chapter 3 part 2

Question 1

custody of client assets. adequate arrangements protecting assets

Answer 1

• 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

Question 2

how often must a firm carry out internal and external custody reconciliations

Answer 2

as regularly as necessary but at least monthly

Question 3

firms that physically hold custody assets must undertake physical asset reconciliation how often

Answer 3

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

Question 4

when should errors be corrected in reconciliation

Answer 4

promptly

Question 5

what is client money and what is main purpose of rules

Answer 5

money which firm looks after which is not its own

rules to ensure money protected in event of insolvency

Question 6

where should client money be held

Answer 6

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.

Question 7

how often are internal reconciliation of client money

Answer 7

daily basis

individual client balance method. net negative add back method

Question 8

firms should reconcile internal records with those of third parties

Answer 8

often as necessary, soon as reasonably possible after reconciliation date

Question 9

FCA supervision 3 pillars

Answer 9

Firm systematic framework - what are risks in business model
Event driven work - brexit, covid, PPI
Issues and products - thematic reviews e.g. suitability report

Question 10

Fixed portfolio firms

Answer 10

big firms - named FCA supervisor

Question 11

flexible portfolio firms

Answer 11

majority - small firms. category 1 - regular interaction of FCA supervision with firm. -> category 4 - light touch oversight

Question 12

complaints

Answer 12

publish summary of procedure and refer eligible customers to it at point of sale
bi-annual summary complaint report to FCA

Question 13

8 week point of receiving complaint firm must

Answer 13

• have sent a final response

- a written response explaining why not resolved and say can be referred to financial ombudsman service

Question 14

FOS two jurisdictions

Answer 14

compulsory: automatically covers firms regulated by FCA for most complaints
voluntary: firms sign up to join

Question 15

Must complain to FOS when

Answer 15

• 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

Question 16

max award FOS

Answer 16

£355,000 -> binding on firm

Question 17

financial services compensation scheme (FSCS) is a last resort that deals with what

Answer 17

claims for eligible claimants of insolvent UK authorised firm for protected investment business

Question 18

When must FSCS receive complaint and whats max payout

Answer 18

£85,000 for investment business per insolvent firm per individual
claim made within 6 years

Question 19

money laundering

Answer 19

getting illegally obtained money and making it look like it was obtained legitimately

Question 20

3 stages of money laundering

Answer 20

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

Question 21

money laundering and terrorist financing regulations 2019

Answer 21

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

Question 22

who does MLRO report to

Answer 22

National crime agency NCA

Question 23

Proceeds of Crime Act 2002 (POCA) offences

Answer 23

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

Question 24

Joint Money Laundering Steering Group

Answer 24

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

Question 25

insider dealing

Answer 25

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

Question 26

specific insider dealing offences (DED) - criminal justice act

Answer 26

• dealing on a regulated market or via a broker
• encouraging others to deal
• disclosing info unless its your job

Question 27

securities covered by insider dealing

Answer 27

shares, ADRs (american depository receipts)
warrants
debt/bonds
options, futures and CFDs
(not commodities, or commodity derivatives, fx, fx derivatives, collective investment schemes)

Question 28

to be inside info it must be

Answer 28

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

Question 29

defences against insider dealing

Answer 29

• 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

Question 30

types of market abuse under market abuse regulation

Answer 30

insider dealing
unlawful disclosure
manipulating transactions
manipulating devices
dissemination
- - no proof of intent required. just effect

Question 31

market abuse covers where

Answer 31

all prescribed markets which are investment exchanges in UK and all other EEA regulated markets

Question 32

market abuse offence

Answer 32

financial penalty, no jail sentence

Question 33

read about

Answer 33

mar and otc?

Question 34

bribery act 2010 penalities

Answer 34

individuals - 10 years in jail or unlimited fine or both

companies - unlimited fine

Question 35

bribery act 4 offences

Answer 35

• 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 ..?

Question 36

UK criminal finances act

Answer 36

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 ?