity undertaken with specified investment e.g. (dealing or investing in investments)
What’s an example of an exempt person who can still conduct regulated activities?
BALD RR
Don’t need authorisation/ part 4A permission
- appointed reps i.e. they’ve been appointed by authorised firms to advise on its products only e.g. tied agents
- Lloyd syndicates members - people that gather together
- members of designated professional bodies e.g. lawyers, accountants, surveyors, actuaries, conveyancers but only bc the activities are incidental to main business
- recognised clearing houses i.e. intermediary between buyers and sellers of financial instruments e.g. euroclear UK + Ireland
- recognised investment exchanges e.g. LSE
- Other exempted bodies - Bank of England, central banks, supernationals (IMF, world bank)
How do you know if you need permission to conduct regulated activity?
Perimeter guidance manual (PERG) - has guidance to help you determine (not binding)
Permission notice (SUP) - FCA/PRA have power to grant and vary permission (it’s not a blanket permission i.e. specific to what you want to do). These are needed for controlled functions. Ppl who perform them = approved person
What happens if you conduct regulated activity if not authorised or exempt?
Criminal penalties - 2 years in prison +/or unlimited fine (in crown court in magistrates court it’s 6months in prison and £5k fine)
Civil law consequences - injunctions (shutting business down), restitution losses (Paying back losses), contracts are voidable at discretion of investor(
Examples of specified investments:
FEED RIH
- Shares/ depositary receipts (certificates that represent shares)/ warrants (rights to shares)
- debt instruments e.g. bonds, gilts (UK gov bonds), loan stock, debuntures (secured corporate bonds), t-bills, commercial paper
- units in collective investment schemes (run by portfolio manager) e.g. unit trusts, open ended investment company (OEIC), investment with variable capital (ICVC)
- derivatives - options, futures, CFDs
- Lloyd’s syndicates (ppl joining together to give money and accept insurance risk), insurance contracts and funeral plan contracts
- Pensions
- Regulated mortgages and home finance
- Deposits and electronic money
- Rights to specified investments
- loans and other forms of credit
- emissions auction products - emissions allowance offered for sale on an auction platform
- benchmarcks e.g. LIBOR - benchmark interest rate at which major global banks lend to one another
What specified investments have similar regulations in UK and EU i.e. MIFID investments?
- Shares/ depositary receipts (certificates that represent shares)/ warrants (rights to shares)
- debt instruments e.g. bonds, gilts (UK gov bonds), loan stock, debuntures (secured corporate bonds), t-bills, commercial paper
- units in collective investment schemes (run by portfolio manager) e.g. unit trusts, open ended investment company (OEIC), investment with variable capital (ICVC)
- derivatives - options, futures, CFDs
What type of derivatives are excluded from specified investments?
Derivatives used for commercial purposes e.g. hedging e.g. options on commodities except precious metal
What are specified MIFID activities?
- Dealing in investments
- arranging deals in investments
- managing investments
- advising on investments
- operating a MTF or OTF
What are non MIFID specified activities?
- safeguarding investments
- sending dematerialised instructions e.g. electronic money transfer
- Lloyds activities (advising and managing Lloyd syndicates), insurance activities and funeral plan contracts
- mortgages
- home finance activities
- managing dormant account funds
- accepting deposits and issuing electronic money
- providing credit
- starting / operating/ closing down collective investment scheme or pension scheme
- agreeing to do these regulated activities i.e. by advertising - need to be authorised first
Who/what carry out regulated activities but exempt so don’t need to apply for authorisation?
NIGGA U FED Out
1. Newspapers - give incidental advice
2. info providers e.g. bloomberg, reuters
3. unpaid trustees
4. employee share schemes
5. group/ joint enterprises
6. absence of holding out e.g. buying shares for yourself, company selling their shares / buybacks, derivatives for risk management (commercial purposes/ hedging)
7. foreign exchange i.e. currencies
8. Gov securities - national savings & investments, premium bond (government run lottery ticket), gold
9. Overseas person dealing as principle of Uk person approaches rhek
What are threshold conditions?
Shows us how we can get part 4A permission by setting out the minimum requirement:
BRUSSeL
1. Legal status (PRA make sure legally are a company)
2. UK office
3. Effective supervision - i.e. who holds significant shares in business (controlling interest)
4. appropriate resources - right financial resources, non-financial resources (FCA), right staff, prudent conduct
5. suitability - are senior managers fit and proper
6. business model - is it geared towards principles of FCA (on medium term)
What are authorisation with limitations?
Authorised for some activities you apply for not all
How do EU companies gain authorisation?
Apply with their local regulator and passport this into other EEA states (doesn’t exist with UK firms)
What is the upper tribunal?
tax and chancery chamber the upper tribunal is part of of ministry of justice who look at appeals made by:
1. tax and charity cases
2. FCA/ PRA
3. pensions regulator
What are the 4 levels of staff in an orginsation?
Who are subject to conduct rules?
Who are subject to fit and proper assessment?
4 levels of staff:
1. Senior management functions - need pre-approval by regulator - inc non-execs
2. certification functions (=sig. harm functions) - certificate issued by firm
3. other conduct rules staff - compliance, legal, middle office
4. ancillary staff
fit and proper assessment (annually):
SMF + CF
conduct rules:
SMF + CF + Other conduct rules staff
Who are likely senior manager functions?
What is their duty of responsibility?
Smaller firms - chief, chair, director, compliance oversight, money laundering reporting officer (MLRO).
larger firms - responsibilities map
Duty of responsibility:
- fulfil prescribed responsibilities which is set out in statement of responsibilities (SoR) which they sign and send to regulator.
- there are also 9 conduct rules that apply to senior managers
- evidence they tried to prevent, stop and remedy breaches
Who are certification functions?
- anyone who poses risk to customer, firm or markets e.g.
1. material risk takers
2. supervisors of certification functions
3. customer dealing functions e.g. client advisor - firms who assess fitness and propriety
How often are senior manager functions and certification functions assessed?
On appointment and at least annually
What are the parts to fit and proper test?
- honest, integrity and reputation
- 6 yrs employment history
- criminal convictions
- breaches to FCA/ PRA rules
- complaints - competence and capability
- financial soundness
- bankruptcy
How do people get approved to perform Senior manager function?
Firms use Form A to apply on behalf of senior managers to approved by FCA/ PRA to prove they are fit and proper
What are the 5 conduct rules that apply to all staff except ancillary?
- how we behave
- integrity - observe proper standards of market conduct
- skill, care and diligence - avoid deliberate or careless breach - must be open and co-operative with FCA/PRA
- impact of behaviour
- did it impact customers
- did it impact market conduct
What are the conduct rules that apply just to senior manager functions?
how do the senior manager manage the operations of the firm and inform regulators where they should
What are the general requirements of Training and competency sourcebook?
Employees of firms carrying out specified activities with/for retail customers must
- DEMONSTRATE competence (exams passed within 30 months)
* if overseas + 3yrs relevant experience can just sit reg module
*must pass reg exam before dealing with retail clients
- with the right supervision (at all times)
- competence is regularly reviewed
What is the public interest disclosure act (PIDA) 1998 ?
Protects whistleblowing and states that firms should make sure employees are aware of how to disclose and that they will be protected (comes under SYSC)
There should be a senior manager for this (Senior manager function)
