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Detailed FCA > Associated Legislation and Regulation > Flashcards

Associated Legislation and Regulation Flashcards

1
Q

EU Market Abuse Regulation offences

A

A person shall not:

  • Engage or attempt to engage in insider dealing. Includes amending and canceling orders
  • Recommend or induce another person to engage in insider dealing
  • Unlawfully disclose inside information
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2
Q

EU Market Abuse Regulation Penalties

A

Civil in the UK

  • Lighter burden of proof
  • Effect-based
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3
Q

Scope of MAR

A

Applies to financial instruments

  • Traded, admitted to trading or for which a request for admission to trading on an EEA regulated market and multilateral trading facility (MTF) or organised trading facility (OTF)
  • Applies to emissions allowance (e.g. carbon)
  • For the offence of market manipulation, also applies to commodity derivatives and commodity spot derivatives
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4
Q

FCA Market Conduct Handbook Guidance

A
  • Insider dealing
  • Improper disclosure
  • Manipulating transactions
  • Manipulating devices
  • Dissemination
  • Benchmark manipulation
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5
Q

FCA Market Conduct -Regulator Sanctions

A
  • Withdrawal of regulated status
  • Financial penalties
  • Public statements
  • Applying to courts for injunctions and restitution
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6
Q

Market Abuse - Legitimate Behaviour

A

Legitimate ways to behave

  • Share buy-back programmes and stabilisation measures
  • FCA Rules
  • Takeover Code
  • Market soundings: Required formalised process, including disclosures, notifications of confidentiality and record keeping
  • Accepted market practices (country specific)
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7
Q

Suspicious transaction and order reports (STORs)

A
  • Reporting suspicions for transactions and orders
  • Firms must report suspicions to the FCA without delay. Firms should not second-guess whether the regulators would consider an event to be suspicious
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8
Q

STORs should contain

A
  • Identity of reporting person submitting STOR
  • Description of transaction
  • Reasons for which market abuse is suspected
  • Means of identifying the person in the order/transaction
  • Any other supporting documents needed by the FCA for investigation
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9
Q

MAR PDMR regime

A

Persons discharging managerial responsibility (PDMRs) dealing in their own company’s shares must disclose to both their company, and to the FCA, within THREE business days of the transaction
PDMRs must not deal during closed periods: Year end and half yearly results 30 days prior to announcement
Breach not a criminal offence but FCA may take disciplinary action

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10
Q

When person should disclose dealing of own shares

A

Within 3 days

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11
Q

Closed period (year end/half year)

A

30 days

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12
Q

S52 Criminal Justice Act 1993

A

Dealing on …
Encouraging others to deal on …
Disclosure of …

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13
Q

Inside information

A

Relates to particular securities or issuers
Specific or precise
Has not been made public
Price sensitive

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14
Q

Instruments covered by Insider dealing

A

Shares, ADRs, warrants
Tradable debt
Options, futures and CFDs

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15
Q

Excluded investments from insider dealing

A

Assets with no secondary market e.g. bank account, unit trusts, etc
Commodities and commodity derivatives
Spot and forward FX

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16
Q

Insider dealing general defences

A

Did not expect the deal to result in a profit due to the info
Believed on reasonable grounds that the information was already publicly available
Would have acted in the same way regardless of possessing the info
Did not expect the recipient to deal

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17
Q

Insider dealing special defences

A

Stabilisation
Market info
Market makers in the ordinary course of business

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18
Q

Insider dealing Enforcement

A

LSE Market Operations Division monitors transaction
FCA prosecutes
Maximum penalty - 7 years and/or unlimited fine

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19
Q

S89 FSA 2012

A

Misleading statements, e.g. lying to persuade someone to deal, concealing relevant facts in takeover documents

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20
Q

S90 FSA 2012

A

Misleading impressions e.g. abusive squeezes, market rigging. Covers both recklessly created misleading impressions, and deliberately created misleading impressions

