Investment Management Certificate (IMC) Unit 1 — The Regulatory and Financial Environment Syllabus

Unit 1 — The Regulatory and Financial Environment syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Unit 1 — The Regulatory and Financial Environment in Investment Management Certificate (IMC), not a summary of it.

1. 1

   The Financial Services Industry and Markets

   4 topics

   • Role and structure of the UK financial services sector
     • Retail, professional and eligible counterparty client segments
     • Wholesale versus retail markets
     • Buy-side and sell-side participants
   • Principal market participants
     • Investment banks, asset managers and custodians
     • Pension funds, insurers and sovereign wealth funds
     • Hedge funds, private equity and platforms
   • Primary and secondary markets
     • Capital raising and the role of underwriters
     • Exchange-traded versus over-the-counter markets
     • Market makers and order-driven systems
   • Economic function of financial intermediation
     • Channelling savings to investment
     • Risk transfer, liquidity and price discovery
2. 2

   The UK Regulatory Framework

   5 topics

   • Statutory basis of regulation
     • Financial Services and Markets Act 2000 (as amended)
     • Financial Services Act 2012 and the twin-peaks model
     • Regulated activities and the general prohibition
   • The regulatory bodies
     • Financial Conduct Authority (FCA) objectives and powers
     • Prudential Regulation Authority (PRA) and dual-regulated firms
     • Bank of England, FPC and macroprudential policy
   • Authorisation and supervision
     • Permission to carry on regulated activities
     • Threshold conditions and ongoing requirements
     • Approved persons and the Senior Managers and Certification Regime
   • The FCA Handbook and Principles for Businesses
     • Structure of the Handbook (high-level standards, COBS, etc.)
     • The eleven Principles for Businesses
     • Consumer Duty and the cross-cutting rules
   • Enforcement, redress and compensation
     • Disciplinary powers and penalties
     • Financial Ombudsman Service
     • Financial Services Compensation Scheme
3. 3

   Financial Crime, Conduct and Ethics

   4 topics

   • Money laundering and terrorist financing
     • Placement, layering and integration
     • Money Laundering Regulations and JMLSG guidance
     • Customer due diligence and the MLRO
   • Market abuse and insider dealing
     • UK Market Abuse Regulation (MAR)
     • Insider dealing and unlawful disclosure
     • Market manipulation offences
   • Bribery, corruption and financial sanctions
     • Bribery Act 2010 and adequate procedures
     • Sanctions regimes and OFSI
   • Professional integrity and the CFA UK Code
     • Conflicts of interest and inducements
     • Treating customers fairly and ethical decision-making
4. 4

   Taxation in the UK

   4 topics

   • The UK tax system
     • HMRC, residence and domicile
     • Direct versus indirect taxes
   • Income tax
     • Tax bands, personal allowance and savings allowance
     • Taxation of dividends and interest
   • Capital gains tax
     • Annual exempt amount and rates
     • Chargeable gains and reliefs
   • Other taxes and tax wrappers
     • Inheritance tax basics
     • ISAs and pension tax relief
     • Stamp duty and stamp duty reserve tax

Unit 1 — The Regulatory and Financial Environment flashcards for Investment Management Certificate (IMC)

24 of 50 cards from the Unit 1 — The Regulatory and Financial Environment deck — real questions with worked answers.

1. What are the three main functions performed by the UK financial services sector?

   Channelling funds from savers/lenders to borrowers (financial intermediation), facilitating payments and risk transfer, and providing a means to manage and trade financial assets.

2. Distinguish between a primary market and a secondary market.

   A primary market is where new securities are issued and capital is raised directly by the issuer (e.g. an IPO). A secondary market is where existing securities are traded between investors, providing liquidity but raising no new capital for the issuer.

3. In financial intermediation, what is meant by 'maturity transformation'?

   The process by which intermediaries (e.g. banks) borrow short-term funds (e.g. deposits repayable on demand) and lend them out long-term (e.g. mortgages), transforming the maturity profile between savers and borrowers.

4. List the main economic functions of financial intermediation.

   Maturity transformation, risk transformation/diversification, aggregation of small deposits into large loans, providing liquidity, reducing transaction and search costs, and reducing information asymmetry.

