R01_ Chapter 5

Question 1

What 3 Regulatory Bodies were establish after the Financial Services Authority was abolished in 2013?

Answer 1

1. PRA. 2. FCA. 3. FPC.

Question 2

What are the 5 types of institution the PRA governs?

Answer 2

1. Banks. 2. Building Societies. 3. Credit Unions. 4. Insurers. 5. Major Investment Firms.

Question 3

What are the 2 primary and 2 secondary objectives of the PRA?

Answer 3

Primary: 1. Promote safety and soundness of firms it regulates. 2. Protect customers against failing insurance firms. Secondary: 1. Facilitate competitiveness within the UK. 2. Promote international competitiveness

Question 4

What 3 threshold conditions does the PRA set?

Answer 4

1. Capital requirements. 2. Liquidity. 3. Suitable management

Question 5

The PRC is concerned with which 6 things?

Answer 5

B – Better outcomes for customers
I – Innovation
G – Growth
T – Trade promotion (towards the UK)
I – International competitiveness
C – Competition

Question 6

What is the FPC responsible for, what are its powers (3), and what does it have a statutory obligation to do?

Answer 6

Financial Policy Committee is responsible for spotting systemic risks to the UK economy. Powers include: 1. Countercyclical buffers. 2. Variable weight risks. 3. Leverage limits. Statutory Obligation to limit impact its policies has on growth

Question 7

How often must the FPC produce a report to the treasury?

Answer 7

The Financial Stability Report must be produced twice a year

Question 8

What is the FCAs Overarching objective, and 3 operational objectives, and secondary objective?

Answer 8

Overarching objective: Ensure that markets function well. Operational Objectives: 1. Protect Consumers. 2. Protect FInancial Markets. 3. Promote Competition. Secondary Objective: Facilitate international competitiveness

Question 9

What are the 8 regulatory principles of the FCA?

Answer 9

1. Efficient and economic use of resources. 2. Proportional restrictions or burdens. 3. Sustainable growth. 4. Consumer responsibility. 5. Senior management responsibility. 6. Different approaches for different businesses. 7. Openness and disclosure. 8. Transparency.

Question 10

What are the 3 ways the FCA aproaches regulation?

Answer 10

1. Authorisation. 2. Supervision. 3. Enforcement

Question 11

What must a firm apply for if they wish to carry out a regulated activity?

Answer 11

Part 4a Permission

Question 12

What enforcement powers does the FCA have?

Answer 12

1. Penalties. 2. Investigation. 3. Disciplinary Action. 4. Criminal Proceedings.

Question 13

What authorisation powers does the FCA have? (4)

Answer 13

1. To grant and cancel permission to carry out authorised activities. 2. Approve individuals to perform senior management functions. 3. To authorise products, unit trusts and collective investment schemes. 4. To maintain a public record of authorised and prohibited people.

RAPSS
Activities, Products, Senior Staff, Records

Question 14

What 4 panels must the FCA hold?

Answer 14

1. Practioner (large firms) 2. Small Business. 3. Markets. 4. Consumer

Question 15

What are criminal offences under the FCA?

Answer 15

Here’s a strong, easy-to-recall acronym you could use for those 8 offences:

FCA CRIMES

Letter Offence Description
F Falsely claiming to be authorised Pretending to hold FCA authorisation.
C Carrying out regulated activity without authority Performing regulated work without permission.
A Assisting or making misleading statements to induce investments Encouraging investment through deception.
C Failing to Cooperate with an FCA investigation Withholding information or obstructing an inquiry.
R Revealing inside information (Insider dealing / Unlawful disclosure) Using or disclosing insider knowledge.
I Insider dealing Trading on non-public, price-sensitive info.
M Manipulated transactions or devices Creating artificial prices or volume.
E Engaging in misleading behaviour Misleading the market or investors.

Question 16

What are the criminal punishments for 1. Making misleading statements or conduct. 2. Actions regarding criminal property. 3. Failure to report suspicion of money laundering.

Answer 16

1. 10 years and/or unlimited fine. 2. 14 year and/or unlimited fine. 3. 5 years and/or unlimited fine

Question 17

How does the FCA categorise firms with regards to supervision?

Answer 17

1. Fixed portfolio firms. Banks and big insurance firms whihc require high level supervision. 2. Flexible portfolio firms. IFAs and small mortgage brokers. Supervised reactively.