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21
Q

S91 FSA 2012

A

Misleading statements in relation to benchmarks

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22
Q

Misleading statements and impressions

A
  • Reasonably believed that statement or act was not false or misleading
  • Acted in conformity with price stabilising rules or control of information rules or share buy-back rules.
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23
Q

Misleading statements and impressions - Penalty

A

Magistrates court: Six months imprisonment and/or £5,000 fine
Crown court: 7 years and/or unlimited fine

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24
Q

Proceeds of Crime Act 2002

A

Amended by Serious Organised Crime and Police Act 2005 and Criminal Finances Act 2017.
-Any proceeds from an act considered a crime in the UK

The act was enacted following the publication on 14 June 2000 of new government policy as set out in the Performance and Innovation Unit’s report “Recovering the Proceeds of Crime”. It deals with a wide range of matters relevant to UK law on proceeds of crime issues. These include confiscation orders against convicted individuals (requiring payment to the State based upon the benefit obtained from their crimes), civil recovery of proceeds of crime from unconvicted individuals, taxation of profits generated from crime, UK anti-money laundering legislation, powers of investigation into suspected proceeds of crime offences, and international co-operation by UK law enforcement agencies against money laundering.

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25
Q
  1. Placement
A

Proceeds of any crime are place into a bank or building society
-Bank CDD

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26
Q
  1. Layering
A

Payments are taken from the bank and used to buy different investments to cover the audit trail
-Investment firms

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27
Q
  1. Integration
A

The money appears as a legitimate source of income.

- Business/Property

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28
Q

MLR 2017 - Risk assessments

A

Risk assessments - assessing ML and FT risk for the firm. Proportionate to the size and nature of firm. Appoint a director as responsible for compliance with these regulations

29
Q

MLR 2017 Customer due diligence

A

Identification procedures: obtain satisfactory evidence regarding identity as soon as reasonably practicable. Enhanced CDD - PEPs. Simplified CDD

30
Q

MLR 2017 Reliance

A
  • Cannot rely upon CDD by firms in high-risk jurisdictions

- Must supply identity information on any ‘relied-upon’ party at start of business arrangement

31
Q

MLR 2017 Education and training for employees

A

The law and regulations to AML

  • Recognising suspicious transactions
  • Employees report to MLRO who reports to NCA
32
Q

MLR 2017 Recordkeeping

A

5 years from the date from the date the client ceases to be a client of the firm

33
Q

Criminal offences for directors/SMs

A

Failure to comply with Money Laundering Regulations (two years and/or unlimited fine)
Recklessly making a statement in contact of ML which is false or misleading (two years and/or unlimited fine)

34
Q

The Proceeds of Crime Act 2002 General offences

A 
Concealing 
Arrangements (assisting)
Acquiring and/or possessing
14 years and/or unlimited fine
Knowingly prejudicing an investigation (5 years and/or unlimited fine)
35
Q

The Proceeds of Crime Act 2002 Regulated sector offences

A 
Failure to report (5 years and/or unlimited fine)
Tipping off (2 years and/or unlimited fine)
36
Q

Joint money laundering steering group (JMLSG)

A

Combination of UK trade associations including the BBA. Guidance notes on how to implement MLRs. Risk based approach

37
Q

JMLSG Guiding principles

A
  • Customers’ identities verified before acceptance
  • Knowing the customer on an ongoing basis
  • Adequate training of staff
  • Recognition of the importance of prompt reporting
38
Q

JMLSG Risk mitigation approach

A
  • Summary assessment of money laundering and terrorist financing
  • Allocation of responsibilities to specific persons
  • Summary of firm’s procedures
  • Summary of firm’s monitoring
39
Q

Money laundering reporting officer and nominated officer

A

A responsible person

  • POCA, The Terrorism Act and MLR require a nominated officer
  • FCA rehires a MLRO
  • Generally both roles performed by the same person called MLRO
  • MLRO report to the NCA
40
Q

