3. Associate Legislation and Regulation Flashcards
1
Q
IMPORTANT: What is Market Abuse?
A
Market abuse is a statutory offence that covers financial market manipulation and insider dealing. It is a serious offence that damages investor confidence and the integrity of financial markets.
2
Q
The rules on market abuse apply to:
ARegulated individuals only
BRegulated firms only
CMembers of the public
DRegulated individuals and members of the public
A
D
3
Q
What is a RIS?
A
RIS (regulatory information service), such as the LSE’s Regulatory News Service
4
Q
Which of the following would not be considered market abuse?
AAn employee of a firm trades on price-sensitive information that has been disclosed through an RIS
BA firm sells a large holding of bonds, a transaction that significantly reduces the market price, and then repurchases their holding at the lower price
CA firm unintentionally submits incorrect trade details, which leads to a significant move in the market
DA firm controls a large percentage of a company’s shares and takes out a large up-bet on those shares with a spread-betting firm
A
A)Information disclosed through an RIS (regulatory information service), such as the LSE’s Regulatory News Service, is considered to be public information.
C may be a breach because it’s careless
5
Q
Which of the following are penalties available to the FCA for cases of market abuse?
I
Restitution
II
Unlimited financial penalty
III
Withdrawal of approval
IV
Issue a public statement
A
II only
B
I and II
C
II, III and IV
D
I, II, III and IV
A
D
6
Q
MEM & IMPORTANT: What is the max penalty for Insider Dealing? Is it a criminal or civil offence?
A
7 years imprisonment and/or an unlimited fine, criminal offence
7
Q
MEM & IMPORTANT: What is the max penalty for misleading statements and impressions? Is it a criminal or civil offence?
A
7 years imprisonment and/or an unlimited fine, criminal offence
8
Q
MEM & IMPORTANT: What is the max penalty for market abuse? Is it a criminal or civil offence?
A
Unlimited fine, civil offence
9
Q
MEM & IMPORTANT: What ‘act’ deals with insider dealing?
A
Criminal Justice Act 1993
10
Q
IMPORTANT: Name two types of behaviour that give rise to the offence of market abuse
A
- Insider Dealing
- Improper disclosure
They are behaviours which are likely to give a false or misleading impression of the supply, demand or value of the investments concerned
11
Q
Which of the following is NOT true of insider dealing?
A It only applies to dealings via a regulated market
B Gilts are included in the law on insider dealing
C The FCA is responsible for prosecuting offences
D An exemption exists if it can be shown that the individual wouldhave acted in the same way without the information
A
A - Not ALL dealings - Shares, depositary receipts (ADR is an american one), warrants (rights to buy shares)
-Tradable debt (bonds, GILTs, loan stock)
-Options, futures, CFDs on shares&debt
Excludes:
-Assets with no secondary market e.g. bank account, unit trusts, collective investment schemes (ICVCs, OEICs etc)
-Commodities and commodity derivatives
-Spot and forward FX
-Insurance products
FCA can prosecute but not give criminal sanctions (i.e. send them to jail)
12
Q
Which of the following gives the FCA the power to prosecute insider dealing offences?
A
Financial Services and Markets Act 2000
B
Criminal Justice Act 1993
C
The Proceeds of Crime Act 2002
D
Companies Act 2006
A
A -
Although the offence is contained within the Criminal Justice Act, the ability for FCA to prosecute comes from FSMA 2000.
13
Q
IMPORTANT Q: Which one of the following activities is most likely to be classed as market abuse?
a) Conducting a transaction after failing togvie suitable advice
b) Carrying out a transaction which breaches money laundering rules
c) Carrying out a transaction using fictitious financial devices
d) Conducting excessive transactions in order to generate commission
A
C
14
Q
IMPORTANT Q: What standards determine whether behaviour constitutes market abuse?
a) Those contained in approved practitioner codes
b) Those required by each individual market
c) Those set out in Upper Tribunal’s code
d) Those that are accepted market practice
A
D
15
Q
MEM & IMPORTANT: Instruments covered under insider dealing and excluded investments
A
Included (all instruments that are traded on a secondary market):
-Shares, depositary receipts (ADR is an american one), warrants (rights to buy shares)
-Tradable debt (bonds, GILTs, loan stock)
-Options, futures, CFDs on shares&debt
Excluded:
-Assets with no secondary market e.g. bank account, unit trusts, collective investment schemes (ICVCs, OEICs etc)
-Commodities and commodity derivatives
-Spot and forward FX
-Insurance products
16
Q
Important: Which one of the following investments is outside the scope of the insider dealing legislation?
a) Options on the FTSE 100 Index
b) Gilts traded on the LSE
c) Commodity Futures
d) Shares traded on AIM
A
C
Thing about excluded investments for Insider Dealing: Commodities/commodity derivatives are excluded. All others are included
17
Q
IMPORTANT: Insider dealing is an offence under which legislation?
A
UK MAR
18
Q
IMPORTANT: What are the general defences for someone accused of Insider Dealing? What are the special offenses?
A
General defences
- Did not expect the dealing to result in profit (or avoid loss) (intent not there)
- believed on reasonable grounds that the info had been sufficiently widely disclosed to ensure none of those taking part would be prejudiced by not being aware of the information
- Would have acted in the same way regardless of being in possession of the information (no influance)
- Did not expect the recipient to deal
Special defences
-Price stabilisation rules (we have a company issuing for the 1st time e.g. sometimes share can suffer confidence loss therefore investment bank can enter into market to secure the price)
-Market information (e.g. company thinking about taking over another but still expect company to buy up shares of the smaller)
-Market makers acting in good faith/ordinary course of business
19
Q
IMPORTANT: Which one of the following general defences available under insider dealing legisation relates only to the offence of disclosing insider information?
a) The individual did not expect to profit
b) The individual would have dealt anyway
c) The individual believed the information has been widely disclosed
d) The individual did not expect anyone to deal on the information
A
D - this is the only one that ONLY relates to disclosing to another person
C could be personal for yourself too
20
Q
IMPORTANT: Which of the following is exposed to the offence of insider dealing under the Criminal Justice Act 1993?
