Chartered Institute for Securities & Investment (CISI) Qualifications UK Financial Services Regulation and Professional Integrity Syllabus

UK Financial Services Regulation and Professional Integrity syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for UK Financial Services Regulation and Professional Integrity in Chartered Institute for Securities & Investment (CISI) Qualifications, not a summary of it.

1. 1

   The UK Regulatory Framework

   5 topics

   • Statutory basis and architecture
     • Financial Services and Markets Act 2000 (FSMA) and the 2012/2023 amendments
     • The 'twin peaks' model: FCA and PRA roles
     • Bank of England, FPC and macroprudential oversight
     • HM Treasury and the Financial Services and Markets Act 2023
   • The Financial Conduct Authority (FCA)
     • Strategic and operational objectives
     • Rule-making, supervision and the FCA Handbook structure
     • Authorisation and the regulated activities perimeter
   • The Prudential Regulation Authority (PRA)
     • Scope: banks, insurers and major investment firms
     • Prudential objective and proportionality
   • Regulated and prohibited activities
     • Specified activities and investments under the RAO
     • The general prohibition and authorisation requirement
     • Financial promotions restriction (s21 FSMA)
   • International and supranational standards
     • IOSCO principles
     • Basel Committee and EU-derived rules post-Brexit
2. 2

   Approved Persons, SM&CR and Conduct Rules

   4 topics

   • Senior Managers and Certification Regime (SM&CR)
     • Senior Management Functions (SMFs) and Statements of Responsibilities
     • The certification regime for material-risk staff
     • Duty of responsibility and senior manager accountability
   • The Conduct Rules
     • Individual Conduct Rules (tier 1)
     • Senior Manager Conduct Rules (tier 2)
   • Fit and proper assessment
     • Honesty, integrity and reputation
     • Competence, capability and financial soundness
   • Training and competence (TC sourcebook)
3. 3

   Principles for Businesses and Conduct of Business

   4 topics

   • The eleven Principles for Businesses (PRIN)
   • Consumer Duty
     • The consumer principle and cross-cutting rules
     • Four outcomes: products, price/value, understanding, support
   • Conduct of Business Sourcebook (COBS) essentials
     • Client categorisation: retail, professional, eligible counterparty
     • Appropriateness and suitability
     • Client communications and fair, clear, not misleading rule
   • Client assets and money (CASS)
4. 4

   Financial Crime, Ethics and Complaints

   4 topics

   • Anti-money laundering and counter-terrorist financing
     • Money Laundering Regulations 2017 and the three stages
     • Customer due diligence, EDD and PEPs
     • MLRO, SARs and the National Crime Agency
   • Market abuse and insider dealing
     • UK Market Abuse Regulation (UK MAR)
     • Insider dealing and the Criminal Justice Act 1993
     • Bribery Act 2010 and tax evasion facilitation offence
   • CISI Code of Conduct and professional integrity
     • Acting honestly, fairly and with integrity
     • Managing conflicts of interest
   • Redress and compensation
     • Financial Ombudsman Service (FOS)
     • Financial Services Compensation Scheme (FSCS)
     • DISP complaint-handling rules

UK Financial Services Regulation and Professional Integrity flashcards for Chartered Institute for Securities & Investment (CISI) Qualifications

25 of 49 cards from the UK Financial Services Regulation and Professional Integrity deck — real questions with worked answers.

1. What single piece of legislation provides the principal statutory basis for the regulation of financial services in the UK, and what landmark Act significantly amended it?

   The Financial Services and Markets Act 2000 (FSMA 2000) is the principal statute. It was significantly amended by the Financial Services Act 2012, which created the FCA and PRA and the 'twin peaks' model.

2. Under the 'twin peaks' regulatory model introduced in 2013, name the three bodies that replaced the Financial Services Authority (FSA) and state each one's core role.

   1) Financial Conduct Authority (FCA) - conduct regulation for all firms plus prudential regulation of smaller firms; 2) Prudential Regulation Authority (PRA) - prudential regulation of banks, insurers and major investment firms; 3) Financial Policy Committee (FPC) - macro-prudential oversight of the whole system, sitting within the Bank of England.

