Chapter 1 - CISI Financial Regulations, The Regulatory
Environment: UK Financial Regulations CISI, CISI Unit 1 - UK
Regulation || A+ Guaranteed.
Financial Services and Markets Act (FSMA) correct answers The legislation that established the
Financial Services Authority, and empowered it to regulate the financial services sector. The Act
has subsequently been amended by the Financial Services Act 2012 to create the twin peaks
approach of regulation in the form of the FCA and the PRA
What are the two core purposes of the Bank of England? correct answers 1. Monetary Stability -
meaning up-keeping confidence in the currency and keeping prices stable. The latter is defined
by the inflation target and is met through the decisions delegated to the Monetary Policy
Committee.
2. Financial Stability - this entails detecting and reducing threats to the stability of the financial
system as a whole, an area covered by the PRA.
Financial Policy Committee correct answers An official committee of the BoE that possesses
powers of direction and recommendation in relation to financial stability. The committee meets
at least four times a year and is responsible for the Bank's bi-annual Financial Stability Report.
They identify, monitor, remove and reduce systemic risk.
Her Majesty's Treasury correct answers Has overall responsibility for the UK's financial system,
including the institutional structure and the legislation that governs it. The Treasury has the
power to appoint or dismiss the FCA's board and chairman, and requires the FCA to report to the
Treasury at least once a year . HMT also has the power to commission reviews and inquiries into
the aspects of the FCA's operations. (appoint/dismiss, reports, inquiries)
Financial Conduct Authority correct answers A replacement of the Financial Services Authority,
responsible for protecting consumers, keeping the industry stable, and promoting healthy
competition between financial services providers.
Prudential Regulation Authority correct answers An authority part of the BoE that oversees the
prudential regulation of dual-regulated firms, which includes deposit takers, insurers and
significant investment firms.
The statutory objectives of the FCA correct answers Strategic objective:
1. Ensure that relevant markets function well
Operational objectives:
2. Consumer protection objective :"Secure an appropriate degree of protection for consumers"
3. Integrity objective: "Protecting and enhancing the integrity of the UK financial system"
4. Competition objective: "Promoting effective competition in the interests of consumers"
(F-PIC: function, protection, integrity, competition)
,The statutory objective of the PRA correct answers Promoting the safety and soundness of PRA-
authorised firms
FCA's Supervisory Principles correct answers 1. Forward-looking
2. Focus on strategy and business models
3. Culture and governance
4. Focus on individual as well as firm accountability
5. Proportionate and risk-based
6. Two-way communication
7. Co-ordinated
8. Put right systemic harm that has occurred and stop it happening again through enforcement
action or by seeking redress
(For many colleagues, imminent risk causes catastrophic stress - forward, models, culture,
individual, risk, communication, coordination, systemic harm)
The three types of work that the FCA's supervisory model is based on correct answers 1.
Proactive - pre-emptive identification of harm through review and assessment of firms and
portfolios.
2. Reactive - dealing with issues that are emerging or have happened to prevent harm growing.
3. Thematic - wider diagnostic or remedy work where there is actual or potential harm across a
number of firms
Conduct risk correct answers Risks posed to customers and the wider integrity of the financial
markets by the way in which authorised firms and their staff conduct themselves. Requires firms
to consider whether the way it does business causes poor outcomes for customers or harms
market integrity.
FSMA empowers either regulator to correct answers 1. Make rules that are legally binding on
authorised firms
2. Grant authorisation (Part 4A Permission)
3. Supervise authorised persons on an ongoing basis
4. Employ disciplinary measures and sanctions to punish or limit activities
5. Generally enforce the regulatory framework
(DARES - discipline, authorise, rules, enforce, supervise)
Applications of EU Legislation and Guidance correct answers Effective from 31 December
2020, UK firms lost their ability to access the single market through 'passporting'. The UK
Government introduced legislation that converted existing direct EU legislation (Regulations)
into UK law, and preserved existing UK laws which implement EU obligations.
