CII R01 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

FCA statutory objectives

Protecting consumers, protecting and enhancing market integrity, and promoting effective competition in consumers' interests. These are set in FSMA 2000 and guide all FCA rulemaking and supervision.

PRA objectives

The Prudential Regulation Authority has a general objective to promote the safety and soundness of PRA-authorised firms and an insurance objective for policyholder protection. It regulates prudential matters only.

Consumer Duty

An FCA obligation requiring firms to act to deliver good outcomes for retail customers across four areas: products and services, price and value, consumer understanding, and consumer support.

Threshold Conditions

Minimum standards a firm must meet to be authorised and to remain authorised. They cover legal status, location of offices, effective supervision, suitability, and business model.

Senior Managers and Certification Regime

A regime requiring Senior Managers to hold prescribed responsibilities and Statements of Responsibilities, Certification staff to be annually certified fit and proper, and Conduct Rules to apply to nearly all staff.

Financial Ombudsman Service

An independent dispute-resolution scheme for complaints about regulated firms. Awards are binding on the firm if accepted by the complainant, up to limits set by the FCA.

Financial Services Compensation Scheme

A statutory compensation scheme protecting eligible claimants when authorised firms fail. Separate limits apply to deposits, investments and insurance, calculated per firm per claimant.

FCA product intervention powers

Powers allowing the FCA to ban or restrict a product or feature temporarily or permanently where it considers the product poses a risk to consumers or market integrity.

Six Principles for Businesses

FCA high-level rules: integrity; skill, care and diligence; management and control; financial prudence; market conduct; and customers' interests. They apply to all authorised firms.

Client categorisation

Clients are classified as eligible counterparties, professional clients or retail clients. Protections decrease as categorisation rises, and opting up requires prescribed procedures and disclosures.

Best execution

A duty to obtain the best possible result for clients considering price, costs, speed, likelihood of execution and settlement, size, nature and other relevant considerations.

Financial promotion rules

Promotions must be fair, clear and not misleading. Generally an authorised firm must communicate or approve them unless a specific exemption applies under the gatekeeper regime.

Vulnerable customers

Customers whose circumstances, such as health, bereavement, low literacy or financial difficulty, reduce their ability to make informed decisions. Firms must take reasonable steps to avoid foreseeable harm.

Complaints handling

Firms must resolve complaints promptly and fairly. If unresolved within the FCA maximum period, usually eight weeks, the complainant may refer the matter to the Financial Ombudsman Service.

Record retention

Firms must keep records of regulated activities and client communications for prescribed periods, often five years and longer for certain pensions and investments, to evidence compliance.

Conflicts of interest

Firms must identify, prevent or manage conflicts, maintain a conflicts policy, and disclose conflicts where management is insufficient. Inducements must not impair clients' best interests.

Market abuse offences

Insider dealing, unlawful disclosure of inside information and market manipulation are prohibited. MAR also requires disclosure of inside information, insider lists and suspicious transaction reporting.

Inducements rule

Firms must not pay or accept fees, commissions or non-monetary benefits that impair the duty to act in the client's best interests. Disclosure alone does not cure a harmful inducement.

Ethical decision framework

Identify the facts, affected parties, relevant principles and rules, consider alternatives and consequences, decide, then document and review the decision.

Integrity Principle

Principle 1 requires honesty and fair dealing. It cannot be overridden by commercial pressure, and conflicts with a client's instruction are resolved by disclosure and refusal where appropriate.

Client money segregation

Client money must be held separately in trust, reconciled frequently and not mixed with firm money. Misuse is a serious breach and can constitute a criminal offence.

Whistleblowing arrangements

Firms must provide internal channels for staff to report concerns, protect whistleblowers from detriment, and the FCA expects senior managers to foster a speak-up culture.

Gifts and hospitality

Gifts and hospitality must be reasonable, proportionate, recorded in a register and approved under firm policy. The test is whether the benefit could influence a decision.

Fitness and propriety

Relevant factors include honesty, integrity, reputation, competence, financial soundness and criminal record. Breaches can lead to prohibition or withdrawal of approval.

Personal account dealing

Staff must obtain pre-clearance, avoid dealing ahead of client orders, and never trade on inside information. Front-running client orders is prohibited.

Risk and return

Higher expected return generally requires accepting higher risk. Diversification reduces unsystematic risk but cannot eliminate systematic market risk.

Bond price and yield

Bond prices move inversely to yields. Duration measures sensitivity to interest rate changes, while credit spread reflects default and liquidity risk.

Collective investment schemes

Authorised funds such as ICVCs and unit trusts are regulated and offer diversification. Charges include initial charges, annual management charges and the ongoing charges figure.

Defined benefit versus contribution

In defined benefit schemes the employer bears investment risk; in defined contribution schemes the member bears it. Personal pensions and SIPPs offer investment choice with tax relief subject to allowances.

Protection product triggers

Term assurance pays on death within a set term; whole-of-life pays on death whenever it occurs; income protection replaces income on incapacity; critical illness pays on diagnosis of a specified condition.

Mortgage structures

Repayment mortgages repay capital and interest; interest-only repay capital at the end via a separate vehicle; offset mortgages use savings to reduce interest. Affordability stress testing applies.

Primary versus secondary market

The primary market issues new securities to raise capital; the secondary market trades existing securities between investors. Exchanges, MTFs and OTC venues differ in transparency and liquidity.