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Investment Environment > Financial Crime > Flashcards

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

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2
Q

Who oversees insider dealing legislation contained within the Criminal Justice Act 1993?

A

HMT

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3
Q

What 3 types of offences does insider dealing constitute?

A
  • DEALING on the strength of information
  • ENCOURAGING others to deal
  • DISCLOSING of
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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
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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
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6
Q

What securities are not affected by insider dealing? (3)

A
  • Packaged products
  • UCITS
  • OTC markets (commodity derivatives)
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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)
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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
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9
Q

What are the special defences for insider dealing? (3)

A
  • Stabilisation of prices
  • Protecting market participants
  • Market makers acting in good faith
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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
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11
Q

Under was Act does the FCA has criminal powers?

A

FSMA 2000

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12
Q

What is the maximum penalty for insider dealing and misleading statements?

A

10 years in jail and unlimited fine

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13
Q

What is the minimum penalty for insider dealing and misleading statements?

A

£5,000 fine and 6 months in jail

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14
Q

What is considered a misleading statement? (3)

A
  • Lies
  • Misleading, false or deceptive statements
  • Dishonesty and concealing material facts
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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
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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
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17
Q

Who initiates investigations and prosecutions?

A

FCA

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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
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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
Q

What is money laundering?

A
  • Cash proceeds from illegal activity such as drug trafficking, fraud, forgery and tax evasion
26
Q

What are the three stages that money laundering takes place?

A

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
Q

Who is in charge of money laundering within firms? (2)

A
  • Money Laundering Reporting Officer to whom suspicions should be reported (MLRO).
  • All firms no matter how small have an MLRO
28
Q

Who has the responsibility of reporting money laundering? (2)

A
  • MLRO to National Crime Agency
  • All staff to MLRO
  • Failure to report is a criminal offence
29
Q

What are the qualifying conditions for an MLRO? (5)

A
  • 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
Q

What are the 2 major differences between criminal funds and financing terrorism? (2)

A
  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
Q

Under what act is financial terrorism a crime?

A

Terrorism Act 2000

32
Q

What is the maximum penalty for money laundering?

A

2 years in jail and unlimited fine

33
Q

What procedures can firms use to prevent money laundering amongst clients? (3)

A
  • 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
Q

When should enhanced due diligence be carried? (3)

A
  • 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
Q

What block covers money laundering?

A

Senior Management Arrangements, Systems and Controls (SYSC) - Block 1; High Quality Standards

36
Q

What is the enhanced due diligence process for PEPs? (5)

A
  • 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
Q

What are examples of money laundering suspicions?

A
  • 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
Q

How long must identity records be maintained?

A

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
Q

What is the defence for money laundering? (2)

A
  • 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
Q

Under POCA 2002, what are the penalties for money laundering? (6)

A
  • 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
Q

What are the offences under the UK Bribery Act 2010? (4)

A
  • Pay or offer bribes
  • Receive or solicit bribes
  • Bribe foreign officials
  • Fail as an organisation to prevent bribes
42
Q

What is the penalty for bribery under the UKBA 2010? (2)

A
  • Individuals: 10 years in jail
  • Companies: unlimited fine
43
Q

What is the Criminal Finances Act 2017? (2)

A
  • 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
Q

How does the Criminal Finances Act 2017 investigate proceeds of crime? (3)

A
  • Unexplained wealth orders
  • Further information orders
  • Application to PEPs for information
45
Q

What is the Joint Money Laundering Steering Group? (2)

A
  • Sets out practical methods for implementation of money laundering regulations
  • Includes unions like the British Bankers Association

Investment Environment (10 decks)

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