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FCA 3: UK Financial Regulation > Associated Legislation and Regulation > Flashcards

Associated Legislation and Regulation Flashcards

1
Q
A
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2
Q

when did MAR come into effect?

A

market abuse regulation, came into effect in 2016 to update and enhance EU market abuse directive

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3
Q

what happened with EUD MAR following Brexit?

A

the UK onshored EU MAR into the UK statute book

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4
Q

what were the 3 main amendments to EU MAR adopted in the UK following Brexit?

A
  1. no obligation to share information with EU authorities without a guarantee of reciprocity
  2. FCA takes over the regulatory responsibilities of ESMA and the European Commission
  3. Creation of any supplementary legislation is subject to the UK Treasury instead of the EC
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5
Q

What 3 offences did the FSMA 2012 introduce in relation to misleading statements/practices?

A
  • making misleading statements
  • creating false or misleading impressions
  • making misleading statements in relation to the benchmarks
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6
Q

what are the three potential defences to a misleading information charge?

A
  • person reasonably believed that their conduct wouldn’t create an impression that was false
  • actions, statements or forecasts that might be made in conformity with the price stabilisation rules of the FCA (e.g., supporting the price of a new issue)
  • conformity with the control of information rules of the FCA
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7
Q

what are the penalties for insider dealing?

A
  • a fine, not exceeding the statutory amount or a jail sentence not exceeding 12 months or both
  • conviction on inducement, a jail sentence not exceeding 10 years or both if committed after 1/11/2021
  • a jail sentence not exceeding 7 years if committed up to 31/10/2021
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8
Q

what does the FCA consider when looking to apply a financial penalty or public censure for an insider dealing breach?

A
  • deliberate or reckless
  • duration and frequency
  • benefit gained or loss avoided
  • whether it is indicative of systematic failures
  • impact on market orderliness
  • loss to consumers
  • financial crimes facilitated
  • number of smaller incidents which would justify
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9
Q

what factors are considered by the FCA in regards to market abuse?

A
  • degree of sophistication
  • impact a penalty may have on the markets or the interests of consumers
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10
Q

what is insider information/

A

information of a precise nature which has not been made public relating directly or indirectly to a financial instrument which if it were made public would have a significant effect on the price of a related financial instrument (spot contract for derivatives, information conveyed in terms of execution of orders)

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11
Q

what is insider dealing defined as under UK MAR?

A
  • where a person possesses inside information and uses that information by acquiring or disposing and instrument or cancelling and amending order for themselves or another person, or advising another person to.
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12
Q

what obligations do issuers have in relation to inside information?

A

they must inform the public as soon as possible of inside information which directly concerns the issuer - must be made public fast, complete and correct

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13
Q

what is an insider list?

A

issuers and persons acting on behalf must draw up a list of all persons who have access to inside information including where they are working and how they have access to the inside information

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14
Q

what is market manipulation defined as under MAR?

A
  • engaging in behaviour in the market that is likely to give false, misleading signals to the supply, demand or price of a financial instrument or a related spot commodity contract
  • entering into a transaction which effects or is likely to effect the price of one or more instruments
  • disseminating information through the media which is false or misleading
  • transmitting false or misleading inputs or information
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15
Q

what is the difference between MAD and UK MAR in terms of market abuse/manipulation?

A

UK MAR no longer applies to executed trades, it also applies to unexecuted orders and requests for quotes

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16
Q

what are the requirements on firms to prevent market abuse/manipulation?

A

they are required to establish and maintain effective arrangements, systems and procedures aimed at preventing and detecting market manipulation and insider dealing

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17
Q

what should firms do if they suspect insider dealing/market manipulation?

A

report it to the regulator without delay, this also applies to attempts to engage in prohibited activity where there was intent but no execution has taken place.

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18
Q

what is the contents of a STOR report?

A

suspicious transaction and order reporting

  • identification of the person
  • description of the order or transaction
  • reasons for which the order/transaction is suspected
  • means of identifying any person involved
  • any other information and supporting documents
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19
Q

what is a sounding and why must it be considered?

