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FCA Paper 3: UK Financial Regulation > Chapter 3 - revisited > Flashcards

Chapter 3 - revisited Flashcards

1
Q

Insider dealing - type of offence, max penalty etc

A
  • Criminal offence
  • S52 criminal justice Act 1993
  • Must have intent and be proved beyond all reasonable doubt to prosecute (burden of proof)
  • Max penalty is 10 years and/or unlimited fines
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2
Q

Market Abuse - type of offence, max penalty, how is it classified, what rules govern it etc

A
  • Civil offence
  • rules in UK MAR and FCA sourcebook
  • Classified by the affect it has not by whether there was intent or not.
  • Balance of probability used - easy to pass punishment
  • unlimited fine in max penalty
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3
Q

Misleading statement and impressions - type of offence, max penalty etc

A
  • Criminal offence
  • Rules under Fin. Svs. Act 2012 - S89-91
  • intent must be proven beyond all reasonable doubt
  • max penalty is 10 years and/or unlimited fine - crown court
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4
Q

Insider dealing - 4 requirements of, what are the offences

A

Must be all 4 of the following to class as insider dealing:
* Relates to particular securities/issuers
* specific or precise info
* non-public info
* price sensitive

Criminal offences are to:
* Deal on inside info
* encourage others to do so
* disclose inside info

Scope of the law covers:
* Any financial instrument (defined under MiFID) trading on a UK/EEA/Gibraltar reg. mkt, MTF or OTF, NASDAQ/SIX/NYSE.

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5
Q

Insider dealing - excluded investments

A
  • Bank accounts
  • Commodity spot mkts
  • spot and forward fx
  • insurance products
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6
Q

General defences to insider dealing

A
  • Did not expect the deal to yield profit (avoid loss) by trading on the info
  • believed on reasonable grounds the info was already public
  • would have acted the same way regardless of possessing the info.
  • did not expect the recipient to deal
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7
Q

Special defences to insider dealing

A
  • Price stabilisation rues
  • market information
  • market makers in the ordinary course of business
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8
Q

Insider dealing enforcement structure

A
  • LSE (exchange) monitor transactions
  • FCA prosecutes any foul play
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9
Q

Misleading statements and impressions definitions

A
  • Under fin. svs. act 2012 section 89-91
  • S89 - Misleading statements - lying to persuade someone to deal, concealing relevant facts in takeover docs, etc
  • S90 - Misleading impressions - abusive squeezes, market rigging. Covers both recklessly created misleading impressions and deliberately created misleading impressions.
  • S91 - misleading statements in relation to benchmarks
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10
Q

Defences to Misleading statements and impressions

A
  • Reasonably believed that the statement or act was not false or misleading
  • Acted in conformity with price stabiising rules or control of information rules (chinese walls)
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11
Q

Market Abuse Offences

A
  • Person shalll not engage (or attempt to engage) in insider dealing to include amending/cancelling orders.
  • Can’t recommend or induce others to engage in insider dealing.
  • unlawfully disclose insider info
  • A person shouldn’t engage or attempt to engage in market manipulation
  • Market abuse penalties are effect based and require a lighter burden of proof to prosecute as it is a civil offence
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12
Q

Market abuse - FCA mkt conduct handbook guidance behaviour considered mkt abuse

A

Behaviour that is considered mkt abuse:
* Insider dealing
* improper disclosure
* Manipulating transactions
* manipulating devices
* dissemination
* benchmark manipulation

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13
Q

Market abuse - available regulator sanctions

A
  • Withdrawal of regulated status
  • Unlimited financial penalties
  • public statements/censures
  • applying to courts for injunctions and restitution
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14
Q

Times when you are allowed to engage in mkt manipulation - 4 points

A

Legitimate behaviours (safe harbours):
* share buy back programmes and stabilisation measures
* FCA Rules
* Takeover code
* Market soundings (requires a formalised process [insider lists etc], including disclosures, notifications of confidentiality and recordkeeping.

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15
Q

Reporting market abuse - what doc and what should the doc contain

A

Suspicious transaction and order reports (STORs) are used to:
* report suspicious transactions and orders (based on this information only)
* Firms must report suspicions to the FCA without delay and should not second guess whether the regulator would consider it suspicious - better safe than sorry approach

STORs shoud contain:
* Identify of the person submitting the STOR
* Description of the transaction/order
* Reasons for which mkt abuse is suspected in the order/transaction
* means of identifying the person involved in the order/transactions
* Any other supporting docs to aid the investigation.

