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CISI Introduction to Securities and Investments 2025 > Chapter 8 - Financial Services, Regulation and Professional Integrity > Flashcards

Chapter 8 - Financial Services, Regulation and Professional Integrity Flashcards

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SIE Exam flashcards
1
Q

What are the main purposes and aims of regulation?

A
  • maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of markets
  • promote understanding by the public of the operation and functioning of the financial services sector
  • provide protection for members of the public investing in or holding financial products
  • minimise crime and misconduct in the sector
  • reduce systemic risks, and
  • assist in maintaining the market’s financial stability by taking appropriate steps.
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2
Q

What is the FSMA? And when did it come into force?

A

Financial Services and Markets Act, 2000.

You cant give financial advice if you aren’t authorised to do so

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3
Q

What are the 3 key parties involved in UK finanical regulation?

A
  • Financial Policy Committee (FPC)
  • Prudential Regulation Authority (PRA)
  • Financial Conduct Authority (FCA)
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4
Q

Who established the FPC?

A

The Bank of England (BOE) established the Financial Policy Committee

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5
Q

What’s the FPC’s responsibility and role?

A

Financial Policy Committee

Responsibility:

  • Macro-prudential’ regulation, or regulation of the stability and resilience of the financial system as a whole.

Role:

  • Protect and Enhance financial stability
  • Protect and Enhance the resilience of the UK Financial system.
  • Take action and reduce systematic risk
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6
Q

What power does the FPC have?

A

Power to make recommendations on a comply-or-explain basis to the PRA and FCA.

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7
Q

What is meant by comply-or-explain?

FPC Regulation

A

To comply with the recommendation as soon as practicable, or explain to the FPC, in writing and in public, why they (the FCA/PRA) have not done so.

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8
Q

Who established the PRA?

A

Bank of England established the Prudential Regulation Authority

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9
Q

What is the PRA responsible for?

A

They are responsible for prudential regulation of financial firms that manage significant risks on their balance sheet (responsible for reglation and supervision of significant firms inc all deposit-taking institutions, insurers and other prudentially significant investment firms).

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10
Q

What is meant by PRA supervision of prudentially significant investment firms?

A

Supervision of central counter parties and securities settlement systems, and this responsibility sits alongside the BoE’s existing responsibilities for overseeing recognised payments systems.

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11
Q

What is the PRA’s primary objective?

A

Enhancing financial stability by promoting the safety and soundness of PRA-authorised firms in a way which minimises the disruption caused by any firms which do fail.
In fufilling this, it will take an ‘intrusive’ approach to regulation and supervision

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12
Q

Who’s responsible for Prudential supervision of PRA-firms?

A

The PRA, but their day-to-day conduct is supervised by FCA. As a result, they’re referred to as dual-regulated firms.

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13
Q

What is a dual-regulated firm and who would they be regulated by?

A

One that has to answer to/regulated by two authorities.
In the UK dual-regulated firms will be regulated by the FCA and PRA

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14
Q

What is the FCA responsible for?

A

The FCA is responsible for the conduct of all firms and the prudential regulation of firms not supervised by the PRA.

  • Regulating standards of conduct in retail and wholesale markets.
  • Supervising trading infrastructures that support those markets.
  • Prudential supervision of firms that are not PRA-regulated.
  • Functions of UK Listing Authority (UKLA).
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15
Q

What does the FCA focus on?

A
  • Day-to-day regulation of all firms in retail and wholesale financial markets.
  • Infrastructure that supports these markets
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16
Q

What are the 3 statutory objectives of the FCA?

A
  • Protect consumers
  • Enhance the integrity of the UK financial system, and
  • Help maintain competitive markets and promote effective competition in the interests of consumers.
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17
Q

Who oversees the conduct and operations of the FCA?

A

HM Treasury.

Thus it is accountable to the Treasury ministers, and through them to Parliament.

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18
Q

What financial act made it an offence for a firm to provide financial services in the UK without being authorised to do so? Also who grant authorisation?