The FCA's Principles for Businesses correct answers 1. Integrity
2. Skill, care and diligence
3. Management and control (SYSC)
4. Financial prudence
5. Market conduct
6. Customer's interests
,7. Communications with clients
8. Conflicts of interest
9. Customer relationships of trust
10. Clients' assets
11. Relations with regulators
I see many fair maidens immediately (com)ing (con)fidently to a regatta. (integrity, skill,
management, financial prudence, market conduct, interests, communications, conflicts, trust,
assets, relations)
The six consumer outcomes of FTOC (Fair Treatment Of Customers) correct answers 1.
Products and services marketed meet the needs of identified consumer groups
2. Where consumers receive advice, the advice is suitable
3. Consumers are provided with clear information and kept informed
4. Products perform as the firm led consumers to expect
5. Consumers do not face unreasonable post-sales barriers
6. Fair treatment of customers is central to the corporate culture
(BC PAIN - barriers, culture, perform, advice, information, needs)
Senior Management Arrangements (contained in the Senior Management Arrangements,
Systems and Controls sections of the FCA Handbook) correct answers Encourages directors and
senior managers to take
responsibility for their firm's arrangements. Amplifies Principle 3 (Management and control).
General requirements contained in SYSC correct answers 1. Sound governance - clear
organisational structure
2. Senior personnel - must receive frequent (at least ANNUAL) reports on compliance and
internal audit
3. Apportionment of responsibilities - clear apportionment
The Approved Persons Regime (APER) correct answers Statements of Principle define how an
approved person should behave when carrying out a controlled function. Replaced by SMCR
from March 2016 for all individuals except tied agents and benchmark administrators
The statement of principles of the Approved Persons Regime, applicable to ALL persons
carrying out a controlled function correct answers 1. Act with integrity in carrying out a
controlled function
2. Act with due skill, care and diligence in carrying out a controlled function
3. Observe proper standards of market conduct in carrying out a controlled function
4. Deal with the regulators in an open and co-operative way
(ISCO - integrity, skill, conduct, open)
The statement of principles of the Approved Persons Regime, applicable to only those carrying
out a significant influence function correct answers 5. Ensure that the business of the firm is
organised so that it can be controlled effectively
6. Exercise due skill care and diligence in managing the business of the firm
, 7. Ensure that the business of the firm complies with the relevant requirements and standards of
the regulatory system
The Senior Managers and Certification Regime (SMCR) correct answers Consists of:
'Senior managers regime' - for individuals performing senior management function (SMFs).
Effectively replacing significant influence functions. Pre-approval by regulators is required, and
must be certified as fit and proper by the firm and subject to the conduct rules.
'Certification regime' - for roles that pose a significant risk of harm to the firm and its customers.
The persons encompassed under this regime are to be certified as fit and proper by the firm and
subject to the conduct rules.
Conduct Rules correct answers New framework of behavioural standards introduced, applicable
to all staff (bar ancillary staff). Designed to raise overall conduct standards in the industry, by
effectively replacing the Statements of Principles with rules.
CISI Principles correct answers 1. Act honestly and fairly at all times
2. Act with integrity in fulfilling the responsibilities of your appointment
3. Observe applicable law, regulations and professional conduct standards
4. Observe the standards of market integrity, good practice and conduct required by participants
in the market
5. Manage fairly and effectively any relevant conflict of interest, making disclosure where
required by law or regulation or your employer
6. Attain and maintain a level of professional competence appropriate to your responsibilities*
7. Decline to act in any matter in which you are not yet competent*
8. Uphold the highest personal standards, including rejecting short-term profits if they jeopardise
your reputation*
*= paul recommended learning
What should be done in circumstances that may cause a CISI member to act in a manner contrary
to the Principles? correct answers 1. Discuss concerns with line manager
2. Seek advice from compliance
3. Approach firms non-executive directors or audit committee
4. Contact the CISI for advice if all other options have been exhausted
Where the symbol 'E' appears in an FCA handbook, this indicates that the text is: correct answers
Evidence of compliance with a
binding rule. It is not binding in its own right
Where the symbol 'P' appears in an FCA handbook, this indicates that the text is: correct answers
A Statements of Principle - binding on approved persons
The Pensions Protection Fund (PPF) correct answers Protection for anyone belonging to a
defined benefit (final salary) pension scheme, funded by levies charged on all eligible pension
schemes.
