FCA REGULATORY EXAM STUDY GUIDE
FPC: acronym & responsibilities & meetings - Answers- FOC: Finacial Policy
Committee (sits under Bank of England with the PRA)
Purpose: identify, monitor and take action to remove and reduce systemic risk in the
financial industry as a whole. Oversees the macro-economic and financial issues that
could cause instability
Meets: 4 (quarterly) times a year, issues financial reports: 2 times a year biannual
- three letters in between 2 and 4 (meet more than report)
FCA statutory objectives (written objectives) - Answers- 1. Strategic objective:Ensuring
relevant market function well
3 operational objectives:
- Consumer Protection: Securing an appropriate degree of protection for consumers
"appropriate degree": regulation is proportional; protection where its needed
- Integrity: Protecting and enhancing the integrity of the UK financial system
- Competition: Promoting effective competition in the interest of consumers
FCA - Answers- Financial Conduct Authority
FCA FOCUS: achieve statutory objectives
Limited liabitlies company regulated & authorized by the FSMA 2000 --> funded by
regulated firms
Sole responsibility: Appropriate non-financial resources
Treasury guarantees FCA & appoints board, but FCA is the rule making body
PRA - Answers- Prudential Regulation Authority
Prudentials for systemic firms (dual regulated firms)
PRA firms: Deposit takers (banks, building societies, credit unions), Insurers, Significant
investment firms
The PRA looks at prudent conduct.
HMRC: acronym & responsibility - Answers- Acronym: HM Revenue and Costumes
Responsibility: primary tax revenue raising agency & regulates individual savings
accounts (ISA)
,FCA 11 Principles of Business - Answers- 1. Integrity
2. Skill, care and diligence
3. Management and control (leads to SYSC) → part of high-level FCA standards --> risk
management.
4. Financial prudence (links to the Capital Requirements Directive, CRD)
5. Market conduct (links to Market Abuse Regulation, MAR)
6. Customer's interests (covered in Conduct of Business Sourcebook, COBS + Client
Assets Sourcebook, CASS)
7. Communications with clients (COBS + CASS)
8. Conflicts of interest (COBS + CASS)
9. Customers: relationship of trust (COBS + CASS)
10. Client's assets (COBS + CASS)
11. Relations with regulators
FCA rule making power on...
PRA rule making power on... - Answers- FCA: authorised firms for regulated activity
and not regulated activity
PRA:PRA-authorised persons
HM Treasury Role with FCA - Answers- HMT:
- Appoints FCA's board
- Guarantees FCA's operations
FCA us accountable to the HMT and answers to them --> reports back on a yearly
bases
General powers of FSMA 2000 (Financial Services and Markets Act 2000) - Answers- -
Authorization: a person applies to the Regulator under Part 4A of the Financial Services
and Markets Act 2000
- Rule-making
- Supervision, enforcement, actions and disciplinary actions
- Prosecution for financial crime
- Regulates and authorizes the FCA
The Panel on Takeovers and Mergers (takeover panel) - Answers- Takeover Code:
focuses on the fair treatment of affected parties during the process of the takeover or
merger
- Issue and administer the City Code on Takeovers and Mergers (the 'Code')
- Independent body of FCA and PRA
Conduct risk regulation - Answers- FCA manages conduct risk: states that rules do
matter, but outcomes for consumers and markets are the principal focus of regulatory
concern (Principle based approach)
,PRA Statutory Objectives - Answers- General Objective: to promote the safety and
soundness of PRA-authorised firms
- Avoid instability within those firms --> ensure stability in the market
- Minimise the adverse effect that the failure of a PRA-authorised firm would have on
the stability of the UK financial system
Insurance Objective: to contribute to the securing of an appropriate degree of protection
for those who are or may become policyholders
The Competition and Markets Authority - Answers- Main focus = consumers and the
economy
- Investigate and block takeovers or mergers if in the interests of competition and
consumers (concerned with impact of anti-competitive practices on the consumers)
- Enforce consumer protection legislation
- Cooperation and coordination in the financial sector
Prosecute unlawful cartel members (e.g. price fixing cartel)
The Information Commissioner's Office - Answers- - Main focus = data privacy for
individuals, openness by public bodies
- To uphold information rights in the public interest
- To ensure data privacy for individuals and not unfairly distributed to other bodies (Data
Protection Act, DPA)
- To promote openness by public bodies (Freedom of Information Act, FoIA)
Unfair Terms in Consumer Contracts Regulation 1999 - Answers- FCA has the power to
force financial services firm to amend or remove unfair contract terms
Senior Management Arrangements, Systems and Controls (SYSC) - Answers-
Purpose: A firm must take reasonable care to maintain a clear and appropriate
apportionment of significant responsibilities among its directors and senior managers
(risk management --> risk based approach to control business)
The records must be kept for six years.
