Regulation and Compliance
This domain tests the UK regulatory framework as it applies to securities firms: who regulates what, which rules govern conduct, how individuals are held accountable, and how financial crime and complaints are handled. Expect questions that link a scenario to the correct rulebook or authority.
The regulatory architecture
- The FCA and PRA are the regulators under FSMA 2000. The FCA's statutory objectives are consumer protection, market integrity and competition; the PRA focuses on prudential soundness of banks and insurers.
- The Principles for Businesses (PRIN) apply to all authorised firms. The Consumer Duty (PRIN 2A) requires good outcomes across products and services, price and value, consumer understanding and consumer support.
- Key handbooks: COBS (conduct of business), SYSC (systems and controls), CASS (client assets), MAR (market abuse), plus the Money Laundering Regulations 2017.
Individuals and conflicts
- SM&CR imposes statements of responsibilities on senior managers, a certification regime for material-risk staff and conduct rules for nearly everyone.
- Personal account dealing requires pre-clearance; insider lists, conflicts-of-interest policies and whistleblowing channels are mandatory.
Financial crime
- Risk-based customer due diligence, enhanced due diligence for PEPs and high-risk jurisdictions, sanctions screening, and suspicious activity reports to the NCA. Tipping off is a criminal offence.
Complaints and compensation
- Firms must resolve complaints within eight weeks; the client then has six months to refer to the Financial Ombudsman Service. The FSCS protects deposits and investments up to £85,000 per eligible claimant per firm (check the current limit).
Worked example
An analyst is drafting research on a company where his firm is advising on a takeover. He asks to buy shares for his own account. Compliance should refuse: the stock sits on the restricted list, he is likely to hold inside information, and dealing would breach MAR and the firm's personal account dealing policy. Pre-clearance is a control, not a formality.
Traps that cost marks
- The FSCS does not compensate for falls in market value, only for firm failure.
- The Consumer Duty is outcomes-based, not satisfied by disclosure alone.
- "Approved person" is pre-SM&CR language; use senior manager and certification terms.
- Enhanced due diligence is triggered by risk, not by every non-UK client.