Chapter 3 Flashcards

Question

3.3.6 Explain the purpose of the purpose of the principles and rules on conflict of interest, including; identifying, recording and disclosing CoI and managing them to ensure the fair treatment of clients (PRIN 2.1.1, Pinciple 8 and SYSC 10)

Answer 1

SYSC 10 operationalises principle 8 (CoI) and requires a firm to: take appropriate steps to ID CoI Maintain effective org and admin arrangements to prevent CoI resulting in risk to damage client interests A firm must maintain an effective CoI policy which is set out in writing - it must include the following: ID specific services and activities carried out by/ on behalf of the firm, the circumstances that constitute or may give rise to a CoI causing material risk of damage to the interests of clients It must specify procedures and measures to be followed/adopted to manage CoI SYSC 11 - 17 - cover risk management and prudential reqs relating to banks and insurance companies SYSC 18: Whistle blowing The Public Interest Disclosure Act 1998 (PIDA) establishes framework for protecting employees in case of whistle blowing FCA encourages firms to have internal whistle blowing by their employees and that they have protection if they WB to FCA or PRA Put in place written procedures on whistleblowing Respect whistleblowers confidentiality Assess and evaluate WB reports appropriately, where necessary informing regulators Track outcome of reports and the WB themselves Ensure no-one in the firm victimises WB Firms should also protect WBs, appoint a WB champion who oversees effectiveness of firms WB policy, prepares annual report for the board regarding the operation of the policy and reporting to the FCA if an employment tribunal is in favour of the WB over the firm If firm caught acting to the detriment of an employee who has made a protected disclosure - call into question fitness and propriety of firm and staff SYSC 19: Remuneration Codes - ensures pay practices do not encourage inappropriate risk taking Applies to all Sen man, risk takers and staff in control functions = ‘code staff’ FCA takes into account institutions size, internal org, nature and complexity of activities. Main provisions are on page 105

Answer 2

A person wishing to conduct regulated activity needs to authorised unless they are exempt Exempt persons include those from professional firms E.G solicitors or accountants - main business is not reg activity UK investment firm needs to apply to the FCA for Part 4A permission - only granted once Applicant needs to know what scope to apply for regarding specific activities FCA will specify in Part 4A what activities they can conduct FCA may impose requirements in connection with P4A - E.G more frequent financial returns In order to obtain P4A permission, applicant must satisfy threshold conditions COND outline threshold conditions or minimum standards for being/remaining authorised FSMA 2000 re-distributed responsibility for CONDs between FCA and PRA (see table 3.1 page 106) Some FCA CONDs apply to all firms, including Dual-reg. PRA CONDs only apply to banks, insurance firms and PRA-auth invest firms See Fig 3.2 page 108 for decision tree Exempt persons - most important are: Appointed reps of an authorised person RIEs and RCHs Members of the profession (as above) Members of Lloyds

Answer 3

Under APER - individuals wishing to perform controlled function with an authorised UK firm need approval from the FCA or PRA - grant approval for two types of person: Those who deal with customers or their property Those who have significant influence in a financial org Persons who have been granted approval to undertake controlled function = approved persons APERs replaced by Sen Man Certification Regime for banks, building societies, credit unions and PRA-reg invest firms

Answer 4

FCA only grants approval if person deemed FIT Honesty, integrity and reputation Competence and capability Financial soundness

Answer 5

Dual-reg SIFs split between PRA and FCA - minimise duplications of approvals from both regulators If an individual conducts both PRA and FCA SIFs only needs to apply to PRA Where an application is made to PRA for both a PRA/FCA SIF, PRA needs FCA consent before granting approval Either reg may withdraw approval from a person who is conducting SIF with a DR firm. If the approval was given by the other regulatory, it must consult that reg first A firm has 7 business days to inform the regulator if person no longer performing CF

Answer 6

Firms only reg by FCA, 5 categories of controlled functions. All those except customer functions = significant influence functions (SIFs) Governing functions: Chief exec and directors Required functions: apportianate and oversight func, compliance func, money laundering reporting func SYSC function: person responsible for reporting to governing body in relation to its financial affairs etc. Significant management function: only relevant in large firms where SMF is allocated to a sen man Customer dealing functions: giving advice on, dealing and arranging deals in and managing invests Two new functions introduced in 2013 - CF40/50 cover submission and admin of BMs 7 statements of principle - first 4 for approved persons addition 3 for persons with SIF. An APERS must act with integrity in carrying out their CF An APERS must act with due skill, care and diligence in carrying out their CF An APERS must observe proper standards of market conduct in “ “ CF An APERS must deal with the FCA and with other regulators in an open and coop way, and must disclose appropriately any info of which the FCA would reasonably expect notice An APERS performing a SIF must take reasonable steps to ensure that the business of the form for which they are responsible in their CF is organised, so that it can be controlled effectively An APERS carrying out a SIF must exercise due skill, care and diligence in managing the business of the firm for which they are responsible in their CF An APERS performing a SIF must take reasonable steps to ensure tht the business of the firm for which they are responsible in their CF complies with the relevant reqs and standard of the reg system The APERS regime allows individuals who breach statements of principle to be disciplined without firmas a whole being disciplined FSA 2012 - SofP relate to any other functions and APERs performs within the firm they hold their approval with

Answer 7

SMCR replaces APERS for UK banks building societies, credit unions and PRA-design invest firms from Mar 16 FCA and PRA - believe individuals should be held accountable for effective regulation Senior Managers Regime (SMR) - indv subject to reg approval - firms allocate responsibility and monitor fitness to these indiv Applies to a narrower range of individuals than APER FCA and PRA have different approach to allocating important functions/responsibilities to indiv 3 main types of responsibility: Senior Management Functions (SMF) - replace SIF - person conducting function must be approved by regulators Prescribed Responsibilities - IFs other than SMFs - each of which must be allocated to one of the existing SMFs where the responsibility is associated closest Key Functions - IFs other than SMFs - each of which must be allocated to a significant responsibility SMF A Certification Regime - firms must assess fitness and propriety of certain employees who could pose a risk to the firm or customers Conduct Rules - replacing the statement of principle and approved person code, which are applicable to all staff, except a few specific roles such as security, catering and cleaning SMF replace APERSs SIF in certain firms Involve a risk of serious consequence for the auth-pers, or for the business or other interests in the UK ``` PRA SMFs FCA SMFs Executive Non-Executive Executive Non-Executive Chief executive function Chief financial function ``` Chief risk function Head of internal audit ``` Head of key business area Group entity senior Chairman Chair of the risk committee Chair of the audit committee Chair of the remuneration committee Senior independent director Executive director Significant responsibility senior manager Money Laundering and reporting Non-Executive director Chair of the nominations committee ``` Prescribed responsibilities - assigned to one of the existing SMFs Significant responsibility SMF - applies to induv who has delegated responsibility for a KF or ID risk (not already under the definition of another SMF) they must report to the board about the KF or risk KF must be allocated between Sig SMFs For Sen Man approvals for SMFs similar to SIF APER - can perform multiple SMFs but require separate approvals but can be combined in a single application Firm applying for invid approval will need to submit: A statement of responsibility - responsibilities as part of CF Responsibilities Map - sets out allocated respon Other info (CV etc.) Certification Regime - level below SMR Cover a wider range of indiv than APERs and covers significant harm funtions - regulated activies that pose harm to customers Indiv caught by the CR no subject to reg approval - firm has to certify FCA CR will apply to Functs previously SIFs under APER, but not under SMR Customer facing roles Anyone (not an SMF) who supervises or manages a Cert Pers Conduct Rules - new rules for banks, building societies and PRA-auth firms - under handbook COCON