A A director of the company concerned acting as a broker in the shares of that company
B An employee of the company concerned who buys the company’s shares after learning of
a purchase by the Chairman
C The audit partner who sells the company’s shares after reviewing the audit file prior to
signing the annual accounts
D A shareholder acting on information contained in the company’s regular letter to
shareholders
A
C. Not A has he’s doing on behalf of the company
21
Q
IMPORTANT: What could be seen as Market Manipulation?
A
-Misleading statements e.g. lying to persuade someone to deal, concealing relevent facts in takeover documents (so people don’t ahve all info to make good decisions)
-Misleading impressions (abusive squeezes (control supply and demand) and market rigging (artificial impression e.g. price positioning large fictious orders off market price to increase demand/supply)). Includes reckless imperssions or delibilerate.
-Misleading statements in relation to benchmarks (E.g. LIBOR)
22
Q
Important: Defences for misleading statements and impressions (1 general, 3 special)
A
-General: Reasonably believed that statement or act was not false or misleading
-Special: Acted in conformity with price stabilising or
-control of information rules (e.g. if holding onto info as long as we can make sure info that was broadcast is true and fair & doesnt create false markets or gets leaked to public)
-share buy-back rules (e.g. if holding onto info as long as we can make sure info that was broadcast is true and fair & doesnt create false markets or gets leaked to public)
23
Q
IMPORTANT: What is the name given to people who, in order to slow down a decline in their value, manipulate the market price of securities for a limited time?
A) Stockbrokers
b) Fund managers
c) Stabilising managers
d) Securities deals
A
C
Special defense under both insider dealing and misleading statements and impressions
24
Q
A broker is aware that his firm is involved in takeover proceedings involving company GHI
plc. The broker receives a client order to sell all their stock ‘At best’. According to the Market Abuse
Regulation what should the dealer do?
A Take the order and execute it
B Refuse to execute the order as the firm is involved in the
corporate action
C Inform compliance that there has been a breach in the Chinese
wall
D Take the order and postpone it until after the takeover is
announced
A
A - the order is an unsolicited execution only, they should carry on as the client doesnt know!
25
MEM & IMPORTANT: Scope of MAR (market abuse regulation)- a lot larger than the criminal act (insider deals&misleading). Where can financial instruments be traded to be an offense to MAR? What other instruments are included?
-Applies to financial instruments traded, admitted to trading or for which a request to admission to trading on a regulated market, multilateral trading facility (MTF) or organised trading facility (OTF) and traded over-the-counter (OTC) if they have an affect on the price/value of the above markets.
-Applies to emissions allowance (e.g. carbon credits) as well as the usual from criminal justice act
-Commodity derivatives and commodity spot markets
26
Which of the following are in the scope of the market abuse regime:
IShares traded on AIM
IICopper futures traded on the LME
IIIShares on the Official List of the LSE
IVGas oil futures traded on ICE Futures
AIII
BII, III and IV
CI and III
DI, II, III and IV
D
27
Important: 6 behaviours that amount to market abuse
-Insider Dealing
-Improper disclosure
-Manipulating transactions (e.g. market rigging)
-Manipulating devices (combo of 3&5, get involved in dissemination in order to distort markets and then take advantage through maniputlative transaction)
-Dissemination (rumour spreading)
-Benchmarket manipulation
28
Important: What are the safe harbours/legitimate behaviours (a bit like defences)?
-Share buy-back schemes and stabilisation measures
-FCA rules
-Takeover Code
-Market soundings (required a formalised process e.g. insiders lists. This is when a company wants to issue shares for the first time, it appoints investment banks to assist then the bank screens a market for the shares. It canvasses to investors before investors decides, they might need more details)
29
When should firms report suspicions of market abuse to the FCA? (timings)
Without delay
30
What does the MAR PDMR (Persons discharging managerial responsibility) say?
Persons discharging managerial responsibility dealing in their own company's shares must disclose to both their company and to the FCA within 3 business days of the transaction. They also must not deal within closed periods. These are year-end or half yearly results, close 30 days prior to the announcement.
A breach isn't a criminal offence but disciplinary action would be taken by the FCA against the individual and/or company.
31
The main objective of the 'Persons Discharging Managerial Responsibility' (PDMR) regime is:
A To ensure the LSE is perceived to be a fair and orderly market
B To prevent directors dealing in company shares
C To restrict directors from holding shares in competitorcompanies
D To ensure that confidence is maintained in foreign markets
A - The 'Persons Discharging Managerial Responsibility' (PDMR) regime does not prevent directors'dealings, although it does attempt to restrict dealings during the closed periods (when there is agreater risk of insider dealing).
32
Which of the following best describes the purpose of the 'Persons Discharging Managerial
Responsibility' (PDMR) regime?
A It is designed to protect directors from the appearance of
insider dealing
B It requires directors to hold shares in their company for at least
two years
C It prevents directors from issuing shares in their company
D It prevents directors from buying shares in their company
A
33
When are a firm's closed periods?
These are year-end or half yearly results, close 30 days prior to the announcement.
34
IMPORTANT: A company's director was permitted to sell their shareholding during the company's closed period. This was allowed because they:
a) Were a non-executive direection of the company
b) Were able to demonstrate extreme financial difficulty
c) Acquired the shraes more than 7 years ago
d) Acquired the shares as a result of a company takeover
B. usually anyone with managerial responsibility is restricted from dealing on their own account during the closed period before the company's financial report is announced. The restriction may be lifted to allow a tride in exceptional circumstances such as this.
35
If a chair of the board in a listed company wanted to deal in the shares of her own
company, she would inform:
A The company
B HM Treasury
C The PRA
D The ESMA
A - also need to inform the FCA
36
IMPORTANT: A person accursed of insider dealing successfully used the ;special defence' provisions by arguing that they were acting in the role of:
a) Market maker
b) Insolvency practitioner
c) Charity trustee
d) Execution only advisor
A) if a market maker can show that they acted in good faith in the course of their business as a market maker, they will not be deemed guility of insider dealing or encouraging another to deal.
37
One off transactions about what amount require identification?
