IMC Chapter 3 Key Facts

Question 1

Describe European Union (EU) Directives

Answer 1

They are issued under section 58 of the European Treaty and have to be complied with by all EU Member States. The aim of a Directive is the harmonisation of laws across EU Member States

Question 2

How does a Directive work?

Answer 2

A Directive prescribes a particular result to be achieved by a particular date. It is left to EU Member States to implement the Directive into national law.

Question 3

What are the two methods of implementing a Directive?

Answer 3

1. By primary legislation
2. By delegated legislation under section 2 of the European Communities Act (1972)

Question 4

What does MiFID enable an investment firm to do?

Answer 4

Enables an investment firm established in one EU Member State to operate throughout the European Economic Area (EEA) without separate authorisation by the Member States in which it does business. MiFID II came into effect in January 2018.

Question 5

What do the Undertakings for Collective Investment in Transferable Securities (UCITS) Directives do?

Answer 5

Give automatic recognition in the U.K. to other collective investment schemes constituted in an EU Member State other than the U.K.

Question 6

What does the Alternative Investment Fund Managers Directive (AIFMD) do?

Answer 6

Covers the management, administration and marketing of alternative investment funds (AIFs)

Question 7

What does the European Market Infrastructure Regulation (EMIR) do?

Answer 7

Requires anyone who has entered into a derivatives contract to report and risk manage their derivative positions. Covers OTC derivatives, central counterparties and trade repositories.

Question 8

What does the Benchmark Regulation (BMR) do?

Answer 8

Addresses the risk that benchmarks are susceptible to manipulation.

Question 9

What is the Foreign Account Tax Compliance Act (FATCA)?

Answer 9

A U.S. law to prevent tax evasion by US citizens using offshore banking facilities.

Question 10

What is the Common Reporting Standard (CRS)?

Answer 10

An information standard for the automatic exchange of tax and financial information on a global level. Developed in 2014 by the Organisation for Economic Co-operation and Development (OECD)

Question 11

What are the three U.K. regulatory bodies?

Answer 11

1. The Financial Conduct Authority (FCA) - responsible for regulating the conduct of business
2. The Prudential Regulation Authority (PRA) - responsible for the prudential regulation of banks, insurance companies and systemically important investment firms
3. The Financial Policy Committee (FPC) - responsible for macro-prudential (systemic) regulation of the financial system

Question 12

What are the FCA’s three operational objectives?

Answer 12

1. The consumer protection objective
2. The integrity objective
3. The competition objective

Question 13

What is the Competition and Markets Authority (CMA)?

Answer 13

An independent competition authority. The Secretary of State at the Department for Business, Energy and Industrial Strategy (BEIS) will only intervene in exceptional cases where there are public interest issues

Question 14

When must the CMA investigate a merger?

Answer 14

Where the merged company will control greater than 25% of the U.K. market, or where the U.K. turnover of the target firm exceeds £70m

Question 15

Who is responsible for enforcing the City Code on Takeovers and Mergers?

Answer 15

The Panel on Takeovers and Mergers (PTM)

Question 16

When is a bidder required to make a cash offer to other shareholders?

Answer 16

When acquiring more than 30% of voting rights of a company

Question 17

When can the remaining shareholders of a company be forced to sell their shares?

Answer 17

When a company acquires 90% of another company

Question 18

Who is the Information Commissioner?

Answer 18

The person responsible for regulating compliance with the General Data Protection Regulation (GDPR)

Question 19

Who can undertake investment business in the U.K.?

Answer 19

An authorised person, passported under an EU Directive, or an exempted person. Investment persons classed as exempted do not require authorisation e.g. appointed representatives

Question 20

Describe the Regulated Activities Order

Answer 20

It is where investment activities that require regulation are set out. It includes investments other than physical objects. Deposits and general insurance contracts are also regulated

Question 21

What is the main purpose of Senior Management Arrangements, Systems and Controls (SYSC)?

Answer 21

To encourage firms’ directors and senior managers to take appropriate practical responsibility for their firms’ arrangements on matters of interest to the FCA. The common platform is a unified set of organisational requirements in SYSC 4-10 which applies to all firms except insurers, managing agents and the Society of Lloyds

Question 22

Describe the Pensions Act 2004

Answer 22

Requires trustees to appoint their own actuary, auditor, legal and financial advisers. Trustees are responsible, in consultation with the sponsoring employer, to produce a statement of investment principles (SIP)

Question 23

What is included in a statement of investment principles (SIP)?

Answer 23

Sets out in writing the trustees’ attitude to various issues, including:
1. The scheme-specific funding requirement
2. The nature of investments held by the fund
3. The risk of the fund

Must be reviewed every 3 years

Question 24

Who must carry out a trustees’ investments?

Answer 24

Where the trust instrument allows, trustees may appoint an investment manager to carry out investment policies. Where the trust instrument does not allow this, the trustees must select investments themselves, although they must seek investment advice

Question 25

Describe the scheme-specific funding requirement introduced by the Pensions Act 2004

Answer 25

Requires all occupational defined benefit (DB) schemes to be periodically valued by an actuary

Question 26

What does The Pensions Regulator (TPR) do?

Answer 26

Investigates occupational pension schemes in response to infringement of statutory rules