Terrorism Act 2000 and Anti-Terrorism Crime Security Act 2001

A

Obligation to report suspicions of:
-Provision of funds for terrorism
-Use and possession of terrorist funds
-Laundering money which is terrorist property
Failure to report (5 years and/or unlimited fine)

41
Q

Counter Terrorism Act 2008

A

Gives extra powers to HMT to impose directions on firms suspected of handling funds to be used for terrorist activities.
Powers include:
-Customer due diligence and monitoring
-Systematic reporting (without application to the courts)
-Limiting or ceasing business: where the Financial Action Task Force (FATF) requires. Where HMT believes there is a significant threat to national interests

42
Q

EU Transparency Directive outlines thresholds

A

The Transparency Directive improves the harmonisation of information duties of issuers, whose securities are listed at a regulated market at a stock exchange within the European Union, and further market participants. The aims of these amendments are to establish minimum requirements regarding the financial information distribution all over the European Union and an increase in transparency at the capital markets and in investor protection to meet information deficits in a developing financial market environment

Every multiple of 4 up to 30%, then 30/50/75%
5%, 10%, 15%, 20%, 25%, 30%, 50%, and 75%

43
Q

UK Disclosure rules disclosure to the issuer within 2 business days when

A

Reach 3%, above 3% change up or down to the next integer %, Fall below 3%. Fund managers 5%, 10% then every integer. Market makers - exempt below 10%. Custodians and bare nominees, shares held as collateral all exempt
Issuer then tells the markets

44
Q

Companies Act 2006 S793

A

Letter requires disclosure of shares held at present time or in the last 3 years

45
Q

UK Takeover code

A

Administered by the Takeover Panel (also known as the Panel on Takeovers and Mergers)
Code ensures that shareholders treated fairly and are not denied the opportunity to decide on the benefits of a takeover
https://www.thetakeoverpanel.org.uk/the-code/download-code

46
Q

UK Takeover Code - General Principles

A
  • All shareholders given equal treatment and protected
  • Shareholders given sufficient information and time to decide
  • Board of target to act in best interests of company as a whole
  • False markets must not be created
  • Predator to make a bid only after ensuring they can meet cash requirements of bid
  • Target company not to be hindered in its business affairs for any longer than is necessary
47
Q

Markets in Financial Instruments Directive (MiFID)

A
  • To create a common market with harmonised rules in which the financial industry can exist
  • Allows firms within the EEA to open branches and cross-border sell throughout the EEA without the need for licensing in each separate jurisdiction (‘passporting’)
48
Q

Scope of MiFID (Core activities/always passported)

A
  • Reception and transmission of orders
  • Execution of orders
  • Portfolio management
  • Investment advice
  • Underwriting and placing
  • Operating an MTF or OTF
49
Q

Scope of MiFID (Ancillary services/only passported with core activities)

A
  • Safekeeping and administration
  • Loans to carry out transactions
  • Investment research and financial analysis
  • Giving advice on capital structure
50
Q

MiFID instruments

A
  • Transferable securities
  • Units in collective investment schemes
  • Money market instruments
  • Derivatives on securities, currencies, interest rates or yields
  • Commodity derivatives
  • Credit derivatives
  • Financial CFD
  • Exotic derivatives (e.g. weather, carbon emissions, etc.)
51
Q

Responsibility of Home state regulator

A

Almost everything

  • Authorisation
  • Prudential supervision (capital adequacy)
  • Fitness and propriety
  • Conduct of business in home state
  • Conduct for cross-border services from any state
  • Client assets
52
Q

Responsibility of Host state regulator

A
  • Conduct of business in host state when performed from a branch in the host state ( for MiFID business these rules should be the same)
  • Any other rules required by the host state
53
Q

