CISI Regulations – Study Notes
Regulatory Environment Difference between a client and a customer – Client:
The conduct of business rules applies to designated Customer+ eligible counterparty; Customer: retail &
investment business, life policies and deposit taking, professional client; Consumer: retail client + natural
conducted from an establishment in the UK. person
Designated investment business does not include Hedging and commercial loans are not designated
corporate lending, general insurance and occupational investments (therefore do not need to comply with
pensions. Conduct of Business rules), but life assurance business
Insurance undertakings would be an out-of-scope is
MiFID firm. PPF (Pension Protection Fund) – if employer becomes
The FCA is required to submit a report to the Treasury insolvent, PPF takes on assets from schemes
at least once a year - covering matters such as the way transferred to PPF, charge a levy on all eligible pension
in which it has discharged its functions. schemes.
FCA principles for business - Firms will be liable to Financial Policy Committee of the Bank of England issue
disciplinary sanctions if principles are breached, as the the Bank's Financial Stability Review (FSR) meets every
principles for businesses are legally binding on firms 6 months Semi Annually
FCA firms are not automatically disciplined if FCA The Financial Policy Committee of the Bank of England -
principles are breached has 'powers of direction and recommendation in
relation to financial stability'
FCA Strategic Objective: ensure markets function well
FCA 3 operational objectives: 1- secure appropriate Principles for Business:
degree of consumer protection 2- protect the integrity
of the UK financial system 3- promote effective 1 Integrity 7 Communication w/ clients
2 Skill, care, and diligence 8 Conflicts of interest
competition
3 Management and control 9 Customers: relationship of trust
PRA single objective: promote the safety and
4 Financial prudence 10 Clients’ assets
soundness of PRA-authorised “persons” 5 Market conduct 11 Relations with regulators
FCA Supervisory Principles is to focus on two-way 6 Customers’ interest
communication: engage directly with consumers to
understand the issues they face Permissions
[PRT] Proactive – pre-emptive identification of harm A firm seeking FSMA Part 4A Permission should meet
through review/assessment (Proactive is a supervisory the following threshold condition:
approach adopted by PRA and not the FCA) o Legal status; Location of Offices; Prudent
Reactive – remedial for problems that are Conduct; Effective Supervision (including close
emerging/have happened links); appropriate resources; suitability;
Thematic – wider diagnostic/remedy work where there business model; appointment of claims
is actual or potential harm across firms representative
Board Chairman of the FSCS is appointed by the FCA. o Responsibility of FCA - Appropriate non-
FSCS is operationally independent of the regulator, but financial resources
must account directly to it o Responsibility of PRA – prudent conduct
The FCA principles for business apply to all authorised o Others responsibility of both FCA & PRA
firms, no matter what sort of regulated business they RDC has power to refuse an application for Part 4A
do; some apply to firms carrying on specified types of permission/cancel existing permission
business. If an authorised firm appoints an appointed
representative to conduct regulated activities on its
SMCR –If a firm submits request for approval of a behalf, the authorised firm becomes the principal and
senior manager and becomes aware of any changes to accepts legal responsibility for the regulated activity
the senior manager seeking fit & proper status firm conducted by the appointed representative
must notify regulator immediately. When a firm’s application for authorisation is reviewed,
FCA vs PRA Senior Management functions – Executive FCA looks closely at the business model and viability of
Director is an FCA function not a PRA function the firm over the medium term
Enforcement Decision Making Committee = purpose to FSMA Exemption Order 2001 – Local authorities are
strengthen BoE’s enforcement processes by ensuring a exempt from authorisation -when accepting deposits
separation between investigation team and decision- FCA FSMA Part 9A empowers the FCA against regulated
making team and unregulated bodies while PRA rule making powers
Whistleblowing procedures should: provide feedback only extend to PRA authorised persons.
