1
Q
What are the three bodies responsible for regulation following the Financial Services Act 2012?
A
- Prudential Regulation Authority (PRA)
- Financial Conduct Authority (FCA)
- Financial Policy Committee (FPC)
These bodies oversee different aspects of financial regulation in the UK.
2
Q
What is the role of the Prudential Regulation Authority (PRA)?
A
Monitoring the stability and soundness of important financial institutions
The PRA aims to ensure firms can fail without jeopardizing the entire financial system.
3
Q
What does the Financial Conduct Authority (FCA) focus on?
A
Policing and enforcing conduct rules regarding interaction with customers
The FCA also conducts prudential regulation of smaller firms.
4
Q
True or false: The Financial Policy Committee (FPC) is a regulator.
A
FALSE
The FPC is a committee within the Bank of England that monitors emerging risks to the financial system.
5
Q
What significant change did the Financial Services Act 2016 introduce?
A
Placed the Bank of England at the heart of UK financial stability
This act strengthened the Bank’s governance and operational effectiveness.
6
Q
What is the main aim of the Prudential Regulation Committee (PRC)?
A
Maintain and enhance financial stability in the UK
The PRC is the governing body of the PRA and makes its most important decisions.
7
Q
What types of firms does the PRA regulate?
A
- Banks
- Building societies
- Credit unions
- Insurers
- Major investment firms
The PRA regulates around 1,300 financial firms.
8
Q
What are the two primary objectives of the PRA?
A
- Promote the safety and soundness of regulated firms
- Protect policyholders for insurance firms
These objectives focus on the stability of the UK financial system.
9
Q
What are the two secondary objectives of the PRA?
A
- Facilitate effective competition in regulated markets
- Facilitate international competitiveness of the UK economy
These objectives aim to support growth in the medium to long term.
10
Q
Firms or individuals must apply to the PRA for ________ to carry on PRA regulated activities.
A
authorisation
The PRA’s assessment of applications is proportionate to the risks posed to its objectives.
11
Q
What is the strategic objective of the FCA?
A
To make sure relevant markets function well
The FCA regulates most of the financial services industry in the UK.
12
Q
How many businesses does the FCA regulate in the UK?
A
Around 42,000 businesses
The FCA is the sole regulator of around 41,000 firms.
13
Q
What are the three operational objectives of the FCA?
A
- Protect consumers from bad conduct
- Protect the integrity of the UK financial system
- Promote effective competition
These objectives guide the FCA’s regulatory actions.
14
Q
Name one of the regulatory principles of the FCA.
A
- Efficiency and economy
This principle emphasizes the need to use resources efficiently.
15
Q
What does the proportionality principle entail?
A
Restrictions should be proportionate to expected benefits
The FCA uses cost benefit analysis for regulatory requirements.
16
Q
What is meant by sustainable growth in the context of FCA principles?
A
Desire for sustainable growth in the UK economy
This principle focuses on long-term economic health.
17
Q
What does the consumer responsibility principle state?
A
Consumers should take responsibility for their decisions
This principle emphasizes consumer accountability.
18
Q
Who is responsible for ensuring a firm’s compliance with regulatory requirements?
A
Senior management
Firms must clarify responsibilities for monitoring and control.
19
Q
What does the openness and disclosure principle require?
A
Publishing information about regulated firms
This principle enhances public understanding of financial matters.
20
Q
What is the importance of transparency in FCA operations?
A
Providing appropriate information on regulatory decisions
Transparency ensures accessibility to both the regulated community and the public.
21
Q
What is the FCA’s role in protecting consumers from bad conduct?
A
Securing an appropriate degree of protection for consumers
This includes enhancing confidence in retail markets.
22
Q
What is the Consumer Duty?
A
A high standard of consumer protection in financial services
Consumers should expect support, understandable communications, and fair value.
23
Q
Does the FCA have explicit responsibility for financial stability?
A
No
This responsibility lies with the Bank of England, the FPC, and the PRA.
24
Q
What aspects does the FCA focus on to protect the integrity of the UK financial system?
A
- Integrity of stock markets
- Combating market abuse
- Addressing financial crime
These aspects are crucial for maintaining system integrity.
25
What does the FCA aim to promote through effective competition?
