Chapter 3: The Regulation of Financial Markets and Institutions p1.

Question 1

Within MiFID, what is the responsibility of the host state regulator for activities of a branch within the host state?

Answer 1

Conduct of business. Where a branch is set up, host state rules will apply for operational matters.

Question 2

What instruments does MiFID cover?

Answer 2

Money Market instruments and Derivative instruments for transferring credit risk. MiFID does not apply to collective investment schemes.

Question 3

What trading venues are within the scope of MiFID?

Answer 3

a. An MTF
b. Systematic internalisers
c. An OTF

Question 4

What investment services and activities are excluded from the scope of MiFID?

Answer 4

a. Operating a Multilateral Trading Facility (ETF)
b. Insurance companies
c. Professional investors investing only for themselves.

Question 5

The regulator’s organisational and systems and controls requirements are implemented through a set of high-level rules known as what?

Answer 5

a. These requirements are implemented through the single set of rules known as the ‘common platform’.

Question 6

MiFID is a European Union Directive and this means that?

Answer 6

Once issued, EU member state governments are required to alter national laws to conform within a specified period.

Question 7

Throughout which group of states may member firms use domestic authorisation to passport core investment business, under the terms of MiFID?

Answer 7

EU.

Question 8

What financial instruments are covered under the terms of MiFID?

Answer 8

a. An Exchange Traded Fund (ETF) investing in US equities
b. Treasury bills
c. A futures contract based upon snowfall.

Question 9

What is the role of ESMA?

Answer 9

Working at the European level alongside the EBA and EIOPA, and continuing the work of the former CESR, ESMA does not have a direct role in the UK regulatory re-structuring.

Question 10

What does the European Market Infrastructure Regulation (EMIR) comprises a set of standards for?

Answer 10

EMIR comprises a set of standards for regulation of

a. OTC derivatives,
b. central counterparties (CCPs) and,
c. trade repositories.

Question 11

For an individual with a personal pension plan, from what age is flexi-access drawdown currently available?

Answer 11

55 years. Pension benefits can currently be taken from the age of 55 except where there is a lower protected pension age or in case of ill-health.

Question 12

What investment tasks are categorised as regulated activity and require authorisation?

Answer 12

a. Arranging deals in investments
b. Establishing a collective investment scheme
c. Sending dematerialised instructions

undertaking any regulated activity requires authorisation unless exempt.

Question 13

The Financial Services and Markets Act 2000 deems what as regulated activities?

Answer 13

a. Provision of investment advice
b. Fund management
c. Acting as an unremunerated trustee

Question 14

What happens when a regulated activity is undertaken by an unauthorised firm?

Answer 14

a. Any contract entered into is unenforceable by the unauthorised firm.
b. The maximum penalty is an unlimited fine and a two-year imprisonment sentence.

FSMA 2000 states that the innocent party to the agreement will still be able to enforce the agreement against the other party.

Question 15

Who are exempt from the requirement to be authorised to conduct regulated activities?

Answer 15

a. Appointed representatives.

The Recognised Investment Exchange itself is exempt not the members of the exchange.

Question 16

The Senior Management Arrangements, Systems and Control Coursebook (SYSC) in the regulatory handbook contains the Remuneration codes. What is true of the Remuneration Codes?

Answer 16

The remuneration codes:

i. Require at least 50% of bonuses (variable remuneration) to comprise non-cash instruments such as shares, ownership interests, share-linked instruments and/or equivalent non-cash instruments that are subject to a retention policy to align incentives with the firm’s long-term interests.
ii. Apply to large banks, building societies and broker-dealers and cover all CAD firms. Any guarantees should be exeptional, for new hires only and limited to a year.
iii. Non-financial performance metrics should form a significant part of the performance assessment process.

Question 17

What are the specified investments under the Financial Services and Markets Act 2000?

Answer 17

a. ADRs
b. Life assurance policies
c. Currencies

Question 18

What are the purposes of the two consultation papers that were issued to implement Part 4 of the Financial Services (Banking Reform) Act 2013?

Answer 18

To improve investor protection by imposing new depositary standards and enhanced transparency through new investor disclosure rules and mandatory reporting to competent authorities.

Question 19

What is regarded as carrying out an investment business under FSMA 2000?

Answer 19

a. Arranging deals in investments

b. Publishing a tip sheet

Question 20

What entity is responsible for the prudential regulation of UK fund managers?

Answer 20

The Financial Conduct Authority. The FCA is responsible for both conduct and prudential regulation of fund managers.

Question 21

Up to what percentage may a listed company make purchases in a target company, without being required to make a mandatory offer for the target?

Answer 21

29.9%. A mandatory offer is only required when the holding reaches 30% or, in certain situations, the holding is already over 30% and the investor buys one more share.

Question 22

What is the name of the UK pensions regulator?

Answer 22

The Pensions Regulator is the regulatory body for work-based pension schemes in the UK.

Question 23

What is true about takeovers?

Answer 23

An offer must remain open for at least 21 days. Any takeover must remain open for a minimum of 21 calendar days, hence Day 21 is the first closing date.

Question 24

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

Answer 24

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

Question 25

How is the Panel on Takeovers and Mergers mainly funded?

Answer 25

By a levy on share transactions. There is a £1 charge on all contract notes in shares where the consideration is over £10,000.