EUR 7500
38
IMPORTANT: A market trader has acquired confidential information about a security which falls outside the scope of inside information. This is because it:
a) Was obtained in the course of their routine work
b)is not likely to affect the price of the security
c)relates to a security which is regularly traded
d)Was not obtained within the last 7 days.
B)
39
IMPORTANT: When producing a list of investment reocmmendations, the research department of a bank was obliged by its duty of care to disclose certain information. This was because:
a) A potential conflict of interest was identified
b) High-risk products were involved
c) The advice was aimed solely at professional clients
d) This was its initial recommendation list
A) The regulations impose a duty of care on producers of research or recommendations suggesting an investment strategy that they should employ reasonable care to ensure that they maintain objectivity but also disclose any conflict of interest that may exist in relation to that investment.
40
Which of the following is not an appropriate action for avoidance of a conflict of interest?
A Disclosing an interest to a client
B Relying on written conflicts of interest policy
C Declining to act for a customer
D Implementing Chinese walls in place of a personal accountnotice
D - Personal account notices cannot be substituted with Chinese walls. The personal account dealingrules are mandatory.
41
IMPORTANT: An order to trade is effected for illegitimate purposes and which secures the price of an investment at an abnormal level is an example of:
a) a manipulating transaction
b) A maniputling device
c) Misleading behaviour
d) Distortion
A
42
MEM & IMPORTANT: The 3 stages of Money Laundering. Who are most at risk of facilitating at each stage?
1. Placement (proceeds of any crime placed into a bank or building society) - banks most at risk
2. Layering (Payments are taken from the bank and used to buy different investments to cover the audit trail) - Investment firms/fund managers most at risk
3. Integration (Money appears as a legitimate source of income) - Anyone can be at risk here. A business or property?
43
Graham accepts regular deposits from the director of a small overseas company. Which of the stages of money laundering could Graham find himself under suspicion of under the Money Laundering Regulations?
AIntegration
BSegregation
CLayering
DPlacement
D) think 'deposit'. These are usually banks so could have thrown off
44
*IMPORTANT*: Name the main sources of rules and regulations governing money laundering (6)
1. The Proceeds of Crime Act (POCA) 2002 (Suspected criminal things or property)
2. The Serious Organised Crime and Police Act (SOCPA) 2005 (if a Spanish bullfighter with deposits in the UK can prove that the bullfighting happened in Spain (legal) and not the UK (illegal) then it can avoid criminalisation. But certain things like growing weed in california etc is still an offense in the UK so needs to be reported).
3. The Criminal Finances Act 2017 (created 2 criminal offenses - uk tax evasion and foreign tax evasion).
4. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) - (Administative provisions which firms need to implement to combat money laundering eg training requirements and firm's obligations to check new customers)
5. The Senior Management Arrangements, Systems and Controls (SYSC) Sourcebook (provides rules and guidence for authorised firms in formulating anti-money laundering prolivies, procedures and controls.)
6. Joint Money Laundering Steering Group (JMLSG) Guidance (Guidence provided to firms on how they should provision for anti-money laundering. Approved by HM treasury so if a firm has adhered to guidence then the courts take this into consideration.
45
What does the Money Laundering Regulations say the admin processes at any company at risk of Money Laundering should implement to manage the risk?
1. Risk assessment
2. Policies control and procedures to mitigate and manage risk (proportionate to size and nature of the firm)
3. Reliance - must conduct due diligence on any relied upon party at the start of business arrangement AND cannot rely upon customer due diligence by firms in high-risk due diligence
46
IMPORTANT: In order to combat the risk of terrorism, which organisation may issue a direction to firms in the financial sector?
a) Europol
b) National Crime Agency (NCA)
c) The Treasury
d) The Prudential Regulation Authority (PRA)
C
47
An employee of an authorised firm suspects that deposits being made by a client aresuspicious. Which of the following would allow the employee to identify funds being deposited forterrorist activities rather than funds being deposited for money laundering?
A
Knowledge of the legitimacy of the source of funds
B
The deposit is a large one-off payment made in cash
C
The transaction is communicated indirectly through a thirdparty account
D
The deposit is a result of unusual patterns of trading for theclient
A - This is the difference between terrorism and ML. The others could be terrorism or ML.
48
IMPORTANT Q: A UK bank receives depositis derived form an activity which is legal in another country but illegal in the UK. Under the Serious Organised Crime and Police Act (SOCPA) 2005, does this consititute a money laundering offence?
a) No, if the activity was legal in the country of origin, the deposit is legal in the UK
b) Yes, it is UK law which takes precedence in this situation
c) Not normally, but the Secretary of State may prescribe creatin offences as relevent criminal conduct in which case it must be reported
d) it will be at the discretion of the bank
C
49
When ensuring compliance with anti-money laundering procedures and the combating offinancing of terrorism, which (if any) should financial services firms prioritise?
A
Anti-money laundering procedures
B
Combating the financing of terrorism
C
Both are equally important
D
Combating the financing of terrorism if the proceeds are fromoverseas
C
50
Why does a firm have a written money laundering policy?
A
So that management can identify specific customer investmentrequirements
B
To ensure that there is a framework with which to deal withmoney laundering
C
Only where enhanced due diligence is required due to thesensitive nature of the firm's client
D
To set out specific details in relation to the legislation providedin the Criminal Justice Act
B - Not D because Criminal justice act is Insider deal&Misleading statements rather than ML
51
IMPORTANT Q: An employee of a regulated business received information that made him suspicious that a breach of the Proceeds of Crime Act has occurred. Why may he have been not guilty under the 'failure to disclose' conditions?
a) He felt the person concerned was of good character
b) He held only a junior position
c)The information was disclosed at a friend's birthday party
d) The incident occurred three months previously
C) One of the confitions whcih needs to be satisfied to support failure to disclose is that the information giving rise to the knowledge or suspicion came to him during the course of business in the regulated sector.
52
*IMPORTANT*: Regulated firms subject to the MLR 2017 (Money Laundering Regulations) must submit suspicious activities relating to potential ML to who? What report to they submit?
AN individual employee reports to the MLRO (Money Laundering reporting officer) who then reports to the National Crime Agency (NCA). The report is called the 'suspicious activity report' (SAR).
53
A Money Laundering Reporting Officer (MLRO) has not organised any money launderingtraining in the firm for the past 30 months.