Yearly written reports on compliance and audit must be: clear and appropriate
Rules are binding upon common platform firms. (CRD, MIFID)
SYSC is guidance for all other firms
SYSC 4: General Requirements
- Experienced management
- Annual written reports on compliance and internal audit
- Apportionment of responsibilities to directors must be appropriate and clear
SYSC 5: Competent Employees Rule
, - All employees should have skill, knowledge and expertise, Segregation of duties,
Awareness of procedures (continual e-Learning), Monitoring of three points above
SYSC 6: Need senior manager in charge of compliance, audit and financial crim
Relevant markets - Answers- Regulated Markets e.g. London Stock Exchange (LSE).
MTF (multilateral trading facility - privately owned exchange)
OTF (non equity investments e.g. bonds, derivatives)
OTC (over the counter markets) - but only if they affect the above markets
FCA supervisory model - 3 steps - Answers- 1. Proactive firm supervision: for fixed
portfolio firms only
- look at the business model and strategy, and compare it with statutory objectives
(preemptive)
2. Event-driven work: for all firms
- Reactive work: responding to specific events (where things have gone wrong)
3. Thematic: for all firms
- Referred to as 'Issues & Products' e.g. market abuse surveillance within asset
management firms, transaction reports (how well are asset management firms
monitoring their risk to market abuse and how are they identifying that risk)
4 Tools of Supervison under FCA - Answers- Diagnostic: identify, assess and measure
risks
Monitoring: track the development of identified risks
- Transaction reporting: regulatory report by FCA
- Complaints returns (report every 6 months)
- Client money + asset returns
Preventative: limit or reduce risks to prevent them from crystallising
Remedial: respond to the risks when they have crystallised (e.g. collecting
compensation for the clients that have suffered)
Authorized, approved & Recognized - Answers- Authorized: firm
Approved: individual
Recognized: other bodies
6 Provisions of The Handbook - what is binding and non-binding:
(R) Rules
(E) Evidential provisions
(G) Guidance
(D) Directions
(P) Statements of Principle
(C) Conduct
FPC: acronym & responsibilities & meetings - Answers- FOC: Finacial Policy
Committee (sits under Bank of England with the PRA)
Purpose: identify, monitor and take action to remove and reduce systemic risk in the
financial industry as a whole. Oversees the macro-economic and financial issues that
could cause instability
Meets: 4 (quarterly) times a year, issues financial reports: 2 times a year biannual
- three letters in between 2 and 4 (meet more than report)
FCA statutory objectives (written objectives) - Answers- 1. Strategic objective:Ensuring
relevant market function well
3 operational objectives:
- Consumer Protection: Securing an appropriate degree of protection for consumers
"appropriate degree": regulation is proportional; protection where its needed
- Integrity: Protecting and enhancing the integrity of the UK financial system
- Competition: Promoting effective competition in the interest of consumers
FCA - Answers- Financial Conduct Authority
FCA FOCUS: achieve statutory objectives
Limited liabitlies company regulated & authorized by the FSMA 2000 --> funded by
regulated firms
Sole responsibility: Appropriate non-financial resources
Treasury guarantees FCA & appoints board, but FCA is the rule making body
PRA - Answers- Prudential Regulation Authority
Prudentials for systemic firms (dual regulated firms)
PRA firms: Deposit takers (banks, building societies, credit unions), Insurers, Significant
investment firms
The PRA looks at prudent conduct.
HMRC: acronym & responsibility - Answers- Acronym: HM Revenue and Costumes
Responsibility: primary tax revenue raising agency & regulates individual savings
accounts (ISA)
,FCA 11 Principles of Business - Answers- 1. Integrity
2. Skill, care and diligence
3. Management and control (leads to SYSC) → part of high-level FCA standards --> risk
management.
4. Financial prudence (links to the Capital Requirements Directive, CRD)
5. Market conduct (links to Market Abuse Regulation, MAR)
6. Customer's interests (covered in Conduct of Business Sourcebook, COBS + Client
Assets Sourcebook, CASS)
7. Communications with clients (COBS + CASS)
8. Conflicts of interest (COBS + CASS)
9. Customers: relationship of trust (COBS + CASS)
10. Client's assets (COBS + CASS)
11. Relations with regulators
FCA rule making power on...
