EXAM PAPER QUESTIONS Flashcards
3 types of client categorisation under MiFID
Professional clients
Eligible counterparties - per se or elective
Retail clients
What is the role of the MLRO?
Financial crime is dealt with under SYSC 6.3 with firms to ensure they have policies and procedures in place to identify, assess and manage money laundering risks which are comprehensive and proportional to a firm’s risk profile
Firms other than sole traders are required to appoint a MLRO to oversee compliance with the FCA rule on systems and controls against money laundering
The Principal functions are
- receive reports of transactions and give rise to suspicious transactions
- to determine whether a suspicious transaction should be filed
- Report a suspicious transaction to the NCA
The 6 types of conduct that used to constitute market abuse under MAR in the UK under s118
118 FSMA was replaced by MAR 2014 which came into effect 3 July 2014 and implemented under FSMA 2000 2016.
Market abuse under s 118 covered the following
- dealing on the basis of inside information (insider dealing)
- disclosing inside information to another person (unlawful disclosure)
- effecting transactions by giving a false impression as to the supply, demand or price of qualifying investments (market maipulation)
- effecting transactions using any forms of deception (market deception)
- disseminating information to provide a false impression (disemmination)
- acting in a manner that would give a regular user of the market a false or misleading impression (misleading behaviour) or distorting the market (market distortion)
What does MAR 2014 now apply to?
a) engaging or attempting to engage in insider dealing
b) recommending another engages in insider dealing
c) unlawfully disclosing inside information
d) engaging or attempting to engage in market manipulation which includes
i) false or misleading behaviour
ii) securing the price of financial instruments at an abnormal level
iii) deceptive behaviour
iv) disseminating false or misleading information through media including the internet
v) benchmark manipulation
What is the general purpose of the CASS sourcebook?
The Client Assets sourcebook which contains the requirements concerning the holding of client assets and client money.
Specific provisions for
APPLICATION AND CLASSIFICATION (CASS 1 & 1A)
COLLATERAL (CASS 3)
CLIENT MONEY:INSURANCE MEDIATION ACTIVITY (CASS 5)
CUSTODY RULES (CASS 6)
CLIENT MONEY RULES (CASS 7)
CLIENT MONEY DISTRIBUTION (CASS 7A)
MANDATES (CASS 8)
INFORMATION TO CLIENTS (CASS 9)
CASS RESOLUTION PACK (CASS 10)
DEBT MANAGEMENT CLIENT MONEY (CASS 11)
COMMODITIES FUTURES TRADING COMMISION PART 30 EXEMPTION ORDER (CASS 12)
CLAIMS MANAGEMENT: CLIENT MONEY (CASS 13)
Explain the different ways firms can manage conflicts of interest
Firms must manage conflicts of interest fairly between themselves and customers and between customers under FCA PRIN 8.
Can be dealt with by
declining to act
firewalls
information barriers
maintaining and independent policy and disclosure
Specifically dealt with under SYSC 10 requiring firms to identify conflicts between the firm and a client or between clients. Types of conflicts set out in SYSC 10.1.4R.
Firms must maintain and operate effective organisational and administrative arrangements to prevent conflicts creating a MATERIAL RISK of damage to clients
common platform firms and management firms must maintain an effective conflicts of interest policy
Outline 6 principal means which regulatory authorities are held accountable under the Financial Services and Markets Act
- HM Treasury appointments
- Public general meeting to discuss the annual report
-Judicial review - Maintenance of Internal Governance Structure
- Upper Tribunal (Tax and Chancery Chamber)
- Consultation with Consumer Panel
- Conduct of formal Treasury Enquiry
- Consultation with Markets Practitioner Panel
Explain the purpose and content of the offence of causing a financial institution to fail imposed under section 36 of the Financil Services Act 2013
s36 causes a new offence of causing a financial institution to fail
It applies where a senior manager in relation to an institution and takes a decision and was aware this would cause the failure of the institution.
the conduct falls below the level of what would what be reasonably expected
the offence carries a conviction of up to 12 months imprisonment or seven years indictment or a fine or both
What is the role and function of the Financial Policy Committee?