A

where a firm undertakes discussions with clients and/or market participants to determine their appetite for a new issuance on behalf of an issuer - may contain MNPI which is sensitive

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20
Q

what obligations do firm’s have to comply with when engaging in a sounding/

A
  • obtain consent or persons receiving information
  • inform those receiving they are required to keep info confidential
  • maintain a record of all information given
  • maintain a record of recipients who didn’t consent to being provided with info
  • advise recipients when the info ceases to be MNPI
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21
Q

What is Directors dealing?

A

when a director or someone otherwise linked to a listed company buys/sells shares in that company and there is a possibility of insider dealing

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22
Q

what is insider dealing defined as?

A

deliberate exploitation of information by dealing in financial instruments, having obtained this information by virtue of some privileged relationship or position

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23
Q

what was the update on the insider dealing legislation brought in in 2023?

A

Insider dealing order 2023, updated the list of regulated markets for the purpose of part V of the CJA 1993

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24
Q

what 3 ways of committing the offence of insider trading are outlined by Sec. 52 of the CJA?

A
  • dealing in the security
  • encouraging another to deal in the security
  • disclosing inside information to other people
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25
Q

what is inside information defined as in sec. 56 of the CJA?

A
  • information traded on, admitted to trade on or requested to trade on a regulated market
  • relates to securities not covered in the initial points but have an effect on securities traded in regulated markets
  • is specific or precise
  • has not been made public
  • is price-sensitive
26
Q

what does the term ‘security’ mean as leveraged by the CJA?

A
  • transferable securities
  • money-market instruments
  • units in collective investment undertakings
  • derivatives contracts (holistically defined)
  • contracts for differences
  • emissions allowances
27
Q

what are the general defences under the CJA 1993?

A
  • did not expect the dealing to result in profit or avoid a loss
  • believed on reasonable grounds the information had been sufficiently widely disclosed
  • would have acted the same way regardless of being in possession of the information
28
Q

what are the special defences under the CJA 1993?

A

price stabilisation activities
- if a market maker can show they acted in good faith in the course of their business, they won’t be considered guilty
- if the market maker can show they were acting in connection with an acquisition or disposal where the price was under negotiation and they acted in order to facilitate the deal

29
Q

what is market information and how does it relate to insider dealing?

A

includes information in relation to the sale of securities under consideration or the price at which such a transaction is likely to be completed

if an insider can prove the information they held was market information, they are not considered guilty of insider dealing

30
Q

what do price stabilisation rules allow for?

A

allow stabilising managers and their agents to support the price of new issues of securities by buying the securities in the secondary market for a limited time after an issue - they will not be deemed guilty of market abuse.

31
Q

what does UK MAR say in relation to market manipulation?

A

simply states that a person shall not engage in or attempt to engage in such activity

32
Q

what are the 4 main types of market manipulation?

A
  • manipulating transactions
  • manipulating services
  • dissemination
  • benchmark manipulation
33
Q

what is ‘legitimate behaviour’?

A

in relation to insider trading it is certain behaviour that is considered legitimate and as such will not constitute an offence

34
Q

what are accepted market practices that mean you are not liable for insider dealing?

A
  • acting with information barriers
  • acting as a market maker
  • executing orders on behalf of third parties
  • where transactions were concluded before a person came into possession of inside information
  • order was carried out to satisfy a legal obligation
  • where the information arose off the back of a merger/takeover
  • where they are engaging in stake building activity
35
Q

what are the requirements for managers transactions?

A

anyone who has managerial responsibility must notify the issuer, emission allowance market and FCA about market participants, transactions in relation to the securities or emission allowance products in relation to them

36
Q

what is the regulation surrounding short-term sales and trading ideas following on from UK MAR removing their exemption?

A

those providing investment recommendations must ensure the information they present is objectively presented and they must disclose their interests or dictate conflicts of interest surrounding instruments to which the information they are presenting relates to.

37
Q

what is an ‘investment recommendation’?

A

proposal or strategy provided by a firm to individuals or other firms on financial instruments in relation to short-term trading ideas and scenarios

38
Q

what are the sources for rules and regulations in relation to ML?