A

FSMA (Financial Service and Market Act)
Authorisation is by the FCA or PRA and both for dual regulated firms.

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19
Q

What are the 8 PRA Fundamental Rules?

A
  1. Integrity.
  2. Skill, care and diligence.
  3. & 4. Financial Prudence.
  4. Risk Management and Control
  5. Conflicts of Interest
  6. Realtions with regulators
  7. Be prepared with resolutions to disruptions
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20
Q

What are the 11 FCA Principals of Business?

A
  1. Integrity
  2. Skill, care and diligence
  3. Risk Mangement and Control
  4. Finanical Prudence
  5. Market Conducty
  6. Customers Interest
  7. Communication with Clients
  8. Conflicts of Interets
  9. Custoemrs: Relationship of trust
  10. Cleints Assets
  11. Relations with Regulators
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21
Q

What are the 6 FCA TCF consumer outcomes?

A
  1. Consumers are confident they are treated fairly
  2. Products and services meet consumers needs
  3. Consumers were given clear information and appropriatly informed
  4. That advice given was sutiable and takes account of their circumstances
  5. Frims uphold their products as advertised to the consumer
  6. Consumers don’t face unresonable post sale barrier imposed by firms
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22
Q

What does TCF stand for in financial regulation?

A

Treating Consumers Fairly

23
Q

What are the additional consumer outcomes of the New Consumer Duty (FCA TCF)

A
  1. Act in Good Faith
  2. Avoid forseeable harm
  3. enable and support retail consumers to persue their financial objectives.
24
Q

What are the 6 types of financial crime

A
  1. Money Laundering
  2. Fraud
  3. Cybercrime
  4. Bribery
  5. Insider Dealing
  6. Market Abuse
25
Q

What is Money Laundering?

A

Process of turning derived from criminal activities - dirty money - into money which appears to have been legitimately acquired and which can, therefore, be more easily invested and spent.

26
Q

What forms can money laundering take?

A
  • Turning money acquired through criminal activity into clean money.
  • Handling the proceeds of crimes such as theft, fraud and tax evasion.
  • Handling of stolen goods.
  • Being directly involved with or facilitating the laundering of any criminal or terrorist property.
  • Criminals investing the proceeds of their crimes in the whole range of financial products.
27
Q

What are the 3 stages of a money laundering operation?

A
  • Placement
  • Layering
  • Integration
28
Q

What is placement in money laundering?

A

First stage of laundering and typically involves placing criminally derived cash into some form of bank or building society.

29
Q

What is layering in money laundering?

A

The Second stage of laundering and involves moving money around in order to make it difficult for authorities to link placed funds with ultimate beneficiary of the money. Disguising original source of funds may involve buying and selling foreign currencies, shares or bonds.

30
Q

What is meant by integration in money laundering?

A

Third stage of laundering and is when layering has been successful and ultimate beneficiary appears to be holding legitimate funds (‘clean’ money). Money is integrated back into financial system and dealt with as if it were legit.

31
Q

What are the two major differences between terrorist financing and other money laundering activities?

A
  • Only small sums of money are required to commit terrorist acts, making identification and tracking more difficult.
  • If legitimate funds are used to fund terrorist activities, it’s difficult to identify when funds become terrorist funds.
32
Q

Why is terrorist financing and money laundering similar?

A

Terrorist organisations require significant funding, and will employ modern techniques to manage funds and transfer between jurisdictions, hence similarities with money laundering.

33
Q

What is Identity Fraud?

A

Use of misappropriated identity in criminal activity, to obtain goods or services by deception. This usually involves the use of stolen or forged identity documents such as passport or driving license.

34
Q

What is Identity Theft?

A

Misappropriation of the identity of another person, without their knowledge or consent. These identity details are then used to obtain goods and services in that person’s name which classes it as identity fraud.

35
Q

What are the two types of Cybercrime?

A
  1. Advanced Cybercrime (or high tech crime) - sophisticated attacks against computer hardware
  2. Cyber-enabled crime - tricking people online i.e. identity theft, sell of fake medicine, theft etc.
36
Q

What is Bribary?

