Financial Crime Flashcards
1
Q
Under what act is insider dealing a crime?
A
Criminal Justice Act 1993
** a serious offence but notoriously difficult to prosecute
2
Q
Who oversees insider dealing legislation contained within the Criminal Justice Act 1993?
A
HMT
3
Q
What 3 types of offences does insider dealing constitute?
A
- DEALING on the strength of information
- ENCOURAGING others to deal
- DISCLOSING of
4
Q
Under the Criminal Justice Act 1993, what are the characteristics of inside information? (4)
A
- Specific or precise
- Not public
- Price sensitive
- From an inside source
5
Q
What is as an insider? (2)
A
- Knows that the information is from an inside source
- Likely to deal on the strength of the information
6
Q
What securities are not affected by insider dealing? (3)
A
- Packaged products
- UCITS
- OTC markets (commodity derivatives)
7
Q
What type of securities are affected by insider dealing?
A
- Readily realisable products that are available on an RIE or through a professional intermediary (e.g. stockbroker)
8
Q
What are the general defences for insider dealing? (3)
A
- Proper course of business and did not expect the recipient to deal
- Dealing was not for for profit or loss
- Information was already public even if it was only to one section of the public e.g. behind a paywall/for experts only at a fee
9
Q
What are the special defences for insider dealing? (3)
A
- Stabilisation of prices
- Protecting market participants
- Market makers acting in good faith
10
Q
How is insider dealing enforced by the FCA? (2)
A
- FCA works with RIEs
- FCA has the responsibility for prosecutions - power to interview people under caution, search premises and seize assets under warrant
11
Q
Under was Act does the FCA has criminal powers?
A
FSMA 2000
12
Q
What is the maximum penalty for insider dealing and misleading statements?
A
10 years in jail and unlimited fine
13
Q
What is the minimum penalty for insider dealing and misleading statements?
A
£5,000 fine and 6 months in jail
14
Q
What is considered a misleading statement? (3)
A
- Lies
- Misleading, false or deceptive statements
- Dishonesty and concealing material facts
15
Q
What are 3 types of offences under the Financial Services Act 2012?
A
- S89: Misleading statements e.g. lying to persuade someone to deal, concealing relevant facts in takeover documents
- S90: Misleading impressions e.g. abusive squeezes, market rigging
- S91: Misleading statements in relation to benchmarks e.g. LIBOR
16
Q
What are 2 defences for misleading statements?
A
- Reasonable belief that statement was not false or misleading
- Price stabilisation or control of information rules
17
Q
Who initiates investigations and prosecutions?
A
FCA
18
Q
What is the EU Benchmark Regulation (6)
A
- In response to LIBOR and EUIBOR scandals - manipulation of benchmarks
- Came into force in 2018
- Ensures benchmarks are robust and reliable
- Minimising conflicts of interest in benchmark setting process
- Introduces a code of conduct for benchmark creators, requiring robust methodologies and controls
- EU BMR was onshored and is now UK BMR
19
Q
What type of offence is market abuse?
A
A civil offence
20
Q
What is considered a market abuse offence? (3)
A
- Assisting or attempting to assist insider dealing - including amending or cancelling order
- Recommending or inducting another person to engage in insider dealing
- Unlawfully disclosing inside information
21
Q
What investments and prescribed markets are covered by Market Abuse regulation (MAR)? (2)
A
- Any UK regulated market
- Any EU regulated market - MTF, OTC Derivatives, OTF
22
Q
What is market abuse based on?
A
EFFECT as opposed to intention
23
Q
What are the 5 market abuse behaviours?
A
- Insider dealing
- Improper disclosure
- Manipulating transactions
- Manipulating devices
- Dissemination
24
Q
Under what act is money laundering an offence?
A
The Proceeds of Crime Act 2002 - POCA 2002
25
What is money laundering?
- Cash proceeds from illegal activity such as drug trafficking, fraud, forgery and tax evasion
26
What are the three stages that money laundering takes place?