3. Within which body does the Prudential Regulation Authority (PRA) sit, and which committee within that body is responsible for macro-prudential financial stability?

   The PRA sits within the Bank of England. The Financial Policy Committee (FPC), also part of the Bank of England, is responsible for macro-prudential oversight and identifying systemic risks.

4. State the FCA's single strategic objective and its three operational objectives under FSMA 2000.

   Strategic objective: ensuring that relevant markets function well. Three operational objectives: 1) consumer protection (securing an appropriate degree of protection for consumers); 2) market integrity (protecting and enhancing the integrity of the UK financial system); 3) competition (promoting effective competition in the interests of consumers).

5. What is the PRA's general (primary) objective, its insurance-specific objective, and the secondary objective added in 2023?

   General objective: promoting the safety and soundness of PRA-authorised firms. Insurance objective: contributing to securing an appropriate degree of protection for policyholders. Secondary objective (from the Financial Services and Markets Act 2023): facilitating the international competitiveness and growth of the UK economy over the medium to long term.

6. Under the FSMA 'general prohibition', what is the legal requirement before a person may carry on a regulated activity in the UK?

   Under section 19 FSMA, a person must not carry on a regulated activity in the UK unless they are an authorised person (have Part 4A permission) or an exempt person. Breaching the general prohibition is a criminal offence and can render agreements unenforceable.

7. What is the legal source that defines exactly which activities are 'regulated activities', and what two-part test makes an activity regulated?

   The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO) defines them. An activity is regulated if it is a specified activity (e.g. dealing, arranging, managing, advising, safeguarding) carried on in relation to a specified investment (e.g. shares, deposits, contracts of insurance), by way of business.

8. Give three examples of specified investments and three examples of specified activities under the Regulated Activities Order (RAO).

   Specified investments (examples): shares, debentures/bonds, deposits, contracts of insurance, units in collective investment schemes, options/futures, regulated mortgage contracts. Specified activities (examples): accepting deposits, dealing in investments, arranging deals, managing investments, advising on investments, safeguarding/administering assets, establishing a collective investment scheme.

9. Name two key international/supranational standard-setting bodies relevant to UK financial regulation and state what each does.

   Basel Committee on Banking Supervision (BCBS) - sets global bank capital and liquidity standards (Basel III). IOSCO (International Organization of Securities Commissions) - sets global securities market standards. Others include the Financial Stability Board (FSB) for systemic risk, FATF for AML standards, and IAIS for insurance.

10. Which international body sets the global standards for anti-money laundering, and what are its core outputs called?

    The Financial Action Task Force (FATF). Its core outputs are the FATF Recommendations (40 Recommendations) on combating money laundering, terrorist financing and proliferation financing, plus country mutual evaluations and 'grey'/'black' lists of high-risk jurisdictions.

11. What does SM&CR stand for, and what are its three core components?

    Senior Managers and Certification Regime. Three components: 1) the Senior Managers Regime (SMR) - for individuals in Senior Management Functions, each pre-approved by the regulator; 2) the Certification Regime - for staff in roles capable of causing significant harm, certified annually by the firm; 3) the Conduct Rules - basic standards applying to almost all staff.

12. Under SM&CR, what is a 'Statement of Responsibilities' and what is the 'Duty of Responsibility'?

    A Statement of Responsibilities is a document each Senior Manager must have, clearly setting out the areas of the business for which they are personally responsible. The Duty of Responsibility means a Senior Manager can be held individually accountable if a regulatory breach occurs in their area and they did not take reasonable steps to prevent it.

13. Under SM&CR, what are 'Prescribed Responsibilities' and what is the SMF approval process for a Senior Manager?

    Prescribed Responsibilities are specific regulatory responsibilities that a firm must allocate among its Senior Managers (e.g. responsibility for the firm's compliance with SM&CR). Senior Managers performing a Senior Management Function (SMF) must be pre-approved by the FCA/PRA before taking up the role and reassessed as fit and proper at least annually.

14. Under SM&CR, how does the Certification Regime differ from the Senior Managers Regime regarding regulatory pre-approval?