It was set up under section 9B of the Banking Act 1998 (amended by s 4 of Financial Services Act 2012)
Court of Directors able to determine the Bank’s Financial Stability Strategy
Interim Financial Policy Committee set up in February 2011 with the creation of the permanent FPC with BoE, the PRA and the FCA
Comprises the DEPUTY GOVERNOR, GOVERNOR, FCA CEO, one member appointed by the Governor
four members appointed by the Chancellor and the Treasury representative
Responsible for MACRO PRUDENTIAL POLICY
monitoring of banks RISKS AND EXPOSURES across FINANCIAL SYSTEM AS A WHOLE
Statutory objectives are to exercise its functions with a view to contributing to the Bank of England’s FINANCIAL STABILITY OBJECTIVE
taking action to remove SYSTEMIC RISKS and ENHANCE THE RESILIENCE OF THE UK FINANCIAL SYSTEM
Also supports the economic policy of her Majesty’s Government
first meeting 16th June 2011 with a record of the FPC meetings published after each meeting
CISI FOUR KEY VALUES
CLEAR
IMPARTIAL
STRAIGHTFORWARD
INFORMED
What is the FCA’s supervision model?
PROACTIVE - preventative work through conduct assessment of firms
- includes model analysis and drivers of culture
REACTIVE
- dealing with problems that are emerging or have crystallised, and securing customer redress
- other remedial work
THEMATIC
- looking at sectors of the markets or products within a sector that put consumers at risk
- wider diagnosis or remedy work where there is harm
SUPERVISION BY DEPARTMENTS
SUPERVISION BY PORTFOLIOS
SECTION 19 FSMA
Any person must be authorised or exempt under Section 19 FSMA and the general prohibition in s19
Authorised persons listed in section 31
- anyone holding a part 4a permission
- EEA passport firms
- Treaty firms
- a person otherwise authorised under FSMA
Authorised constitutes a form of STATUS or CONDITION for the carrying out of regulated activity
SECTION 20 FSMA
Authorised persons must hold the relevant PERMISSION to carry out the specific regulated activity or activities conducted in the UK
Applications for permission are made under 55A and Part 4A generally.
Breach is not an offence but it is subject to disciplinary action.
Permission is concerned with the specific LEGAL RIGHT, AUTHORITY OR ENTITLEMENT to undertake the financial activity
SECTION 21 OF FSMA
Section 21 FSMA requires that any financial promotion, in the form of an invitation or inducement to engage in investment activity may be issued to or be approved by an authorised person
all financial promotions must be clear, fair and not misleading
PRA FUNDAMENTAL RULES
Act with honesty
Act with due skill care and diligence
Act in a prudent manner
Maintain adequate financial resources
Have effective risk management strategies and risk strategies
Deal with regulators in an open court way
Prepare for resolution
Organise and control affairs responsibly
Explain the general purpose of SM&CR
Objective is to ensure that senior managers are held ACCOUNTABLE for any MISCONDUCT within their areas of speciality.
Firms have to prepare RESPONSIBILITY MAPS to allocate relevant SMF functions with each manager having a STATEMENT OF RESPONSIBILITY
Authorised persons must vet candidates before putting them forward for approval to ensure they are FIT AND PROPER
- they need to have the relevant qualifications, training and experience
Conditions and time limits are attached to approvals
Also the certification regime - for certified individuals performing functions that may pose a risk to the business such as the client dealing function or significant management function
also conduct rules which apply to all employees in the business apart from cleaners
THE REGULATORY PRINCIPLES
Section 3B FSMA
Efficient and economic use of resources
Proportionate restrictions
- desirability of sustainable growth
- consumer responsibility
- senior management responsibility
The regulatory authorities take into account the differences in the nature and objectives of seperate business carried out by persons
Information disclosure
Transparency
Explain the general purpose and content of the Capital Requirements Directive 4 requirements within the UK.
General purpose of the CRD is to reinstate the core European measures for banks and investment management.
It is supported by MiFID II for investment firms
contains all provisions for capital, freedom of establishment, prudential supervision, disclosure and ancillary provisions
CRD specific objective was to impose higher requirements for credit risk, liquidity and leverage following the financial crisis
provisions implemented under BASEL 3 adopted by the Basel Committee on Banking Supervision.
