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CISI: UK Regulation 2.0 > Chapter 3: Associated Legislation and Regulation > Flashcards

Chapter 3: Associated Legislation and Regulation Flashcards

1
Q

What does S52 of the Criminal Justice Act 1993 relate to?

A

The criminal offense of insider dealing

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2
Q

What are the potential consequences for breaching the S52 of the CJA 1993?

A

10 years and / or an unlimited fine

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3
Q

What the UK MAR and FCA Sourcebook relate to?

A

The **civil offense ** of market abuse

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4
Q

What are the potential consequences for breaching the UK MAR and FCA Sourcebook?

A

Unlimited fine

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5
Q

In order to be convicted of a “criminal offense” who must adjudicate this?

A

The courts.

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6
Q

Can the FCA get someone done for breaching the UK MAR and CJA 1993?

A cirminal and civil offense?

A

Yes

although the FCA will often chose the best course of action depending on where the resources are better spent.

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7
Q

In respect of the courts, when the FCA takes an individual to court, what is meant by the “Burden of proof”?

A

That the court is convinced “beyond all reasonable doubt that they individual intended to commit such crime.

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8
Q

What constitues a “civil offense”?

Why is this differnece to what makes someone guilty of a criminal offense?

A

An individual is found guilty of a civil offense based on the EFFECT it had on third parties.

Irrespective of their INTENT, associated with criminal convictions

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9
Q

Is a criminal offense under S52 of the CJA automatically a civil offense under the UK MAR?

A

Yes

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10
Q

What does S89-91 of the Financial Services Act 2012 relate to?

A

The criminal offense of misleading statements and impressions

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11
Q

What are the potential consequences S89-91: Misleading Statements Impressions of the Financial Services Act 2012?

A

10 years imprisonment and / or a unlimited fine

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12
Q

Is a criminal offense under S89-91 of the FSA 2012 automatically a civil offense under the UK MAR?

A

Yes

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13
Q

What are the 4 conditions that constitute “Inside Information”?

A
  • Relate to particular securities or issuers
  • Specific or precise
  • Has not been made public
  • Is price sensitive
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14
Q

What are the 3 offenses under S52 of the CJA?

Insider dealing

A
  • Dealing on
  • Encouraging other to deal on
  • Disclosure of
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15
Q

What are EXCLUDED investments under S52 of the CJA?

The insider dealing (think what prices wouldnt / cant be affected by inside knowledge)

A
  • Bank accounts
  • Commodity spot markets
  • Spot and forward FX
  • Insurance products
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16
Q

What is the Scope of Law for Insider Dealing?

What and where (which markets also?)

A

Any financial instrument under MiFID II that trades on:
* UK / EEA / Gibraltar Regulated Market MTF or OTF
* NASDAQ / SIX / NYSE

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17
Q

What are the 4 General defenses of Insider Dealing?

A
  • Did not expect to profit or loss
  • Believed the information that the info was public
  • Would have acted the same way regardless
  • Did not expect the recipient to deal
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18
Q

What are the 3 Special Defenses of Insider Dealing?

A
  • Market maker in usual course of business
  • Market information
  • Price stabilisation
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19
Q

Who prosecutes and enforces Insider Dealing?

A

**The FCA **
Or sometimes criminal court is CJA and FSA

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20
Q

Who monitors transactions for Insider Dealing and can report to the FCA?

A

The LSE

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21
Q

For FSA 2012: Misleading statements and impressions, what is S89?

A

S89 Misleading Statements: e.g. lying to persuade someone to deal, concealing relevant facts in a takeover document.

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22
Q

For FSA 2012: Misleading statements and impressions, what is S90?

A

S90 Misleading Impressions: e.g. abusive squeezes and market rigging

Covers both recklessly creating misleadin impression and deliberatley creating misleading impressions.

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23
Q

For FSA 2012: Misleading statements and impressions, what is S91?

A

S91 Misleading Statements in relation to benchmarks

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24
Q

What are the Defenses for Misleading Statments and Impressions?

