CISI Regulatory exam
FSAP - Answer-Financial services action plan - creates and implements directives on an EU level. Aims to harmonise financial services rules across EU. Includes EU directives (to be implemented into national law) and EU regulations (binding on member states)
FSAP directive...
CISI Regulatory exam
FSAP - Answer-Financial services action plan - creates and implements directives on an EU level. Aims
to harmonise financial services rules across EU. Includes EU directives (to be implemented into national
law) and EU regulations (binding on member states)
What must EU members do with FSAP directives - Answer-Directives must be implemented and
transposed into national law. Regulation is immediately binding in member states.
What is an act and order - Answer-Law
EU Regulatory bodies (ESAs) - Answer-European level regulations that oversee national regulators
ESMA (European securities and markets agency) - financial markets
EBA (European banking agency) - banks
EIOPA - insurance and pensions
[ESRB works with ESAs to promote financial stability and avoid a financial market collapse at the
European level and ESAs implement capital standards for banks]
What must firms do in relation to LIBOR - Answer-Benchmark submission and administration
What are the general duties of the FCA - Answer-Making rules; preparing and issuing codes; giving
general guidance (firms may choose not to follow this); determining general policy and principles by which
the FCA performs its functions. However, the board cannot delegate its statutory objectives to another
body.
Lamfalussy Process (4 levels) - Answer-Legislative acts (EC proposes directives or regs)
Facilitating Regulatory Convergence (ESAs implement legislation and liaise with national regulators to
ensure things are done on time)
Enforcement (EU commission enforces new rulings)
Where do UK regulators get their power - Answer-FSMA 2000
When did FSMA 2012 become law - Answer-April 2013
FCA - Answer-Private limited company with powers to regulate the city.
Who is the FCA accountable to? - Answer-The treasury, which is headed by the chancellor of the ex-
chequer
Who appoints the board of the FCA - Answer-Treasury
,Who funds the FCA - Answer-The financial industry - every firm must pay a fee to the FCA and some
firms have to pay a fine
Financial Ombudsman Service (FOS) - Answer-An independent body set up by Parliament that settles
customer and small firm complaints about providers of missold financial products at no charge to
consumers.
Who oversees the financial ombudsman service - Answer-FCA
Financial service compensation scheme - Answer-Pays consumers if a bank becomes insolvent and isn't
able to pay consumer deposits
Who funds the financial service compensation scheme - Answer-FCA
FPC - Answer-Committee of the BoE. In charge of identifying monitoring and taking action to remove or
reduce systemic risks.
Can give directions to PRA and FCA
Role of the FCA - Answer-COnduct regulator for dual-regulated firms and all other regulated firms e.g.
brokers and advisors. The FCA also monitors the resources of non dual-regulated firms to ensure they're
adequate to run. This means the day-to-day conduct of all regulated firms incl how financial products are
sold
Roles of the PRA - Answer-Part of the bank of England. They're a financial regulator of dual-regulated
firms and monitor capital standards.
Dual-regulated firms - Answer-Receive prudential regulation from the PRA and conduct regulation from
the FCA. Include deposit-takers (banks and building societies) and investment banks and large
institutional funds that are systemically important.
Who is the PRA accountable to? - Answer-Bank of England
Other regulated firms - Answer-Receive conduct and prudential regulation with the FCA only
Who appoints the FCA chair and board? - Answer-CoE appoints chair, HMT appoints board
Who are the PRA and FCA answerable to - Answer-Financial policy committee (includes the governer of
the BofE,
Financial policy committee - Answer-publish a semi-annual financial stability report. The committee
monitors macro prudential standards in the UK and instructs regulators to do more if so required
FCA/ Regulator objectives - Answer-Strategic - ensure the relevant markets work well (incl transparency)
Operational - consumer protection to ensure appropriate degree of protection depending on knowledge
and experience
Protect and enhance the integrity of the UK financial system, e.g. reducing financial crime
Promote effective competition in the interests of consumers, i.e. ensure sufficient product choice
PRA general objective - Answer-Promote safety and soundness of PRA-authorised firms to avoid
instability and ensure continuity of services (minimise the adverse effect that the failure of a PRA
authorised firm would have on the stability of the UK financial systems)
Temporary product intervention - Answer-FCA power from FSA to prohibit or ban products up to 12
months
,PRA specific objective - Answer-Secure appropriate protection for policy holders (ensure insurers can
meet claims
PRA secondary objective - Answer-Facilitate effective competition
Characteristics of PRA regulation - Answer-Judgment based
Forward looking
Focused
FCA Duties - Answer-Making rules
Preparing and issuing codes
Giving general guidance
Determining general policy and principles by which it performs its function
Designation ivnestment exchanges - Answer-Well-regulated overseas exchanges that don't have direct
access to UK clients and are excluded from UK activities
Designated professional body - Answer-Professions working alongside the financial activities e.g. lawyers
and accountants. Are able to carry on certain activities if incidental to their main service, without FCA
authorisation
What power does HMT have over FCA - Answer-Appoints/dismisses the board, assesses annual reports,
oversees the FCA, amends the nature of the role of the FCA
General prohibition - Answer-S19 of FSMA 2000 - states that no person may carry on a regulated activity
in the UK unless they are authorised or exempt
FCA + PRA principles of good regulation - Answer-Efficiency and economy
Proportionality
Sustainable growth
Consumer responsibility
Senior management responsibility
Recognising difference in business carried on by different regulated persons
Openness and disclosure
Transparency
Powers of the FCA - Answer-Grant/withdraw Part 4A authorisation
Supervision, enforcement, sanctions, and disciplinary action
Prosecute for financial crime
Rule-making
BoE's SRU - Answer-Implements resolutions of failing UK banks under SRR
FCA accountability - Answer-Must report to HMT annually
Rules must relate to statutory objectives
Judicial review: they can be challenged in court if fail to meet objectives
Regulatory failure: can be held accountable if breaches of objectives occur
Temporary product intervention (ban up to 1 yr) where consumer protection concern exists
Publish warning notice (after consulting the parties involved) to signal start of a formal enforcement
process
HMT Powers - Answer-Appoint FCA board
Assess annual reports from FCA
Commission independent reviews and investigations of the FCA
Change nature of FCA role through parliament (Amend FSA)
Authorised persons - Answer-Those with Part 4A permission
Those who passport through MiFID
Maximum punishment in a magistrates court - Answer-Up to 6 months in prison and up to £5000 fine
Maximum punishment for breech of general prohibition in crown court - Answer-Up to 2y in prision and/or
an unlimited fine
What is required for a criminial prosecution of general prohibition - Answer-Proof of intent must be found
General prohibition civil remedies - Answer-Only need to show that there has been an abusive effect
Injunctions (shut down)
Restitution (pay back customers via FCA)
Contract voidable at customer discretion
RAO - Answer-Specifies exactly what activities are regulated and the range of specified investments
(issued under FSMA)
Hedging or raising capital with derivatives for commercial purposes
Newspaper advice (incidental, not tipsheets)
Unpaid trustees, nominees and personal representatives
Employee share schemes
Specified activities - Answer-Core MIFID activities:
Dealing in investments
Arranging deals in investments (agency trading)
Managing investments
Advising on investments
Operating a multilateral trading facility (MTF) or organised trading facility (OTF)
Ancilliary services:
Safeguarding and administering investments, e.g. acting as a custodian
Sending dematerialised instructions, e.g. CREST
Non-MIFID
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