Chapter 8 - Financial Services Regulation

Question 1

What did MiFID do to financial services sector?

Answer 1

Markets in Financial Instruments Directive.It removed cross-border business by specifying that a firm had been authorised in one member state to provide investment services it enabled the firm to provide those investment services in other member states without further authorisation. It was a passport.

Question 2

What did FSMA do?

Answer 2

UK Government (2001) delegated overall responsibility for regulation of the financial services industry to the BoE - FSA (financial services authority).

Question 3

What happened to the FSA?

Answer 3

Split up:1) PRA: prudential regulation authority2) FCA: financial (market) conduct authority (protect, enhance integrity, effective competition)3) FCP: financial policy committee (macro prudential regulation)

Question 4

What are the FCA’s aims and who oversights it?

Answer 4

HM Treasury.- protect consumers- enhance integrity- help maintain competition and promote efficiency

Question 5

Which body makes it an offence to provide financial services without authorisation and who gives authorisation?

Answer 5

FSMA makes it an offenceFCA gives approval to everyone and PRA to those that are big (dual regulated)

Question 6

How are businesses determined if they are fit and proper? How are people assessed?

Answer 6

The FCA and PRA check for fit and proper by looking at:- companies management- financial strength- staff calibre (especially control functions, companies should provide ongoing training too)People are assessed:- honesty, integrity, reputation (criminal history)- competency (qualified)- financial soundness (financial history)

Question 7

What are the controls functions and what are SIFs?

Answer 7

SIF - significant influence function (whether a person is one)1) Governing function - Director2) significant management function - senior management3) systems and control functions - risk managers, audit4) required functions - compliance/ directorsNot at SIF that is a control function:5) customer function - provide advise including those that provide benchmarks (e.g LIBOR)

Question 8

What is money laundering and its key steps?

Answer 8

Making dirty money seem legitimate.1) placement - cash into a bank account2) layering - moving money (into FX, stocks, etc)3) integration - dealing as if legitimate

Question 9

What’s the difference between terrorist financing and money laundering?

Answer 9

Terrorist:1) often small amounts of money2) sourced from legitimate money…when does it become terrorist money?

Question 10

What are some of the main laws and regulations relating to money laundering and terrorist financing?

Answer 10

• POCA (proceed of crime act)- Money Laundering Regulations- FCA handbook- JMLSG (joint money laundering steering group) guidance

Question 11

What is covered by POCA?

Answer 11

Proceeds of crime act. It is illegal to:1) knowingly assist in concealing (14 years)2) fail to report (5 years)3) tip off another person that a money laundering report has been made (5 years)4) destroy documents (5 years)5) firm not comply

Question 12

Who can the money laundering sanctions be against and who makes the list?

Answer 12

HM TreasuryCan be against individuals or organisation - they restrict payments too and from these.

Question 13

Under POCA who provides the guidance used in court when considering if a person has committee and money laundering offence?

Answer 13

JMLSG (joint money laundering steering group) - it is an industry body made up of 17 financial sector trade bodies

Question 14

What must a firm cover under the JMLSG’s guidance?

Answer 14

1) Internal controls (policies and procedures against money laundering or terrorist financing)2) MLRO (Money Laundering Reporting Officer)3) Risk based approach - appropriate systems and controls 4) Customer Due Diligence (CDD)5) Suspicious activities and reporting6) Staff awareness and training7) Record-keeping

Question 15

When can simplifies due diligence take place?

Answer 15

Regulated financial firmsCompanies listed on regulate marketUK public authoritiesJunior isa Etc

Question 16

What is EDD?

Answer 16

Enhanced due diligence where money laundering is more risky eg PEPs - politically enhanced persons.

Question 17

What is an MLRO?

Answer 17

Money laundering reporting officerOversight of compliance with FSA’s rulesMake external reports to NCA (national crime agency)Carry out assessments

Question 18

Under the JMLSG what is their guidance on record-keeping?

Answer 18

Firms must maintain appropriate systems for maintains records and should retain:- copies of evidence obtained of a customer’s identity for 5 years after the end of the relationship- details of the customers transactions for 5 years- details of actions in respect to internal and external suspicion reports- internal reports not made externally.