There are 2 - Blue Orchid

A
  • Reasonably believed the statement was true and not misleading
  • Acted in conformity with price stabilisation rules of information controls (Chinese walls)
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25
Q

What are the UK MAR offenses?

4x A PERSON SHALL NOT!!! - Remeber as this is a civil offense it incorporates both Insider Dealing (CJA) and Market Manipulation (FSA)

A

A person shall not:
* Engage or attempt to engage in insider dealing
* Recommend or induce another person to engage in insider dealing
* Unlawfully disclose inside information
* Engage or attempt to engage in market manipulation

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26
Q

What is the Scope of UK MAR?

Very similar to others, write it down

A

Applies to financial instruments traded, admitted to trading, or for which a request admission to trading on a regulated market, MTF and OTF

OTC markets fall in scope if they affect the price above.

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27
Q

When might OTC markets be in scope to be a “Relevant Market”?

Which markets

A

If they affect the price of regulated markets, OTF, MTFs

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28
Q

Does UK MAR cover emmissions allowances?

A

Yes

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29
Q

Under the UK MAR offense of Market Manipulation, which products are covered that usually arent?

A

Commodity derivatives and spot commodity markets

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30
Q

For the FCA Market Conduct Handbook Guidance, what are the behaviours that amount to market abuse?

There are 6

A
  • Insider dealing
  • Improper disclosure
  • Manipulating transactions
  • Manipulating devices
  • Dissemination
  • Benchmark manipulation
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31
Q

For the FCA Market Conduct Handbook Guidance, what are the Regulatory Sanctions, that can be put in place?

There are 4

A
  • Withdrawal of Regulated Status
  • Public statements
  • Financial penalties
  • Can apply to courts for injuctions and restitution
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32
Q

Under UK MAR what is considered “Legitimate Behaviour”?

“Safe harbours”

A
  • Sare buy backs and price stabilisation
  • FCA rules
  • Takeover Code
  • Market Soudning processes (disclosing information for book building purposes)
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33
Q

What are the requirements for Market Sounding to qualify as a legitimate behaviour under UK MAR?

Insider lists?

A

Requires formalised process including disclosures, notifications of confidentiality and record keeping.

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34
Q

What is a STOR? Why is it used?

Suspicious…..

A

Suspicious Transactions and Order Reports

Used to notify the FCA of suspected suspicious behaviours

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35
Q

Under UK MAR, when should firms report suspicious transactions to the FCA using a STOR?

A

Without delay

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36
Q

Firms should not second gu……..

What are the general requirements for a STOR?

This is not what they should contain, spereate flash card

A
  • Reporting suspicions extended from transactions only, so as to include orders
  • Must be reported to the FCA without delay
    * Firms should not “second guess” if they think the regulators would consider this suspicious
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37
Q

What should STORs contain?

What information, think anything they might need 5 points

A
  • Identity of reporting person
  • Description of the order
  • Reasons why MA is suspected
  • Identifiying who is else is involved
  • Anything else the FCA may require
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38
Q

What is the MAR PDMR?

Who must they disclose this to, and within what time frame

A
  • Persons Discharging Managerial Responsibility
  • i.e. employees and directors dealing in their own companies shares (all PLCs) must disclose to both their company and the FCA within 3 business days of their transaction
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39
Q

What is a “Closed Period”?

When are these issued, what do they mean?

A

A period PDMRs cannot trade their companies shares
* Before year end and half yearly reports - 30 days prior to announcement

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40
Q

What is the PCA 2002?

What does this set out?

A

Proceeds of Crime Act 2002
* Ammended by Serious Organised Crime and Police Act 2005
* Criminalises Money Laundering and sets out the offenses and penalties

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41
Q

What is the MLR 2017?

Does this also include terrorist financing?

A

The Money Laundering Regulations 2017
* Detailed regulation setting out the administrative provisions for companies at risk of companies handling funds for money laundering and terrorist financing
* Complies with money laundering directive

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42
Q

Under Money Laundering and Financial Crime, what does the SYSC set out?

