Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Investment Environment > Chapter 3 - The Regulation of Financial Markets and Institutions > Flashcards

Chapter 3 - The Regulation of Financial Markets and Institutions Flashcards

1
Q

What is the aim of Financial Services Action Plan (FSAP) in the EU?

A

To create:

  • A single wholesale market
  • An open and secure retail financial services market
  • New prudential rules and regulations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the legal status of an EU Directive within the UK?

A

Primary legislation that must be adopted within two years by member states e.g. MiFID, CRD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the legal status of an EU Regulation within the UK?

A

The most direct form of EU law - immediate enforcement e.g. MiFIR, CRR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the aim of the European Securities and Markets Authority (ESMA)?

A

To ensure the integrity, transparency, efficiency and orderly functioning of securities markets in Europe, as well as enhancing investor protection.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the main powers of the European Securities and Markets Authority (ESMA)?

(similar to FCA in UK)

A
  • Ability to draft technical standards that are legally binding in EU member states.
  • Ability to enforce EU law.
  • Ability to resolve disagreements between national authorities.
  • Ability to act to maintain consumer protection.
  • Emergency Powers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What was the original purpose of MiFID?

A

To create a ‘single passport’ so that an authorised firm could engage in investment services throughout the European Economic Area (EEA).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What were the key changes made by MiFID II and MiFIR in 2018 (replacing MiFID)?

A
  • Ancillary (Non-core) services cannot be passported.

- Core investment services can be passported.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the main purpose of the Undertakings for Collective Investment in Transferrable Securities (UCITS) Directives (I-V)?

A

To create a type of passport for collective investment schemes and promote the free movement of services - in the same way as investment firms can passport in the EEA.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What were the two directives of the UCITS III?

A
  • The Management Directive: increased scope of management companies’ activities that can be passported.
  • The Product Directive: expanded range of financial instruments that are permitted in UCITS funds.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the main purpose of the Alternative Investment Fund Managers Directive (AIFMD)?

A

Regulating fund managers, rather than the funds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is an Alternative Investment Fund (AIF)?

A

A collective investment undertaking that is not subject to the UCITS Directives
e.g. hedge funds, private equity funds, retail investment funds, investment companies and real estate funds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

When would an Alternative Investment Fund Manager (AIFM) require regulation by the AIFMD?

A
  • If they have assets above €100m (if the AIFs use leverage).
  • If they have assets above €500m (no leverage).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Requirements of AIFMD? (4)

A
  • Authorisation of Alt. fund manager (AFM).
  • Disclosure of leverage used by AFMs on funds.
  • Selection of only authorised brokers + counter-parties.
  • Submission of regular reports to their state regulator.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the purpose of the European Market Infrastructure Regulation (EMIR)?

A

To enhance the stability in OTC derivatives markets of the EU.
Aims to have all EU OTC derivatives cleared through a central counter-party (increased transparency + protection).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What three requirements do the European Market Infrastructure Regulation (EMIR) impose on those trading derivatives?

A
  • Clear OTC derivatives that have been declared through a central counter-party.
  • Risk management procedures.
  • Report derivative transactions to a trade repository.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the purpose of the Foreign Account Tax Compliance Act (FATCA)?

A

To prevent US tax evasion via offshore banking facilities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How does the Foreign Account Tax Compliance Act (FATCA) prevent US tax evasion?

A

Requires non-US financial institutions to provide information to the US tax authorities.
Failure to comply: FATCA can impose a 30% withholding tax on payments of US source income paid to the institution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the Common Reporting Standard (CRS)?

A

An information standard for the automatic exchange of tax and financial information on a global level.
(Set up by the OECD).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the purpose of the EU Benchmarks Regulation (BMR)?

A

To address the risk that benchmarks were susceptible to manipulation. It seeks to ensure benchmarks are robust and reliable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

When does an index become a benchmark?

A
  • Any index in reference to the amount payable under a financial instrument/contract
  • An index that is used to measure the performance of an investment fund.

The valuation of a benchmark is key. A single price/reference value is not a benchmark since there is no calculation/input data/discretion.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is a Benchmark Administrator?

A

Provides the indices that are used in financial instruments/mortgages/investment funds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is Supervised Contributor?

A

An authorised person that contributes input data for the purpose of the benchmark determination.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the three main types of benchmarks?