CR4 increased capital requirements
- CORE TIER 1 capital
- systemic risk buffer
- short month liquidity coverage ratio
CAPITAL REQUIREMENTS DIRECTIVE 5
Finalisation measures were adopted by the Committee in 2017 implemented under CRD 5
Measures clarify the application of supervisory requirements and guidance under Pillar 2
renumeration policy obligations, governance requirements applied to firms
REGULATORY GUIDELINES
a) COLLECTIVE INVESTMENT SCHEME INFORMATIVE GUIDE
b) ENFORCEMENT GUIDE
c) FINANCIAL CRIME GUIDE
d) FINANCIAL CRIME THEMATIC REVIEWS
e) PERIMENTER GUIDANCE MANUAL
f) RESPONSIBILITIES OF PROVIDERS AND DISTRIBUTORS
g) UNFAIR CONTRACT TERMS IN CONSUMER NOTICES REGULATORY GUIDE
h) WNDING DOWN PLANNING GUIDE
i) MiFID II GUIDE
SECTIONS 89 AND 90 FSA 2012
Financial Services Act 2012 creates two offences on making misleading statements and misleading impressions
It replaced the earlier miscellaneous offences on misleading statements and practices
s89 with regard to the making of a statement that is misleading in a material respect or being reckless
s90 applies where a person acts or engages in any course of conduct that creates a false or misleading impression as to the market or the price of value of a relevant investment
person guilty of it is liable of a summary conviction for up to 12 months or up to seven years on indictment
3 FORMS OF COLLECTIVE INVESTMENT SCHEME
PART 17 FSMA
- Authorised or unauthorised unit trust schemes
- Open-ended investment schemes
- Recognised overseas scheme
Other EEA constituted schemes
Designated country
Individually recognised overseas scheme
What is the function of the financial stability board?
It was established at the G20 Summit following the financial crisis
Replaced the financial stability forum
Contains representatives from national finance ministries
- BCBS
- International Organisation of Securities Commission
- Committee on Payments and Market Infrastructure
Purpose is to coordinate the work of financial authorities and national standard agencies and to promote implementation of effective regulatory, supervisory and other financial sector policies.
FSB has produced a large amount of important reports in various policy areas since the global financial crisis began
Published a online or virtual compendium of standards which is a global financial rulebook
CISI CODE OF CONDUCT
CLEAR - have I told no lies or half-truths to any party involved in reaching my decision?
IMPARTIAL - is everyone affected by my decision aware of the consequences
STRAIGHTFORWARD - have I made sure my action or decision will not result in any party being unknowingly disadvantaged or unduly advantaged?
INFORMED - have I considered the interests of my potential stakeholders and not been misleading when making my decision?
WHAT ARE THE CONDUCT RULES?
- Act with integrity
- Act with due skill care and diligence
- Must be open and cooperative with the FCA and the PRA
extra 2 for when working with retail clients
4. Pay due regard to the interest of customers and treat them fairly
5. Must observe proper standards of market conduct
PRUDENTIAL CATEGORIES OF FIRMS REGULATED BY THE FCA
P1 - firms whose failure would cause lasting damage and widespread financial and reputational damage to their customers, client assets, the marketplace and beyond
P2 - firms who disorderly failure who damage consumers and client assets but are more easily dealt with than the failure of a P1 firm
P3 - firms whose failure, even if disorderly, would be unlikely to cause significant harm to consumers or market integrity
the categories
Other overall responsibility for SM&CR
Intended to cover individuals with overall responsibility for one or more key functions or identified risks, those who perform a function not caught by an SMF
Overall function on SM&CR
Created to allow firms to designate senior executives who have ultimate responsibility for functions but would not be part of the SMF structure
12-week rule for individuals who cover for an approved person (SMF) if the absence is less than 12 consecutive weeks
What SMFs are required for Branches of Foreign Banks
PRA Function
SMF 2 - Chief Finance function
SMF 4 - Chief Risk function
SMF 5 - Head of Internal Audit Function
SMF 7 - Group Entity Senior Manager
SMF 19 - Head of third country branch function
FCA Functions
SMF 3 - Executive Director
SMF 16 - Compliance oversight function
SMF 17 - Money Laundering Reporting officer
SMF 22 - Other local responsibility function
WHAT ARE THE PRESCRIBED RESPONSIBILITIES FOR UK BANKS?
Firm’s performance of its obligations under SMF regime - FCA/PRA
Responsibility for performance of obligations under the certification regime - FCA/PRA
Responsible for the compliance of requirements of the regulatory system about the responsibilities map - FCA/PRA
Responsible for the firm’s policies and procedures for countering the risk the firm might be used to further financial crime - FCA prescribed
Responsible for allocation of prescribed responsibilities - PRA prescribed
FCA PRESCRIBED RESPONSIBILITIES FOR LARGER FIRMS
- leading the development of
- monitoring the effective implementation of policies and procedures FCA/PRA Prescribed
- Overseeing the adoption of the firm’s culture in day to day management of the firm is PRA prescribed
- Leading the development of the firm’s culture is PRA Prescribed
- Responsible for developing and overseeing the firm’s renumeration policies in accordance with SYSC 19D is FCA and PRA Prescribed
- Firms compliance with CASS is FCA prescribed
- Firm carrying out propriety trading, being responsible for the oversight is a PRA function
- Firm’s recovery procedure and resolution pack is a PRA prescribed function
- Responsible for firm’s obligations under F&P is a PRA prescribed function
- Treasury management function - PRA prescribed function
