Chapter 8: The Regulatory Framework Relating to Financial Crime Flashcards
Which of the following are TRUE regarding insider dealing?
I. Offences are committed by individuals, not corporations
II. Encouraging a third party to deal is an offence
III. UK equities and gilts and their derivatives are covered
IV. Disclosure of inside information, other than in the normal course of business, is an offence
A. I, II, III and IV
B. I, II and IV
C. II and IV
D. I and III
A. I, II, III and IV are correct.
Insider dealing is a crime committed by INDIVIDUALS. Offences include dealing, encouraging and passing on information.
Which of the following would NOT be covered by the insider dealing legislation under the Criminal Justice Act?
A. An options trade on ICE Futures Europe
B. OTC interest and currency options facilitated by an accountant
C. Buying shares through an internet broker
D. Buying gilts through a broker
B. The insider dealing legislation under the Criminal Justice Act covers information on equities, equity related instruments such as warrants and depositary receipts, debt instruments including government gilts and the derivatives on these instruments. These would also need to be traded on exchange or via a professional intermediary, such as a market maker or broker.
Which of the following is NOT true of insider dealing as defined under the Criminal Justice Act?
A. It applies to dealings whether secondary markets are available or not
B. Gilts and other government bonds are included in the law on insider dealing
C. The Financial Conduct Authority is responsible for prosecuting offences
D. A defence exists if the individual would have acted in the same way had they not had the information
A. The legislation applies to dealings on a regulated market or via a professional intermediary. The legislation applies to all securities except those where there is no secondary market. Investments such as unit trusts and policies have no secondary market.
All of the following represent data protection principles under The Data Protection Act (DPA) 2018, except:
A. Must not be unlawfully processed
B. Adequate, relevant and not excessive in relation to the purpose for which it is processed
C. Processed in a manner which is clear, fair and not misleading
D. Accurate and kept up to date
C. Clear, fair and not misleading is part of the communications rule, not the data protection principles.
Which of the following would NOT be considered market abuse?
A. An employee of a firm trades on price-sensitive information that has been disclosed through a Regulatory Information Service (RIS)
B. A firm sells a large holding of bonds, a transaction that significantly reduces the market price, and then repurchases them holding at the lower price
C. A firm unintentionally submits incorrect trade details, which leads to a significant move in th market
D. A firm controls a large percentage of a company’s shares and takes out a large up-bet on those shares with a spread-betting firm
A. Information disclosed through an RIS, such as the LSE’s Regulatory News Service, is considered to be public information. For B, the firm has engaged in a wash trade and D is an example of an abusive squeeze, both of which is a breach of the Market Abuse Directive. Market abuse does not need to prove intent, so C may also be in a breach under the Market Abuse Regulation.
The FCA launches an investigation and requires information from a firm, how would this NORMALLY be requested?
A. A personal visit from an FCA employee
B. A telephone call from the FCA
C. An official e-mail with a delivery request attached
D. A letter
D. The FCA can launch an investigation by any of the above methods, but it must have a ‘warrant’ outlining the information required. This will always taken a written form making the letter the best answer.
Which of the following are true of money laundering?
I. There are three stages: placement, layering and integration
II. Assisting a money launderer, failure to report and tipping off are all offences
III. The firm must appoint an appropriate person to handle suspected cases
IV. Records must be maintained for five years under the Money Laundering Regulation
A. I, II and III
B. I, II, III and IV
C. I and IV
D. I, II and IV
B. All are true of money laundering.
Note: Other procedures include internal controls and training of staff.
Insider dealing as defined under the Market Abuse Regulation is different from the offence detailed under the Criminal Justice Act in all of the following ways EXCEPT:
A. The guilt is based on the civil burden of proof, I.e. the balance of probabilities.
B. It should be easier for the FCA to demonstrate guilt
C. It should be easier for the FCA to impose a custodial sentence
D. It can apply to commodity derivatives
C. The burden of proof is less difficult to establish under the Market Abuse Regulation than beyond a reasonable doubt and hence it should be easier to obtain a conviction. However, only fines can be imposed, NOT custodial sentences. Market abuse is applicable across the board.
Which organisation would a Money Laundering Reporting Officer normally report suspicions of money laundering to?
A. Financial Conduct Authority
B. National Crime Agency
C. Joint Money Laundering Steering Group
D. Financial Action Task Force
B. The MLRO must report any suspicions to the National Crime Agency.
What kind of offence is insider dealing?
A. Civil
B. Common law
C. Criminal
D. Tort
C. Insider dealing is a criminal offence as per the Criminal Justice Act 1993.
What is the best description of market abuse?
A. A civil offence
B. A criminal offence
C. A criminal offence with a civil standard of proof
D. A breach of contract
A. Market abuse is a civil offence. It applies in addition to the criminal offence of insider dealing, and is easier to prove under the burden of proof in civil law of ‘balance of probabilities’.
All of the following are covered by the insider dealing legislation, EXCEPT:
A. Shares
B. Forward foreign exchange contracts
C. Bonds
D. Warrants
B. The insider dealing legislation relates specifically to abuses of information in respect of securities markets. This, therefore, includes instruments based on securities, such as stock index futures, share warrants and equity options. It does NOT relate to Foreign Exchange (FX) markets, such as foreign exchange forward contracts. Additionally, the legislation does NOT cover assets with no secondary market, such as unit trusts.
Under which of the following is insider dealing a criminal offence?
A. Financial Services and Markets Act 2000
B. Companies Act 2006
C. The Proceeds of Crime Act 2002
D. Criminal Justice Act 1993
D. Insider dealing is a criminal offence under the Criminal Justice Act 1993.
Note: FSMA 2000 gives the FCA the power to prosecute.
The Proceeds of Crime Act 2002 defines money laundering. Which of the following statements is TRUE?
A. Layering and integration are the two defined stages
B. It relates to cash generated from any illegal activity, such as drug trafficking and terrorism
C. Tipping off, concealing, acquiring and assisting are the only offences
D. Once an employee has reported their suspicion, they have no further reporting obligations
D. Once a member of staff has reported their suspicions to the firm’s MLRO, they have discharged their statutory duty and cannot face any criminal liability in respect of the reported transaction. Likewise, by reporting to NCA, the MLRO has fulfilled their responsibilities. Money laundering relates to money generated from illegal activities. Under the legal definition of terrorism, no money is raised.
Which are TRUE of money laundering?
A. The JMLSG Guidance Notes have received Treasury approval
B. It is a criminal offence not to report a suspicion
C. It is a criminal offence not to have procedures in place
D. All are true
D. All are true of money laundering.
The courts are required to take account of guidance approved by the Treasury, such as the guidance notes.