A
  • Critical - where the value of the contracts underlying the benchmark is at least €500bn.
  • Significant - where the value of the contracts underlying the benchmark is at least €50bn.
  • Non-Significant - where the value of the contracts underlying the benchmark is less than €50bn.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are the three financial regulatory bodies in the UK?

A

FCA - conduct of business.
PRA - prudential regulation of banks, insurance companies and investment firms.
FPC - macro-prudential (systemic) regulation of the financial system.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the aim of the FCA?

A

To ensure that relevant markets function well.

- Three operational objectives: protection, integrity, competition (PIC).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is a dual-regulated firm?

A

A firm that is supervised by both the FCA and PRA e.g. deposit takers, insurance companies and large investment firms.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is the single authorisation process for dual-regulated firms?

A

Dual-regulated firms apply to the PRA unless they are directed to apply for the FCA.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What are ‘relevant’ markets? (that the FCA are concerned about?)

A
  • Financial Markets
  • Markets for regulated financial services
  • Markets for services provided by ‘unauthorised persons’ but providing regulated activities.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

The scope of the FCA’s activities include:

A
  • Conduct of business regulation for all firms in both retail and wholesale markets, including PRA-authorised firms and firms ‘passporting’ into the UK.
  • Supervising non-PRA authorised firms in respect to prudential supervision. The FSA 2012 refers to these as FCA-authorised firms.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What is the aim of the PRA?

A

Promoting safety and soundness of the firms it regulates - ensuring that firms carry sufficient regulatory capital (CRD IV and CRR).
With insurance firms, this may include securing protection for policy holders.
Facilitate effective competition.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is the FPC concerned about?

A
  • Structural features of financial markets e.g. payment systems
  • Distribution of risk
  • Unsustainable levels of leverage, debt or credit growth.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What tools does the FPC have at their disposal?

A
  • Setting system-wide cyclical capital requirements - reducing/toughening capital buffers.
  • Altering risk-weights, enabling the BoE to force banks to hold more capital against specific classes of assets in volatile markets (RWAs: risk weighted assets)
  • Setting limits on leverage, lending and borrowing.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is the HM Treasury responsible for?

A

Formulating and implementing the UK government’s financial and economic policy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What powers do the HM Treasury have over the FCA?

A
  • To appoint/dismiss the FCA’s Board and Chairman.
  • FCA must submit an annual report to the HM Treasury showing their objectives have been met.
  • To commission and publish an independent review of the economy, efficiency and effectiveness of the FCA’s use of resources.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What is the Financial Services and Markets Act of 2000 (FSMA 2000)?
(amended by the Financial Services Act 2012)

A

The legislation under which the statutory regulation of investment business in the UK was established.
–> Any person/firm undertaking investment business in the UK must either be authorised to do so, or exempt from authorisation (Section 19 FSMA 2000 - “The General Prohibition”).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What are the sanctions for not following Section 19 of FSMA 2000 (undertaking a regulated activity without being authorised/exempt)?

A

Two years of imprisonment and unlimited fine.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What activities warrant authorisation under FSMA 2000?

A
  • In the UK e.g. has an establishment in the UK
  • Into UK from overseas e.g. cross-border dealing services
  • In another EEA state, if their registered office is in the UK.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Which regulatory body are dual-regulated firms authorised by?

A

PRA (with FCA’s approval)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Examples of persons (firms) exempt from authorisation:

A
  • Appointed representatives
  • Professions e.g. lawyers, accountants
  • Recognised Investment Exchanges (RIE), Recognised Overseas Investment (ROIES) and Recognised Clearing Houses (RCHs)
  • Investment Institutions
  • Lloyd’s
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What is a Specified Investment?

A

All investment instruments and rights to those instruments. Not physical assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Examples of regulated activities:

A
  • Accepting deposits
  • Issuance of electric money
  • Effecting/carrying out insurance contracts
  • Management of investments
  • Mortgages
  • MTFs/OTFs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

What are the objectives of the Payments System Regulator (PSR)?

A
  • Ensure that payment systems are operated and developed in a way that considers and promotes the interests of all that use them.
  • Promote effective competition in the markets for payment systems and services.
  • Promote the innovation and development of payment systems.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

What is the Competition and Markets Authority (CMA)? How does it operate?