Two new employees, who joined the firm last month, have been found to have been involved inhandling criminal funds. The criminals have since fled the UK.
Which of the following parties are the FCA most likely to prosecute?
A
The two new employees will be personally liable
B
The MLRO will be personally liable
C
The two new employees and the MLRO will be personallyliable
D
The firm will be liable as an entity
B - As an approved person, the MLRO will be prosecuted by the FCA for breach of the MoneyLaundering Regulations (MLR).
The MLRO is required to organise training at least every 24 months, and therefore the two new employees have a defence against an accusation of money laundering. They have not received thenecessary training, and thus did not know any better.
54
IMPORTANT: Which of the following would be an offence under the Proceeds of Crime Act 2002, Part 7 Money Laundering?
A A disclosure of suspicious activity comes to the attention of the suspected party's solicitor who advises the suspected party
B A firm's nominated officer suspects money laundering is occurring. However, a disclosure to the authorities could "tip off" the suspected clients at this stage and she considers it wise to delay further action by 2 weeks
C Suspicious activity is reported to a firm's nominated officer who does not share the suspicion and therefore does not report the matter to the authorities
D A firm's nominated officer suspects money laundering is occurring. However, she is about to travel abroad for a vital business trip and decides to delay the disclosure to the authorities by a week
D) They need to submit asap
55
MEM & IMPORTANT: How many years should a firm keep records of money laundering suspicions?
5 years
56
MEM & IMPORTANT: criminal offences for directors/senior managers and max penalties
-Failure to comply with the money laundering regulations
-Recklessly making a statement in context of money laundering which is false or misleading
BOTH (2 years and/or unlimited fine)
57
MEM & IMPORTANT: How often does the MLRO report to senior management?
At least once every 12 months
58
MEM & IMPORTANT: Five offenses linked to Money Laundering under POCA (proceeds of crime act) 2002. 4 general and 2 regulated sector offences. What's the punishment for these offences?
General - up to 14 years and/or unlimited fine
1. Concealing - conceal or disguise criminal property.
2. Arrangements - being concerned in an arrangement which the person
knows, or suspects, facilitates the acquisition, retention, use or control of criminal property for another person.
3. Acquisition, use and possession- acquiring, using or having possession of criminal property. The person must know or suspect that the property arose out of criminal conduct
General - 5 years and/or an unlimited fine
4. Knowingly prejudicing an investigation
Regulated Sector
5. Failure to disclose/report – there is a duty on employees in the regulated sector to make reports if they know or suspect that another person is engaged in ML or terrorist financing activity. 5 years and/or an unlimited fine
6. Tipping off - It is committed if a person knows or suspects that by disclosing the information this is likely to prejudice the money laundering or the terrorist financing investigation. 2 years and/or an unlimited fine
59
IMPORTANT: At what stage does that JMLSG Guidence set out the satisfactory identification evidence is to be obtained for a customer
a) Before the firm accepts them
b) At the first meeting
c) At the same time as the first transaction
d) At the time of the first valuation
A
60
With regards to money laundering, the FCA will check whether a firm is in breach of therules on systems and controls with reference to the firm's adherence to:
A The conduct of business rules
B NCA reporting rules
C JMLSG guidance
D The Proceeds of Crime Act
C- Proceeds of Crime Act is more the punishments and criminalisation of ML, when FCA is checking the systems and controls, the firm would use the guidence of the JMLSG.
61
Which of the following is the correct interaction between the FCA regulations on moneylaundering and the JMLSG guidelines?
A JMLSG guidelines are statutory, the regulations are guidance
B The regulations are statute, JMLSG guidelines are guidance
C JMLSG guidelines overrule the regulations if money launderingis suspected
D Firms cannot usually be disciplined for not following theregulations if they follow the JMLSG guidelines
D - not B because the FCA rules on regulations aren't 'statute' which means 'a written law', the law on ML is by the proceeds of crime act and Money Laundering Regulations 2017.
62
IMPORTANT Q: A bank breached the FCA Systems and Controls rules because a member of its compliance function team:
a) Was not operating independantly from other departments
b) was not reporting directly to the Compliance officer
c) was employed on a 3 month short-term contract
d) was employed on a 0 hours contract
A
63
**IMPORTANT**: Examples of when you would carry out EDD (Enhanced due diligence)
* any case identified by the firm under its risk assessment (or in information provided by thesupervisory authorities) where there is a high risk of ML/TF (money laundering/terrorist funding)
* any transaction with a person established in a high-risk third country
* where the client has not been physically present for identification purposes
* in respect of a relation to correspondent banking relationships
* in respect of a business relationship or occasional transaction with a PEP, if the firm has determined that a customer or potential customer is a PEP, or a family member or known close associate of a PEP
* in any case where a customer has provided false or stolen identification documents or information on establishing a relationship, and
* in any case where a transaction is complex and unusually large or there is an unusual pattern of transactions.
64
Under the Joint Money Laundering Steering Group Guidance Notes, which of thefollowing would identify why enhanced due diligence is required for a politically exposed person?
A
Due to their position, they are more vulnerable to corruption
B
They have the ability to withhold information
C
They live overseas
D
They work for an authorised firm
A
None of the others are logical
65
IMPORTANT: What is the Financial Action Task Force (FATF)?
It's the inter-governmental body which sets international standards that aim to prevent ML and Terrorist financing activities. They also help authorities goafter criminal dealings in illegal drugs, human trafficking and other crimes, but they do not lead theprosecution. FATF continuously adapts its standards to address new risks.
66
Which of the following is true of the Financial Action Task Force?
A
Their mission focuses on anti-money laundering andcombating terrorist financing only
B
It imposes legislation on its member countries and jurisdictions
C
It continuously adapts its standards to address new risks
D
It leads international prosecution against human trafficking andillegal drugs
C -
FATF continuously adapts its standards to address new risks. It standards are recommendations forits members rather than law, but it does encourage member to build legislation around the standards.FATF focus on more than just money laundering and terrorist financing, they also help authorities goafter criminal dealings in illegal drugs, human trafficking and other crimes, but they do not lead theprosecution.