Placement - disposing cash and depositing money into a bank account
Laying - Separates cash proceeds from illegal source. Investing funds
Integration - Attempt to lose audit trail by re-investing cash proceeds e.g. buying real estate. Money appears legit
27
Who is in charge of money laundering within firms? (2)
- Money Laundering Reporting Officer to whom suspicions should be reported (MLRO).
- All firms no matter how small have an MLRO
28
Who has the responsibility of reporting money laundering? (2)
- MLRO to National Crime Agency
- All staff to MLRO
- Failure to report is a criminal offence
29
What are the qualifying conditions for an MLRO? (5)
- MLROs are considered a senior member of the firm and approved person.
- A required control function.
- Expected to be based in the UK
- Be independent
- Have sufficient resources at their disposal
30
What are the 2 major differences between criminal funds and financing terrorism? (2)
1. Terrorism can be funded from legitimate sources - difficult to classify when funds become terrorist assets
2. Only a small amount could be required to fund terrorism - tracking funds can be difficult
31
Under what act is financial terrorism a crime?
Terrorism Act 2000
32
What is the maximum penalty for money laundering?
2 years in jail and unlimited fine
33
What procedures can firms use to prevent money laundering amongst clients? (3)
- AML documentation for identity and identifying owner of underlying assets
- Internal controls and staff training to identify suspicious transaction
- Simplified and enhanced due diligence
34
When should enhanced due diligence be carried? (3)
- Business is conducted on a non face to face basis
- The customer is a politically exposed person (PEP)
- Client is on a high risk jurisdiction (black list e.g. Botswana)
35
What block covers money laundering?
Senior Management Arrangements, Systems and Controls (SYSC) - Block 1; High Quality Standards
36
What is the enhanced due diligence process for PEPs? (5)
- PEPs are vulnerable to corruption as they hold high public status
- Due diligence is carried on all of their family members, friends and associates
- Must be approved by senior management
- Adequate measures to identify source of funds
- Enhanced ongoing monitoring procedures
37
What are examples of money laundering suspicions?
- Reluctance of a new client to provide ID
- Unnecessary use of a third party
- Continual patterns of unusual trading
- A request for non market price transactions
- The constant use of transfers and bearer securities
- An introduction from a suspicious party of jurisdiction
- Where a client has no obvious reason to use its services
- Unusual or frequent payments to third parties
38
How long must identity records be maintained?
5 years from:
- The end of the firms relationship with the client
- Transaction was completed
- AML training was given
- Reports made to the NCA
39
What is the defence for money laundering? (2)
- When knowledge or suspicion is reported to the National Crime Agency before the prohibited act is carried or soon after
- Employees have not received training
40
Under POCA 2002, what are the penalties for money laundering? (6)
- Concealing, acquiring, possessing and assisting - 14 years
- Failure to report - 5 years
- Knowingly prejudicing an investigation - 5 years
- Tipping off - 2 years
- False or misleading statements - 2 years
- Failure to comply with MLRO - 2 years
41
What are the offences under the UK Bribery Act 2010? (4)
- Pay or offer bribes
- Receive or solicit bribes
- Bribe foreign officials
- Fail as an organisation to prevent bribes
42
What is the penalty for bribery under the UKBA 2010? (2)
- Individuals: 10 years in jail
- Companies: unlimited fine
43
What is the Criminal Finances Act 2017? (2)
- Targets money laundering, tax evasion, corruption and terrorist financing
- Identifies criminal property and funds easier by improving the quality of investigating proceeds of crime
44
How does the Criminal Finances Act 2017 investigate proceeds of crime? (3)
- Unexplained wealth orders
- Further information orders
- Application to PEPs for information
45
What is the Joint Money Laundering Steering Group? (2)
- Sets out practical methods for implementation of money laundering regulations
- Includes unions like the British Bankers Association