A
  • proceeds of crime act 2002
  • serious organised crime and police act 2005
  • criminal finances act 2017
  • mlr 2017
  • SYSC sourcebook
  • JMLSG Guidance
39
Q

what does the FCA’s financial crime guide set out?

A
  • sets out the FCA’s expectations on firms’ systems and controls and outline specific guidance on financial crime
40
Q

what are the 6 main areas of financial crime covered by the FCA’s financial crime guide?

A
  • ML and terrorist financing
  • fraud
  • data security
  • bribery and corruption
  • sanctions and asset freezes
  • insider dealing and market manipulation
41
Q

what new and updated requirements were introduced by MLR 2017?

A
  • risk assessments are required at the national and regulator and firm levels
  • policies, controls and procedures to mitigate and manage risk must be proportionate with the nature and size of the firm
  • CDD requirements updated to consider further collection and verification
  • Enhanced DD
  • PEPs
  • SDD
42
Q

what was implemented as part of 5MLD?

A
  • high risk factors
  • customer due diligence (BOs, control structure)
  • BODR
  • Cryptoasset activities
43
Q

what are the 3 stages of money laundering?

A
  • placement
  • layering
  • intergration
44
Q

what are the requirements on firms in relation to ML and TF?

A
  • firms must make sure employees are aware of the law around ML TF
  • firms must provide regular training on how to recognise and deal with transactions and other activities on ML and TF
45
Q

what are the 5 offences established under the POCA 2002?

A
  • concealing
  • arrangements
  • acquisition, use and possession
  • failure to disclose
  • tipping off

all in relation to crimes and the proceeds of crime

46
Q

what are the 3 parts of the JSMLG on ML?

A

part1: general guidance and international context
part2: sectoral guidance, specific types of firms
part3: specialist guidance, electronic payments

47
Q

what type of approach does the JSMLG require firms to take?

A

risk-based

48
Q

what are firms required to have under JSMLG and what does this consist of?

A

AML policy statement must be in place

must contain the guiding principles and risk-mitigation approach

49
Q

what is the role of the FATF?

A

responsible for the examining and the development of measures to combat money laundering, seen as the global money laundering and terrorist financing intergovernmental body which sets international standards

50
Q

what 4 offences were created by the bribery act 2010?

A
  • offering, promising or giving a bribe
  • requesting, agreeing to receive or accepting a bribe
  • bribing a foreign public official
  • corporate offence of failing to prevent a bribery
51
Q

what is the maximum penalty for offences of bribery?

A

10 years imprisonment

52
Q

how long must firms retain records of transactions?

A

5 years

53
Q

what are the aims of the disclosure rules set out by the FCA in their handbook?

A
  • promote fair and prompt disclosure of information
  • set out specific circumstances in which an issuer can delay the public disclosure of inside information
  • set out requirements to ensure that inside information is kept confidential
54
Q

what is the purpose of the transparency rules outlined by the FCA in their handbook?

A

to provide adequate transparency and access to information in the UK financial markets

55
Q

what is the purpose of the UK takeover code?

A

designed principally to ensure that shareholders are treated fairly and are not denied an opportunity to decide on the merits of a takeover - not concerned with the financial or commercial merits of a takeover

56
Q

why are disclosure of interest rules required?

A

when investors purchase or sell shares to bring about a significant stake in a company, such information should be made available to the public due to its potential impact on price - this level is deemed at 3%

57
Q

what transactions have reporting obligations?

A

financial instruments, contracts where the underlying is a financial instrument admitted to or traded on a trading venue or where the underlying is an index or basket of instruments traded on a trading venue

only required by regulated firms

58
Q

what is the purpose of transaction reporting?

A

carried out to provide information to the regulator to monitor market abuse and functions

59
Q

what is the difference between the Data Protection Act 2018 and GDPR?

A

the DPA has a wider remit, has a part dealing with processing that doesn’t fall within EU law

60
Q

what is the role of the ICO?

A

the uphold information rights in the public interest, promoting openness by public bodies and data privacy for individuals, all entities classified as data controllers that process personal data have to register with the ICO

61
Q
A

FCA 3: UK Financial Regulation (4 decks)

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