A

CMA is an independent competition authority that aims to promote competition for consumers globally.
Phase I: 40 day analysis on a particular merger
Phase II: If the combined enterprise obtains a 25% market share or the acquiree company’s turnover exceeds £70m - the CMA can impose fines of up to 5%.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What is the main objective of the independent body The Panel on Takeovers and Mergers? and the City Code?

A

To ensure fair treatment for shareholders in takeover bids. They do this by administering to the City Code of Takeovers and Mergers. The Code applies to all public companies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

How is the Panel on Takeovers and Mergers funded?

A

By a flat £1 levy that is payable by the buyer and seller of all equities transactions over £10,000.
(not payable on: warrants, debt securities, preference shares, derivatives)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Two key points of the City Code for Takeovers and Mergers:

A
  • Any bidder enquiring more than 30% of the voting rights of a company is required to make a cash offer to shareholders.
  • When a company acquires more than 90% of another company, it can force the remaining shareholders to sell their shares.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

What is the function of the Information Commissioner’s Office (ICO)?

A

To regulate compliance with GDPR and data protection laws.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

What powers do the ICO have if a company fails to comply with GDPR laws?

A

It can impose a fine of up to £500,000.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

What is the main aim of the Trustee Act 2000?

A

To widen the investment powers and powers of delegation for trusts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

What are the three statutory objectives of The Pensions Regulator (TPR), according to the Pensions Act of 2004?

A
  • Protect the benefits of members of work-based pension schemes.
  • Promote good administration of work-based pension schemes.
  • Reduce risks that could lead to claims being made to the Pension Protection Fund (PPF).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

What is the purpose of the Pension Protection Fund (PPF)?

A

If a company goes bust, the PPF will pay 100% of the compensation due to those who have retired, and 90% of those who are still in work.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

How is the PPF funded?

A

By a levy on all defined benefit pension schemes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

What is the purpose of the annual Statement of Investment Principles (SIP)?

A

Outlines to each trustee on the work-based pension scheme the nature of investments/risk requirements. Trustees are then able to comment. It is reviewed every 3 years.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

What was the major change the Pensions Act of 2008 introduced?

A

All eligible jobholders with earnings over £10,000 must be enrolled into a qualifying scheme.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

What did the government set up so that all employers can have access to pension, even if they do not have a qualifying scheme?

A

National Employment Savings Scheme (NEST)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

What does Block 1 of the FCA Handbook concern?

A

High-Level Standards:

  • Principles for Businesses (PRIN)*
  • Senior Management Arrangements, Systems and Controls (SYSC)*
  • Code of Conduct (COCON)
  • Threshold Conditions (COND)
  • Fit and Proper Test for Approved Persons (FIT)
  • Training and Competence (TC)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

What does Block 3 of the FCA Handbook concern?

A

Business Standards:

  • Conduct of Business Sourcebook (COBS)*
  • Client Assets (CASS)*
  • Market Conduct (MAR)
  • Product Intervention and Product Governance Sourcebook (PROD)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

What does Block 4 of the FCA Handbook concern?

A

Regulatory Processes:

  • Supervision (SUP)
  • Decision Procedure and Penalties Manual (DEPP)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

What does Block 5 of the FCA Handbook concern?

A

Redress:

Complaints and Compensation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

What does Block 6 of the FCA Handbook concern?

A

Specialist Sourcebooks:

- Collective Investment Schemes (COLL)*

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

What does Block 7 of the FCA Handbook concern?

A

Listing, Prospectus and Disclosure:

  • Listing Rules (LR)
  • Prospectus Rules (DR)
  • Disclosure Guidance and Transparency Rules (DTR)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

What are the 11 Principles for Business, set out by PRIN?

ISMFMCCCTCR

A
  1. Integrity
  2. Skill, care and diligence
  3. Management and control
  4. Financial prudence
  5. Market Conduct.
  6. Customer’s interests
  7. Communications with clients
  8. Conflict of interests
  9. Trust
  10. Client’s assets
  11. Relations with regulators
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

What is the difference between a client and a customer?

A

A Client includes everyone from the smallest retail customer to the largest investment firm.
A Customer is a client but NOT an eligible counter-party.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

What are the four purposes of the Senior Management, Systems and Controls (SYSC)?