MiFID II (effective 3 January 2018) covers

A
  • Many more trading venues, participants and products
  • Electronic trading: organised trading facilities
  • Transparency of markets: expanding beyond equity to bonds and derive. Additional information for transaction reports
  • Investor protection: banning of monetary inducements by certain firms
  • Product intervention: National regulators/EMA can permanently band products. Position limits for products such as commodity derivatives
54
Q

Definition of a Collective Investment Scheme (CIS)

A 
Unit trusts
Open ended investment companies (OEICs): now referred to by the FCA as investment companies with variable capital (ICVCs)
Regulated = UK funds
Recognised = UCITS (Europe)
Unregulated = Hedge fund
55
Q

UCITS status

A
  • A regulated CIS may apply to FCA to seek UCITS(Undertaking for Collective Investments in Transferable Securities) status
  • Such schemes can then be marketed throughout the EEA
56
Q

The Product Directive allows UCITS to invest in

A
  • Transferable securities: Maximum of 10% NAV of fund in any single issuer
  • Money market instruments
  • Other UCITS funds: fund of funds
  • Bank deposits (max 20% NAV in a single institution)
  • Financial derivatives
  • Index tracker funds
  • Borrowing restrictions (Max 10% NAV -> short terms)
    • Cannot invest in commodity derivatives and property or any other tangible
57
Q

The alternative Investment Fund Managers Directive (AIFMD)

A
  • Aims to regulate hedge fund manager not the funds
  • Will allow cross border (EEA) selling of funds by either: being authorised by a regulator in the EU; or Outside the EU if they meet certain fiscal and regulatory requirements
58
Q

European Markets Infrastructure Regulation (EMIR)

A
  • EMIR is regulation of derivatives, central counterparties and trade repositories
  • Provisions: All OTC derivative trades to be reported to a repository. All financial and non-financial counterparties to adequately manage the risk of the contract (reconciliations + collateral). Requirement to use a central counterparty where mandatory clearing is in effect.
59
Q

Data Protection Act 2018 - Principles

A
  • 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
60
Q

The Bribery Act 2010

A 
4 Offences
-Paying bribes
-Receiving bribes
-Bribery of foreign officials - defence is to show that local written law required the payment to be made
-Failing to prevent bribery: firms are liable for failing to prevent a person from bribing on their behalf. Hospitality not prohibited. 
Maximum penalties:
-Individual - 10 years/unlimited fine
-Company - unlimited fine
61
Q

Prudential Standards

A

Capital Requirements Directive. Implements Basel Framework
Pillar 1
-Minimum capital requirements for credit, market and operational risk
Pillar 2
-Supervisory review - discussion with regulator on whether additional capital should be held
Pillar 3
-Disclosure of risk and risk management to improve market discipline
Principles for Businesses 3: Financial Prudence
The capital resources of an authorised firm > Capital Adequacy requirement (Set by the FCA)

62
Q

When one off transactions requires identification of the client

A

One off transactions above €7500 require identification

63
Q

Purpose of trade reports vs transaction reports

A

transaction report is there for settlement and regulatory purposes. It allows the FCA, in retrospect, to investigate trades. Trade reports provide market transparency.

64
Q

Whom does a firm’s Data Input Officer report?

A

The data input officer within a firm will report to the firm’s data controller.

65
Q

Transparency Directive

A

The EU Transparency Directive sets 5% as the level of notifiable interest. In the UK it is 3%.

66
Q

Purpose of UCITS legislation

A

To facilitate the marketing and sale of unit trusts and ICVCs in the EEA on the basis of authorisation in the home state

67
Q

The rules concerning the capital resource requirements for MiFID firms are contained in

A

The EU Capital Requirement Directive has been implemented in two sourcebooks for MiFID firms. The General Prudential Sourcebook (GENPRU) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU)

68
Q

Capital Requirement Directive require…

A

CRD requires all MiFID firms to exceed the capital resource requirement prescribed in their competent authority.

69
Q

The MLRO must report to senior management at least

A

The MLRO must report to senior management at least once every calendar year.

Detailed FCA (7 decks)

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