Answer 8

All staff in a reg invest firm are required to be competent. The firm must ensure the employee: Has been assessed as competent in that activity Is supervised Where a firm permits an employee to give advice on packaged products to retail client it must ensure that: The supervisor has passed an appropriate exam Employee has adequate level of knowledge and skill The firm must ensure employee has passed the appropriate qual where the employee is permitted, under supervision to engage in Advising on investments, dealing with clients in securities and/or derivatives The activity of a broker fund raiser Advising on syndicate participation at lloyds The activity of a pension transfer specialist Maintaining competence - firm makes sure an employee takes into account matters such as: Tech knowledge and its application Skills and expertise Changes in market products, legislation and regulation

Answer 9

Retail Distribution Review (RDR) 2013 - Advisors must (enforced by FCA): Subscribe to a code of ethics Hold an appropriate qual, inc any qual gap-fill Carry out at least 35 hours of continuing professional development (CPD) a year Hold a statement of professional standing (SPS) from an accredited body Firms submit info about advisors inc complaints involving that advisor in a 12 month period If they don’t meet standards can’t make recommends to retail clients Ethical standards - FCA sees as central in increasing professionalism FCA amended APER to emphasis personal accountability - apply to all approved pers not just RDR Modernised Quals - listed in FCA handbook Keeping knowledge up to date - 35 hours CPD PA - inc seminars, lectures, conferences, workshops etc. Accredited Bodies - responsible for All advisors who use their services are subscribing to code of ethics - statements of principles for APERs “” hold an appropriate qual - inc verifying 100% of their gap-fill Carry out random 10% CPD sample heck Recognise CPD activity from a range of providers

Answer 10

FCA supervises a number of RIE under the FSMA - this gives exemption from authorisation To be recognised RIE must comply with recognition requirements laid out in FSMA 2000 RIE may operate regulated markets and MTFs FCA recognises multiple exchanges inc. LSE , NEX, LME and ICE futures europe. RIE being recognised allows it to develop own means of fulfilling regulatory objectives and obligations RIE required to deliver high standards of investor protection. (page 1116) Transparency requirements under MiFID are: Pre-trade transparency - obligation to publish current orders/ quotes Post-trade transparency- price, volume and time of trans and execution venue (as close to real time) MiFID harmonised commodity derivative trading regime, key changes include: Limit on the size of positions that can be held (set by FCA) Daily reporting to the regulator by trading venues FCA power to request info to ensure position limits are being complied with

Answer 11

FSA 2012 - BE responsible for regulating settlement systems, RCHs and recognised payment systems under Banking Act 2009 RCH and payment systems = financial market infrastructures BoE recognises multiple CHs inc. ICE CLEAR Europe, LME Clear, LCH.Clearnet and CME Clearing Europe RCH being recognised allows it to develop own means of fulfilling regulatory objectives and obligations

Answer 12

LSE is authority for admitting public companies for listing Companies wanting to be on official list must meet requirements for listing set out by UKLA If not but want to be on an exchange - AIM (lighter requirements) LSE is also a RIE IFE is a RIE where financial futures and options are traded using an electronic order matching system Only IFE members cna trade and clear contracts Two types who execute business IFE: Trader - own trades or on their companies behalf Broker - acting on someone else's behalf

Answer 13

Derivatives can be trading on organised exchanges or OTC markets Exchange-traded markets, derivatives contracts are standardised with specific delivery/settlement terms Electronic main trading system ET derivs publicly reported and cleared through a CH - CH honors trade if seller defaults OTC derivs negotiated between parties

Answer 14

In europe MiFID II/MiFIR and EMIR are key initiatives In UK all deriv exchanges are RIE - regulation of market largely carried out by the exchange Trading derivs on an exchange, MTF or OTF requires subject to MiFID II transparency rules pre/post trade

Answer 15

Trading derivs on an exchange, MTF or OTF requires subject to MiFID II transparency rules pre/post trade OTC no requirement for transparency EMIR does require entities who enter into a deriv contract to: Report every deriv contract they enter into a trade repository Implement new risk standards, inc op processes and margining, for all bilat OTC DERIVS Clear via a CCP, those OTC derivs subject to a mandatory clearing obligation Public register for the Clearing obligation IDs the classes of OTC derivs that CCPs are auth to clear - there are 8 depositories registered by ESMA

Answer 16

Deriv trading on IFE or LME - once trade matched it is registered with a CH which becomes the central counterparty to the contract IFE = ICE Clear europe, LME = LME Clear IFE member trading on behalf of a client - back to back contract established between member and client; therefore, IFE member acts as principles not agents for clients ICE Clear Europe not counterparty to member - client relationship Hold position in an IFE/ LME future/ option - obligation to lodge initial margin = amount of cash or liquid asset set down by the CH sufficient to ensure customer can satisfy contract conditions Profits/ loss paid into traders margin account - CH will require account to be topped up if account drops below margin level - this addition payment = ‘variation margin’ IFE/LM contract undergoes daily revaluation until delivery/offset To offset contract - equal and opposite position must be entered into - CH notified that is closing a trans. Margin then returned Clearing OTC moved mainly to central counterparty clearing following EMIR - implemented by UK through FSMA which imposes 3 requirements To clear OTC derivs that have been declared subject to the clearing obligation through a (CCP) To put in place certain risk management procedures for OTC derivs transaction that are not cleared To report derivs to a trade repository Clearing requirements - Clearing thresholds €1bn gross notional value for OTC credit and equity derivs (indv thresholds) €3bn gross notional value for interest rate and foreign exchange (indv threshold) €3bn in gross notional value for commodities and others (combined thresh) Trans designed to reduce risk to commercial activity or treasury financing do not count in the above ESMA decides which classes of OTC derivatives must be cleared Risk management Obligation - Both financial and non-financial counterparties that enter into an OTC deriv that is not cleared by a CCP must have procedures in place to monitor mitigate the operational and credit risk Reporting Requirement - Concluded, terminated or modified contract must be reported to a trade repository the next working day