Informed choices for consumers regarding products or services
## Footnote
Firms must compete by offering better services and value.
26
What powers does the FCA have under the **Competition Act 1998**?
Enforce against breaches of competition law
## Footnote
This includes actions against anti-competitive agreements and abuses of dominant positions.
27
What is meant by **concurrent competition powers**?
FCA and CMA can both enforce competition laws
## Footnote
This allows for coordinated regulatory actions in financial services.
28
What must any person wishing to carry out **regulated activities** apply for?
Part 4A permission
## Footnote
This is as set out in the Financial Services and Markets Act 2000 (FSMA).
29
A new **insurer** applies to which authority for authorisation?
PRA
## Footnote
The PRA stands for Prudential Regulation Authority.
30
A new **financial advice firm** applies to which authority for authorisation?
FCA
## Footnote
FCA stands for Financial Conduct Authority.
31
The FCA has powers over individuals and firms in the areas of **authorisation**, **supervision**, and **enforcement**. Name one power under **authorisation**.
* Grant, vary and cancel authorisations
* Approve individuals for senior management functions
* Authorise unit trusts
* Maintain a public record of authorised persons
## Footnote
These powers ensure that only qualified individuals and firms operate in the financial sector.
32
Under **supervision**, what can the FCA require an authorised person to do?
Provide information or documents
## Footnote
This is part of the FCA's oversight responsibilities.
33
What is one of the enforcement powers of the FCA?
* Impose penalties for market abuse
* Carry out investigations
* Take disciplinary action against authorised persons
## Footnote
These actions help maintain market integrity and protect consumers.
34
True or false: The FCA can shut down businesses that are operating illegally.
TRUE
## Footnote
This includes investment advisers that are not authorised.
35
Which financial services are **not regulated** by the FCA?
* Occupational pension schemes
* Buy-to-let property clubs
## Footnote
These services fall under different regulatory bodies.
36
Who is the FCA accountable to for the way it carries out its duties?
Treasury
## Footnote
The Chancellor of the Exchequer bears ultimate responsibility for the regulatory system.
37
What is the role of the **Financial Services Consumer Panel**?
Represent the interests of consumers
## Footnote
This panel advises and makes recommendations on FCA policy and practices.
38
What does the **Practitioner Panel** provide to the FCA?
Advice and challenge from the industry perspective
## Footnote
It focuses on larger firms and helps the FCA meet its strategic objectives.
39
The **Smaller Business Practitioner Panel** represents which group?
Smaller regulated firms
## Footnote
It ensures that smaller firms' perspectives are considered in policymaking.
40
What is the focus of the **Markets Practitioner Panel**?
* Major macroeconomic factors
* Future regulatory regime
* FCA transformation
* Cryptoassets
* ESG
* Diversity and inclusion
* Private markets
## Footnote
This panel provides input to help the FCA meet its objectives.
41
What does the **Cost Benefit Analysis Panel** advise the FCA on?
Cost benefit analysis
## Footnote
This panel is a new independent body providing specific advice to the FCA.
42
The **Listing Authority Advisory Panel** advises the FCA on issues affecting what?
Issuers of securities
## Footnote
It also provides input on policy and regulation proposals from the FCA listings function.
43
What is the main aim of the **Senior Managers and Certification Regime (SM&CR)**?
To reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence
## Footnote
The regime aims to clarify responsibilities and improve standards within financial services.
44
The **Senior Managers and Certification Regime (SM&CR)** replaced which previous regime?
Approved Persons Regime
## Footnote
This change altered how individuals in financial services are regulated.
45
Since when has the SM&CR applied to banks and insurers?
March 2016
## Footnote
Solo-regulated firms have been under SM&CR since December 2019.
46
List the **key aims** of the SM&CR.
* Encourage greater clarity of responsibilities
* Improve corporate governance
* Ensure clear individual accountability
* Identify who runs the firm
* Provide a framework for FCA enforcement
* Place responsibility for authorizing significant roles on the firm
## Footnote
These aims focus on enhancing accountability and governance in financial firms.
47
What is required from each **senior manager** under the SM&CR?