67
IMPORTANT: What are considered high risk factors in a transaction?
-Correspondent banking transactions (large value between international entities/banks)
-Transactions relating to tobacco products
-Transactions relating to archaeological significance
68
Important: What is JMLSG (The joint money laundering steering group)?
Combination of UK trade associations including the BBA (British Banks Association). It gives guidance on how to implement the Money Laundering regulations using a risk based appraoch.
69
According to the JMLSG's guidance notes, for what length of time should client verification records be kept?
AFive years from the date the account was opened
BThree years from the date the account was opened
CThree years from the date the account was closed
DFive years from the date the account was closed
D
70
MEM & Important: Who is the NCA led by and who is it accountable to?
- Led by senior chief constable
-Accountable to Home Secretary
71
IMPORTANT: What are the main differences between money laundering and terrorist financing activities?
1. Often, only quite small sums of money are required to commit terrorist acts.
2. If legitimate funds are used to fund terrorist activities, it is difficult to identify when the funds become terrorist property.
72
IMPORTANT Q: Which one of the following is an example of the money laundering offence of arrangements?
a) Acquiring or possessing criminal property
b) Disguising or transferring criminal property
c) Facilitating the retention of criminal property by another person
d) Informing another person that a disclosure has been made
C
73
IMPORTANT: Under the Proceeds of Crime Act 2002, criminal property is defined as:
A any property
B any property belonging to the criminal
C any property that has been money laundered
D any benefit derived from criminal behaviour
D
74
IMPORTANT: An employee who destroyed documents relevant to a money laundering investigation was cleared of the offence of prejudicing the investigation. This was because they:
a) Did not profit financially
b) Did not realise they were relevent
c) Notified the Compliance Officer
d) Notified the Financial Conduct Authority (FCA)
B
75
Money laundering relates to:
ACash that has come from a criminal source
BCash and assets from a criminal source
CCash from a criminal source in the UK
DCash and assets from a criminal source in the UK
B
76
For the Senior Management Arrangements, Systems and Controls with respect to moneylaundering, which one of the following is true?
A
Appropriate training should be provided to employees whomight be exposed to money laundering activities
B
The board can delegate their responsibilities for moneylaundering requirements to the MLRO
C
The board is required to monitor transactions for moneylaundering
D
A firm is required to provide the necessary systems andauthority to the FCA appointed MLRO
A - Not D as the board appoints the MLRO. Not B as they also have some responsibilities i.e. appropriate training
77
MEM & important: What are the max penalties for not reporting terrorism suspicions
5 years and/or unlimited fine
78
MEM & important: Who does the counter terrorism act 2008 give extra powers to impose directions on firms suspected on handling funds to be used for terrorist activities
Her Majesty's Treasury (HMT)
79
According to the Terrorism Act 2000, by when must any suspicions of terrorist financingbe reported?
A
Within 24 hours
B
As soon as reasonably practicable
C
Immediately
D
Within five days
B - This requirement also applies to suspicions of money laundering activity.
80
IMPORTANT Q: Under Section 7 of the Bribery Act 2010, the offence of vicarious liability can be committed by:
a) Public officials
b) Commercial organisations
c) Chief executive officers
d) Procurement staff
B
The commerical organisation can be guilty of this offence if the bribery is carried out by an employee, agent or another 3rd party.
81
IMPORTANT Q: Under the bribery act 2010 the standard for deciding what is expected behavior is:
a) Customary practice wherever the action took place
b) What a reasonable person where the action took place might expect
c) What a reasonable person in the UK might expect
d) How a reasonable person might interpret common law
C
82
MEM & important: What is the Bribery Act's max penalties?
Individuals: 10 years in jail and/or unlimited fine
Company: unlimited fine (not inadequate procedures)
83
What is the scope of the United Kingdom's Bribery Act 2010?
A Worldwide
B The United Kingdom only
C The European Union only
D England and Wales only
A -The Bribery Act 2010 is explicit in that the offences it covers can take place anywhere in the world,but be treated as though they had taken place in the UK for the purposes of investigation andprosecution. The requirement is that a person's acts or omissions are done or made outside the UKand would form part of such an offence if done or made in the UK, and that person has a close connection with the UK. In such circumstances, proceedings for the offence may take place anywherein the UK.
84
IMPORTANT: Under the UK Bribery Act 2010 how should senior management make its commitment to combating bribery known within the organisation?
a) Applying due diligence on the persons who perform services on its behalf
b) Communcating its policies in its annual report
c) Setting severe penalties for breaches of its policies
d) Training its staff and communicating its policies
D)
85
IMPORTANT Q: According to Section 5 of the Bribery Act, if a UK resident has accepted a bribe whilst working in a foreign country, which has no written laws concerning breibery, what is the situation?
a) There will be no case to answer
b) The issue will be decided according to local customs and practices only
c) The issue will be decided according to UK law only
d) The issue will be decided according to local practices and customs or UK law depending on whcih is most severe
C
If a breach has occurred in a jurisdiction outside the UK, local practices should be disregarded when decided the issue unless they form part of the written law of the jurisdiction
86
IMPORTANT: Which ONE of the following is a defence against an accusation of bribery?
A The allegation is against a third party agent and the company was unaware of their
activities
B Adequate procedures to prevent bribery were put in place
C The allegation is made against an unincorporated group
D The practice is generally accepted and not illegal in the jurisdiction it is alleged to have
taken place
B
87
The directors of a UK financial institution use an overseas agent who, it has been proved,has accepted and used bribes in their activities. Which of the following would be a valid defenceagainst any of the four offences of the Bribery Act 2010?
A
The directors are not responsible for the action of an agent
B
The agent's acceptance of bribes took place overseas
C
The directors could prove that adequate procedures are inplace to prevent bribery
D
The directors can prove that they did not benefit directly fromthe proceeds of the bribes
C
88
How many years and after what are firms required to keep copies of any documents and information obtained to meet CDD and counter terrorist financing requirements and sufficient records for transactions?
5 years after:
* the business relationship ends, or
* an occasional transaction.