Answer 17

TTCAS used by deriv firms that enter into margined transactions with clients TTCAS allows them to treat margin (amount paid by client as collateral) as their working capital rather than client money which must be segregated In insolvency margin money that fell under a TTCA would be recoverable only on an unsecured creditor basis - may be irrecoverable if firm has no assets MiFID II and FCA Client Asset rules prohibit use of TTCA with retail clients due to obligations Additionally a firm can use a TTCA with non-retail clients where the firm has: Disclosed risk involved with a TTCA and the effect of the TTCA on client assets/money Assessed the appropriateness of the TTCA for the client - firm should consider connection between clients liability to the firm and the need to use TTCAs and the extent by which the amount of client money/ assets subject to the TTCA exceed the client's liability to the firm

Answer 18

Client categorisation - FCA handbook defines as a person whom the firm provides, intended to provide, or has provided a service in the course of a regulated activity or in the course of MiFID or equivalent 3rd country business, an ancillary service FCA handbook definition of client also includes a potential client, in the case of financial comms by a firm to a client - the client is a client of the firm and the client of a rep appointed to act in the course of business with the firm is also a client

Answer 19

Retail clients - afforded most reg protection. Note: under MiFID II, a local authority is considered a retail client - can opt up to professional status if they are investing on behalf of a local gov pension scheme (LGPS) Professional Clients - considered more experienced, knowledgeable and sophisticated - assess own risk; therefore, afforded fewer regulatory protections Eligible counterparties - are investment firms, credit institutions, insurance companies, UCITS and their management companies, other regulated financial institutions and other undertakings. A ‘per se’ professional client is essentially one of the following (unless a ECP) An entity required to be auth or reg to operate in financial markets In rel to business not MiFID or equiv 3rd country business a large undertaking that meets the following conditions Corporate body that has called up share capital of at least £5mil Large undertaking meeting two of the following balance sheet of €12.5m; net TO €25m; average number of employees during the year of 250 A national or regional gov, a public body that issues debt, central bank or an international or supranational body Another inst inv whose main activity is to invest in FIs

Answer 20

A firm may treat a client as an elective prof if it complies with point 1 and 3 and where applic 2: 1) Firm undertakes an adequate assess of the expertise, experience and knowledge of the client that gives reasonable assurance, in light of the nate of the transactions or services envisaged, that the client is capable of making their own inv decisions and understanding risk involved 2) In relation to MiFID or equiv 3rd country business in the course of that business at least two of the following are satisfied Client has carried out trans, in sig sixe, on the relevant market at an average freq of 10 per Q over the previous 4Qs Size of the client’s financial instrument portfolio exceeds €500,000 The client works/has in the financial sector for at least 1 year in a professional position that requires knowledge of the trans or services envisaged 3) The following procedure is followed: Client must state in writing to the firm that it wished to be treated as a PC, either generally or in respect of a particular service or trans, or type of trans or product The firm must give the client a clear written warning of the protection and investor compensation rights the client may lose THe client must state in writing, in a separate document from the contract that it is aware of the consequences of losing such protections

Answer 21

An EC is a client that is either a per se ECP of an elective ECP client. Entities automatically recognised as per se CPs = IFs, Credit inst, UCITS and their management companies, PFs and their MCs,govs, central banks and supranational inst. A firm may treat a party as an Elective CP if: The client is an undertaking and is a per se prof client or request such categorisation The firm has in rel to MiFID or 3rd country business, obtained express confirmation from the prospective counterparty that is agrees to be treated as an ECP

Answer 22

Client agreements - MiFID II requires firms to enter into a basic written agreement with prof and retail clients for each invest or ancil service (not just new clients) This agreement should cover: The terms of any such agreement Info about the firm and its service

Answer 23

Financial promotion is an invitation or inducement that aims to persuade the recipient to engage in investment activity. Promotion of controlled activity and controlled invest - schedule 1 FSMA Financial Promotion Order 2005 (FPO) FPO relates to invitations or inducements about providing/advising following products Stakeholder pensions Personal pensions Investment such as: bonds/gilts, shares/stocks, units in CIS, endowment plan, options, futures and contracts for differnces, ISAs, stakeholder/non-stakeholder investment child trust, funeral plan contracts Cash saving and bank account Insurance Under section 21 FSMA an non-authorised person cannot communicate a financial promotion in the UK, unless: Its contents are approved for the purposes of s.21 by an auth person It is subject to an exemption under the FPO Fin Promo not restricted in terms of the media of communication. Rules apply to printed advertising, radio, personal visits, telephone calls, emails and internet and digital interactive TV Exemptions under the FPO are split into 3 categories Exemptions applicable to all controlled activities (Part IV of the Order) including: Financial promotion to overseas recipients - made to persons outside of uk or directed at them Follow-up financial promotions Introductions Exempt persons Generic promotions - not relate to a controlled investment Investment professionals Journalists - to any non-real time financial promotion when it is a journalist medium, info service or TV/radio broadcast that doesn’t lead/enable people to buy or sell securities Exemptions applicable only to controlled activities concerning deposits and contracts of insurance other than life policies Exemptions applicable to any other types of controlled activity (Part VI of the order) Exemptions under Part IV of the order: certified high net worth indv and sophisticated inv.

Answer 24

Principle 7/ COBS for comms = comms is fair, clear and not misleading - this rule doesn’t apply to An Excluded communication - ‘one-off’ promotion that isn't a cold call Financial promotions communicated only to investment professional or eligible counterparties - however, comms in relation to a designated investment business is still subject to fair, clear not misleading To comply with the rule Firms must ensure: Make clear fact that clients capital at risk Quote yield figure that gives balanced short and long term prospects of the invest An investment with Complex charging structure, contains sufficient info and takes into account recipient needs Offers non firm products/ packages - fair and not misleading impression of the producer/ manager of the underlying investments

Answer 25

Except for excluded comms and image advertising the firm should ensure the info: Includes the name of the firm Is accurate and always gives a fair and prominent indication of relevant key risks when ref pot benefits Is sufficient for, and presented in such a way that it is likely to be understood by the average TA member Does Not disguise, diminish or obscure important items, statements or warnings Uses a font size for indicated risks that is equal to predominant font throughout ad and prominent layout Consistently presented in the same language throughout all forms of info and marketing materials Is up to date and relevant to the means of communication being used Comparison should be clear, fair and not misleading MiFID or equivalent third party country business - sources of info must be specified and key facts/assumptions included Where info contains past performance indications - it must satisfy the following 1) Past perf cannot be prominent feature of communication 2) Info must include appropriate perf info in complete 12 month periods 3) Ref period and source info clearly stated 4) Info must contain a prominent warning that figures relate to the past 5) Indication relies on figures from a non EEA currency or that the retail client is in - currency must clearly be stated together with a warning that the return may increase of decrease due to currency fluctuations 6) If the indication is based on gross performance, the effect of commissions m fees or other charges must be disclosed

