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CISI: UK Financial Regulations > Chapter 3: Associated Legislation and Regulation > Flashcards

Chapter 3: Associated Legislation and Regulation Flashcards

1
Q

What replaced the EU Markets Abuse Directive?

A

MAR - Market Abuse Regulation

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2
Q

What are the three offences in relation to misleading practices? insider dealing/improper disclosure

A
  • making misleading statements (Section 89)
  • creating false or misleading impressions (Section 90), and
  • making misleading statements in relation to benchmarks (Section 91).
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3
Q

What are the maximum sentences for insider dealing and financial services offenses?

A

Max 10 years or a fine

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4
Q

What is an insider list?

A

Issuers have to draw up an insider list of all persons who have access to inside information

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5
Q

What is the main difference between MAD and UK MAR?

A

No longer just applies to executed trades, MAR also applies to unexecuted orders and RFQs

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6
Q

What must firms have to detect and report suspicious orders?

A

Procedures in place to report and detect, scale with complexity of the firm

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7
Q

What must be included in a STOR (Suspicious Transaction and Order Reporting)

A

Person submitting
Description of order/transaction
Reason of suspicion
How to identify the person involved

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8
Q

How are STORs submitted?

A

Through FCA ‘connect’ the FCAs online reporting portal

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9
Q

What can a firm do if they see suspicious activity which may not fall under the defined requirements of a STOR.

A

Submit a “market observation” through connect

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10
Q

What is a market sounding?

A

When an investment bank undertakes discussions with clients to determine appetite for a new issuance
Can include the disclosure of ‘non-public’ information, which firms need to be careful of

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11
Q

What is the criminal law of insider dealing?

A

Part V of CJA 1993, which came into force in May 1994

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12
Q

Where must price-sensitive news be published?

A

LSE’S Regulatory News Service RNS

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13
Q

Where must a deal take place for insider dealing legislation to apply?

A

On regulated markets or though professional intermediary

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14
Q

What is a special defense (2) against insider dealing for market makers?

A

Acted in good faith, so did not act upon information
Working to facilitate an acquisition or disposal

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15
Q

What is a special defense for market information?

A

That market information given was used to action an order

Example
A client had been discussing the possibility of purchasing a block of 10,000 shares in XYZ plc with their broker. The client instructs the broker to buy. Clearly, the broker has the unpublished information that the buy order exists before they deal. However, this is market information and is a specific defence against a charge of insider dealing.

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16
Q

What is an information barrier?

A

Making sure a person carrying out a transaction does not have access to information from other people in the organisation

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17
Q

What is legitimate behaviour?

A

Where a person who has inside information and trades doesn’t always do it maliciously. There are some activities where this is the case.

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18
Q

What must managers report to the FCA, issuer or emission allowance market?

A

Every transaction carried out on their own account
Transactions relating to emission allowance

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19
Q

What is the closed period and what happens here?

A

30 days before announcement of company reports, managers are not allowed to trade

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20
Q

What must firms who recommend investments do as part of MAR?

A

Ensure it is objectively presented, disclose interests or conflicts of interest

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21
Q

What is different about an investment recommendation as per MiFID?

A

It doesn’t fall under their definition of advice or personal recommendation
It is a proposal to firms or individuals for short term trading ideas

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22
Q

When do the investment recommendation provisions apply?

A

When its recommended to more than 1 individual

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23
Q

What is needed where a investment recommendation is captured by UK MAR?

A

Ongoing obligations of disclosure
Facts are distinguished from interpretations
Projections are labelled
List of all recommendations over last 12 months

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24
Q

What are the acts in relation to Money Laundering?

A

The Proceeds of Crime Act - 2002
Report any suspicious assets
The Serious Organised Crime and Police Act (SOCPA) 2005
Proceeds that if made in the UK would be illegal should be reported, e.g. bullfighting
The Criminal Finances Act 2017 - Firms fail to report tax evasion can get done
SYSC - Rules for AML policy

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25
Q

What must firms do as part of the Criminal Finances Act 2017?

A

Submit suspicious activities to the National Crime Agency called a suspicious activity report (SAR)

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26
Q

What did the MLR 2017 (Money Laundering, Terrorist Financing and Transfer of Funds
(Information on the Payer) Regulations) apply?