89
IMPORTANT: Megan is an employee of a bank. What key factor will typically dictate whether or not she must be given regular training on terrorist financing?
a) Her level of experience
b) Her level of seniority
c) Whether her role can help counter the risk
d) Whether her role is classed as sensitive
C
90
**MEM & Important**: The 6 data protection act principles of data protection
-Processing must be Lawful and fair**
-Purposes of processing must be specified, explicit and legitimate**
-Personal data must be adequate, relevant and not excessive**
-Personal data must be accurate and kept up to date
-Personal data must be kept for no longer than is necessary
-Personal Data must be processed in a secure manner
91
MEM and *important*: What can the Information Commissioners Office do?
Can prosecute people who breach the Data Protection Act
92
MEM & Important: Higher and Standard penalties for breaching the Data Protection act:
Higher:
Up to £17.5m or 4% of global turnover for: breaching data protection principles, data subjects rights or transferring data to 3rd countries
Standard:
Up to £8.7m or 2% of the global turnover for other failures e.g. administrative (no evidence of processing data securely, no docs to prove security is tested, no evidence of policies etc.)
93
MEM & ****IMPORTANT****: What is the purpose of the Disclosure and Transparency Rules?
The purpose of the Disclosure Rules, in accordance with the EU provisions for dealing with inside information and preventing market abuse, is to:
* promote prompt and fair disclosure of relevant information to the market
* set out specific circumstances in which an issuer can delay the public disclosure of inside information, and
* set out requirements to ensure that such information is kept confidential in order to protect investors and prevent insider dealing by limiting number of people accessing inside information
The purpose of the Transparency Rules is to implement the requirements of the Transparency Directive and to ensure there is adequate transparency of and access to information in the UK financial markets.
94
IMPORTANT: One of the key aims of the Disclosure and Transparency rules is to limit:
A the number of people accessing inside information
B the risk of unexpected investment losses
C the need to conduct suitability checks
D the misuse of personal data
A
95
MEM & IMPORTANT: What are the thresholds for the EU transparency directive (when a shareholder has to disclose how much ownership of shares they have):
When they get to 5%, 10% 15%, 20%, 25%, 30%, 50% and 75% ownership
96
MEM & important: Who are exempt from the UK disclosure directive?
Custodians and bare nominees (they look after the assets of others)
Shares held as collateral
97
MEM & IMPORTANT:What are the thresholds for the UK disclosure rules and within how many how many days does the shareholder have to notify? Generally, for fun managers and market makers
Generally:
Disclosure needs to be within 2 business days
-Reach 3% (and above 3%) every change up or down to the next whole % (even if it goes up from 3.9% to 4% or 4% to 5.1%. Then fall below 3% again.
Fund managers: at 5%, 10% then every % point
Market makers: exempt below 10%
98
If the criteria for a concert party are established under the Disclosure and Transparency Rules, an obligation to notify the company occurs at a collective holding of:
A 1%
B 3%
C 15%
D 29%
B) A holding of 3%, individually or in concert, is notifiable. 'In concert' = acting jointly. Maybe spouses.
99
What disclosure obligations does a shareholder have if they own 18% of the shares of Widget plc, a listed company and sell 1% of their holdings?
A
Disclose the sale to the market by noon the next day
B
Disclose the sale to the market within two business days
C
Disclose the sale to the company concerned by noon the nextday
D
Disclose the sale to the company concerned within twobusiness days
D - disclosure to company needs to be within 2 business days
100
Important: Companies Act 2006 Letter ( a letter send if shareholders havent been disclosing amounts) requires disclosure of shares held at what times?
-Present time
- In the last 3 years
101
IMPORTANT: Under the European Union (EU) Transparency Directive, which of the following is a threshold notification level for shareholdings?
A) 40%
B) 60%
C) 75%
D) 90%
C
102
IMPORTANT Q: Under the Disclosure and Transparency Rules, where there is a breach of confidentiality an issuer must:
a) Immediately cease issuing the affected securities and inform the FCA
b) Advise the Information Commissioner's Office
c) First ensure that its own interests are adequately protected, then make public disclosure via the FCA
d) Make public disclosure via an approved regulatory information service
D
103
IMPORTANT: Which UK authority carries out regulation under the EU Takeover Directive?
The Panel on Takeovers and Mergers, often referred to as the Takeover Panel or just the Panel, or by the initials POTM
104
What is the UK Takeover code there for?
The Code is designed principally to ensure that shareholders are treated fairly and are not denied an opportunity to decide on the merits of a takeover. The Code also ensures that shareholders of the same class are afforded equivalent treatment by an offeror. Therefore the Code provides an orderly framework within which takeovers are conducted, and is designed to assist in promoting the integrity of the financial markets.
105
IMPORTANT: Under the EU Takeover Directive, what is meant by ‘acting in concert’?
Persons actively cooperating through the acquisition of shares to obtain or
consolidate control of a company - a group acting together in a takeover situation. The Code presumes that the following will be acting in concert:
a. a company and other group companies (parent company, subsidiaries and associated companies)
b. a company and its directors (including the directors’ close relatives and related trusts)
c. a company and its pension fund
d. a fund manager and investment vehicles which the manager manages with discretion
e. a client and its professional advisers.
106
Six general principles of the UK Takeover Code
Looks at interest of shareholders, markets and target company. Not really protecting he preditor/offeror
-All shareholders given equal treatment and protected
-Shareholders given sufficient time and information to decide
-Board of target to cat in best interests of company as a whole (customers, suppliers, employees, shareholders etc)
-False markets must not be created (proper disclosure)
-Preditor/offeror to make a bid only after ensuring they can meet cash requirements of bid (don't try to buy something you can't afford)
-Target company not to be hindered in its business affairs for any longer than necessary.
107
IMPORTANT: To company with the General Principles of the UK Takeover Code, before making a bid an offeror must:
a) Publicise their intentions in the financial press
b) Hold at least 25% of shraes in the offeree company
c) Ensure any cash consideration can be fulfilled
d) Notify all parties who will be contractually affected
C
108
IMPORTANT: What is the aim and purpose of EMIR (European Markets Infrastructure Regulation)? What instruments does it concern?
Regulation of the OTC (over the counter) derivatives to encourage greater transparency and better, more effective risk management within a particular market.