PRA rule making power on... - Answers- FCA: authorised firms for regulated activity
and not regulated activity
PRA:PRA-authorised persons
HM Treasury Role with FCA - Answers- HMT:
- Appoints FCA's board
- Guarantees FCA's operations
FCA us accountable to the HMT and answers to them --> reports back on a yearly
bases
General powers of FSMA 2000 (Financial Services and Markets Act 2000) - Answers- -
Authorization: a person applies to the Regulator under Part 4A of the Financial Services
and Markets Act 2000
- Rule-making
- Supervision, enforcement, actions and disciplinary actions
- Prosecution for financial crime
- Regulates and authorizes the FCA
The Panel on Takeovers and Mergers (takeover panel) - Answers- Takeover Code:
focuses on the fair treatment of affected parties during the process of the takeover or
merger
- Issue and administer the City Code on Takeovers and Mergers (the 'Code')
- Independent body of FCA and PRA
Conduct risk regulation - Answers- FCA manages conduct risk: states that rules do
matter, but outcomes for consumers and markets are the principal focus of regulatory
concern (Principle based approach)
,PRA Statutory Objectives - Answers- General Objective: to promote the safety and
soundness of PRA-authorised firms
- Avoid instability within those firms --> ensure stability in the market
- Minimise the adverse effect that the failure of a PRA-authorised firm would have on
the stability of the UK financial system
Insurance Objective: to contribute to the securing of an appropriate degree of protection
for those who are or may become policyholders
The Competition and Markets Authority - Answers- Main focus = consumers and the
economy
- Investigate and block takeovers or mergers if in the interests of competition and
consumers (concerned with impact of anti-competitive practices on the consumers)
- Enforce consumer protection legislation
- Cooperation and coordination in the financial sector
Prosecute unlawful cartel members (e.g. price fixing cartel)
The Information Commissioner's Office - Answers- - Main focus = data privacy for
individuals, openness by public bodies
- To uphold information rights in the public interest
- To ensure data privacy for individuals and not unfairly distributed to other bodies (Data
Protection Act, DPA)
- To promote openness by public bodies (Freedom of Information Act, FoIA)
Unfair Terms in Consumer Contracts Regulation 1999 - Answers- FCA has the power to
force financial services firm to amend or remove unfair contract terms
Senior Management Arrangements, Systems and Controls (SYSC) - Answers-
Purpose: A firm must take reasonable care to maintain a clear and appropriate
apportionment of significant responsibilities among its directors and senior managers
(risk management --> risk based approach to control business)
The records must be kept for six years.
Yearly written reports on compliance and audit must be: clear and appropriate
Rules are binding upon common platform firms. (CRD, MIFID)
SYSC is guidance for all other firms
SYSC 4: General Requirements
- Experienced management
- Annual written reports on compliance and internal audit
- Apportionment of responsibilities to directors must be appropriate and clear
SYSC 5: Competent Employees Rule
, - All employees should have skill, knowledge and expertise, Segregation of duties,
Awareness of procedures (continual e-Learning), Monitoring of three points above
SYSC 6: Need senior manager in charge of compliance, audit and financial crim
Relevant markets - Answers- Regulated Markets e.g. London Stock Exchange (LSE).
MTF (multilateral trading facility - privately owned exchange)
OTF (non equity investments e.g. bonds, derivatives)
OTC (over the counter markets) - but only if they affect the above markets
FCA supervisory model - 3 steps - Answers- 1. Proactive firm supervision: for fixed
portfolio firms only
- look at the business model and strategy, and compare it with statutory objectives
(preemptive)
2. Event-driven work: for all firms
- Reactive work: responding to specific events (where things have gone wrong)
3. Thematic: for all firms
- Referred to as 'Issues & Products' e.g. market abuse surveillance within asset
management firms, transaction reports (how well are asset management firms
monitoring their risk to market abuse and how are they identifying that risk)
4 Tools of Supervison under FCA - Answers- Diagnostic: identify, assess and measure
risks
Monitoring: track the development of identified risks
- Transaction reporting: regulatory report by FCA
- Complaints returns (report every 6 months)
- Client money + asset returns
Preventative: limit or reduce risks to prevent them from crystallising
Remedial: respond to the risks when they have crystallised (e.g. collecting
compensation for the clients that have suffered)
Authorized, approved & Recognized - Answers- Authorized: firm
Approved: individual
Recognized: other bodies
6 Provisions of The Handbook - what is binding and non-binding:
(R) Rules
(E) Evidential provisions
(G) Guidance
(D) Directions
(P) Statements of Principle
(C) Conduct