A

Use of incentives (usually money) to gain an advantage by use of public officials. i.e. paying officails to look the other way so that you can conduct illegal/unautheroised buisness.

37
Q

What is insider dealing?

A

When someone of inside knowledge trades on “material” information that has not been released to the public for a publicly traded (listed) company

I.e. A pharmaceutical merger deal fell through and the stock price was expected to drop once the news released to the public. However all the directors have shorted the company after knowing the deals outcome but traded prior to the public release, creating an unfair advantage.

38
Q

What is market abuse?

A

Where financial investors have been unreasonably disadvantaged, directly or indirectly, by others who behave unlawfully. I.e. Insider trading and market manipulation (misleading information given to public, high freq trading (HFT)).

39
Q

What is the impact of the Data Protection Act 2018 on a frims activity?

A

Frims need to:
1. Process data lawfully, transparant and fairly
2. Collected for specific and legitimate reasons and not further processed
3. Ensure that personal data is not inaccurate
4. Hold data for a necessary time period
5. Processed Securely and is protected

40
Q

What body deals with UK financial complaints and what is the max compensation amount?

A

FOS (Financial Ombudsmen), £375,000

41
Q

What is the FSCS?

A

Financial Services Compensation Scheme. It is financial compensation for when a firm/bank defaults. If you are elgiible you get up to £85,000 per person for investments and bank deposits..

42
Q

What are the CISI expectations?

A
  1. Personal Accountability
  2. Client Focus
  3. Conflict of Interest
  4. Respect for Market Participants
  5. Professional Development
  6. Aware of Capabilities
  7. Respect for others and he enviroment
  8. Speak up and Listen up.
43
Q

What is the rationale behind the checks that the Financial Conduct Authority (FCA) undertakes
to make sure that a firm is ‘fit and proper’ prior to authorisation?

Exam

A

To protect the consumer and ensure the market is “fair”

44
Q

What are the FCA’s 11 Principles for Businesses?

Exam

A
  1. Integrity
  2. Skill, care and diligence
  3. Risk Mangement and Control
  4. Finanical Prudence
  5. Market Conducty
  6. Customers Interest
  7. Communication with Clients
  8. Conflicts of Interets
  9. Customers: Relationship of trust
  10. Cleints Assets
  11. Relations with Regulators
45
Q

What are the three stages of the money laundering process?

Exam

A

Placement
Layering
Integrattion

46
Q

What are the two major differences between money laundering and terrorist financing?

Exam

A
  • Only small sums of money are required to commit terrorist acts, making identification and tracking more difficult.
  • If legitimate funds are used to fund terrorist activities, it’s difficult to identify when funds become terrorist funds.
47
Q

What is the difference between identity fraud and identity theft?

Exam

A

Identity theft is the act of stealing someone’s personal information and identity fraud is the use of an individual’s identifying information to commit crimes.

48
Q

What is the corporate offence in relation to bribery, and what defence may be made when charged with it?

Exam

A

Failing to prevent bribary. Defence that may be made is that the corporation has made adequete changes to its anti bribary procedures and employee awareness has increased.

49
Q

What types of securities do the insider dealing rules apply to?

Exam

A

All financial products but specificaly for “Securities” classification:
Shares, Bonds, Warrents, Depository Reciepts, Options, Futures, CFDs

50
Q

What types of behaviour might lead to a charge of market abuse?

Exam

A
  • Market Manipulation
  • Insider Dealing
  • Unlawful disclosure of inside information or unlawful disclosure of inside information
51
Q

What action should a firm take before it allows another firm to process customer data for it?

Exam

A

Ensure it meets the Data Protect Act of 2018

52
Q

What is the name of the body that handles dispute resolution and complaints about financial services firms?

Exam

A

Financial Ombudsmen (FOS)

53
Q

If an authorised firm were to become insolvent, who could an investor seek compensation from?

Exam

A

Financial Services Compensation Scheme (FSCS), up to £85,000.

CISI Introduction to Securities and Investments 2025 (12 decks)

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