* A 'Statement of Responsibilities'
* Pre-approval by regulators
* Annual assessment as 'fit and proper'
## Footnote
This ensures accountability and clarity in their roles.
48
What does the **Certification Regime** apply to?
* Material risk-takers
* Staff performing specific functions impacting the firm or clients
## Footnote
This includes roles like investment or mortgage advisers.
49
True or false: Under the SM&CR, firms must assess candidates for Senior Manager positions for criminal records.
TRUE
## Footnote
Firms must ensure the accuracy of candidates' information regarding criminal records.
50
What are the **three categories** of firms under the FCA's extended SM&CR?
* Limited Scope firms
* Core firms
* Enhanced firms
## Footnote
Each category has different requirements based on size and complexity.
51
What is a key feature of **Enhanced firms** under SM&CR?
* Additional Senior Management Functions
* Overall Responsibility requirement
* Responsibilities Maps
* Handover requirements
## Footnote
These features address the complexity and potential impact of larger firms.
52
What can happen if an individual is found to be no longer **fit and proper** under SM&CR?
* Approval can be withdrawn
* Individual can be fined
* Prohibition order can be made
## Footnote
This emphasizes the accountability of individuals in regulated activities.
53
What is the **statutory duty of responsibility** for senior managers?
To take reasonable steps to prevent a regulatory breach
## Footnote
This duty enhances individual accountability within the SM&CR framework.
54
What must each **Senior Manager** have according to the SM&CR?
A Statement of Responsibilities (SoR)
## Footnote
This document outlines their prescribed and relevant responsibilities.
55
Fill in the blank: The **FCA** applies the same principles to branches of foreign banks, tailored to account for different _______.
governance structures
## Footnote
This ensures that the SM&CR principles are relevant to all types of financial institutions.
56
What is the purpose of the **Certification regime**?
To ensure firms are responsible for confirming staff are fit and proper
## Footnote
This regime emphasizes the firm's role in assessing employee suitability.
57
What must firms do for **certified individuals** under the Certification Regime?
* Assess them as fit and proper
* Issue a certificate
* Re-assess annually
## Footnote
This places the responsibility on firms rather than the FCA.
58
What are the **Senior Management Functions (SMFs)** for a Core firm?
* SMF1 Chief Executive
* SMF3 Executive Director
* SMF9 Chair of the Governing Body
* SMF16 Compliance Oversight
* SMF17 Money Laundering Reporting Officer
## Footnote
These roles are crucial for governance and compliance within the firm.
59
What is the **overall responsibility requirement** for Enhanced firms?
A senior manager must ensure all prescribed responsibilities are properly allocated
## Footnote
This requirement is essential for accountability in larger firms.
60
What is the role of the **Money Laundering Reporting Officer**?
To oversee compliance with FCA's rules on systems and controls against money laundering
## Footnote
This role is critical for maintaining regulatory standards.
61
What are the **qualifications** required for certification by the FCA?
* Obtained a qualification
* Undergone training
* Possess a level of competence
* Personal characteristics required by FCA's general rules
## Footnote
These qualifications ensure that individuals meet the standards set by the FCA for various functions.
62
What does the **FCA Certification Function** include?
* Significant Management Function
* Proprietary Trader Function
* CASS Operational Oversight Function
* Functions subject to qualification requirements
* Client-dealing Function
## Footnote
These functions are essential for maintaining regulatory standards within financial services.
63
What is the **Significant Management Function**?
Individuals with significant responsibility for a business unit
## Footnote
These roles can significantly impact how a firm conducts its business.
64
Who is covered under the **Proprietary Trader Function**?
All proprietary traders
## Footnote
This function is part of the FCA's Certification Regime.
65
What does the **CASS Operational Oversight Function** cover?
Oversight of operational effectiveness of a firm's systems and controls for client money and assets
## Footnote
This function ensures compliance with regulations regarding client funds.
66
Name examples of **functions subject to qualification requirements**.
* Mortgage advisers
* Retail investment advisers
* Pension transfer specialists
## Footnote
These roles require specific qualifications as outlined in the FCA Training and Competence Sourcebook.
67
What is included in the **Client-dealing Function**?
* Financial advisers
* Mortgage advisers
* Corporate finance personnel
* Investment managers
* Staff dealing directly with clients
## Footnote
This function applies to anyone involved in arranging investments with clients.