Answer 26

The following conditions should be satisfied: Simulated past perf is based on actual past perf of one or more FI or fin indices which are the same as/similar to the FI concerned In respect to the past perf above conditions in bullets 1 to 3 and 5 to 6 are satisfied The info contains a prominent warning that the figures refer to simulated past perf and that past perf is not a reliable indicator of future perf

Answer 27

Direct offer is one that contains: An offer by firm/ person to enter a controlled agreement with a respondent to the communication Invitation by any person who responds to the communication to make an offer to the firm or another person to enter into a controlled agreement and specifies the manner of response or includes a form which any response may be made A direct offer aimed at or addressed to a retail client contains: Infor referred to in the rules on info disclosure relevant ot that offer or invitation If it doesn't relate to MiFID or quiv 3PB, addition appropriate info about the rel business and investments, so the client is able to understand the nature and risks

Answer 28

A cold call = financial promotion in the course of a personal visit, telephone convo or other interactive dialogue which: Wasn’t initiated by recipient Does not take place in response to an express request from recipient of financial promo Cold call related to a marketable package product that is not a highly volito fund or a life policy linked to a highly volatile fund The cold call relates to regulated investment bus conducted by an auth firm and involves reg invest that are readily realisable securities or marketable non-geared package products Where a firm communicates a non-written financial promo: It should do so at an appropriate time of day The purpose of the coms should be stated from the outset Clarify if the client wishes to continue or terminate communication - and at any time A contact point should be given - appointments can be cancelled

Answer 29

Financial promotion through social: Should be fair, clear and not misleading Fin Promo - consumers are made aware of potential benefits and relevant risk FCA advice includes Promo for investment products - make clear a promo is a promo Stand-alone compliance - each post must be considered Risk warnings and other required statements - rules are media neutral and apply to social Image advertising

Answer 30

SYSC require a firm that comms with client needs adequate systems and controls, policies and procedures FP rules also include detailed authorisation and record-keeping details A firm must make an adequate record of any Fin Promo it approves/comms. The record must be retained: Indefinitely for a pension transfer, opt-out FSAVC (FSAVCs are similar to personal pension policies - but can be used by members of an occupational pension scheme to increase their pension provision.) 6 years for a life policy, occ pension scheme, small self-admin scheme (SSAS), pers pension or SH pen 5 years for MiFID or 3CB 3 years for other cases

Answer 31

A firm must provide the distance marketing info in good time before a consumer is bound by a distance contract offer - this includes firm info, FS, contract and redress - clear and comprehensible

Answer 32

A firm must provide a client with the following general info: Contact details of the firm the methods of communication to be used between the firm and client statement of the fact that the firm is authorised the name of the component of authority that has authorised it the firm is acting through an appointed representative statement of this fact the nature frequency and timing of the reports on the performance of the service provided by the Firm to the client the complex of Interest policy of the firm if the Firm closer to manage Investments for a client the following info is applicable: Information on the method and frequency of evaluation of the designated investments in the client portfolio details of any delegation of the discretionary management of all or part of the designated investment of funds in the client portfolio A specification of any benchmark against which the performance of the client portfolio will be compared the types of designated Investments that may be included in the client portfolio and types of transactions that may be carried out in those designated Investments including any time limits the management objectives level of risk to be reflected in the managers exercise of discretion and any specific constraints on that discretion

Answer 33

MiFID introduced a ban on inducements - firms providing independent investment advice and portfolio management services to professional clients For retail it applies to restricted/independent advice Commision/ benefits rather than acceptance and retention prohibited Research is not considered an inducement so long as it is paid for by the firm out of its own resources or form a special research payment account which is funded by charges to clients - not by 3rd parties

Answer 34

No longer charge a retail client commission but the firm is paid an adviser charge Applies to independent/restricted advice but not basic Product providers prohibited from offering or paying commision, remuneration or any kind of benefit in connection with advice given COBS 6.1B.9 - a firm that offer to facilitate, directly or through a third party, the payment of adviser charges, including by means of a platform service must: Obtain and validate instructions from a retail client in relation to an advisor charge Offer sufficient flexibility in terms of the adviser charge it facilitate Not pay out or advance adviser charger to the firm to which the adviser charge is owed over a materially different time period, or on materially different basis to that in which it recovers the advisers charge from the retail client Fees can be fixed (price list) or tailored presented in good time in clear language- must always act in the clients best interest Fund manager charges MiFID II requires fund managers to disclose full charges your requirement to have an unbundled charge for research is part of a wider moved to provide more transparency of costs for consumers ongoing costs figure (OCF) = the industry's standard measure of running costs is no longer sufficient Asset Managers and fund distributors must give the total cost cost must be in pounds and pence not percentage investment managers who run portfolios appliance on a discretionary basis must notify investors within 24hrs if the portfolio falls by 10% or more FCA rules to remedy the lack of competition include: fund managers to assess annually whether the charges taken from a fund are justified - assessment of value Independent directors make up at least 25% of an authorised fund managers board introducing a new prescribed responsibility for fund managers which will take effect alongside the wider extension of the senior managers and certification regime preventing fund managers from retaining risk free box profits ( profits from matching buy and sell orders = they do not incur transaction costs) guidance to make it easier for fund managers to convert investors to cheap share classes where this is in their interests

Answer 35

Firms providing investment advisory or discretionary portfolio management services; must assess the suitability of both retail and professional clients - vital for making recommendations or taking decision to make an assessment of suitability the Firm must obtain the necessary information investment objectives including risk tolerance financial situation incredibility to bare losses knowledge and experience relevant to the specific instrumental service Should make suitability assessments on all decisions on whether to trade a famous provider suitability reports and a durable medium to retail clients to Firm makes a personal recommendation and the client: sell shares or units in a regulated collective investment scheme sell shares for Investment Trust savings scheme buys sells surrenders or cancels rights in a personal stakeholder pension scheme Elects to make income withdrawals from a short-term annuity entera into a pension transfer or pension opt-out enters into any transaction in relation to a life policy other changes to suitability Rules introduced by MiFID II are: a firm And should assess suitability of an overall package where advice is provided on a package of bundled products or services a firm remains responsible suitability assessment provided through an automated or part automated system a firm should ensure information collected about clients reliable a firm should ensure information about the client is up to date if the firm is providing ongoing advice for discretionary management services A firm should conduct periodic suitability reports for discretionary management 9 Where a firm decides the services or Investments is not suitable for the clients then no personal recommendation should be made or decisions to trade when advice or discretionary management involves switching Investments the firm should collect information on existing Investments it cost of benefits of the switch can be analysed when a service of periodic suitability assessment and reports is provided if reports that are produced can be limited to any charges