A

Rusk Assessments are now required
Policies controls and procedures now required
Customer DD
Enhanced DD on high risk relationships
PEPs - Politically exposed persons
Simplified DD - cases where relationship or transaction present a lower NL or TF risk are now assessed case-by-case

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27
Q

What is restricted to have on entities in high risk countries?

A

Reliance for DD

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28
Q

What now needs to do done for ownership of overseas entities?

A

Full disclosures of 25% ownership as per the UKs Economic Crime Act

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29
Q

How did the UK Sanctions Legislation change? as per UKs Economic Crime Act

A

There will no longer be the requirements to prove that those breaching sanctions knew or suspected they were breaching the law in order for the UK government to impose a fine.

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30
Q

What are the 3 stages of Money Laundering?

A

Placement - introduction into financial system
Layering - moving between financial system
Integration - appears legitimate

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31
Q

What are the five offenses the Proceeds of Crime Act introduced and what are the penalties?

A
  1. Concealing - disguise criminal property
  2. Arrangements - Working with a criminal on their property e.g. advice on transaction
  3. Acquisition - using criminal property
    1, 2 and 3 - 14 years jail and fine
  4. Failure to disclose - Regulated employees to report suspicious activity
    Fine and jail up to 5 years
  5. Tipping off - Giving information to suspects that was gained from business
    fine and up to 2 years
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32
Q

What is the nominated officer?

A

NO, person in charge of AML at firm - things are disclosed to them

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33
Q

What is the MLRO?

A

Money Laundering Reporting Officer

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34
Q

What is the objective test?

A

Determines whether a reasonable person would have been suspicious of the activity

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35
Q

What is the offence of prejudicing investigations?

A

If someone makes a disclosure that could prejudice an investigation or falsify documents

36
Q

What must an MLRO do annually?

A

Provide a report of risk and appropriate information to its governing body at least annually

37
Q

Is under what regime is MLRO required?

A

FCA - SM&CR

38
Q

Where should the MLRO be based?

A

UK

39
Q

What is the JMLSG?

A

Joint Money Laundering Steering Group
This is the primary source of procedural guidance

40
Q

What are the 3 parts of JMLSG guidance?

A

Part 1 - General to all firms
Part 2 - Sectoral to particular types of firm e.g. retain banking
Part 3 - Specialist guidance, relating to electronic payments

41
Q

What approach is the JMLSG guidance?

A

Risk approach - firms identify their own risks and implement controls

42
Q

Who must a firm appoint for AML systems and controls?

A

appropriately qualified senior member of staff

43
Q

What statement must firms have regarding AML?

A

Policy statement that provides a framework for firm and staff that has named individuals

44
Q

What are the three aspects of CDD for a new relationship as per JMLSG

A

Identifying the customer
Obtaining verification of identity
Information about the intended nature of relationship

45
Q

When would simplified due diligence occur?

A

For lower risk CPs like;
listed companies
regulated firms
pooled accounts
UK authorities etc
low risk product etc pensions

46
Q

When must EDD be applied?

A

high-risk third country
client not physically present
PEP, or related to
complex unusual transaction

47
Q

What is a PEP defined as?

A

‘an individual who is or has, at any time in the preceding year, been entrusted with prominent public functions, other than as a middle-ranking or more junior official’.

48
Q

What are the two stages of disclosure for any suspicious activity?

A

MLRO - they will review matters and decide whether to disclose
NCA

49
Q

What is the difference between an MLRO or Nominated Officer?

A

All firms must appoint an MLRO for oversight of AML controls
The Money Laundering regs require all affected firms to appoint a nominated officer who is responsible for receiving internal ML disclosures
In practice they tend to be the same person

50
Q

What is the Financial Action Task Force (FATF)?

A

Responsible for measures to combat money laundering, seen as a global intergovernmental body that can set international standards
Crime, corruption, terrorism, trafficking, weapons of mass destruction

51
Q

What is the penalty for failure to report terrorism suspicions?

A

five years in jail and a fine

52
Q

When can the Treasury issue directions under the Counter Terrorism Act?

A

When the FATF has flagged a country
When HM Treasury believes ML/TF risks are in a country
HM Treasury believes a country is developing weapons of mass destruction

53
Q

What are the two major difficulties when comparing ML to TF activities?