68
True or false: Individuals who have no scope to choose or decide in a given situation are included in the **Client-dealing Function**.
FALSE
## Footnote
Only those who exercise significant skill and judgment are included in this function.
69
What is the purpose of requiring **supervisors of certification employees** to be certified?
To ensure accountability and a clear chain of responsibility
## Footnote
This includes all managers above certified employees until the Senior Manager is reached.
70
What are **Material Risk Takers** also known as?
Remuneration Code staff
## Footnote
This category includes staff identified under various FCA remuneration regimes.
71
What responsibilities fall under the **Algorithmic trading function**?
* Approving deployment of trading algorithms
* Approving material amendments to trading algorithms
* Monitoring compliance of trading algorithms
## Footnote
This function ensures that algorithmic trading adheres to regulatory obligations.
72
Do all certified functions apply to all firms under the **Enhanced definition of an SM&CR firm**?
No
## Footnote
Not all certified functions will apply to every firm, even those classified as 'Enhanced'.
73
What determines whether a **paraplanner** requires certification?
Duties and potential impact on customers
## Footnote
Certification is based on the level of autonomy and judgment in decision-making.
74
Paraplanners involved in selecting investment panels may fall into which function?
Client-dealing function
## Footnote
Their role may require certification based on their decision-making responsibilities.
75
What is the **Directory** in the context of the FCA?
A central Directory that includes names of individuals performing Certification Functions
## Footnote
It is part of the Financial Services Register and includes details of directors, senior managers, and certified staff.
76
Name the types of individuals included in the **Directory**.
* All directors and senior managers
* All staff certified as fit and proper
* Other important individuals who undertake business with clients
## Footnote
These individuals are known as Directory Persons.
77
What are the **two tiers of conduct rules** set by the FCA?
* Those applying to Senior Managers
* Those applying to most employees
## Footnote
Conduct rules apply to all individuals at authorized firms, not just senior management.
78
Who is responsible for training staff on the **Conduct Rules**?
A Senior Manager
## Footnote
Firms are required to train all relevant staff on how the Conduct Rules apply to their role.
79
What must firms report to the **FCA** regarding breaches of the Conduct Rules?
* Breaches for Senior Managers within seven days
* Annual report for other roles, regardless of breaches
## Footnote
Disciplinary actions include formal warnings, suspension, or dismissal.
80
What does the **Insurance Distribution Directive (IDD)** regulate?
* Activities of insurance intermediaries
* Insurance companies and their employees
* Ancillary insurance intermediaries
* Online distribution
## Footnote
It aims to strengthen policyholder protection and harmonize rules across the EU.
81
What is a key requirement for firms under the **IDD** regarding professionalism?
Complete at least 15 hours of professional training or development a year
## Footnote
This ensures staff possess appropriate knowledge and ability for their tasks.
82
What is the **FCA's risk-based approach** to supervision?
Focuses on assessing individual firms' risks and allocating regulatory resources accordingly
## Footnote
Greater regulatory effort is expended on higher risk firms.
83
What are the **three pillars of FCA supervision**?
* Proactive firm/group supervision
* Event-driven, reactive supervision
* Thematic approach – issues and products supervision
## Footnote
These pillars guide the FCA's supervisory activities based on ongoing analysis of industry risks.
84
What does the **thematic approach** in FCA supervision involve?
Analyzing current events and investigating potential drivers of poor outcomes for consumers and markets
## Footnote
This approach allows the FCA to address risks common to multiple firms or sectors.
85
What is the **FCA's supervision principle** regarding accountability?
Focus on individual as well as firm accountability
## Footnote
Senior individuals whose decisions significantly affect firm conduct are held accountable.
86
What is the response when significant **risks to consumers or markets** are identified?
We respond swiftly and robustly
## Footnote
This includes mitigating risks, preventing further damage, and addressing root causes.
87
What types of work does the thematic approach include?
* Large and detailed studies
* Smaller sample-based work
## Footnote
This is the primary form of proactive work with flexible portfolio firms.
88
True or false: The thematic approach only focuses on individual firms.
FALSE
## Footnote
It looks at sectors as a whole to analyze and address common risks.