Answer 36

churning and switching related to deliberate over trading of client accounts for the purpose of generating commission Churning relates to Investments generally switching refers to overtrading within and between packaged products Firms are also required to test appropriateness where they provide investment services other than investment advice or discretionary portfolio management - typically non-advised services they must ask the client to provide information about their knowledge and experience in the Investment field relevant and specific type of products or services offered or demanded firms offer only those products that are inappropriate, if the client demands a product that has assessed to be inappropriate, the Firm must give a warning which can be in standard form that the product is inappropriate The client wants to crack on regardless of the warnings and it is not in the appropriateness of the client the Firm must warn the client but is unable to judge appropriateness before doing business

Answer 37

Insistent clients are those who wish to proceed with the transaction against the advice of an investment firm FCA States a client should be considered in insistent client where: the Firm has given the client a personal recommendation I can't decide to enter into a transaction which is different from the recommendation The client wishes the Firm to facilitate that transaction the Firm should communicate with the insistent client in a way that is fair, clear and not misleading, This should include the Firm has not recommended transaction and that it would not be in accordance with the firm's personal recommendation the reasons why the transaction will not be in accordance with the recommendation the risks of the transaction proposed by the insistent client the reasons why I did not recommended transaction

Answer 38

The appropriateness obligation does not apply to a client and non-complex financial instruments non-complex financial instruments is one that is not a derivative

Answer 39

Independent advice - if a firm claims to be independent it must: consider a broad range of products provide unbiased and unrestricted advice based on a comprehensive and thorough analysis of the relevant market the body advice, inform its clients that it provided independent advice The FCA has introduced the term ‘retail investment product’ this is wider than packaged products, it includes structured investment products, all investment trusts, unregulated collective investment schemes(UCIS) and any other investment that offers exposure to underlying financial assets but in packaged form restricted advice - if you don't give us advice and products from a limited number of providers or only consider certain types of products it will be described as restricted. firms must disclose in writing and orally before providing advice that they are restricted and explain the nature of the restriction

Answer 40

best execution = this must contain the process by which firms will obtain the best results for clients this must be kept up to date when determining the best possible result, the Firm must take into account price, cost, speed, likelihood of Execution and settlement, size, nature or any other consideration as relevant to the order firms must provide clients with information on their policy and obtain their consent to trade outside a regulated market or an MTF they must get client consent firms must be able to demonstrate at the request of the currently executing the orders in accordance with the policy notion of reasonableness - The Firm should assess and compare the results for the client that would be achieved by executing the order on each of the executed venues listed in the firm's order execution policy that is capable of executing that order order execution policy - this allows the Firm to obtain the best possible results for its clients. the Firm must provide the following details on its execution policy in good time: an account of the relative importance the firm assigns to the execution Factors in accordance with the exclusion criteria, all the process by which the Firm determine the relative importance of those factors a list of the execution venues in which the Firm places significant reliance in meeting its obligation to take all reasonable steps to obtain on a consistent basis the best possible result for the execution of client orders a clear and prominent warning that any specific instructions from a client may prevent them from taking the steps that has the and implemented in its execution policy a firm must review its execution policy annually

Answer 41

a firm must satisfy the following conditions when carrying out client orders: the Firm must ensure that all orders are executed on behalf of clients are promptly and accurately recorded and allocated the Firm must carry out comparable orders sequentially and promptly unless the characteristics of the order or prevailing market conditions make this impracticable the Firm must inform a retail client about any material difficulty relevance of the proper carrying out of orders promptly upon becoming aware of the difficulty a firm is not permitted to carry out a kind order or transaction for their own accounts in aggregation with another client order unless the following conditions are met: it must be unlikely that the aggregation of orders and transactions will work overall to the disadvantage of any clients whose order is to be aggregated it must be disclosed each clients whose order is the aggregated of the effect of aggregation rework to its disadvantage in relation to a particular order and all the allocation policy must be established and implemented providing sufficiently precise terms for the fair allocation of aggregated all in Productions including how the volume and price of order determines allocations in the treatment of partial excuses

Answer 42

Personal Account dealing - arrangements aimed at preventing conflict of interest and insider dealing by a relevant person - this is defined by the market abuse regulator - this includes: entering into a personal transaction that meet at least one of the following criteria: the person is prohibited from entering into it under the market abuse regulation the transaction involved the misuse or improper disclosure of that confidential information the transaction conflicts with an obligation of the Firm to a customer under the regulatory system, or any other obligation of the Firm under MiFID advising of curing other than the proper course of their employment any other person to enter into a transaction and designated Investments which every person transaction of the relevant person would be covered by why the first point or relevant provision disclosing other than the normal course of his employment any information or opinions or any other person of the relevant person knows that as a result of that disclosure that the other person will or would likely take either of the following steps: transfer transaction in designated investments would be covered by the first point or relevant provision to advise a particular another person to enter such a transaction the firm: informed promptly of any personal transactions entered into by a relevant person in the case of outsourcing arrangements must ensure that the service provided to which the activity is outsource maintains a record of personal transactions entered into by any relevant person and provide the information to promptly on request a record must be kept on personal transactions notified to the firm or identify buy it these rules do not apply to personal transactions: effective under discretionary portfolio Management Service in units of shares in collective undertakings in life policies

Answer 43

nvestment research research or other information recommending or suggesting and investments, concerning one or several financial instruments or issuers of financial instruments, Intended for distribution channels or for the public, and in relation to which the following conditions are met is labelled on described as investment research or is otherwise presented as an objective independent explanation of the matters contained in the recommendation if the recommendation in question would be made an investment firm to clients it would not constitute the provision of a personal recommendation Generally produced by a financial analyst - not inv research unless recommending an investment strategy When producing IR, a firm should ensure: No ‘front running’ (dealing ahead) until the recipients have had time to act. Exceptions: Market maker acting in good faith and in the ordinary cause of market making in the execution of an unsolicited client order Firm/employees do not accept inducements with those who have a material interest in the subject matter of the IR financial analyst remuneration is not been linked to specific recommendations and those who publish investment research which are not supervised by investment banking or sales and trading personnel

Answer 44

A firm that disseminates IR produced by another person to the public/clients is exempt from complying with the requirements on IR if the following is met The person producing the IR is not a member of the group the firm belongs to The firm does not substantially alter the recommendations within the IR The firm does not present the IR as having been produced by it The firm Verifies the producer of the Investment research subject to the Investment research requirements in relation to the production of that investment research or has established a policy setting out such requirements