to the blower where feasible, prepare an annual report S56 FSMA Prohibition Order – allows FCA to prohibit
to the board on the effectiveness of the procedures individuals from carrying out specified functions in
Regulatory Environment Difference between a client and a customer – Client:
The conduct of business rules applies to designated Customer+ eligible counterparty; Customer: retail &
investment business, life policies and deposit taking, professional client; Consumer: retail client + natural
conducted from an establishment in the UK. person
Designated investment business does not include Hedging and commercial loans are not designated
corporate lending, general insurance and occupational investments (therefore do not need to comply with
pensions. Conduct of Business rules), but life assurance business
Insurance undertakings would be an out-of-scope is
MiFID firm. PPF (Pension Protection Fund) – if employer becomes
The FCA is required to submit a report to the Treasury insolvent, PPF takes on assets from schemes
at least once a year - covering matters such as the way transferred to PPF, charge a levy on all eligible pension
in which it has discharged its functions. schemes.
FCA principles for business - Firms will be liable to Financial Policy Committee of the Bank of England issue
disciplinary sanctions if principles are breached, as the the Bank's Financial Stability Review (FSR) meets every
principles for businesses are legally binding on firms 6 months Semi Annually
FCA firms are not automatically disciplined if FCA The Financial Policy Committee of the Bank of England -
principles are breached has 'powers of direction and recommendation in
relation to financial stability'
FCA Strategic Objective: ensure markets function well
FCA 3 operational objectives: 1- secure appropriate Principles for Business:
degree of consumer protection 2- protect the integrity
of the UK financial system 3- promote effective 1 Integrity 7 Communication w/ clients
2 Skill, care, and diligence 8 Conflicts of interest
competition
3 Management and control 9 Customers: relationship of trust
PRA single objective: promote the safety and
4 Financial prudence 10 Clients’ assets
soundness of PRA-authorised “persons” 5 Market conduct 11 Relations with regulators
FCA Supervisory Principles is to focus on two-way 6 Customers’ interest
communication: engage directly with consumers to
understand the issues they face Permissions
[PRT] Proactive – pre-emptive identification of harm A firm seeking FSMA Part 4A Permission should meet
through review/assessment (Proactive is a supervisory the following threshold condition:
approach adopted by PRA and not the FCA) o Legal status; Location of Offices; Prudent
Reactive – remedial for problems that are Conduct; Effective Supervision (including close
emerging/have happened links); appropriate resources; suitability;
Thematic – wider diagnostic/remedy work where there business model; appointment of claims
is actual or potential harm across firms representative
Board Chairman of the FSCS is appointed by the FCA. o Responsibility of FCA - Appropriate non-
FSCS is operationally independent of the regulator, but financial resources
must account directly to it o Responsibility of PRA – prudent conduct
The FCA principles for business apply to all authorised o Others responsibility of both FCA & PRA
firms, no matter what sort of regulated business they RDC has power to refuse an application for Part 4A
do; some apply to firms carrying on specified types of permission/cancel existing permission
business. If an authorised firm appoints an appointed
representative to conduct regulated activities on its
SMCR –If a firm submits request for approval of a behalf, the authorised firm becomes the principal and
senior manager and becomes aware of any changes to accepts legal responsibility for the regulated activity
the senior manager seeking fit & proper status firm conducted by the appointed representative
must notify regulator immediately. When a firm’s application for authorisation is reviewed,
FCA vs PRA Senior Management functions – Executive FCA looks closely at the business model and viability of
Director is an FCA function not a PRA function the firm over the medium term
Enforcement Decision Making Committee = purpose to FSMA Exemption Order 2001 – Local authorities are
strengthen BoE’s enforcement processes by ensuring a exempt from authorisation -when accepting deposits
separation between investigation team and decision- FCA FSMA Part 9A empowers the FCA against regulated
making team and unregulated bodies while PRA rule making powers
Whistleblowing procedures should: provide feedback only extend to PRA authorised persons.
to the blower where feasible, prepare an annual report S56 FSMA Prohibition Order – allows FCA to prohibit
to the board on the effectiveness of the procedures individuals from carrying out specified functions in