89
What is the primary form of proactive work with flexible portfolio firms?
Thematic approach
## Footnote
This involves ongoing analysis of sectors to identify potential risks.
90
What does the **PRA** consider when assessing a firm's potential impact?
* Size
* Complexity
* Interconnectedness
## Footnote
For insurers, it also considers the number of policyholders and type of business.
91
What is the **Proactive Intervention Framework** used by the PRA?
A framework to identify and respond to emerging risks at an early stage
## Footnote
It captures judgments about a firm's proximity to failure.
92
What is the **Free Asset Ratio (FAR)**?
Surplus assets over liabilities expressed as a percentage of total assets
## Footnote
Example: If total assets are £1,000,000 and liabilities are £700,000, FAR = 30%.
93
What factors should advisers consider beyond **FAR** when assessing a life office's financial strength?
* Strong parent company
* Longevity in business
* Expansion strategy
* Exposure to complex financial instruments
## Footnote
These factors provide a more comprehensive view of financial security.
94
What is the role of **ratings agencies** in financial services?
Provide strength ratings to financial institutions
## Footnote
Their ratings are used by advisers and in marketing materials.
95
What is the responsibility of a firm's **compliance officer**?
Ensure compliance with FSMA and report to the governing body
## Footnote
In larger firms, they may have a Compliance department to assist.
96
True or false: The **FCA** can investigate firms without notice.
TRUE
## Footnote
The FCA can visit premises and demand access to documents during investigations.
97
What are some examples of **criminal offences** the FCA can prosecute?
* Falsely claiming FCA-authorisation
* Carrying out regulated activities without authorisation
* Making misleading statements
## Footnote
These offences can lead to imprisonment or fines.
98
What constitutes **market abuse**?
* Insider dealing
* Unlawful disclosure
* Market manipulation
## Footnote
Market abuse undermines financial markets and harms ordinary participants.
99
What is the maximum penalty for **insider dealing**?
Seven years imprisonment or an unlimited fine
## Footnote
Insider dealing involves using non-public information for financial gain.
100
What does the **Fourth Money Laundering Directive** require from supervisors?
Impose effective, proportionate, and dissuasive sanctions for non-compliance
## Footnote
The FCA can levy penalties and prosecute breaches of Money Laundering Regulations.
101
What are the consequences of failing to report knowledge of **money laundering**?
Up to five years imprisonment and/or a fine
## Footnote
This includes failing to report suspicions of terrorist funding.
102
What must the FCA do under **FSMA** during an investigation?
Notify the subject of the investigation and state the reason
## Footnote
Exceptions apply for insider dealing and market abuse investigations.
103
What actions can the FCA take if it finds law or rules have been broken?
* Public announcements
* Levy fines
* Set conditions on future business
* Withdraw authorisation
## Footnote
Disciplinary actions can also include compensation orders.
104
What is the **Upper Tribunal (Tax and Chancery Chamber)**?
Appeal body for decisions made by the FCA
## Footnote
It can uphold or overrule FCA decisions regarding disciplinary actions and permissions.
105
What can the **FCA** do regarding a firm's permission to conduct regulated activities?
* Vary a firm’s permission
* Withdraw individual approval
* Make prohibition orders banning employment in regulated activities
## Footnote
These actions are part of the FCA's regulatory powers over firms.
106
What is the role of the **Upper Tribunal** in relation to the FCA's decisions?
It can uphold or overrule the FCA's decision
## Footnote
The Upper Tribunal is part of HM Courts & Tribunals Service and handles appeals against FCA decisions.
107
True or false: Any person aggrieved by a decision of the **Upper Tribunal** can appeal to the Court of Appeal on any grounds.
FALSE
## Footnote
Appeals to the Court of Appeal can only be made on a point of law.
108
What agency is the **Upper Tribunal** a part of?
HM Courts & Tribunals Service
## Footnote
This agency is an executive agency of the Ministry of Justice.
109
List the actions the **FCA** can take regarding market abuse.
* Vary a firm’s permission
* Withdraw individual approval
* Make prohibition orders
## Footnote
These actions are aimed at maintaining market integrity and protecting consumers.
CII CF1 2025-26
flashcards
Decks in class (13)
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