Answer 45

Research recommendation produced by a firm must disclose clearly and prominently the identity of the person responsible for reproduction and in particular : the name job title of the individual prepare the research recommendation the name of the firm when is Amazon investment firm a credit institution, disclose the identity of the competent authority of the firm I must take reasonable care to ensure that backs in the research recommendations are clearly distinguished from interpretations estimates opinions and other types of non-factual information its sources for a research recommendation reliable, or if there is a doubt as to whether the source reliable, that is clearly indicated all projections, forecast and price targets in a research recommendation or clearly labelled as such and the material assumptions made in producing or using them are indicated the substance of its research recommendations can be substantiated as reasonable upon request by the FCA. a thermostatic and retain sufficient records describe the basis of this substantial these requirements do not apply in the case of non written research recommendations

Answer 46

Product governance = creation and management of products throughout the life cycle MiFID II proposals relevant to manufacturers and distributors Under MiFID II, the obligation to manufacturers are: Product design including product charges should meet the needs of the target market and firm should identify groups for whom the product is unlikely to be suitable Firms consider the impact of new products and orderly func on market Products should be stress-tested The charging structure should be assessed to ensure it is appropriate Distribution strategy should meet the needs of the target market Firms working together to develop a single product should have a written agreement setting out their share of these responsibilities Compliance function at the firm should monitor product governance, and firm management boards should have effective control and oversight over the process Firms should provide relevant information distributors The obligations for distributors are: Before distribution, firms should consider the target market it is likely to be suitable and any groups for whom it is unlikely to be suitable Firms should Gather relevant information from manufacturers distribution strategy should meet me to the target market product review regularly confirm they remain consistent with target market needs, and make changes to the distribution strategy or other processes if they have ID problems Firms should provide manufacturers with info on sales and regular reviews mentioned earlier the firm's compliance function should monitor product governance Firms management boards should have effective control and oversight over the process firms working together to distribute a single product to share information with other firms in the chain

Answer 47

137D of the FSMA tackle issues relating to specific products, prod feature or marketing practices relating to specific prods. FCA powers = requiring certain prod feat to incl, exclude or changed, impose restrictions on sales or marketing of the prod, ban on sales or marketing of a prod in relation to all or some types of customer FSA 2012 - Temporary Intervention Rules (TPIRs) = delay in complying with requirements for public consultation would prejudice the interest of consumers Allow FCA to take action, inc restricting the use of certain prod feat and requiring that a prod will not be promoed to some or all types of customers Can prevent prod being sold all together TRIPs last no longer than 12 months TRIPs when product is mis-sold. TRIPs sit alongside reg tools

Answer 48

Packaged Retail and insurance-based investment products = PRIIPs PRIIPS covers investments where the amount repayable to the retail invest is subject to fluctuations due to exposure to reference values or to the perf of one or more asset that is not directly purchased by the RI. PRIIP Non PRIIP Packaged retail producsts Alternative investment funds inc un reg CIS Unreg CIS that is not AIF AIFs that are not CIS Insurance-based invest, structured products, derivatives, and investments issued by some special purpose vehicle Investment trust saving schemes Non-life insurance products Deposits (except structured deposits) Pensions Annuities Debt Securities ISAs PRIIP applies only when a PRIIP is being offered A PRIIP manufacturer is required to Prepare a KID per PRIIP product Publish KID on their website KID - stand-alone, standardised document for each investment (3 sides A4) KID should contain the following info: What is the product? what are the wrists and what could I get in return? What happens if ( name of the PRIIP manufacturer) is unable to payout? What's the cost? how long should I hold it and can I take money out early? How can I complain? other Relevant info UCITS schemes are PRIIPS - PRIIPS reg not applied until 31 Dec 19 - until then, need to apply KIID KIID - aimed at RIs, must provide info on the following essential elements in respect of the UCITS scheme identification of the scheme A short description of its investment objectives and Investment policy past performance presentation or performance scenarios cross and associated charges it risk/ reward profile of the investment, including previous guidance and warnings in relation to the risk associated with investments in the scheme KIID updated as freq as the UCITS req - but must after any material change or at least annually and within 35 business days of each calendar year

Answer 49

RI right to cancel a packaged product within 14 days, except for life policies or pension schemes where the period is 30 days Firms must keep records concerning the eright to exercise cancellation/ withdrawal right and must retail them: Indefinitely - pension transer, pension opt-out or FSAVC 5 years - life police, pension contract, personal pension scheme, or SH pension scheme

Answer 50

IF records to comply with FCA rules, E.G Client categorisations with supporting info Suitability records IF must keep detailed records for 5 years of every order received from a client and for portfolio management services of every dealing decision

Answer 51

If IF conducted order on behalf of od client, it must Promptly provide info concerning the exec of the order For a RI/RC send a notice confirming the execution of the order - ASAP NLT 1 BD after Exec, if confirmed by 3rd party NLT 1 BD after that receipt Supply client with order status For deriv transactions Maturity, delivery and expiry date of the deriv If an Option - ref to last exercise date All essential details req in respect of each contract comprised in the open position and each contract by which it was closed out and the profit/ loss to the client arising out of closing out that position For exercising an option Date of exercise - the time of exercise or that client will be notified of hat time on request Whether the exercise creates a sale or purchase in the underlying asset

Answer 52

Where a firm manages investments on behalf of a client: RI/RC must provide a periodic statement every 6 months except when - RC requests for every 3 months or on a transaction by transaction basis If the agreement between a firm and a RC for the managing of invest authorises a leveraged portfolio, the PS must once a month A firm must inform a RC if they have the right to request 3 month PS. If a firm manages investments for a RC or operates a RC account that includes an uncovered open position in a contingent liability transaction The firm must report No later than the end of the business day in which the threshold exceeded or If the threshold is exceeded on a non-business day, close of the nex BD A firm must make a copy of any occasional/periodic statement: For MiFID/3PCB at least 5 years from the date of dispatch Non-MiFID/3PCN at least 3 years from DoD

Answer 53

IOT provide unitholders with relevant info, the Fund manager must: Prepare a short report and a long report ½ yearly and annually Send the short report to all unitholders Make the long report available to unitholders on request A short report for an authorised fund must contain for the relevant period: Name of the scheme or sub-fund Its stated investment objectives and the policy and strategy pursued for achieving those objectives A brief assessment of its risk profile For UCITS - the figure for the synthetic risk and reward indicator disclosed in its most up-to-day KIID Name and address of the authorised FM A review of the scheme or sub-funds investment activities and investment perf during the period A perf record Sufficient info to enable unitholders to form a view on where the portfolio in inv at the EOT period Any sig info enabling the unitholders to make an informed judgement in the activities of the sch or sub-fund during the period A statement that the latest long report is available on request.

