chapter 3 part 2 Flashcards
custody of client assets. adequate arrangements protecting assets
- restrict co mingling of client and firm assets, esp in case of firm insolvency
- minimise risk of unauthorised use by the firm e.g. stock lending
how often must a firm carry out internal and external custody reconciliations
as regularly as necessary but at least monthly
firms that physically hold custody assets must undertake physical asset reconciliation how often
as often as necessary but at least every 6 months.
“total count method” - reconcile all on the same day
“rolling stock method” - gradually reconcile over time methodically
when should errors be corrected in reconciliation
promptly
what is client money and what is main purpose of rules
money which firm looks after which is not its own
rules to ensure money protected in event of insolvency
where should client money be held
on trust and promptly placed into a client bank account operated by an authorised bank or fund. client account should be separately identifiable from firm’s own account
co-mingling: can allow client money to be placed with firm money but have to prove to fca that there is adequate controls.
how often are internal reconciliation of client money
daily basis
individual client balance method. net negative add back method
firms should reconcile internal records with those of third parties
often as necessary, soon as reasonably possible after reconciliation date
FCA supervision 3 pillars
Firm systematic framework - what are risks in business model
Event driven work - brexit, covid, PPI
Issues and products - thematic reviews e.g. suitability report
Fixed portfolio firms
big firms - named FCA supervisor
flexible portfolio firms
majority - small firms. category 1 - regular interaction of FCA supervision with firm. -> category 4 - light touch oversight
complaints
publish summary of procedure and refer eligible customers to it at point of sale
bi-annual summary complaint report to FCA
8 week point of receiving complaint firm must
- have sent a final response
- a written response explaining why not resolved and say can be referred to financial ombudsman service
FOS two jurisdictions
compulsory: automatically covers firms regulated by FCA for most complaints
voluntary: firms sign up to join
Must complain to FOS when
- within 6 years of event happening or
- 3 years of customer knowing of the problem
- or within 6 months of the firm’s final response
max award FOS
£355,000 -> binding on firm
financial services compensation scheme (FSCS) is a last resort that deals with what
claims for eligible claimants of insolvent UK authorised firm for protected investment business
When must FSCS receive complaint and whats max payout
£85,000 for investment business per insolvent firm per individual
claim made within 6 years
money laundering
getting illegally obtained money and making it look like it was obtained legitimately
3 stages of money laundering
placement - getting the money in the financial system
layering - transferring to different accounts to make it difficult to track where money has gone
integration - integrating money into society
money laundering and terrorist financing regulations 2019
identify money laundering risks and take appropriate steps to reduce risks
- customer due diligence: identify + verify customer, nature of relationship, record keeping, ongoing monitoring
- simplified due diligence: if risk is lower e.g. for another authorised firm
- enhanced due diligence: if risk is higher e.g.not face to face, correspondent banking, higher risk situ, politically exposed person
- appointment of nominated person or MLRO under FCA rules
who does MLRO report to
National crime agency NCA
Proceeds of Crime Act 2002 (POCA) offences
Assisting money laundering inc concealing, arranging or acquiring: 14 years in jail or unlimited fine or both. defence if make disclosure to MLRO, who reports to NCA
Failure to report: 5 years in jail or unlimited fine or both, objective test
TIpping off: 5 years in jail or unlimited fine or both
Failure to comply (senior management team): 2 years in jail or unlimited fine or both
False or misleading statement: 2 years in jail or unlimited fine or both
Joint Money Laundering Steering Group
Not mandatory but best practice
Guidance on how to interpret + implement anti-money laundering regulations and terrorist financing risks
-internal controls and policies
-identification
-record keeping
-recognising and reporting suspicious transactions
-training
insider dealing
dealing in shares or certain other securities by individuals with access to material non-public info
enforced and prosecuted by FCA
max punishment:
-magistrates court: 6mo jail and/or 5000£ fine
-crown court (more serious - indictable offence): 7yrs jail and/or unlimited fine
applies to individuals
specific insider dealing offences (DED) - criminal justice act
- dealing on a regulated market or via a broker
- encouraging others to deal
- disclosing info unless its your job
securities covered by insider dealing
shares, ADRs (american depository receipts)
warrants
debt/bonds
options, futures and CFDs
(not commodities, or commodity derivatives, fx, fx derivatives, collective investment schemes)
to be inside info it must be
unpublished, specific/precise, relates to a specific security, price sensitive
and obtained by any of: director, employee, shareholder, virtue of office or employment, direct/indirect source of one of above
defences against insider dealing
- info passed on in proper performance of duties w/o expectation of recipient dealing
- deal not done to profit or avoid loss
- you’re a market maker acting in good faith
- price stabilisation
- only had info that certain securities were to be traded
types of market abuse under market abuse regulation
insider dealing unlawful disclosure manipulating transactions manipulating devices dissemination - - no proof of intent required. just effect
market abuse covers where
all prescribed markets which are investment exchanges in UK and all other EEA regulated markets
market abuse offence
financial penalty, no jail sentence
read about
mar and otc?
bribery act 2010 penalities
individuals - 10 years in jail or unlimited fine or both
companies - unlimited fine
bribery act 4 offences
- promising or giving financial advantage to induce improper performance (active)
- soliciting or receiving financial advantage to undertake improper performance (passive)
- bribing a foreign public official
- corporate offence ..?
UK criminal finances act
facilitates authorities to investigate and prosecute corruption, money laundering and tax evasion
- improved ability to investigate proceeds of crime
- reform of SAR (suspicious activity report) reporting
- improved powers to recover proceeds of crime
- measures to combat terrorist finance ?