High level guidance for…….

A
  • High level guidance for authorised firms
  • Makes reference to JMLSG
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43
Q

What does the Joint Money Laundering Steering Group guidance do?

Are these binding?

A
  • Guidance on how to implement AML provisions
  • Not binding
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44
Q

What are the 3 stages of Money Laundering?

A
  • Placement
  • Layering
  • Integration
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45
Q

What is the Purpose of Layering?

What is this meant to cover?

A

Cover the audit trail

46
Q

What is the Legislation that Criminalises Money Laundering?

A

The Proceeds of Crime Act 2002

47
Q

Who are the Parties that are most at risk of Money Laundering at each stage?

Placement, Layering, Integration

A
  • Placement = Bank
  • Layering = Fund Manager (any investment firm)
  • Integration = Business / Property (anyone)
48
Q

Under MLR 2017, what are the rules surrounding “Reliance”?

What must they do and what cant they do, 2 points

A
  • Must conduct due dilligence on any “relied upon” party at the start of any relationship
  • Cannot rely upon customer due dilligence (CDD) by firms in high risk jurisdictions
49
Q

Under MLR 2017, what are the rules surrounding “Policies, controls and procedures to mitigate and manage risk”?

Must be proportionate to what? Who must they appoint?

A
  • They must be proportinate to the size of the firm
  • Appoint a director who is responsible for these functions MLRO
50
Q

What are the 3 stages to Customer Due Dilligence to MLR2017?

When a firm approached you, not when reffered to

A
  • Identification Procedures
  • Enhanced CDD (PEPs and high risk factors) or…..
  • Simplified CDD (case by case)
51
Q

Under MLR 2017, what must be satisified when identifying persons?

When must this be obtained? What does this include for companies?

A
  • Obtain satisfactory evidence of identity as soon as reasonably practicable
  • For companies this includes ownership and control structure
52
Q

When employees send reports to the MLRO, who will they escalate this to?

A

The National Crime Agency

53
Q

Under MLR 2017 how long a records expected to be kept?

A

5 years

54
Q

For Money Laundering Education and Training, what are employees expected to know?

A
  • The law and regulations associated AML
  • Recognising suspicious transactions
  • Proper ways to report
55
Q

What are the Criminal Offenses for Directors and Senior Managers under MLR 2017?

A
  • Failure to comply with MLR
  • Recklessly making a statement in relation to money laundering
56
Q

What is the sentence for breach of the MLR?

For Money Laundering Regulations, not Proceeds of Crime Act

A

Two years imprisonment or an unlimited fine

57
Q

Under the Proceeds of Crime Act 2002, what are the** General Offenses** and what are the consequences?

There are 4 and can be committed by anyone

A
  • Concealing (14 years and or unlimited fine)
  • Arrangements (14 years and or unlimited fine)
  • Acquiring or possesing (14 years and or unlimited fine)
  • Knowingly prejudicing an investigation (five years and or an unlimited fine)
58
Q

Under the Proceeds of Crime Act 2002, what are the Regulated Sector Offenses and what are the consequences?

Extra for financial services

A
  • Failure to report (5 years and or an unlimited fine)
  • Tipping off: Informing someone they are under investigation (2 years and or an unlimited fine)
59
Q

What is “Tipping off” what are the consequences of this?

A

Illegally informing someone they are under investigation for Money Laundering

2 year imprisonment and or an unlimited fine

60
Q

Is the JMLSG a risk based approach?

A

Yes

61
Q

Who makes up the JMLSG?

Who are its members?

A

UK trade association and including the British Banking Association

62
Q

What does the JMLSG seek to acheive?

To produce guiding what?

A

Guidance notes for firms on how to best implement the MLR

63
Q

What are the guiding principles under the JMLSG?

A
  • Customers identities verified before acceptance
  • Knowing the customer on an ongoing basis
  • Adequate training of staff
  • Recognition of the importance of
64
Q

Under the JMLSG risk mitigation approach, what 4 factors of documentation must a firm follow?

