Chapter 2 Flashcards by Caroline Purves

What additional products will transparency requirements be applied to under MiFID II?

Bonds and derivatives

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Which organisation publishes MiFID proposals?

The European Commission (EC)

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What are APAs?

Approved Publication Arrangement firms

APAs are a proposed market infrastructure mechanism for collecting and publishing market data; approval will be given by European Securities and Markets Authority (ESMA) or a member state regulator.

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Under MiFID II what is the minimum requirement for 3rd country firms intending to provide services within the EEA?

They must, as a minimum, set up branches in that country

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Under MiFID II what type of instrument will be included under the banner of complex product?

What will need to be assessed before the product is recommended to a retail client?

Unstructured UCITS (undertakings if or collective investments in transferable securities)

An assessment of appropriateness will need to be carried out before these instruments are sold to retail clients

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Under MiFID II what will ESMA have the powers to ban in conjunction. With national regulators

ESMA (european Securities and Markets Authority) has the power to temporarily ban products also have the power in conjunction with national regulators to permanently ban products

National regulators will also be empowered to apply position limits to reduce companies exposure to certain products

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What are the three pillars of Basel II

Pillar 1: Minimal capital requirement
Pillar 2: Supervisory review
Pillar 3: Market discipline

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What is the Basel II definition of operational risk

‘the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events’.

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How is operational risk calculated (basel II)

Capital ratio =
Capital requirement /
(Credit risk exposure + Market risk exposure + Operational risk
exposure)

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What are the penalties that can be imposed by the information commissioners office when a person suffers damage as a result of a contravention of the DPA?

Fine of up to £500,000 pounds and compensation to be paid to the individual. They may undertake proceedings which can result in a prison sentence

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Who is responsible for implementing data retention policies

Firm’s senior management

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What instruments does the CJA 1993 not cover?

Commodities or commodity derivatives

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Which directive sets the basic standards when VaR is used for setting minimal capital requirements?

Capital Requirements Directive

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What instruments are covered by insider dealing?

Shares, bonds, warrants, depository receipts, contracts for difference, futures and options

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What is the maximum penalty for insider dealing?

7 years imprisonment and unlimited fine

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What behaviours does the offence of market abuse cover

Abuse of information
Misleading the market
Distortion
Manipulating the market
Disclosing inside information 
Failure to observe required market standards

What are qualify instruments in relation to the offence of market abuse?

Stocks, futures and options that are listed on exchanges.

What trends may be monitored for when attempting to identify layering activities in AML provisions?

Large volumes
Trading close to limits
Unusual products or trading practices

What is the penalty for a failure to identify a client as stipulated by MLR 2010 and the regulatory rules?

Unlimited fine and a jail term of up to 2 years

Name the three levels of client classification as defined by MiFID II?

Eligible counterparties, professional clients and retail clients

What is suitability applied to under MiFID II

The suitability of investment products for clients

What is appropriateness applied to under MiFID II?

Appropriateness applies to advice offered to clients

What is another name for the Sarbanes-oxley (SOX) act 2002?

Public Company Accounting Reform and Investor Protection Act

What is SOX and what does it deal with?

SOX is a US Federal law and it deals with potential conflicts of interest when securities companies are producing investment research at the same time as participating in the market

What does section 302 of SOX mandate?

A set of internal procedures designed to ensure accurate financial disclosure

What does section 404 of SOX mandate?

This requires an annual management assertion statement certifying the internal control over the financial reporting process

What must the annual assertion statement demanded by Section 404 of SOX cover?

1. State the responsibility of management for establishing and maintaining and adequate internal control structure and procedures for financial reporting 2. Contain an assessment as of the end of the issuer’s fiscal year of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.

Who is responsible for the security, accuracy and reliability of the systems that report and manage financial data?

CIO of Chief Information Officers

What is the extended band of the Dodd-Frank Act

Dodd-Frank Wall Street Reform and Consumer Protection Act

What are the main provisions of Dodd-Frank?

1. Consumer protection 2. Investor protection 3. Ends too big to fail bailouts 4. Advance warning systems 5. Executive compensation and corporate governance 6. Regulatory enforcement 7. Technical expertise 8. Making risks transparent

What is the extended name for FATCA

The foreign account tax compliance act

What size of accounts can be treated as non US accounts under FATCA

Less than 50,000 for an individual and less than 250,000 for an entity

Under FATCA how is a withholding agent defined?

A US or foreign person that has control, receipt, custody, disposal or payment of any item of income as a foreign person that is subject to withholding

What does FATCA stipulate must be reported to HMRC for US accounts?

1. The name, address and taxpayer identification number (TIN) of each account holder that is a specified US person and, in the case of any account holder which is a US-owned foreign entity, the name, address and TIN of each substantial US owner of such an entity. 2. The account number 3. The account balance or value at year-end 4. Gross dividends, interest and other income paid or credited to the account (timing will be determined in the FFI agreement). Reporting of gross receipts and gross withdrawals or payments from US accounts will not be required for the first year of reporting in 2013. However, an FFI will be required to identify any US account holder by 30 June 2013 as a recalcitrant account holder and then report them to HMRC by 30 Sept 2014.

What does EMIR seek to do?

EMIR sets out to increase stability within the OTC derivatives markets The regulation introduces: 1. A reporting obligation for OTC derivatives 2. A clearing obligation for eligible OTC derivatives 3. Measures to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives 4. Common rules for central counterparties (CCPs) and for trade repositories 5. Rules on the establishment of interoperability between CCPs

When do regulators stipulate that statutory capital requirements be produced?

Statutory capital adequacy reports should be produced monthly