A

For TF, only small amounts of money are needed
If legitimate funds are used to fund TF, can be difficult to identify

54
Q

What are the four offences of the Bribery Act 2010?

A
  • offering, promising or giving a bribe to another person
  • requesting, agreeing to receive or accepting a bribe from another person
  • bribing a foreign public official, and
  • a corporate offence of failing to prevent bribery.
55
Q

What are the penalties under the Bribery Act 2010?

A

maximum 10 years in jail, corporate offence is unlimited fine

56
Q

How does the crime of bribing a foreign public official differ to the others?

A

Only applies to the briber, and not the public official

57
Q

What are the 6 principles of Bribery defence?

A

Proportionality - defences in line with size of business
Top level commitment - Top down culture
Risk assessment - thoughts about bribery that could take place
DD - knowing who the firm is dealing with
Communication - Communicating the firms polices and procedures to staff
Monitor

58
Q

How long are firms required to keep customer due diligence reports for?

A

5 years after business relationship ends or occasional transaction

59
Q

Whats the maximum amount of time that transactional records have to be kept?

A

10 years

60
Q

What is the purpose of disclosure rules?

A

quick and fair disclosure
when issuer can delay public disclosure
when info is confidential

61
Q

What two requirements are introduced for inside information as part of the disclosure rules?

A

denying access - issuers must establish controls to control who can access inside info
breaches of confidentiality - issuers must disclose through a RIS (regulatory information service)

62
Q

What is the UK Takeover Code?

A

Ensures shareholders are treated fairly and are not denied an opportunity to decide on merits of takeover
Orderly framework for takeovers

63
Q

What is the level that a shareholding is deemed significant in the UK?

A

3%

64
Q

Is holding significant rights also reportable?

A

Yes, 3% also under UK DTR

65
Q

When must an investors holding above 3% be rereported

A

Everytime it falls or rises through a percentage point

66
Q

When must significant holdings be reported to company?

A

Within two business days

67
Q

When must company report significant holdings to LSE RNS or RIS

A

By the end of the following business day

68
Q

When are holdings by non-beneficial owners reported?

A

at 5% and 10%

69
Q

Who needs to report transaction and trades?

A

Regulated firms

70
Q

Which transactions are exempt from MiFIR reporting?

A

Securities financing transactions
Repos or Sec lending

71
Q

What unit monitors compliance with reporting rules?

A

Financial Conduct Authority’s Transaction Monitoring Unit (TMU)

72
Q

What regulation covers financing transactions?

A

UK Securities Financing Transaction Regulation (UK SFTR).

73
Q

What is an Approved Reporting Mechanism (ARM)?

A

FCA’s approved transaction reporting mechanisms

74
Q

What is the difference between trade and transaction reporting?

A

Trade is to feedback market depth and liquidity (single sided)
Transaction can be dual-sided where both CPs are in scope

75
Q

What regulation covers derivative trade reporting?

A

UK EMIR

76
Q

Do non-UK entities have a obligation under UK EMIR?

A

No - this includes branches of third-country firms.
E.g. London branch of Canadian Bank

77
Q

How do EU and UK SFTR differ?

A

UK - Non-financial CPs do not have to report securities financing transactions

78
Q

How is trade reporting done for trades on LSE electronic order book?

A

Automatically

79
Q

How quickly do off-order book transactions need to be reported to the exchange?

A

Quickly as possible, max 3mins

80
Q

What should a firm do if a retail client requests to be treated as a professional client under COBS?

A

Refer the client to the Financial Conduct Authority for approval

81
Q

Under COBS, what is required when firms provide execution-only services to clients?

A

They are not required to assess suitability but must assess appropriateness for complex products

82
Q

Which principle under COBS requires that clients must be provided with information that is clear, fair, and not misleading?

A

The Transparency Principle

83
Q

Which of the following best describes the “Know Your Client” (KYC) obligation under COBS?

A

Firms must gather sufficient information to provide suitable advice and services

84
Q

When can the persons discharging managerial responsibilities closed period restrictions be lifted?

A

severe financial difficulty requiring the immediate realisation of funds.
employee share schemes or similar transactions where there is no change in the beneficial ownership
of those shares.

85
Q
A

CISI: UK Financial Regulations (6 decks)

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