A
  1. Encourage firms to take responsibility for their firm’s arrangements with the regulator.
  2. Increase certainty (PRIN 3).
  3. Encourage effective organisation.
  4. Create a “Common Platform”.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

What is the Common Platform?

A

A unified set of organisational requirements (SYSC 4-10), which applies to all firms (except insurers, managing agencies and the Society of Lloyd’s).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

What are the SYSC requirements (SYSC 4-10) that make up the Common Platform?

GECRORC

A

SYSC 4: General organisational requirements.
SYSC 5: Employees, agents and other relevant persons
SYSC 6: Compliance, internal audit and financial crime
SYSC 7: Risk Control
SYSC 8: Outsourcing
SYSC 9: Record-Keeping
SYSC 10: Conflicts of Interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

Once firms are authorised, what requirements do individuals within the firm need to meet?
(‘Accountability Regime’ - Part 4 of the Financial Services (Banking Reform) Act 2013))

A
  • Define clearly the responsibilities of those at the highest level.
  • Extend the class of individuals subject to sanctions.
  • Make it easier for regulators to hold individuals accountable.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

What are the three main types of responsibility under the Senior Managers Regime (SMR)?

A
  • Senior Management Functions (SMFs) e.g. CEO/CIO etc.
  • Prescribed Responsibilities
  • Key functions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

What is the purpose of the Certification Regime (CR)?

A

Allows firms to certify individuals that pose risks to the firm as “material risk-takers”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

Who does the Training and Competence (TC) sourcebook within the FCA apply to?

A

Firms whose employees who advise retail clients, customers or consumers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

What professional requirements have to be met by all retail investment advisers and investment managers in the Retail Distribution Review (RDR)?

A
  • Subscribe to a code of ethics
  • Hold an appropriate qualification
  • Carry out at least 35 hours of continuing professional development (CPD) a year (21 hrs structured).
  • Hold a statement of professional standing (SPS) from an accredited body.
72
Q

Who is responsible for the regulation of Recognised Investment Exchanges (RIEs)?

A

The FCA

73
Q

What are the two regulatory bodies that regulate derivatives in the US?

A

The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC)

74
Q

How must derivatives be recognised on a balance sheet (according to IAS 39)?

A

At fair value (the value at which a contract could be exchanged).

75
Q

What is the initial margin?

A

An amount of cash/liquid assets that must be deposited by an investor in derivatives, that ensures that the customer can cover any potential losses.

76
Q

What is the variation margin?

A

If the trader’s margin dips below the initial margin level - the additional margin payment to ensure the customer can cover any losses is the variation margin.

77
Q

What are the three types of clients?

A
  • Eligible counter-parties
  • Professional clients
  • Retail clients
78
Q

What constitutes a professional client?

A
  • Requires authorisation/regulation.
  • Trusts with assets of more than £10m or Associations with net assets of more than £5m.
    e. g. Central Banks, Govt. bodies, Institutional Investors
79
Q

When is a MiFID company considered a ‘large undertaking’ and a per se professional client?

A

2/3 of the following:

  • €20m balance sheet
  • €40m net turnover
  • €2m personal funds
80
Q

When is a non-MiFID company considered a ‘large undertaking’ and a per se professional client?

A

2/3 of the following:

  • €12.5m balance sheet
  • €25m net turnover
  • 250 employees
  • Alternatively if the company has called up share capital of at least £5m.
81
Q

What tests need to be met if a firm is to treat a retail client as an ‘elective professional client’?

A
  • Qualitative Test: sound expertise/knowledge/experience
  • Quantitative Test: More than 10 significant transactions per quarter, a portfolio worth more than €500,000 and/or over a year’s work within the industry.
82
Q

When is a client considered an Eligible Counterparty?

A

When they carry out ‘eligible counter-party business’ (executing orders on behalf of clients, dealing on own account and receiving/transmitting orders).

83
Q

Why must eligible counter-parties have client agreements?

A

As they are dealing on behalf of clients. These must be kept for a minimum of 5 yrs, or indefinitely when involving pension schemes.

84
Q

What is a financial promotion?

A

An invitation/inducement to engage in an investment activity.

85
Q

What does the Financial Promotions Order (FPO) order?

A

That it is illegal for someone to undertake a financial promotion if they are not an authorised firm or the content of the communication is approved by an authorised firm..