All trades in relation to derivatives contracts must be reported under UK EMIR to a trade repository.
Applies to both financial and non-financial counterparties.
109
Under the European Markets Infrastructure Regulation, which of the following is not a requirement on those that trade derivatives?
ARisk management procedures must be adopted for OTC derivatives
BCertain OTC derivatives must be cleared through a qualifying central counterparty
CTo report all OTC derivative transactions to a trade repository
DTo ensure the orderly functioning of markets
D
110
What are the reporting requirements from Short Selling Regulations?
Requite to disclose short positions- could be public or private depending on size
111
What are the reporting requirements from Securities Financing Transaction Regulation (SFTR)?
-Securities financing transactions (collateral in return for a loan) must be reported to a trade repository (this is an entity that centrally collects and maintains the records of over-the-counter (OTC) derivatives)
-Specific disclosure for rehypothetical assets
-Financial counterparties only in the UK
112
Under the Securities Financing Transactions Regulation (SFTR) which of the is true of the reporting obligations?
A Securities financing transactions do not need to be reported
B Securities financing transactions need to be reported atinitiation only
C Securities financing transactions need to be reported at initiation and for lifecycle events
D Securities financing transactions need to be reported on a dailybasis
C
113
MEM & *IMPORTANT*: When is the trade reporting period in the LSE system?
The trade reporting period is the period when the LSE system is able to accept trade reports. It runs from 7.15am to 5.15pm every business day.
114
MEM & IMPORTANT: differences between a trade report and a transaction report: Why do the report? Who does the report? When should the report be sent? To whome should the report be sent?
Why?
Trade: MiFID post-trade transparency
Transaction: Market Surveillance
Who?
Trade: Senior/selling firm (if not automatic order book. A senior person would be e.g. a member of the LSE rather than a non-member. If no seniority then selling firm)
Transaction: Both counterparties
When?
Trade: Either automatic order book or within 3 minutes
Transaction: by T+1 (end of next day)
Whom?:
Trade: The exchange
Transaction: To the regulatr via approved reporting mechanisms
Transaction is more detailed than the trade report.
115
IMPORTANT: If a trade takes place on the London Stock Exchange (LSE) between 2 member firms of the same seniority, who must report the trade?
a) The buying firm only
b) The selling firm only
c) Both firms
d) Whichever firm agrees to do so
B) Trade reporting is only required from member firms and the responsibility for trade reporting rests with the more senior party to the trade, ie, the market maker memebr firm. Is the 2 parties to the trade are of the same seniority, it's the selling member firm that reports the trade
116
IMPORTANT: A listed firm wants to know whether a specific corporate action would be classed as a reportable transaction under the FCA rules. It was correctly advised that the key test is whether:
a) The total funds involved exceed a specified thresehold
b) The share has a choice of options
c) The company has any preference shareholders
d) The shares are deemed to be above average risk
B. Corporate actions are deemed to be reportable actions where these include an element of choice.
117
IMPORTANT: Under the Data Protection Act, for what manimum period can data be held?
a) 3 years
b) 5 years
c) 7 years
d) For whatever period is neccessary for its purpose
D) as long as the data isn't kept for longer than neccessary
118
MEM & IMPORTANT: What are the 3 pillars of the CRD (Capital Requirements Directive) framework?
Based on Basel framework
*Pillar 1 – minimum capital requirements for credit, market and operational risks
* Pillar 2 – Supervisory review - discussion with the regulator on whether additional capital should be held (are there risks unique to the firm)
* Pillar 3 – disclosure of information about risks, capital and risk management to improve market discipline.
119
IMPORTANT: To purpose behind the framework introduced by the basel accord of 1988 was to strengthen:
a) The stability of the international banking system
b) The stability of the EU's banking system
c) The regulator's ability to impose sanctions
d) The regulator's ability to impose penalties
A
120
IMPORTANT Q: Pillar 3 of the Capital Requirements (CRD) Provides that firms must disclose info about risks, capital and risk management. What is the purpose of this requirement?
a) To ensure there are adequate funds available to meet current liabilities only
b) To improve market discipline
c) To cover any risks not covered in pillars 1 and 2
d) To ensure there are adequate funds available to meet current and long-term liabilties
B (written in the pillar)
121
According to the Capital Requirements Directive, what should a firm do if its financialresources fall below the financial resources requirement set by the PRA?
A
Borrow money from a bank to increase its financial resources
B
Change its financial resource requirement
C
Inform the PRA immediately
D
Cease trading immediately
C
122
IMPORTANT: Capital Adquency Requirement equation
The capital resources of an authorised firm must always be > capital adequency requiremment (set by the FCA for solo reg firms, or PRA for dual reg.)
If it falls below we must notify the regulator immediately
If systems arent able to calculate the reg, notify reg immediately.
123
IMPORTANT Q: Under Section 7 of the Bribery Act 2010, the offence of vicarious liability can be committed by:
a) Public officials
b) Commercial organisations
c) Chief executive officers
d) Procurement staff
B
The commerical organisation can be guilty of this offence if the bribery is carried out by an employee, agent or another 3rd party.
124
IMPORTANT Q: What standards determine whether behaviour constitutes market abuse?
a) Those contained in approved practitioner codes
b) Those required by each individual market
c) Those set out in Upper Tribunal's code
d) Those that are accepted market practice
D
125
IMPORTANT: Under the European Union (EU) Transparency Directive, which of the following is a threshold notification level for shareholdings?
A) 40%
B) 60%
C) 75%
D) 90%
C
126
IMPORTANT: An employee who destroyed documents relevant to a money laundering investigation was cleared of the offence of prejudicing the investigation. This was because they:
a) Did not profit financially
b) Did not realise they were relevent
c) Notified the Compliance Officer
d) Notified the Financial Conduct Authority (FCA)
B
127
IMPORTANT: A person accursed of insider dealing successfully used the ;special defence' provisions by arguing that they were acting in the role of:
a) Market maker
b) Insolvency practitioner
c) Charity trustee
d) Execution only advisor
A) if a market maker can show that they acted in good faith in the course of their business as a market maker, they will not be deemed guility of insider dealing or encouraging another to deal.
