UK Regulation & Ethics Flashcards

What are the FCA's three statutory objectives under the Financial Services and Markets Act 2000 (as amended)?

Answer: Consumer protection, market integrity, and competition

The FCA's three statutory objectives are: (1) consumer protection — securing an appropriate degree of protection for consumers; (2) integrity — protecting and enhancing the integrity of the UK financial system; (3) competition — promoting effective competition in the interests of consumers.

What does the FCA's 'Treating Customers Fairly' (TCF) principle require?

Answer: That firms embed fair treatment of customers into their culture, ensuring outcomes are fair throughout the product lifecycle

TCF requires firms to demonstrate that fair treatment of customers is central to their corporate culture. There are six key outcomes covering sales processes, product design, post-sale support, complaints handling, and transparency — applied throughout the customer's relationship with the firm.

What is the FCA's 'Consumer Duty' and how does it differ from TCF?

Answer: A higher standard requiring firms to actively deliver good outcomes for retail customers — going further than TCF by focusing on consumer outcomes rather than firm behaviours

Consumer Duty (2023) raises the bar beyond TCF, requiring firms to actively deliver good outcomes across four areas: products and services, price and value, consumer understanding, and consumer support. Firms must proactively assess whether their activities produce good outcomes rather than merely avoiding bad practices.

What is the purpose of MiFID II's 'suitability' requirement in investment advice?

Answer: To ensure investment advice and discretionary portfolio management is appropriate for a client's knowledge, experience, financial situation, and investment objectives

MiFID II suitability requires firms providing investment advice or discretionary management to assess whether recommendations or decisions are suitable for the specific client, based on their knowledge and experience, financial situation (loss-bearing ability), and investment objectives (including risk tolerance).

What is the 'appropriateness' assessment under MiFID II and when does it apply?

Answer: An assessment of whether a client has the knowledge and experience to understand the risks of a non-advised product; applies to execution-only services for complex products

Appropriateness applies when firms provide execution-only services (no advice) for complex products (e.g., derivatives, leveraged products). The firm must assess whether the client has sufficient knowledge and experience to understand the risks. If inappropriate, the firm must warn the client.

What does 'market abuse' cover under UK financial regulation?

Answer: Insider dealing, market manipulation, and unlawful disclosure of inside information, all of which undermine market integrity

Market abuse encompasses: (1) insider dealing — trading on non-public price-sensitive information; (2) unlawful disclosure — improperly sharing inside information; (3) market manipulation — creating artificial prices or false impressions of trading activity. The UK MAR (retained EU law) governs these offences.