A
  • Summary assesment of ML and TF risk
  • Allocation fo responsibilities
  • Summary of firms procedures
  • Summary of firms monitoring
65
Q

Is the MLRO a SMF?

If so what do they need to be?

A

Yes, an approved (pre approved person)

66
Q

In terms of a responsible person, who do POCA, MLR and The Terrorism require a frim have?

A

A nominated officer

67
Q

Who does the FCA require a firm to have in relation to money laundering?

Which SMF?

A

MLRO

68
Q

What is the National Crime Agency?

What is their objective?

A
  • Objective is to tackle organised crime, defend the UK borders, fight fraud and cyber crime and protect children and young people
  • Led by a senior chief constable
  • Accountable to the home secretary
69
Q

What are the Obligations under the Terrorism Act 2000 and the Anti-Terrorism Crime Security Act 2001?

Obligations to report suspicions of?

A
  • Provision of funds for terrorism
  • Use and possesion of terrorist funds
  • Laundering money which is terrorist property

Report to nominated adviser typically MLRO

70
Q

What are the consequences for failing to report under the Terrorism Act 2000 and the Anti-Terrorism Crime Security Act 2001?

A

Five years and or an unlimted fine

71
Q

What does the Counter Terrorism Act 2008 do?

Gives power to who?

A

Gives extra powers to Her Majestys Treasury HMT, to impose directors on firms suspected of handling funds for terrorist actvitiy.

72
Q

What are the Powers of the Counter Terrorism Act 2008?

There are 3, try to elaborate

A
  • Customer due dilligence and monitoring - increasing the identification requirements
  • Systematic reporting - HMT can require this, without court approval
  • Limiting or caesing business - Where the Financial Action Task Force require, or where they feel significant threat is
73
Q

Why are Terrorist Funds difficult to identify over Money Laundering?

A
  • Small amounts
  • Legitimate source
74
Q

Under the Bribery Act 2010, what are the offences?

What may consititute an offense also?

A
  • S1: Paying (and offering) bribes
  • S2: Receiving (and soliciting) bribes
  • S6: Bribing Foreign Officials
  • S7: Failing to prevent bribery
75
Q

What is a Defence under S6 Bribing a Foreign Official?

Under the Bribery Act 2010

A

Defence is to show that local written law required the payment to be made

76
Q

If a firm had adequate procedures in place, are they guilty if an employee committs or attempts bribery?

A

No

77
Q

Is hospitality considered a Bribe?

A

No

78
Q

What are the Penalties for Individuals and Companies under the Bribery Act 2010?

A
  • **Individuals: ** 10 years jail time and or an unlimited fine
  • **Companies: ** Unlimited fines
79
Q

What is the goal of the Data Protection Act 2018?

A

To protect personal data

80
Q

What are the Principles of the DPA 2018?

There are 6

A
  • Processing must be lawful and fair
  • Purposes of processing must be specified, explicit and legitimate
  • Personal data must be adequate, relevant and not excessive
  • Personal data must be kept accurate and up to date
  • Personal data must be kept for no longer than is necessary
  • Personal data must be processed in a secure manner
81
Q

For breach of the DPA principles, what is the Information Commissioners Office enforcement powers, for HIGHER TIER?

What are the values

A

Up to £17.5m or 4% of global annual turnover

82
Q

For the ICO, what constitutes the need for Higher penalties?

What activities must be carried out to warrant this?

A
  • Data protection and principles breach
  • Data subjects rights
  • Transfer of data to thirs countries
83
Q

For breach of the DPA principles, what is the Information Commissioners Office enforcement powers, for STANDARD TIER?

A

£8.7m or 2% of global annual turnover for more administative breaches

84
Q

What is meant by a “Data Subject”?

A

A living person

85
Q

Under the EU Transparency Directive, what are the Thresholds of Notifiable interests?