    Senior Managers (SMF holders) require regulatory pre-approval by the FCA/PRA before they can perform their function. Certification staff do NOT require regulatory pre-approval; instead the firm itself must assess them as fit and proper and issue a certificate, renewed at least annually.

15. List the FCA's first tier (individual) Conduct Rules - the five rules that apply to nearly all staff.

    Rule 1: You must act with integrity. Rule 2: You must act with due skill, care and diligence. Rule 3: You must be open and cooperative with the FCA, PRA and other regulators. Rule 4: You must pay due regard to the interests of customers and treat them fairly. Rule 5: You must observe proper standards of market conduct. (A sixth, added under Consumer Duty: act to deliver good outcomes for retail customers.)

16. What additional Conduct Rule was added as a result of the Consumer Duty, and to whom does it apply?

    Individual Conduct Rule 6: 'You must act to deliver good outcomes for retail customers.' It applies to conduct relating to retail customers under the Consumer Duty and supplements the existing individual conduct rules.

17. Name the four Senior Manager Conduct Rules (the second tier of the Conduct Rules).

    SC1: You must take reasonable steps to ensure the business of the firm for which you are responsible is controlled effectively. SC2: You must take reasonable steps to ensure the business complies with relevant regulatory requirements. SC3: You must take reasonable steps to ensure any delegation of responsibilities is to an appropriate person and is overseen effectively. SC4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

18. What are the three components of the 'fit and proper' (FIT) assessment under the FCA's Handbook?

    1) Honesty, integrity and reputation; 2) Competence and capability; 3) Financial soundness. Firms assess these for Senior Managers (with regulator approval) and certification staff at least annually.

19. What is the purpose of the FCA's Training and Competence (TC) sourcebook, and to which activities does it primarily apply?

    The TC sourcebook ensures employees are competent and remain competent for their roles. It primarily applies to staff carrying on activities for retail clients (e.g. advising on retail investment products, pension transfers, mortgages). It requires firms to assess competence, supervise staff until assessed competent, and maintain training records.

20. Under the TC sourcebook, what is the difference between being 'competent' and the supervision required before competence is attained?

    An employee is 'competent' when they have demonstrated the skills, knowledge and expertise to perform their role and (where applicable) attained an appropriate qualification. Before being assessed as competent, an employee must work under appropriate supervision; firms must not let them give advice to retail clients unsupervised until competent.

21. How many Principles for Businesses are there in the FCA's PRIN sourcebook, and what is the status of breaching them?

    There are 11 (eleven) Principles for Businesses. They are high-level, fundamental obligations. A breach of a Principle makes a firm liable to disciplinary/enforcement action by the FCA, though Principles alone do not generally give rise to a private right of action (with limited exceptions).

22. State Principles 1, 2 and 3 of the FCA's Principles for Businesses.

    Principle 1 (Integrity): A firm must conduct its business with integrity. Principle 2 (Skill, care and diligence): A firm must conduct its business with due skill, care and diligence. Principle 3 (Management and control): A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

23. State Principles 4, 5 and 6 of the FCA's Principles for Businesses.

    Principle 4 (Financial prudence): A firm must maintain adequate financial resources. Principle 5 (Market conduct): A firm must observe proper standards of market conduct. Principle 6 (Customers' interests): A firm must pay due regard to the interests of its customers and treat them fairly (TCF).

24. State Principles 7, 8 and 9 of the FCA's Principles for Businesses.

    Principle 7 (Communications with clients): A firm must pay due regard to the information needs of its clients and communicate in a way that is clear, fair and not misleading. Principle 8 (Conflicts of interest): A firm must manage conflicts of interest fairly, both between itself and its customers and between one customer and another. Principle 9 (Customers: relationships of trust): A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for customers entitled to rely on its judgement.

25. State Principles 10 and 11 of the FCA's Principles for Businesses, and identify the newest 'Principle' covering retail outcomes.

    Principle 10 (Clients' assets): A firm must arrange adequate protection for clients' assets when it is responsible for them. Principle 11 (Relations with regulators): A firm must deal with its regulators in an open and cooperative way and disclose anything of which the regulator would reasonably expect notice. Principle 12 (Consumer Duty): A firm must act to deliver good outcomes for retail customers.

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