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16
Q

Mkt manipulation - managers/directors transactions

A

MAR Persons Discharging Managerial Responsibility (PDMR) regime:
* PDMRs (basically directors and SMs) dealing in thier own companies shares (for all PTCs) must disclose this activity to both their company and the FCA within 3 days of the trade
* PDMRs cannot deal within closed periods (30 days prior to announcement of year end/half yearly results

  • breaches do not constitute a criminal offence and the FCA will take disciplinary action against the individual/firm
17
Q

Money Laundering control framework - 4 legislations

A

Proceeds of crime act 2002
* Amended by Serious Organised Crime and Police Act 2005
* criiminalises money laundering and sets out offences and penalties
The Money Laundering Regulations 2017
* detailed regulations setting out the administrative provisions for companies that could potentially handle funds for money laundering/terrorist financing
* Complies with the money laundering directive
Senior management arrangements, systems and controls (SYSC)
* High level rules and guidance for authorised firms
* refers to Joint money laundering steering group guidance (JMLSG)
Joint money laundering steering group guidance
* Guidance on how to implement AML provisions
* Not binding

18
Q

3 stages of money laundering and legislation

A
  • Legislation = Proceeds of crime act 2002
    1. Placement - proceeds of any crime are placed into a bank/building society
    2. Layering - payments are taken from the bank and used to buy various different investments to cover/muddy the audit trail
    3. Integration - Money appears as a legitimate siurce of income and is integrated into the fin. system.
19
Q

The money laundering regulations 2017 - 3 parts

A
  • Risk assessments - assess ML and TF risks to a firm
  • Policies, controls and procedures to mitigate and manage risk - proportionate to the size/nature of the firm and appoint a director/SM who is responsible for compliance with the regs (MLRO)
  • Reliance - Must conduct due dilligence on any ‘relied upon’ party at the start of a business arrangement and cannot rely on CDD by firms in high risk jurisdictions.
20
Q

The money laundering regulations 2017 - KYC

A
  • Identification: obtian satisfactory evidence regarding the indiviual’s identity as soon as reasonably possible. Includes the ownership and control strcuture for companies (shareholders, SMs, BoD etc)
  • Enhanced CDD - required for PEPs and high risk triggers
  • Simplified DD - decided by the firm when to apply it.
21
Q

Education and training for employees on Money laundering - how long should records be kept for

A

Must recieve training on:
* the law and regulations relating to AML and counter TF
* how to recognise suspicious transactions
* Proper ways to report suspicions to the MLRO which will then report to hte national crime agency

Record must be kept for 5 years

22
Q

Money Laundering offences and penalties

A

Criminal offcences for directors/SMs
* Failure to comply with AML regulations = 2 years in the nick and/or unilimited fine
* Recklessly making a fallse/misleading statement re AML = 2 years prison and/or unlimited fine.

General offences under the proceeds of crime act 2002
* Concealing = 14 years and/or unlimited fine
* Arrangements (assisting ML) = 14 years and/or unlimited fine
* Acquiring and/or possessing = 14 years and/or unlimited fine
* Knowingly prejudicing an investigation = 5 years and/or unlimited fine
* Anyone can commit general offences

Regulated sector offences (fin svs firms)
* Failure to report = 5 years and/or unlimited fine
* Tipping off == 2 years and/or unlimited fine

23
Q

Joint money laundering steering group (JMLSG) - made up of what, issues what and uses what approach

A
  • combination of UK trade associations including hte BBA
  • guidance notes issued on how to implement money laundering regulations
  • Takes a risk based approach
24
Q

Joint money laundering steering group (JMLSG) - guiding principles and risk mitigation approach

A

Guiding principles
* Customers’ identities verified before acceptance
* continually knowing the customer
* adequate training for staff
* recognition of the importance of prompt reporting

Risk mitigation approach
* Summary assessment of ML/TF risk
* Allocation of responsibilities to specific persons
* Summary of firm’s procedures
* Summary of firm’s monitoring

25
Q

The MLRO and nominated officer

A
  • Must be a responsible person (senior manager etc)
  • POCA, The terrorism act and MLR require a nominated officer
  • FCA requires an MLRO
  • Generally the same person does both roles and is referred to as the MLRO
  • MLRO reports to the National Crime Agency (NCA)
26
Q

National Crime Agency (NCA) - led by who, reports to who

A
  • powerful body of operational crime fighters
  • Objective is to tackle organised crime, defend UK borders, fight fraud/cyber crime and protect children and young people
  • led by a senior chief constable
  • Accountable to the home secretary
27
Q

terrorism - definition, suspicions, legislation, penalty

A

Obligations to report suspicions of TF under Terrorism act 2000 and Anti-terrorism crime security act 2001
* Provision of funds for terrorism
* Use and possession of terrorist funds
* Laundering moeny that is terrorist property
Failure to report the above = 5 years in prison and/or an unlimited fine.