The %s

A

5%, 10%, 15%, 20%, 25%, 30%, 50%, 75%

86
Q

Under the UK Disclosure Rules, how long does a firm have to notify the issuer of a change in interest?

What will the issuer do once this has been done?

A

Within 2 business days

Notify the market

87
Q

Under the UK Disclosure Rules, when must the firm be notified?

A movement above and below what? and when must disclosure be made above this?

A

A movement above and below 3%

When above 3% when the holding passes over the next whole % point

i.e (3.4% -> 3.8%) NO! (4.8% -> 5.1%) YES!

88
Q

Under the UK Disclosure Rules, are Market Makers exempt below 10%?

A

Yes

89
Q

Under the UK Disclosure Rules, when must the firm be notified, with regards to Fund Managers?

A

5% and 10% and then every whole % point

90
Q

Who are exempt from the UK Disclosure Rules?

A
  • Custodians and bare nominees
  • Shares held as collateral
91
Q

If a company sends out a S793 Companies Act 2006 letter, what are they able to request?

From a shareholder? Shares held……

A

Shares held:
* At present
* Within the last 3 years

92
Q

What persons can be Connected Parties?

If these persons hold these shares you are considered to have interest?

A
  • Own shares
  • Spouse
  • Minor children (under 18)
  • Share in a company you hold more than 1/3 of share in
  • Concert parties
93
Q

What does The UK Takeover Code, seek to ensure?

A

Code ensure that shareholders are being treated fairly and are not denied the oppurtunity to decide on benefits of the takeover.

94
Q

Under the UK Takeover Code what are the 6 General Principles?

A
  • All shareholders given equal treatment and protected
  • Shareholders given sufficient time and info to decide
  • Board of target act in best interest of company
  • False markets must not be created
  • Predators make bids they can afford
  • Target company may not be hindered in its affairs for longer than is necessry
95
Q

Why is a Trade Report required?

A

To comply with MiFID post trade transparency

96
Q

Who submits a Trade Report?

Either or

A

The most senior party or the selling party (if same size)

97
Q

When must a Trade Report be Submitted?

2 options

A
  • Automatically
  • Or within 3 minutes
98
Q

Where must a Trade Report be Submitted?

Who to?

A

The exchange

99
Q

What is the purpose if a Transaction Report?

Not trade report

What must it satisfy

A

Market Surveillance

100
Q

Who submits a Transaction Report?

A

BOTH PARTIES

101
Q

When must a Transaction Report be Submitted?

A

T + 1

102
Q

Where must a Transcation Report be Submitted?

A

To the relevant regualtor via an approved mechanism e.g. TRAX, UnaVista

103
Q

What is European Markets Infrastructure Regulation (EMIR)?

A

EMIR is a regulation of OTC derivatives to encourage greater transparency and better more effective risk managment

104
Q

What are the Reporting Obligations under EMIR?

Where must they be reported and who to?

A
  • Trades must be reported to a Trade Repository
  • Applies to both financial and non financial counterparties
105
Q

What do the Short Selling Regulations look to achieve?

Public or private

A

Requirement to disclose net short position

Both

106
Q

What are the Key Points Regarding the Securities Financing Transaction Regulation (SFTR)?

There are 3 limit the use of Rehypoth……

A
  • Securities finance transaction must be reported to a trade repository
  • Specific disclosure of rehypothcated assets
  • Financial counterparties only in the UK
107
Q

What happens if the Capital Resources of a Firm, falls below that of the Capital Adequacy Requirement set by that of the FCA (PRA if dual reg)?

A

Notify them immediatley

108
Q

What is Pillar 1 of the CRD?

min cap for

A

The minimum capital requirements for credit, market and operational risk

109
Q

What is Pillar 2 of the CRD?

Supervisory

A

Supervisory review - discussion with regulator as to whether additional capital should be held

110
Q

What is Pillar 3 of the CRD?

A

Disclosure of risk management to improve market discipline

CISI: UK Regulation 2.0 (5 decks)

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