Answer 54

Fiduciary duty = obligation to act in the best interest of another party The client places special trust upon one person, the fiduciary, to exercise their discretion/expertise when acting for the client Client Asset Sourcebook (CASS) ``` Firm Type The highest amount of client money held over last year (or projected to hold over next year) The Highest amount of safe custody assets held over last year (or projected to hold over next year) CASS Large firm CASS Medium firm CASS Small More than £1bn =or> £1m and £10mil and ```

Answer 55

Client asset custody rules (CASS 6) - firm arrange adequate protection for client assets Custody rules restrict co-mingling or client and firm assets and minimise the risk of client asset use without the consent Must not enter into an arrangement for securities-financing transactions unless: The client has given prior consent to the use of the FIs on specified terms Use of the client's FI is restricted to the specified terms which the client has consented to

Answer 56

All firms must perform internal custody record checks as regularly as necessary - at least monthly Record checks must be carried out by one of two methods: Internal custody reconciliation method - comparison on a particular date between two separately maintain records Internal system eval method - evaluates the completeness and accuracy of the firm’s internal records/ accounts held for clients Whether the firm’s SYSC ID and resolve discrepancies in its internal records/accounts of custody assets for its clients All firms that physically hold custody assets must undertake physical asset reconciliation as often as necessary - at least every 6 months. Performed by one of two methods Total count method - the count of all physical assets held by a firm on a particular date Rolling stock method - the count of all physical custody assets held by the firm being undertaken in more than one stage, with each stage referring to a count of a line of stock or group of stock lines When firm deposits CCA with 3P, the requirements for external reconciliation are: At least monthly Between firms internal records and those provided by 3P 3p records may comprise of any appropriate info Where firms hold physical custody assets, such as paper stock, they are not required to undertake external custody reconciliations in respect of the relevant assets. However, firms would be expected to carry out periodic spot checks on whether the title to an appropriate sample of custody assets they hold is registered in accordance with the CASS rules. Discrepancies must be rectified immediately

Answer 57

Apply to a firm who receives or holds money from a client in the course of MiFID or desig invest business Protect investor money in the event of insolvency - must keep client money separate from own On receipt of client money, a firm must place this money in one or more account opened with a ‘client bank account’ which is any of the following: Central bank A Banking Consolidate Directive (BCD) credit institution A bank auth in 3rd country A qualifying money market fund A firm must hold records for the reason it chose the institution for 5 years after ceasing using the institution All client must be received directly into a client account and not via the firms - unless the alternative approach Alternative approach = a firm sends written confirmation sent to FCA from firms audito that the firm has SYSC which are adequate to enable to operate another approach effectively In the course of business if the AP no longer appropriate must cease within 6 months

Answer 58

The firm must exercise due skill, care and diligence in the selection, appointment and period ic review of the 3P and arrangements for the holding and safekeeping of those safe custody assets A firm must ensure any client safe custody assets are identifiable separately from the FIs belong to the firm and from the those belonging to the 3P Must take into consideration to expertise and market rep of the 3P and any legal reqs or market practises related to holding those FIs Must make records of the grounds it satisfied itself on the appropriateness of its selection of the 3P Enters a written agreement with any person with who it deposits clients safe custody assets at a min: Set out bingin terms of the arrangement Be in force for the duration of the arrangement Clearly set out the custody service that the 3P is contracted to provide

Answer 59

Carried out each business day External reconciliation if using a 3P who hold client money A firm may use standard or non-standard methods Standard methods are: Individual client balance - calculation of clients money requirements by reference to how much the firm should be holding in total for each of its indv clients, with a positive balance in respect of the non-margined transaction, margined transactions and certain other matters. Net negative add-back - Firm calculates its client money requirement by reference to the balances in each client bank account, adding any individual clients net position in a specific client bank account that is negative and certain other matters Non-standard methods of internal client money reconciliation do not meet the reqs placed on firms undertaking one of the standard methods of internal client money reconciliation

Answer 60

Mandates give the firm the ability to control a clients assets or liabilities which meet the following conditions They are obtained by the firm from the client, and with the client's consent They are retained by the firm They put the firm in a position where it is able to give any or all of the types of instructions in (a) to (d) a) instructions to another person in relation to the client's money that is credited to an account maintained by that other person for the client Instructions to another Person in relation to any money to which the client has an entitlement whether another person is responsible to the client for about entitlement instructions to another person in relation to an asset to the client that person is responsible for the client for holding that asset instructions to another person such that the client has a debt or other liability to the other person or any other person Circumstances are such that the clients further involvement would not be necessary for the firm's instructions described in A to D to give it effect Mandate can take any written form and need not state that it is a mandate

Answer 61

Supervision model consists of 3 pillars: Firm systematic framework (FSF)- preventative work through structured conduct assessment of firms - assesses firms conduct risk, checkinging whether interests of customer and market integrity are central to how the firm runs (business model and strat analysis) Event driven work - dealing with emerging/ happened problems, securing customer redress where req. Outside of the firm assessment cycle Issues and products - intensive campaigns on sectors of the market or products within a sector that are or may put consumers at risk Authorised firms two categories = fixed portfolio or flexible portfolio (maj of firms) Fixed Portfolio firms - have a named supervisor and are proactively supervised using firm-specific continuous assessment. Flexible Portfolio firms - supervised through thematic and market-based work If FCA has concerns on a firm's conduct can cancel the firm's Part4A Firm can appeal to the Tax and Chancery Chamber of the Upper Tribunal (independent body of the FCA) FSA 2012 gives FCA power to ban products after consulting with the market and misleading financial promos. FCA must follow the procedures when using this power Give direction to an auth firm to remove its own fin promo or one it approves on behalf of an unauth firm, setting out its reasons for banning it Firms can make representations to the FCA if they think it is making the wrong decision The FCA will decide whether to confirm, amend or revoke its decision. If confirmed, the FCA will publish it, along with a copy of the promo and reasons behind its decisions Following last point firms can appeal to the Upper Tribunal above FCA can prosecute a number of offences through criminal court including: carrying on a regulated activity without auth/exemption making false claims to be auth/exempt comms an invitation to engage in invest activity in breach of the restrictions on fin promo Failing to coop with/giving false evidence to an FCA investigator Misleading the FCA Insider dealing Breaches of the money laundering regs

Answer 62

FCA has a system for the consideration of complaints against a firm by customers who feel aggrieved and entitled to seek redress A firm must have effective procedures in place for handling complaints - must be written down A firm who receives a complaint must send the complainant within 8 weeks of receiving complaints; A final response; or A written response that explains why it isn’t in a position to make a final response and indicates when it could provide one informs the complainant that he or she may now take complaint to fos encloses a copy of the standard explanatory leaflet A firm must retail complaint records for 5 years for MiFID business and 3 years for other business A firm must provide FCA with a biannual complaints report