86
Q

What constitutes a HNWI?

A

A person with a net income (in the year prior to certification) of more than £100,000 and net assets of more than £250,000.

87
Q

What constitutes a sophisticated investor?

A

A person with more than 6 months within the industry or who has invested in an unlisted company within the last two years.

88
Q

When are cold-calling and financial promotions towards retail investors allowed?

A
  • It occurs at an appropriate time of day.
  • Caller clearly identifies themselves.
  • Conversation is terminated whenever client wants.
  • There is an established relationship already.
89
Q

When does client suitability rules apply?

A

When a firm makes a personal recommendation to a designated investment.

90
Q

In order to assess the suitability of given advice, what must a firm already know about their client?

A
  • Client’s knowledge and experience.
  • Client’s investment objectives.
  • Client’s financial situation.
91
Q

When must a firm provide a suitability report to a retail client?

A

If the firm advises the client to:

  • Buy/sell shares in a collective investment scheme.
  • Buy/sell shares in Investment Trusts/ISAs
  • Elects to make income withdrawals from a short-term annuity.
  • Enters into a pension transfer/pension opt-out.
  • Anything associated with life policies.
92
Q

When is a suitability report not needed for giving advice to retail clients?

A
  • If a firm acts as the investment manager and recommends a regulated collective investment scheme.
  • If the client is a non-EEA resident.
  • For small life policies (less than £50 pa.)
93
Q

What is the basic COBS rule of ‘best execution’?

A 
A firm must take all sufficient steps to obtain the best possible results for clients, when executing orders. Taking into account the execution orders (price, cost, speed, size etc.).
Each firm will have an 'order execution policy' for each class of financial instrument.
94
Q

What five things must a firm do when conducting investment research?

A
  • Manage against conflicts of interest.
  • Not deal ahead of the research.
  • Not carry out trades contrary to the research.
  • Not accept inducements.
  • Remain impartial and objective.
95
Q

What is the objective of the product governance rules that came into affect under MiFID?

A

Manufacturers and distributors of financial products and services must put clearly outline the product’s design, target market and monitor its distribution.
So that when the product is marketed to an investor, they are clear on what they are investing in.

96
Q

How long must records on pensions be kept?

A

Indefinitely

97
Q

How long must records financial promotion be kept?

A

6 years

98
Q

What is fiduciary duty?

A

An obligation that a person (firm) acts in the best interest of another.

99
Q

Who do the Custody Rules (CASS 6) apply to?

A

Firms that hold client assets.

100
Q

What is the purpose of the Custody Rules (CASS 6)?

A

To restrict the commingling of a client and firm’s assets to minimise the risk of a client’s assets being used by the firm.

101
Q

What is an internal custody record check?

A

A check as to whether the firm’s records and accounts of the safe custody assets held by the firm, correspond with their obligations to their clients.

102
Q

What are the two categories of the FCA’s conduct supervision for firms?

A

Fixed portfolio firms and flexible portfolio firms.

103
Q

What is a fixed portfolio firm?

A

Firms that require the highest level of supervisory attention and are allocated a named individual supervisor. These firms are proactively supervised on a continuous basis.

104
Q

What is a flexible portfolio firm?

A

Refers to most firms. Supervised by a team of sector professionals.

105
Q

What is the chief purpose of the Business Model and Strategy Analysis (BMSA)?

A

Deciding whether a firm’s business model exposes it to an unacceptable level of conduct risk.

106
Q

What are the three pillars of the FCA’s Supervision Model?

A

Pillar I - Firm Systematic Framework (preventative measures)
Pillar II - Event-driven
Pillar III - Issues and products (protecting customers)

107
Q

Who is eligible to make a complaint to the Financial Ombudsman Service (FOS)?

A
  • Consumers (including professional clients and eligible counter-parties)
  • Small businesses (with less than 10 employees and a balance sheet of less than £2m)
  • Charities with an annual income of less than £1m.
  • Trusts with a NAV of less than £1m.
108
Q

What is the time limit for a firm to respond to a complaint?

A

8 weeks. After this time the firm must send a final response or a holding response (that explains why the final response cannot be issued).

109
Q

What happens if the firm is unresponsive to the complaint after the 8 week time limit?