5. Name the principal market participants in the UK financial services sector.

   Retail and investment banks, asset/investment managers (institutional investors), insurance companies, pension funds, hedge funds, custodians, brokers/dealers, market makers, and individual (retail) investors.

6. What is the role of a market maker?

   A market maker quotes continuous two-way (bid and offer) prices in a security, standing ready to buy and sell, thereby providing liquidity and earning the bid-offer spread.

7. What is the statutory basis of UK financial regulation?

   The Financial Services and Markets Act 2000 (FSMA), as significantly amended by the Financial Services Act 2012, which established the current 'twin peaks' regulatory architecture.

8. Name the three principal UK financial regulatory bodies and their broad remits.

   The Financial Conduct Authority (FCA) — conduct of all firms plus prudential regulation of smaller firms; the Prudential Regulation Authority (PRA) — prudential regulation of banks, insurers and major investment firms; and the Bank of England's Financial Policy Committee (FPC) — macro-prudential stability.

9. What is meant by the 'twin peaks' model of UK regulation?

   The split of regulation between two bodies: the PRA (a Bank of England subsidiary) responsible for prudential safety and soundness of systemically important firms, and the FCA responsible for conduct of business and market integrity.

10. What are the FCA's three operational (statutory) objectives?

    Securing an appropriate degree of protection for consumers, protecting and enhancing the integrity of the UK financial system, and promoting effective competition in the interests of consumers.

11. What is the FCA's single strategic objective?

    To ensure that the relevant markets function well.

12. What is the general prohibition under FSMA 2000 (section 19)?

    No person may carry on a regulated activity in the UK (or purport to do so) unless they are an authorised person or an exempt person — breach is a criminal offence.

13. What two elements together make an activity a 'regulated activity' requiring authorisation under FSMA?

    A specified activity (e.g. dealing, arranging, managing, advising, safeguarding) carried on in relation to a specified investment, by way of business in the UK (as defined by the Regulated Activities Order).

14. What is 'Part 4A permission'?

    The permission granted by the FCA/PRA under Part 4A of FSMA authorising a firm to carry on one or more specific regulated activities.

15. What are the FCA's Threshold Conditions?

    The minimum standards a firm must meet to become and remain authorised, covering matters such as location of offices, effective supervision, appropriate resources (financial and non-financial), suitability (fit and proper), and a viable business model.

16. How many Principles for Businesses are there in the FCA Handbook, and what is Principle 1?

    There are 11 Principles for Businesses. Principle 1 is Integrity: a firm must conduct its business with integrity.

17. State FCA Principle for Businesses 6 (customers' interests).

    A firm must pay due regard to the interests of its customers and treat them fairly (the basis of 'Treating Customers Fairly', TCF).

18. State FCA Principles for Businesses 2 and 3.

    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.

19. What does FCA Principle for Businesses 10 require?

    Clients' assets — a firm must arrange adequate protection for clients' assets when it is responsible for them (basis of the CASS client money/asset rules).

20. What is the Senior Managers and Certification Regime (SM&CR) designed to achieve?

    To increase individual accountability in financial services by allocating clear responsibilities to senior managers, certifying that other key staff are fit and proper, and applying conduct rules across the firm.

21. What enforcement powers does the FCA have against firms and individuals?

    Public censure, unlimited financial penalties (fines), variation or cancellation of permission, prohibition orders against individuals, restitution orders, injunctions, and criminal prosecution for certain offences.

22. What is the role of the Financial Ombudsman Service (FOS)?

    To provide free, independent dispute resolution for eligible complainants (mainly consumers and small businesses) against financial firms, offering an alternative to the courts; firms must comply with its binding awards.

23. What is the maximum award the Financial Ombudsman Service can make (binding on the firm)?

    Up to £430,000 (for acts/omissions on or after 1 April 2023), with the ability to recommend higher amounts that are not binding.

24. What protection does the Financial Services Compensation Scheme (FSCS) provide for deposits?

    The FSCS protects bank/building society deposits up to £85,000 per eligible person per authorised firm if the firm fails.

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