Environment: UK Financial Regulations CISI, CISI Unit 1 - UK
Regulation || A+ Guaranteed.
Financial Services and Markets Act (FSMA) correct answers The legislation that established the
Financial Services Authority, and empowered it to regulate the financial services sector. The Act
has subsequently been amended by the Financial Services Act 2012 to create the twin peaks
approach of regulation in the form of the FCA and the PRA
What are the two core purposes of the Bank of England? correct answers 1. Monetary Stability -
meaning up-keeping confidence in the currency and keeping prices stable. The latter is defined
by the inflation target and is met through the decisions delegated to the Monetary Policy
Committee.
2. Financial Stability - this entails detecting and reducing threats to the stability of the financial
system as a whole, an area covered by the PRA.
Financial Policy Committee correct answers An official committee of the BoE that possesses
powers of direction and recommendation in relation to financial stability. The committee meets
at least four times a year and is responsible for the Bank's bi-annual Financial Stability Report.
They identify, monitor, remove and reduce systemic risk.
Her Majesty's Treasury correct answers Has overall responsibility for the UK's financial system,
including the institutional structure and the legislation that governs it. The Treasury has the
power to appoint or dismiss the FCA's board and chairman, and requires the FCA to report to the
Treasury at least once a year . HMT also has the power to commission reviews and inquiries into
the aspects of the FCA's operations. (appoint/dismiss, reports, inquiries)
Financial Conduct Authority correct answers A replacement of the Financial Services Authority,
responsible for protecting consumers, keeping the industry stable, and promoting healthy
competition between financial services providers.
Prudential Regulation Authority correct answers An authority part of the BoE that oversees the
prudential regulation of dual-regulated firms, which includes deposit takers, insurers and
significant investment firms.
The statutory objectives of the FCA correct answers Strategic objective:
1. Ensure that relevant markets function well
Operational objectives:
2. Consumer protection objective :"Secure an appropriate degree of protection for consumers"
3. Integrity objective: "Protecting and enhancing the integrity of the UK financial system"
4. Competition objective: "Promoting effective competition in the interests of consumers"
(F-PIC: function, protection, integrity, competition)
,The statutory objective of the PRA correct answers Promoting the safety and soundness of PRA-
authorised firms
FCA's Supervisory Principles correct answers 1. Forward-looking
2. Focus on strategy and business models
3. Culture and governance
4. Focus on individual as well as firm accountability
5. Proportionate and risk-based
6. Two-way communication
7. Co-ordinated
8. Put right systemic harm that has occurred and stop it happening again through enforcement
action or by seeking redress
(For many colleagues, imminent risk causes catastrophic stress - forward, models, culture,
individual, risk, communication, coordination, systemic harm)
The three types of work that the FCA's supervisory model is based on correct answers 1.
Proactive - pre-emptive identification of harm through review and assessment of firms and
portfolios.
2. Reactive - dealing with issues that are emerging or have happened to prevent harm growing.
3. Thematic - wider diagnostic or remedy work where there is actual or potential harm across a
number of firms
Conduct risk correct answers Risks posed to customers and the wider integrity of the financial
markets by the way in which authorised firms and their staff conduct themselves. Requires firms
to consider whether the way it does business causes poor outcomes for customers or harms
market integrity.
FSMA empowers either regulator to correct answers 1. Make rules that are legally binding on
authorised firms
2. Grant authorisation (Part 4A Permission)
3. Supervise authorised persons on an ongoing basis
4. Employ disciplinary measures and sanctions to punish or limit activities
5. Generally enforce the regulatory framework
(DARES - discipline, authorise, rules, enforce, supervise)
Applications of EU Legislation and Guidance correct answers Effective from 31 December
2020, UK firms lost their ability to access the single market through 'passporting'. The UK
Government introduced legislation that converted existing direct EU legislation (Regulations)
into UK law, and preserved existing UK laws which implement EU obligations.