A

The complainant can refer it to the Financial Ombudsman Service (FOS) within 6 months.

110
Q

What powers does the Financial Ombudsman Service (FOS) have for dealing with complaints?

A

They can offer up to £350,000 compensation for complainants. £160,000/£150,000 for complaints before 1 April 2019.

111
Q

When would a firm refer to the Financial Services Compensation Scheme?

A

If they have become insolvent and can no longer file a complaint.

112
Q

What are the three stages of money laundering?

A

Placement - obtaining illegal profits
Layering - distancing profits from illegal source
Integration - putting profits into legal system

113
Q

Does the Money Laundering Regulations of 2017 refer to firms or individuals?

A

Firms. Failure to comply - 2 years in prison and unlimited fine for the Money Laundering Reporting Officer (MLRO)

114
Q

What is the prison sentence for assisting a money launderer, according to the Proceeds Crime Act 2002?

A

14 years

115
Q

What is the punishment for failing to report a suspicion of money laundering, according to the Proceeds Crime Act 2002?

A

5 years prison and unlimited fine

116
Q

What is the punishment for alerting a money-launderer that he will be reported, according to the Proceeds Crime Act 2002?

A

5 years prison and unlimited fine

117
Q

What vehicles cannot be exploited by insider dealing?

A

C - Currency
C - Commodities
C - Collective Investment Schemes

118
Q

What is the maximum punishment in a magistrates court for insider dealing?

A

6 months in prison and £5000 fine

119
Q

What is the maximum punishment in a crown court for insider dealing?

A

7 years in prison and unlimited fine

120
Q

Which of the following are categorised as a regulated activity and would require authorisation?

  • Arranging deals in investments
  • Establishing a collective investment scheme
  • Sending dematerialised instructions
A

All of them. None of these activities are exempt.

121
Q

Is acting as an unremunerated trustee a regulated activity according to FSMA 2000?

A

No. Acting as an unremunerated trustee is an exempt activity.

122
Q

What is the maximum penalty for an unauthorised firm undertaking a regulated activity?

A

2 years prison and unlimited fine.

123
Q

What rights does the innocent party have if they enter into a contract (involving regulated activities) with an unauthorised firm?

A

The innocent party in the agreement will still be able to enforce the agreement against the other party (FSMA 2000).

124
Q

Do members of a Recognised Investment Exchange need authorisation?

A

Yes. Only the RIE itself is exempt.

125
Q

Who does The Remuneration Code apply to?

A

Large banks, building societies, broker-dealers and MiFID investment firms.

126
Q

What is a key requirement of the Remuneration Code?

A

At least 50% of bonuses comprise of non-cash instruments.

127
Q

What happens if a predator company buys shares in the market during the bid at a price higher than the offer price?

A

The predator company must announce the bid and revise the offer to this new price.

128
Q

When may the Takeover Code (the City Code) apply to private companies?

A

If they have been public within the last 10 years.

129
Q

Who do the Conduct Rules (COCON) apply to?

A

Some apply to all certified staff (Individual Conduct Rules) and some apply to senior managers only (Senior Management Conduct Rules).

130
Q

How much of the 35 hours of Continuing Professional Development (CPD) retail investment advisors must carry out each year, has to be structured?

A

21 hours (of the 35).

131
Q

What is churning?

A

Dealing too frequently than is in the client’s best interests.

132
Q

How much of the Uncrystallised Funds Pension Lump Sum (UFPLS) that Defined Contribution holders can take out from the age of 55, is tax-free?

A

75%. Further UFPLS payments can also be taken out after this age.

133
Q

When must a financial promotion identify itself as regulated by the FCA?

A

If it is a direct offer promotion.

134
Q

When would a retail investment advisor not be required to supply a suitability letter to a client?

A

If the transaction is on an ‘execution only basis’

135
Q

When is an appropriateness check not necessary?

A

For dealings with non-complex financial instruments (e.g. listed shares, money market instruments and collective investment schemes).

136
Q

How long is the “cooling-off”/cancellation period for stakeholder pension plans?

A

30 calendar days.

137
Q

How should an investor in an OEIC be informed by the fund manager of its performance?

A

A short and long report must be prepared half-yearly and annually. The short report must be sent to all unit holders, and the long report to be made available on request.

138
Q

How often must an authorised firm inform the regulator of all complaints received?