28
Q

Counter terrorism act 2008 - 3 powers

A

Gives extra powers to the treasury to impose directions on firms suspected of handling funds to be used for terrorist activites.
The powers include:
* Customer due dilligence and monitoring - increased identification requirements
* systematic reporting - HMT can require info without having to apply via the courts
* Limiting or ceasing business - where required by FATF or where the treasury believes there is significant threat to national interest.

29
Q

Bribery - 4 offences and penalty

A
  • Under the bribery act 2010 there are 4 offences
    1. Paying bribes (offering)
    2. Recieving bribes (soliciting)
    3. Bribery of foreign officials (defence of this is to prove that the payment was required to be made by that country’s local written law. Faciliation payments are also bribes under the act.
    4. failure to prevent bribery - firms are liable if they fail to prevent bribery. Defence is possible if the firm can prove adequate procedures to prevent bribery. Hospitality is not prohibited

Penalties:
* Individual max = 10 years in prison and/or unlimited fine
* Firm = unlimited fine

30
Q

The data protection act - principles and who oversees the regs

A

data protection act 2018
Personal data = any data that can be used to identify a data subject (i.e. a living individual)
6 principles:
1. Processing must be lawful and fair
2. Purposes of processing must be specified, explicit and legitimate
3. Personal data must be adequate, relevant and not excessive
4. Personal data must be accurate/kept up to date
5. personal data must be kept for no longer than is necessary
6. personal data must be processed in a secure manner.

The Information Commisioners Office (ICO) oversees the regs their penalties for breaching the regs are:
* Higher - max £17.5 million or 4% of global turnover (whichever is greater) for failure to comply with
1. data protection principles
2. data subjects rights
3. transfer of data to third countries
* Standard - max £8.7 million or 2% of global turnover for other failures (admin, eetc)

31
Q

Disclosure and transparency rules - notifiable interests and EU transparency directive

A

Notifiable interests are
* Personal shares
* shares held by a spouse/partner or children.
* shares held by a company you own 1/3 shares in
* Concert parties

EU transparency irective disclosure thresholds
* 5%, 10, 15, 20, 25, 30, 50, 75%

32
Q

UK Disclosure rules - notification times, what is an enquiry notice

A

Requires disclosure to the issuer within 2 business days when:
* OWnership reaches 3%, falls below 3% or any change (+/-) to the holding by a whole % point.
* Fund managers - at 5%, 10% and every % point after 10
* mkt makers - exempt below 10%
* Custodians, bare nominees and shares held as collateral are exempt.

Once notified, the issuer will then tell the market of the ownership change.

Enquiry notice - companies act 2006 s793 letter requires disclosure of shares hel currently and shares held in the last 3 years.

33
Q

UK takeover code - principles and purpose

A
  • Administered by the Takeover Panel (Panel on Takeovers and mergers - PTM)
  • Ensures shareholders are treated fairly and aren’t denied the opportunity to decide on benefits of a takeover
  • Does not cover fin/commercial advantages/disadvantges or competition policy as that is covered by the competition and markets authority (CMA)

6 principles:
1. all shareholders given equal treatment + are protected
2. shareholders given sufficient time and info to decide.
3. board of the target are to act in the best interests of the company as a whole
4. false mkts must not be created
5. predator to make a bid only after ensuring they can meet cash requirements of the bid
6. target must noot be hindered in it’s business affairs any longer than neccessary.

34
Q

Trade reports

A
  • MiFID post trade transparency
  • issued by the senior selling firm
  • should be sent within 3 minutes of the trade being executed (as clsoe to immediately)
  • Trade reports sent to the exchange
    *
35
Q

Transaction reports

A
  • Used for market surveillance by the regulator
  • both counterparties to a trade should create transaction reports
  • Must be sent within a T+1 timeframe
  • To be sent to the regulator via an approved reporting mechanism (TRAX, UnaVista)
36
Q

Other reportable transactions

A

EMIR
* OTC deriv regulation to improve transparency and increase risk mgmt.
* All derivative cotnracts must be reported to a trade repository
* applies to financial and non-financial counterparties
Short selling regulations (SSR)
* Requirement to disclose net short positions - can be private or public depending on the size of the short
Securities financing transaction regulation
* securities financing transactions must be reported to a trade repository
* specific disclosures for rehypothecated assets
* only applies to financial counterparites in the UK

37
Q

Prudential standards - captial requirements directive

A
  • Implements the Basel Framework - 3 pillars
    1. minimum capital requirements foor credit, market and operational risks
    2. Supervisory review - discussions with the regulator whether additional capital should be held
    3. Disclosure of risks and risk mgmt to improve mkt discipline

The capital resources of an authorised firm must always be greater than the capital adequacy requirements set by the FCA/PRA.

38
Q

Done

A

FCA Paper 3: UK Financial Regulation (9 decks)

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