CISI UK Financial Regulation cheat sheet

The Bank of England (BoE) is the UK central bank; its Monetary Policy Committee sets Bank Rate, while the Prudential Regulation Authority (PRA) sits within the BoE as a subsidiary and prudentially regulates banks, insurers and major investment firms.

The Financial Conduct Authority (FCA) is an independent body funded by fees from authorised firms; it regulates conduct for all authorised firms and prudential matters for firms not covered by the PRA.

The Financial Policy Committee (FPC) sits within the BoE and identifies systemic risks, with a primary objective of financial stability and a secondary objective to support the government's growth and employment objectives.

The Payment Systems Regulator (PSR) is a separate economic regulator, and the Competition and Markets Authority (CMA) has concurrent competition powers alongside the FCA in financial services.

The Financial Ombudsman Service (FOS) resolves individual complaints free to consumers; the Financial Services Compensation Scheme (FSCS) pays compensation up to statutory limits when a firm fails.

The Money Advice and Pensions Guidance bodies - the Money and Pensions Service (MaPS) and the Single Financial Guidance Body - provide free debt, money and pensions guidance rather than regulated advice.

The London Stock Exchange (LSE) operates the Main Market (including the Premium and Standard listing segments) and AIM; the FCA is the UK Listing Authority.

Industry bodies include UK Finance (banking trade body), the Association of British Insurers (ABI), the Investment Association (IA) and the Pensions and Lifetime Savings Association (PLSA).

The UK regulatory structure is described as the 'twin peaks' model: prudential regulation separated from conduct regulation after the Financial Services Act 2012.

FSMA 2000 is the core statute; the Financial Services Act 2012 created the FCA and PRA, and FSMA 2023 added new objectives including a secondary competitiveness and growth objective for the FCA and PRA.

The FCA's three operational objectives are: consumer protection, integrity of the UK financial system, and promoting effective competition in the interests of consumers.

The PRA's two objectives are a general objective to promote the safety and soundness of PRA-authorised firms and an insurance-specific objective for policyholder protection.

Threshold Conditions (FSMA Schedule 6) must be met for authorisation and on an ongoing basis, covering location of offices, effective supervision, appropriate resources, suitability and business model.

The Senior Managers and Certification Regime (SM&CR) applies across banking, insurance and solo-regulated firms; Senior Managers require FCA/PRA approval, while Certification staff are assessed annually by the firm.

The FCA Handbook contains modules including PRIN (Principles for Businesses), SYSC (Systems and Controls), COBS (Conduct of Business), CASS (Client Assets) and DEPP (Decisions Procedure and Penalties).

The FCA's enforcement powers include public censure, unlimited fines, prohibition orders, suspension or restriction of permissions, and the power to require restitution.

Firms must notify the FCA of matters under SUP 15 (breaches, significant events) and report under SUP 16; the Duty of Responsibility applies to Senior Managers for breaches in their area.

Under FSMA s.19 the general prohibition means no person may carry on a regulated activity in the UK unless authorised or exempt; s.19 contravention is a criminal offence.

Regulated activities are specified in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO); the 'by way of business' test and exclusions such as the overseas persons exclusion matter.

The specified investments in the RAO include shares, bonds, units in collective investment schemes, options, futures, contracts for differences, insurance contracts and deposits.

The four consumer outcomes under the FCA's Consumer Duty (PRIN 2A): products and services, price and value, consumer understanding, and consumer support; it applies to retail customers including those in the distribution chain.

COBS 9 requires a suitability assessment for advised sales, and COBS 10 requires an appropriateness assessment for non-advised sales of complex products.

COBS 4 requires financial promotions to be fair, clear and not misleading; under the financial promotion restriction (s.21 FSMA) promotions must be communicated by an authorised person or approved by one.

Client money must be segregated and held in trust under CASS 7, and client assets safeguarded under CASS 6; a statutory trust arises on receipt of client money.

The FCA's Consumer Duty requires firms to act in good faith, avoid foreseeable harm and enable customers to pursue their financial objectives.

The Proceeds of Crime Act 2002 (POCA) creates the principal money laundering offences, including concealing, arranging and acquiring criminal property; failure to disclose is an offence under s.330 for regulated firms.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) require customer due diligence, ongoing monitoring, a nominated officer and a risk-based approach.

The three stages of money laundering are placement, layering and integration; suspicious activity reports (SARs) are submitted to the National Crime Agency (NCA) and a defence requires consent.

The Terrorism Act 2000 and the Bribery Act 2010 are separate regimes; the Bribery Act creates a corporate offence of failing to prevent bribery unless adequate procedures are in place.

The UK's sanctions regime is administered by HM Treasury's Office of Financial Sanctions Implementation (OFSI); dealing with designated persons or frozen assets is a criminal offence.

The Market Abuse Regulation (UK MAR) prohibits insider dealing, unlawful disclosure of inside information, and market manipulation; it also requires disclosure of inside information by issuers and a insider list.