A

Six-monthly

139
Q

How long can temporary product intervention rules (TPIRs) be used for?

A

12 months only

140
Q

What is the legal status of an EU Decision made by the European Commission in Brussels?

A

A Decision can be addressed specifically to a state, company or person and is immediately binding.

141
Q

Under MiFID II, who authorises investment firms carrying out specified investment services and activities within the country of another EU member state?

A

The home state regulator, but the firm is expected to comply by the host states conduct of business rules.
When a branch is set up, host state rules apply.

142
Q

What is a tied agent and do they require authorisation under MiFID II?

A

A tied agent is a person acts on behalf of a firm, instead of a company having to set up branch elsewhere. They do not require authorisation.

143
Q

When a firm makes use of a passport, which state is responsible for regulating organisational matters (e.g. authorisation, business conduct, systems and controls)?

A

The home state

144
Q

When a firm makes use of a passport, which state is responsible for regulating operational matters (e.g. conduct of business rules which are not organisational matters)?

A

For activities of a branch within its territory: the host state.
For cross-border services: the home state.

145
Q

What are KIIDs?

A

An initiative of UCITS IV, Key Investor Information Documents (KIIDs) is a point-of-sale consumer disclosure documents providing customers with clear and concise info to help their decision making.

146
Q

What is a depositary and what are the requirements under UCITS V?

A

A person or institution taking responsibility for client assets.
Under UCITS V, a UCITS fund appoint a single depositary located in the same member state as the fund.

147
Q

What are the responsibilities of a depositary?

A
  • Safekeeping
  • Harmonised oversight
  • Cash flow monitoring
  • Delegation
  • Liability
  • Investors’ rights of action against the depositaries.
148
Q

What are the clearing thresholds for OTC derivatives for firms?

A
  • €1bn in gross notional value for OTC credit and equity derivatives.
  • €3bn in gross notional value for interest rate and foreign exchange.
  • €3bn is gross notional value for commodities and others.
149
Q

What is the relevance of an Intergovernmental Agreement (IGA)?

A

Enables financial institutions (FIs) outside the US to comply with FATCA without breaching data protection laws e.g. UK FIs will pass on tax information to the HMRC, who will then pass it onto the US authorities.

150
Q

FSMA 2000

A

(Statutory regulation of financial services in UK)

  • Financial Services Act 2012: ’Twin-peak’ structure of FCA and PRA, and FPC of the BoE.
  • Section 19: ’General Prohibition’ - authorisation regime. Carrying at a regulated activity without being authorised/exempt, could result in up to 2 years imprisonment and an unlimited fine.
151
Q

Data Protection Act 1998 and 2018

A
  • Persons processing personal data must be registered with the Information Commissioner’s Office (ICO).
  • Personal info is: fairly and lawfully processed, processed for limited purposes, Adequate, relevant and not excessive, Accurate and up to date, Not kept for longer than is necessary, Processed in line with individual’s rights, Secure and Not transferred overseas.
  • Failure to do so could result with a fine of up to £500,000.
152
Q

Trustee Act 2000

A
  • Aim to widen investment powers and powers of delegation for trusts.
  • Trustees must follow Act, unless the trust deed overrules the Act.
  • ‘Statutory duty of care’ when exercising investment powers.
  • Trustees must remain aware of the necessity to diversify and assess suitability, obtain and consider proper advice when making investments and keep investments under review.
153
Q

Pensions Act 2004

A
  • Introduced PPF for all defined benefit pension schemes.
  • Can offer up to 90% of the pension for workers who are still in work and 100% for those who have retired, if the firm becomes insolvent.
  • Funded by a levy on all DB schemes.
154
Q

Money Laundering Regulations 2017 (MLR 2017)

A
  • Implement EU’s Third Party Money Laundering Directive
  • Institutional liability mainly
  • ‘Occasional transaction’
  • Risk-based approach
  • Customer due diligence (enhanced for PEPs)
  • ‘Risk-sensitive’ policies: internal reporting, records kept for 5 years, internal control, risk assessment/management, MLRO, training programmes etc.
  • Failure to comply: 2 years imprisonment and unlimited fine.
155
Q

The Proceeds of Crime Act 2002 (money-laundering)