The FCA's Principles for Businesses correct answers 1. Integrity
2. Skill, care and diligence
3. Management and control (SYSC)
4. Financial prudence
5. Market conduct
6. Customer's interests
,7. Communications with clients
8. Conflicts of interest
9. Customer relationships of trust
10. Clients' assets
11. Relations with regulators
I see many fair maidens immediately (com)ing (con)fidently to a regatta. (integrity, skill,
management, financial prudence, market conduct, interests, communications, conflicts, trust,
assets, relations)
The six consumer outcomes of FTOC (Fair Treatment Of Customers) correct answers 1.
Products and services marketed meet the needs of identified consumer groups
2. Where consumers receive advice, the advice is suitable
3. Consumers are provided with clear information and kept informed
4. Products perform as the firm led consumers to expect
5. Consumers do not face unreasonable post-sales barriers
6. Fair treatment of customers is central to the corporate culture
(BC PAIN - barriers, culture, perform, advice, information, needs)
Senior Management Arrangements (contained in the Senior Management Arrangements,
Systems and Controls sections of the FCA Handbook) correct answers Encourages directors and
senior managers to take
responsibility for their firm's arrangements. Amplifies Principle 3 (Management and control).
General requirements contained in SYSC correct answers 1. Sound governance - clear
organisational structure
2. Senior personnel - must receive frequent (at least ANNUAL) reports on compliance and
internal audit
3. Apportionment of responsibilities - clear apportionment
The Approved Persons Regime (APER) correct answers Statements of Principle define how an
approved person should behave when carrying out a controlled function. Replaced by SMCR
from March 2016 for all individuals except tied agents and benchmark administrators
The statement of principles of the Approved Persons Regime, applicable to ALL persons
carrying out a controlled function correct answers 1. Act with integrity in carrying out a
controlled function
2. Act with due skill, care and diligence in carrying out a controlled function
3. Observe proper standards of market conduct in carrying out a controlled function
4. Deal with the regulators in an open and co-operative way
(ISCO - integrity, skill, conduct, open)
The statement of principles of the Approved Persons Regime, applicable to only those carrying
out a significant influence function correct answers 5. Ensure that the business of the firm is
organised so that it can be controlled effectively
6. Exercise due skill care and diligence in managing the business of the firm
, 7. Ensure that the business of the firm complies with the relevant requirements and standards of
the regulatory system
The Senior Managers and Certification Regime (SMCR) correct answers Consists of:
'Senior managers regime' - for individuals performing senior management function (SMFs).
Effectively replacing significant influence functions. Pre-approval by regulators is required, and
must be certified as fit and proper by the firm and subject to the conduct rules.
'Certification regime' - for roles that pose a significant risk of harm to the firm and its customers.
The persons encompassed under this regime are to be certified as fit and proper by the firm and
subject to the conduct rules.
Conduct Rules correct answers New framework of behavioural standards introduced, applicable
to all staff (bar ancillary staff). Designed to raise overall conduct standards in the industry, by
effectively replacing the Statements of Principles with rules.
CISI Principles correct answers 1. Act honestly and fairly at all times
2. Act with integrity in fulfilling the responsibilities of your appointment
3. Observe applicable law, regulations and professional conduct standards
4. Observe the standards of market integrity, good practice and conduct required by participants
in the market
5. Manage fairly and effectively any relevant conflict of interest, making disclosure where
required by law or regulation or your employer
6. Attain and maintain a level of professional competence appropriate to your responsibilities*
7. Decline to act in any matter in which you are not yet competent*
8. Uphold the highest personal standards, including rejecting short-term profits if they jeopardise
your reputation*
*= paul recommended learning
What should be done in circumstances that may cause a CISI member to act in a manner contrary
to the Principles? correct answers 1. Discuss concerns with line manager
2. Seek advice from compliance
3. Approach firms non-executive directors or audit committee
4. Contact the CISI for advice if all other options have been exhausted
Where the symbol 'E' appears in an FCA handbook, this indicates that the text is: correct answers
Evidence of compliance with a
binding rule. It is not binding in its own right
Where the symbol 'P' appears in an FCA handbook, this indicates that the text is: correct answers
A Statements of Principle - binding on approved persons
The Pensions Protection Fund (PPF) correct answers Protection for anyone belonging to a
defined benefit (final salary) pension scheme, funded by levies charged on all eligible pension
schemes.