128
IMPORTANT: A person accursed of insider dealing successfully used the ;special defence' provisions by arguing that they were acting in the role of:
a) Market maker
b) Insolvency practitioner
c) Charity trustee
d) Execution only advisor
A) if a market maker can show that they acted in good faith in the course of their business as a market maker, they will not be deemed guility of insider dealing or encouraging another to deal.
129
IMPORTANT: At what stage does that JMLSG Guidence set out whe satisfactory identification evidence is to be obtained for a customer
a) Before the firm accepts them
b) At the first meeting
c) At the same time as the first transaction
d) At the time of the first valuation
A
130
How soon on meeting a new client must a firm obtain appropriate identification inaccordance with the money laundering regulations?
A
Immediately
B
As soon as reasonably practicable
C
Never
D
At least by the end of the next business day
B
131
IMPORTANT: Since the implementation of the Investment Firms Prudential Regime (IFPR), BIPRU firms are now subject to which set of rules, if any?
a) MIFIDPRU
b) GENPRU
c) IPRU-INV
d) They are exempt
A
132
IMPORTANT: How would a trading venue typically become aware of a suspicious transaction?
A In its regular audit
B When arranging or executing a transaction
C Where it has received a tip-off from an insider in connection with the transaction
D Where a client encashes their portfolio in full without giving a reason for doing so
B ) just in the normal course of business. Client's encashing their portfolio isn't the only suspicious thing.
133
IMPORTANT: Where domestic transactions take place on systems run by the London Stock Exchange (LSE), transaction reports for settlement purposes are required via CREST by what LATEST time on each business day?
A 4.00pm
B 5.00pm
C 7.00pm
D 8.00pm
D
134
Market abuse is different from the criminal offence of insider dealing in all of the following ways except:
AMarket abuse is based on the civil burden of proof, i.e. the balance of probabilities
BIt should be easier for the FCA to demonstrate abusive behaviour
CIt should be easier for the FCA to impose a custodial sentence
DIt can apply to commodity derivatives
C) The burden of proof is less difficult to establish than beyond a reasonable doubt and hence it should be easier to demonstrate abusive behaviour. However, only up to unlimited fines can be imposed, not custodial sentence
135
Which of the following would not be considered a suspicious transaction under the Money Laundering Regulations?
ACustomer services are asked to take payment from a different account than the account history shows is usual
BPayment is from a debit card account with a different card holder name
CThe customer initiates several small transactions totalling less than €7,500; it is an unusual size for the customer's transaction history
DThe customer is unable to prove his identity through the usual means, but is willing to offer other forms of identification
D
136
According to the Capital Requirements Directive, what should a firm do if its financialresources fall below the financial resources requirement set by the PRA?
A
Borrow money from a bank to increase its financial resources
B
Change its financial resource requirement
C
Inform the PRA immediately
D
Cease trading immediately
137
The Guidance provided by the Joint Money Laundering Steering Group (JMLSG):
A. has been approved by the FCA and forms part of the Handbook
B. is mandatory for all investment firms
C. has been approved by the EU Commission and derives from the Money Laundering Directive
D. highlights best practice that has been approved by the Treasury
D
138
Which of the following is an offence under POCA 2002?
A. Committing the criminal offence of handling stolen goods
B. Acquiring, use or possession of property without knowledge of criminal activities
C. Conspiring to commit insider dealing
D. Talking to your solicitor about the details of an offence of concealing criminal property
B
139
One of the two broad reasons for the JMLSG customer due diligence requirements is to help the
firm be satisfied that the customer is who the firm say they are and there are no legal reasons
preventing the relationship; the other reason is to:
A. identify the customer or beneficial owner
B. obtain verification of the beneficial owner and conduct additional checks
C. assist law enforcement
D. obtain information about the intended nature of the business relationship
D - i guess you want to know what the intended use is.
140
Why does the Money Laundering Reporting Officer (MLRO) have responsibility for the training of
staff in relation to identifying money laundering activity?
A. Compliance officers require MLROs to undertake this function
B. It is required by the JMLSG
C. It is required by the FCA
D. It is required by the Proceeds of Crime Act
C not D because the proceeds of crime act mainly just states the max penalties for ML offences
141
To whom should a firm report if it is unable to obtain satisfactory corporate verification?
A FCA
B Money Laundering Steering Group
C NCA
D Serious Fraud Office
NCA - Client identification problems suggest a money laundering risk which, alongside financing of
terrorism, should be reported to the NCA and not the FCA
142
A person buys an unusually large number of a particular share near the end of the day. Which of the following is most likely true in relation to market abuse?
A The person is attempting to drive the closing price for the
share down
B The result will give a more accurate impression of market
values
C The trade could lead to investors making the wrong decision
D The person is disseminating false information to mislead the
market
C
Not:
A because they would be driving it higher
B because the market price is
pushed to an artificial level and investors get a false impression
D Although it is misleading the market, it is not dissemination.
143
A person buys an unusually large number of a particular share near the end of the day. Which of the following is most likely true in relation to market abuse?
A The person is attempting to drive the closing price for the
share down
B The result will give a more accurate impression of market
values
C The trade could lead to investors making the wrong decision
D The person is disseminating false information to mislead the
market
C
Not:
A because they would be driving it higher
B because the market price is
pushed to an artificial level and investors get a false impression
D Although it is misleading the market, it is not dissemination.
144
Under which piece of legislation is the FCA empowered to issue fines for money
laundering offences?
A FSMA 2000
B POCA 2002
C CJA 93
D Companies Act 1985
A and for insider dealing offences
145
Under the Money Laundering Regulations all of the following are considered high-risk
factors EXCEPT:
A Transactions with a prominent political figure
B Transactions with no apparent economic purpose
C Bilateral transactions with an authorised counterparty
D Transaction related to items of scientific significance
C. Not B because what are they being used for if not for economic purpose?
146
An individual who is accused of insider dealing may not be able to use which of the
following defence?
A Did not expect the recipient to deal
B No advantage was expected
C Would have dealt anyway
D Dealt in the process of stabilisation
D - This is a slightly vague question as it is not very clear if they are testing the general or specific
defences. You would have to assume an individual could be anyone and therefore the question is
testing general defences.