A
  • Four main offences: assistance, failure to report, tipping off and failure to comply.
  • Assistance: 14 years imprisonment and/or unlimited fine.
  • Failure to report: 5 years imprisonment and/or unlimited fine.
  • Tipping off: 5 years imprisonment and/or unlimited fine.
  • Prejudicing an investigation: 5 years imprisonment and/or unlimited fine.
156
Q

Terrorism Act 2000

A
  • Terrorism: Use/threat of action designed to influence/intimidate the public for the purpose of advancing a political, religious or ideological cause.
  • It is an offence for those working in a regulated sector to fail to report terrorist fund raising, use and possession of funds for terrorism and facilitating the retention or control of terrorist property.
157
Q

Criminal Justice Act 1993

A
  • Concerns insider dealing and legislation is the responsibility of HM Treasury.
  • Crown court: 7 years imprisonment and unlimited fine.
  • Magistrate’s court: 6 months imprisonment and maximum £5000 fine.
158
Q

EU Market Abuse Regulation (MAR)

A
  • Insider dealing, unlawful disclosure and market manipulation
  • FCA may punish with an unlimited fine, issuance of a public statement, apply to court to seek a restitution order, withdrawal of authorisation.
159
Q

Financial Services Act 2012 Part 7

A
  • Misleading statements, misleading impressions, misleading info regarding benchmarks.
  • Defences: the person reasonably believed their conduct would not create a misleading impression, the person was acting within the FCA/EU’s price-stabilising rules.
  • Crown court: 7 years imprisonment and/or unlimited fine.
  • Magistrates’ court: 6 months imprisonment and/or £5000 fine.
160
Q

Bribery Act 2010

A
  • Active bribery, passive bribery, bribing a public official and failure of firms to prevent bribery.
  • Punishment for an individual: 10 years imprisonment and unlimited fine.
  • Punishment for firm: unlimited fine.
161
Q

Criminal Finances Act 2017

A
  • Companies are criminally liable if they fail to prevent tax evasion by either a member of staff or an external agent - even if the company was not directly involved.
  • Conviction may involve prosecution and unlimited penalties.
162
Q

The PRA is a subsidiary of what other body?

A

The Bank of England

163
Q

Who regulates Clearing Houses (CCPs), Recognised Clearing Houses (RCs) and Settlement Systems?

A

The Bank of England

164
Q

What are the FCA’s powers concerning financial promotions?

A

They have the power to ban them with immediate effect without going through the enforcement process.

165
Q

How does the PRA identify potential systemic risks to a firm (usually large international banks)?

A
  • Baseline monitoring
  • Investigation and assurance
  • Macroeconomic and business context
    (‘Proactive Intervention Framework’)
166
Q

What is the PRA’s approach to supervision?

A

Judgement-led

167
Q

What regulated activities according to the RAO are not considered a designated investment business (not undertaken by investment firms)?

A
  • Taking deposits

- Arranging mortgages/non-savings based insurance contracts.

168
Q

Excluded Activities:

DETOM

A
  • Dealing as Principal
  • Employee share schemes
  • Trustees, nominees and personal representatives
  • Overseas persons
  • Media
169
Q

Non-Specified Investments:

A
  • Spot and forward currency (‘forex’) trades
  • General loans (e.g. car loans)
  • Property deals
  • National Savings and Investment Products
170
Q

What payment systems are excluded from the Payments Systems Regulator (PSR)?

A
  • Securities Trading Systems

- Clearing Houses/Central Counter-parties

171
Q

When is the £1 levy that funds the Panel on Takeovers on Mergers not payable on transactions?

A
  • Warrants
  • Debt securities
  • Preference Shares
  • Permanent Interest Bearing Shares
  • Options
  • CFDs
  • Spread Bets
172
Q

According to the City Code, when a person or group acquires 30% or more of voting rights of a company, at what price must they make a cash offer to all other shareholders?

A

The highest price paid in last 12 months

173
Q

What % of voting rights represents a controlling interest?

A

50%

174
Q

In what timeframe must an employee earn his appropriate qualification when carrying out a particular activity?

A

30 months

175
Q

What must Retail Investment Providers hold if they want to give independent or restricted advice?

A

A Statement of Professional Standing (SPS). This proves to customers that the adviser subscribes to a code of ethics, is qualified and has up-to-date knowledge.

Investment Environment (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions