Learning Material Sample
UK Financial Services, regulations and ethics9. Financial Services Regulators
In this section we summarise the organisations responsible for financial services regulation in the UK.
Following the Financial Services Act 2012, the Government gave the Bank of England control of macro-prudential regulation and created the Financial Policy Committee (FPC) within the Bank of England. The FPC’s role is to monitor the economy and examine finan... Shortened demo course. See details at foot of page. ...range investments without holding client money.In March 2015 a revised MiFID II Directive and set of regulations began development and were implemented on 3 January 2018. This directive is much more detailed and prescriptive than the original MiFID. Its greatest impact will be on broker-dealers and markets but will also bring significant changes to asset managers. In this section we briefly examine the role of the PRA.
The PRA is responsible for the authorisation and prudential regulation and supervision of... Shortened demo course. See details at foot of page. ...s , variation of the scope of a firm’s permission, cancellation of a firm’s permission and waiving or modifying relevant handbook rules. In this section, we summarise the main objectives of the FCA.
The FCA has an overall strategic objective of ensuring that markets function well and has three operational objectives: Protect consumers from bad conduct: The FCA will aim for early intervention in retail markets to protect consumers from financial failures and their impacts Protect the integrity of the UK financial system: The FCA will aim to ensure that financial markets are sound and resilient and work to combat market abuse and the potential for the UK financial system to be used for financial crimes Promote effective competition: The FCA will aim to promote co... Shortened demo course. See details at foot of page. ...022. As a result of this new principle, the regulator expects to see good outcomes in four main areas:Products and services Price and value Consumer understanding Consumer support Since 1 April 2015, the FCA has had concurrent competition powers with the Competition and Markets Authority (CMA). This means that under the Competition Act 1998 the FCA has powers to enforce and fine for breaches of EU competition law prohibitions on anti-competitive agreements and abuses of a dominant position and, under the Consumer Rights Act 2015, to make a market investigation reference to the Competition and Markets Authority (CMA). In this section we discuss the role and activities of the FCA and its relationship with other regulatory bodies.
Smaller firms such as financial intermediaries and mortgage brokers will be authorised by the FCA. Such firms will need to apply to the FCA for Part 4A permission. It has the following powers over individuals and firms carrying on regulated activities: Authorisation matters Grant, vary and cancel authorisations and permitted activities Approve individuals to perform certain controlled functions Competition and Markets Authority (CMA) - who will investigate and pursue bodies or firms that place - either directly or indirectly, unfair and anti-competitive business practices on consumers Complaints Commissioner - who investigates unresolved complaints against the FCA It is required to maintain practitioner, consumer, smaller business and markets panels to represent the interests of these groups. It must consider their views but is not bound to take any actions they recommend. In this section we examine the requirements of the Senior Managers and Certification Regime on firms.
Following changes set out in the Financial Services (Banking Reform) Act 2013, on 7 March 2016, the PRA and FCA announced changes to increase individual accountability in the banking sector. The SM&CR replaces the Approved Persons regime and the rules make it easier to determine who is responsible for what and are hoped to drive up standards and make firms easier to run and supervise. If things go wrong, senior managers will be held accountable for misconduct within their areas of responsibility and individuals working at all levels within relevant firms will be held to appropriate standards of conduct. The new rules apply to: Banks Building Societies Credit Unions The largest investment firms regulated by the PRA Branches of foreign banks operating in the UK From 31 March 2021 the regime will also apply to sole-regulated firms, i.e. those regulated by either the FCA or the PRA... Shortened demo course. See details at foot of page. ... be requested from candidate’s previous employers.Application The requirements of the SM&CR are being applied by the FCA in a proportionate manner. Firms are divided into three categories: Limited scope – subject to a reduced set of requirements Core Firms – subject to a regime pared-back from that of Banks Enhanced firms – the largest and most complex firm – subject to additional requirements Senior Insurance Managers Regime (SIMR) This regime applies to most senior executive managers and directors who are subject to regulatory approval and aims to increase individual accountability within the insurance sector. The regime’s list of senior management functions aims to ensure greater clarity over which individual has responsibility for managing the business. Therefore, firms need to allocate responsibilities across senior managers and set out their duties. Those in charge also need to be “fit and proper” for their individual roles. In this section we briefly examine the requirements of the Insurance Distribution Directive.
The term “insurance distribution” means to sell, propose to sell, advise on or carry out other work to prepare an insurance contract and also includes dealing with claims. In the EU, the sale of insurance products is... Shortened demo course. See details at foot of page. ...insurance (including general, life and insurance-based investment) products and to support competition between distributors by creating a fair market where no-one is advantaged or disadvantaged.The IDD came into force in the UK on 23 February 2019, and although the UK has left the EU it remains in place as part of UK law. In this section we briefly discuss the PRA and FCA’s requirements for a firm’s capital.
The PRA and FCA monitor the financial strength of their regulated firms – banks, building societies, friendly societies, insurance companies and fund managers. If the financial strength of a ... Shortened demo course. See details at foot of page. ...s assets held over the value of its liabilities expressed as a percentage of its total assets. There are a number of agencies who provide financial strength ratings to firms. These ratings are publically available and are used by advisers when selecting providers and products for their clients. In this section we discuss the FCA’s approach to supervising firms.
Supervision is the term used to describe the day-to-day process of the regulators to monitor and regulate authorised firms to ensure they are complying with the regulations. Risk-based approach The FCA has adopted a “risk-based” approach. It carries out most supervisory activity on firms that it believes offer the highest risks against the Regulator’s objectives. It takes into account: The likelihood of a major failing The possible impact of that failing on the FCA’s regulatory objectives The frequency of a number of firms to focus on higher-risk products and services Potential risks are prioritised by impact and probability, with some sectors perceived as higher risk than others and some firms within those sectors will holding higher ratings than others. FCA methods of supervision The supervisory system is designed so that firms are encouraged to base their b... Shortened demo course. See details at foot of page. ...ues and queries raised through the Contact Centre will be passed on to supervisors.Supervision principles The FCA’s approach to supervision is built on eight principles: Forward-looking: aiming to pre-empt or address poor conduct to prevent harm to consumers Focus on strategy and business models: identify emerging risks and ensuring that business models are in the interests of consumers Focus on culture and governance: identifying what drives behaviour in a firm Focus on individual as well as firm accountability: approve and hold to account the most senior individuals Proportionate and risk-based: target firms where misconduct would cause the most harm Two-way communication: Engage directly with consumers and be transparent Co-ordinated: Work closely and co-operate with other regulatory bodies Put right systematic harm and stop it happening again: refer identified misconduct for investigation and obtain redress for affected customers In this section we examine the compliance monitoring requirements of the FCA.
The FCA has monitoring procedures to ensure that its rules are being complied with and can discipline those who fail to comply. It acts reactively by receiving regular information from regulated firms, including accounts and auditor statements, business volumes, sources of bu... Shortened demo course. See details at foot of page. ...e for this and should be a director or senior manager, who in turn will report breaches to the regulator.The compliance officer and their department (in larger firms) should constantly monitor all procedures and activities that would be examined in an inspection visit. They may also carry out visits to branches, appointed representatives and advisers. In this section we examine the disciplinary actions that can be taken by the FCA.
If the FCA decides that its rules or the law has been broken, it can take disciplinary action. This could involve public an... Shortened demo course. See details at foot of page. ...eading statements in order to induce investments and failing to co-operate with FCA investigations. Some are punishable by only a fine, while others carry a maximum penalty of seven years’ imprisonment. In this section we examine the disciplinary actions that can be taken by the FCA against market abuse activities.
Market abuse is improper conduct that undermines the stability of the UK financial markets or damages the interests of ordinary participants. Section 1... Shortened demo course. See details at foot of page. ...atements or engaging in misleading conduct and insider dealing are punishable by a maximum of seven years’ imprisonment or an unlimited fine.It is the FCA’s policy to pursue through the justice system all cases where a criminal prosecution is appropriate. In this section we briefly examine the FCA’s powers against money laundering.
The FCA is able to levy penalties on registe... Shortened demo course. See details at foot of page. ...al conduct or failure to report any suspicions of terrorist funding is punishable by up to five years imprisonment and/or a fine In this section we briefly examine the role of the Upper Tribunal (Tax and Chancery Chamber).
This is the... Shortened demo course. See details at foot of page. ...yone aggrieved at the decision of the Tribunal can appeal to the Court of Appeal but only on a point of law. |
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