Answer 63

Operates a scheme to facilitate settlement of disputes between a customer and a firm where it hasn’t been resolved Firm must cooperate with FOS - if no chance of mediated settlement will investigate the complaint Max award by FOS is £150,000, firm is invited to pay excess but not compelled to do so FOS direction are legally binding The Pension Ombudsman Deals with complaints relating to personal or occupational pension scheme - how they are run An application to PO needs to be made within 3 years of when an event occurred, if later, within 3 years of when the complainant first knew about it Legal powers to make decisions that are final, binding and enforceable in court

Answer 64

Operates a scheme to facilitate settlement of disputes between a customer and a firm where it hasn’t been resolved - can be used by complainant when not resolved within 3 months (must be within 6 years of event or 3 years of the customer knowing the problem and six months after firms final response max)

Answer 65

FOS two jurisdictions Compulsory Jurisdiction - automatically covers firms regulated by the FCA for certain complaints Voluntary Jurisdiction - covers firms for certain types of complaints not auto covered by law under compulsory jurisdiction. Firms sign up to join the volu juris

Answer 66

FSCS deals with complaints against authorised firms that are insolvent or no longer trading If still trading redress through FOS Only certain kinds of claim are eligible for comp, in relation to Invest business these are know as protected investment business and are defined as: Desig IB carried on by the relevant person with the claimant or as agen on their behald The activities of the manger or trustee of an AUT, provided that the claim is made by a unit holder THe activities of the auth corp director (ACD) or depositary of an ICVC (open ended investment company (OEIC)) provided that the claim is made by a SH Claim within 6 years of the date on which the event causing claim occured. £50K max payout

Answer 67

Money laundering = criminals disguise source of proceeds of crime Provide a safe haven for proceeds and financial return on proceeds Proceeds of Crime Act 2002 (POCA) - covers ML of all criminal activity It is a criminal act to be suspicious of ML and not reporting it Terrorism act 2000 - specific obligation to combat terrorist financing The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLR 2017) - replaced (MLR 2007) 4th EU directive on ML Impose on firms a risk based approach to combat ML - breaks down to 4 questions: What are the firms ML and TF risks What steps could be taken to reduce this risk What policies and procedures therefore need to be adopted in light of those risks What procedures are appropriate Firms required to conduct customer due diligence (CDD)required to take simplified (SDD) or enhanced DD (EDD) in certain circumstances: PEP = politically exposed person FCA rules require firms to appoint a Money Laundering Reporting Officer (MLRO)

Answer 68

Placement - physical injection into the financial system of cash or proceeds obtained from criminal activity Layering - separation of proceeds from source by creating complex layers of financial transactions designed to disguise the audit trail Integration - the provision of apparent legitimacy to criminally derived wealth - integration schemes place the laundered proceeds back into the economy in such a way that they appear to be legitimate investment funds Investment services likely a secondary/ tertiary stage

Answer 69

JMLSG guidance approved by HM Treasury JMLSG made up of the leading UK trade associations in the financial services industry Promotes good practice in countering ML and assistance in interpreting UK ML regs

Answer 70

Main requirements are: Internal Controls, policies and procedures Identification Procedures Record-keeping - at least 5 years after completion of business Recognition and reporting of suspicious transactions - suspicious transaction is one that is inconsistent with an investors known legitimate business or personal activities Training

Answer 71

Assistance - anyone assisting ML punishable by a max of 14 years imprisonment, fine or both Tipping-off - max 5 years, fine or both Failure to report - max 5 years, fine or both Failing to comply - max 2 years, fine or both False or misleading statement - max 2 years, fine or both

Answer 72

Inside info = non-public info which is price-sensitive info of a specific and precise nature

Answer 73

ID is the dealing of public company stock/ securities by individuals with access to material non-public info about the company Prevent unfair advantage Three principal ID offences: Dealing while in possession of inside info Encouraging another to deal, or knowing that the deal will occur - includes communication that refers to a security that a person may hold and encourages them not to sell Disclosing info to another other than in the proper performance of one's duties. CJA defences to ID Info passed in the proper performance of duties and recipient not expected to deal Deal was not done to make a profit or avoid loss New issue was stabilized under the strict terms of the FCA stab rules Market maker has inside info in the course of their business but acted genuinely for that business The person dealing only has the info that certain securities were to be or had been issued, acquired or disposed of, and it was therefore a reasonable deal Chinese walls = info barrier to prevent CoI between institutional divisions

Answer 74

If found guilty of ID: On summary conviction (in a magistrates court) to a fine not exceeding the statutory maximum or imprisonment for a term not exceeding 6 months or both On conviction or indictment (in a crown court) to a fine or imprisonment for a term not exceeding 7 years, or both

Answer 75

FCA has power to investigate and prosecute the criminal offeces of ID and market manipulation. Part 11 FSMA 200 Failure to provide info to fca = contempt of court FCA has power to interview suspects under caution and apply for a warrant to enter premises for purpose of search and seizure

Answer 76

FSMA implemented the EU Market Abuse Regulation - MAR Extended scope of MAR to MTFs, OTF and certain OTC activities Prohibition in engaging in market manipulation Modifying some of the Disclosure and Transparency rules Provisions of criminal law run in parallel to the Markets Abuse Regime. Sec 401, 402 of FSMA give FCA power to prosecute a number of offences under FSMA and other law Most important offences are Breaches of the FCA listing rules, inc the offering of new security to the public in the UK before publishing a prospectus if req by rules Making misleading statements and market manipulations Misleading the FCA Insider dealing under part V of the CJA Breaches of prescribed regs relating to ML Types of behaviours that can constitute market abuse: ID Unlawful disclosure - insider discloses inside info to another, other than proper exercise of employment, profession or duties. Manipulating transactions - false or misleading impression of the price of demand of an investment Manipulating devices - effecting transactions or orders to trade which employ fictitious devices or other forms of deception Dissemination - dissem of info which gives false/misleading impression as to a qualifying investment

Answer 77

FCA can impose a fine for ID or make a statement to the effect that a person has engaged in market abuse and so issue a sanction in the form of a physical penalty. Market abuse is therefore a civil offence, and does not replace or modify any existing criminal legislation

Answer 78

BA contains 4 offences Paying bribes - for a relevant function or activity and improperly awarding them for doing so Receiving bribes The bribery of foreign public officials Failure of commercial organisations to prevent bribery Birbes to gain business advantage Cannot show adequate procedures in place to prevent bribes being paid Relevant Function or activity influence any function of a public nature and activity connected with a business. CFA raised minimum jail time for bribery from 7 to 10 years CFA targets corruption, ML and tax evasion - the act makes the following changes Improved ability to investigate the proceeds of crime Reform the Suspicious Activity Reports (SARs) regime Improved civil powers to recover proceeds of crime Measures to combat terrorist financing New corporate tax offences to prevent the facilitation of tax evasion - the act creates two new offences within this Failure to prevent facilitation of UK tax evasion aimed at catching corporations facilitating the evasion of UK taxes Failure to prevent facilitation of foreign tax evasion