Question 18

How does the FCA aim to be when supervising? (5)

Answer 18

1. Forward-looking. 2. Outcomes-focused. 3. Proportionate. 4. Transparent. 5. Integrated and coordinated.

Question 19

What is the FCAs 3 pillar supervision model?

Answer 19

1. Proactive supervision. 2. Event-driven supervision. 3. Thematic approach.

Question 20

What improvements did the FCA reccomend based on it thematic review of retirement income advice? (4)

Answer 20

RASC:
1. Better risk profiling. 2. Better advice suitability. 3. Periodic review of suitability. 4. Better cash flow models need to be used

Question 21

What does the FCA ensure a firm has before giving authorisation? (5)

Answer 21

1. Suitable individuals. 2. Resources. 3. Business Model. 4. Governance. 5. Culture

Question 22

How does the FCA ensure compliance? (4)

Answer 22

1. Accounts and audit statements. 2. Businesss volumes. 3. Sources of business. 4. Complaints statistics.

Question 23

What concerns can the FCA react to? (7)

Answer 23

1. Panels. 2. CMA. 3. Complaints Commissioner. 4. Financial Ombudsman. 5. Media. 6. Government. 7. Individual Complaints

Question 24

How many categories, and based on what, does the PRA divide its supervision?

Answer 24

4 Categories based on potential impact.

Question 25

What are the FSB mandates? (8)

Answer 25

V – Vulnerabilities → Assess and address risks in the international financial system. C – Coordination → Promote cooperation among financial stability authorities. A – Advise → Recommend best practices to meet global regulatory standards. M – Monitor → Keep watch on market developments and their implications. P – Policy reviews → Undertake strategic reviews of standard-setting bodies. E – Emergency planning → Prepare contingency plans for cross-border crises. R – Risk warnings → Collaborate with the IMF on early warning exercises. S – Supervision of implementation → Promote and monitor member compliance and disclosure.

Question 26

What is the BoE statutory objective?

Answer 26

To protect and enhance the stability of the financial systems of the UK

Question 27

What does the BoE use to achieve its statutory objective? (5)

Answer 27

1. PRA. 2. Risk assessment. 3. Market intellegence functions. 4. Payment systems oversight. 5. Banking and market operations

Question 28

How often should risk assessment and stress testing be carried out?

Answer 28

At least once a year, and more when there is a significant change in future expectations.

Question 29

What is one way to measure strength of life offices, and how is it calculated?

Answer 29

Free Asset Ratio = (Total assets - Total liabilities)/Total assets + Total liabilities * 100

Question 30

What are signs of a strong life office? (5)

Answer 30

1. Good free asset ratio. 2. Strong parent company. 3. Time in business. 4. Claims history. 5. Asset exposure.

Question 31

Three opertional objectives of the FCA

Answer 31

Consumer Protection, Intergrity of Market, Competition in market

Question 32

What is the secondary Obj of the FCA

Answer 32

Growth and Competitiveness of UK

Question 33

Principles of Good Regulation for FCA?

Answer 33

TROPEC: Transparency, Recognise Differences, Openness, Proportionality, Efficiency, Consumer Responsibilty

Question 34

Explain the FCA's Consumer Duty (3)

Answer 34

Info Presented, Poor Customer Service, Selling Goods

Question 35

What are Principle 6,7 and 12 for the FCA

Answer 35

6: A firm must pay due regard to the interests of its customers and treat them fairly 7: (‘A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is fair and not misleading 12: Comsumer Duties (info, products, service)

Question 36

What are the rules for Principle 12?

Answer 36

Good Faith, Avoid Harm, Financial Objectives

Question 37

4 outcomes of Consumer Duty?

Answer 37

Prin 2A.3-6: 3. Products meet needs of the customer 4. Price is fair value 5. Customer Understanding 6.Customer Support

Question 38

What are the three Pillars that Fixed Portfolios are subject to, and how are flexible portfolios different?

Answer 38

1: Proactiv Firm/Group Supervisor 2: Event Driven, Reactive 3:Thematic issues and prodcuts Flexible is 2,3 only

Question 38

What are the principles that guide FCA supervision?

Answer 38

POFIT Proportionality, Outcomes Focused, Forward Looking, Integrated (FOS, NCA), Transparent