Question 19

What is a new law relevant to companies under Bribery Act 2010?

Answer 19

Penalties up to 10 years in prison and unlimited finesFor companies - failing to prevent bribery which does not require any corrupt intent.

Question 20

What is the difference between identity fraud and identity theft?

Answer 20

Fraud: in criminal activity. Stolen or forged identities to obtain goods or servicesTheft: without the persons consent - taking details to obtain goods and services in that persons name.

Question 21

What does securities does insider dealing apply to?

Answer 21

All normal securities except commodities and commodity activities and open-ended collective investment schemes

Question 22

Inside dealing is an offence against what act?

Answer 22

Criminal Justice Act 1993

Question 23

What’s the difference between insider dealing and market abuse?

Answer 23

Insider dealing: unpublished price-sensitive information (specific or precise, not public, would effect the price of a security). Criminal Justice Act 1993Market abuse: a person or group of people working together to distort the price of the investment (eg information that is not generally available that is price sensitive, likely to give a false or misleading impression of the price, distort the markets). Financial Services and Markets Act 2000 (FSMA)

Question 24

What does the Data Protection Act cover and what are the 8 principles?

Answer 24

Covers how personal data should be dealt with. Personal data shall:1) processed fairly and lawfully2) obtained and used for lawful purposes3) adequate, relevant and not excessive for its intent4) accurate and kept up to date5) not be kept for longer than necessary for its purpose6) processed in accordance with the rights of the subject (the person)7) safeguarded against unauthorised or unlawful processing and protect against accident loss or destruction8) not be transferred to a country or territory outside the European Economic Area unless that country has adequate levels of protection

Question 25

What is the FSAP and its aim?

Answer 25

Financial Services Action Plan. To ensure the EU has world class regulatory standards, the EU is also concerned with the development of the single market in financial services across Europe.

Question 26

What are the 2 requirements from the FCA about complaints?

Answer 26

1) from eligible complainants (broadly individuals and small businesses) should be dealt with promptly and fairly.2) appropriate written procedures for handling expressions of dissatisfaction. Finals responses sent within 8 weeks.

Question 27

What body was made by the FCA (under FSMA) to handle complaints?

Answer 27

Financial Ombudsman Service (FOS)

Question 28

What is FOS?

Answer 28

Financial Ombudsman Service.An independent body to resolve disputes (if eligible complaintants are not satisfied with a response from a financial services firm) about financial services firms with minimum formality. The FOS decision is binding (not on the person making the complaint) and can award up to £150k.It covers financial loss, pain and suffering, damage to reputation and distress or inconvenience.

Question 29

What can the FOS compensation cover?

Answer 29

Financial loss, pain and suffering, damage to reputation and distress or inconvenience.

Question 30

What is the FSCS?

Answer 30

Financial Services Compensation SchemeTo pay compensation to eligible claimants in the event of default of an authorised person.Compensation: 100% of first £50k per person per firm for investments and £85k for bank deposits

Question 31

What is TCF?

Answer 31

Treating customers fairly initiative that’s falls under the FCA’s statutory consumer protection objective. (Mainly retail clients). 6 outcomes:1) treating customers fairly is central to the corporate culture2) retail products must meet the needs of identified consumer groups and targeted accordingly3) consumers get clear information at all times4) customer advice is suitable and takes account of their circumstances 5) customer get products that perform as intended 6) customers don’t get post-sale barriers imposed by firms to change products or complain

Question 32

What is the simple checklist when assessing something is ethically sounds at work?

Answer 32

Is it:1) open - is everyone aware?2) honest - does it comply with applicable law?3) transparent - are all parties aware?4) fair - is it fair to everyone?

Question 33

Which are ethics and which are compliance from the following:A) prevention vs ethics B) law/rule based vs principle basedC) fear driven vs values drivenD) implicit vs explicitE) spirit of the law vs letter of the lawF) discretionary vs mandatory

Answer 33

Ethics are:A) preventionB) principlesC) valuesD) implicit (implied)E) spiritF) discretionary