FCA Regulation and Consumer Protection Flashcards

What is the FCA's 'Consumer Duty' and when did it take effect?

Answer: A higher standard of consumer protection requiring firms to deliver good outcomes for retail customers in four key areas, effective July 2023

Consumer Duty (July 2023) requires firms to act to deliver good outcomes for retail customers across four areas: products and services, price and value, consumer understanding, and consumer support. It represents a significant raising of the bar above 'treating customers fairly'.

What is a 'suspicious activity report' (SAR) in the context of financial services regulation?

Answer: A confidential report made by a firm to the National Crime Agency when it suspects money laundering or terrorist financing

Under the Proceeds of Crime Act 2002 and Money Laundering Regulations, financial services firms are required to submit SARs to the National Crime Agency (NCA) when they know, suspect, or have reasonable grounds to suspect money laundering or terrorist financing.

What is 'know your customer' (KYC) in the context of financial services?

Answer: The due diligence process firms must conduct to verify client identity, understand their circumstances, and assess money laundering risk before providing services

KYC is a regulatory requirement under anti-money laundering legislation for firms to identify and verify the identity of clients, understand the nature of their business and the source of their funds, and assess the risks of the relationship before providing services.

What is the role of the Prudential Regulation Authority (PRA)?

Answer: To promote the safety and soundness of banks, building societies, credit unions, and insurers through prudential supervision

The PRA, part of the Bank of England, is responsible for the prudential regulation and supervision of systemically important financial firms — banks, building societies, major investment firms, and insurers — to ensure they hold sufficient capital and liquidity to remain solvent.

What is the difference between 'execution only', 'advised', and 'discretionary' investment services?

Answer: Execution only: the firm carries out instructions without advice; advised: the firm provides personal recommendations; discretionary: the firm makes investment decisions on behalf of the client within agreed parameters

These are the three main service levels: execution only (no advice, client decides), advised (the firm makes personal recommendations and the client decides), and discretionary (the client delegates decision-making to the manager within agreed parameters).

What does 'money laundering' mean in the context of UK financial regulation?

Answer: The process of making the proceeds of criminal activity appear as legitimately obtained funds

Money laundering is the process by which criminals make illicitly obtained money appear to have a legitimate origin, typically through placement (introducing cash into the financial system), layering (disguising the trail), and integration (reintroducing cleaned funds into the economy).