The Criminal Justice Act 1993 creates the criminal offence of insider dealing; the FCA can also take action under the civil market abuse regime in FSMA Part VIII.

The FCA's 'STORS' framework for market conduct covers: being alert to suspicious orders and transactions, and firms must have appropriate surveillance and reporting arrangements.

The FCA's Principles for Businesses (PRIN) are high-level, ever-applicable obligations; Principle 1 requires integrity and Principle 2 requires skill, care and diligence.

Principle 6 requires a firm to pay due regard to the interests of customers and treat them fairly; Principle 8 requires managing conflicts of interest fairly.

The FCA's Treating Customers Fairly (TCF) outcomes are embedded in the Consumer Duty and in the conduct rules for individuals.

The Conduct Rules for individuals (COCON) include: act with integrity, act with due skill, care and diligence, be open and cooperative with regulators, and treat customers fairly.

The FCA's Code of Conduct for staff (COCON) applies to Senior Managers and Certification staff, and to all employees for the basic conduct rules.

Conflicts of interest must be identified, prevented or managed under SYSC 10; inducements must not impair the firm's duty to act in the client's best interests under COBS 2.3.

The FCA's decision-making and penalties are governed by DEPP and the Regulatory Decisions Committee (RDC); the Upper Tribunal hears referrals against FCA decisions.

The FCA expects firms to have a culture that supports the fair treatment of customers and to embed the 'consumer duty' into product design, pricing and communications.

Financial promotions must be clear, fair and not misleading; the FCA's 'financial promotion restriction' applies to invitations and inducements to engage in investment activity under s.21 FSMA.

The 'four consumer outcomes' of the Consumer Duty are: products and services, price and value, consumer understanding, and consumer support.

COBS 9 (suitability) applies to advised sales; COBS 10 (appropriateness) applies to non-advised sales of complex products; COBS 11 covers best execution.

The Client Categorisation rules in COBS 3 distinguish eligible counterparties, professional clients and retail clients, with different levels of protection.

Under the RAO, arranging deals in investments, managing investments, advising on investments, and safeguarding and administering investments are regulated activities.

The 'by way of business' test determines whether an activity is regulated; exclusions include the overseas persons exclusion and certain intra-group activities.

Client money rules (CASS 7) require segregation and a statutory trust; client assets rules (CASS 6) require safeguarding and reconciliation.

The FCA's financial promotion rules require that promotions be fair, clear and not misleading, and that they include risk warnings where appropriate.

Money laundering stages: placement, layering, integration; the MLRs 2017 require a risk-based approach, CDD, enhanced due diligence for PEPs and high-risk situations, and ongoing monitoring.

The nominated officer (MLRO) must report suspicious activity to the NCA via a SAR; a firm must not tip off the subject of a SAR (tipping off offence under POCA s.333A).

The Bribery Act 2010 offences include bribing, receiving a bribe, bribing a foreign public official, and the corporate offence of failing to prevent bribery.

UK sanctions are implemented under the Sanctions and Anti-Money Laundering Act 2018; OFSI administers asset freezes and reporting obligations.

UK MAR prohibits insider dealing, unlawful disclosure and market manipulation; it requires issuers to disclose inside information as soon as possible and maintain an insider list.

The Criminal Justice Act 1993 insider dealing offences cover dealing, encouraging others to deal, and disclosing inside information.

The FCA's market conduct rules require firms to have surveillance arrangements and to report suspicious transactions; STORS stands for the FCA's approach to suspicious order and transaction reporting.

The FCA can impose unlimited fines and prohibit individuals for market abuse; the Upper Tribunal reviews contested decisions.

The FCA's Principles for Businesses (PRIN) are high-level obligations: integrity, skill care and diligence, management and control, financial prudence, market conduct, customers' interests, communications with clients, conflicts of interest, customers' relationships of trust, and clients' assets.

The Conduct Rules (COCON) include individual rules: act with integrity, act with due skill care and diligence, be open and cooperative with regulators, pay due regard to customers' interests and treat them fairly, and observe proper standards of market conduct.

The Consumer Duty requires firms to act in good faith, avoid foreseeable harm and enable customers to pursue their financial objectives.

Conflicts of interest must be identified and managed under SYSC 10; inducements must not impair the firm's duty to act in the client's best interests under COBS 2.3.

The FCA's Treating Customers Fairly outcomes are embedded in the Consumer Duty and in the conduct rules for individuals.

The FCA's enforcement process is governed by DEPP; the Regulatory Decisions Committee (RDC) makes contested decisions, and the Upper Tribunal hears referrals.

The FCA expects firms to have a culture that supports fair treatment of customers and to embed the Consumer Duty into product design, pricing and communications.

The FCA's Code of Conduct (COCON) applies to Senior Managers and Certification staff, and the basic conduct rules apply to all employees.