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CII R01 - Financial Services, Regulation & Ethics > Pt 7. Anti Money Laundering, Data Protection and Complaints > Flashcards

Pt 7. Anti Money Laundering, Data Protection and Complaints Flashcards

1
Q

What is money laundering?

A

The process by which money is obtained illegally is converted into apparently legitimate funds.

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2
Q

What is the 3 stage process to money laundering?

A
  1. Placement - the movement of illicit cash into, for example, bank or building society accounts or life assurance policies and other packaged investments.
  2. Layering - this involves a series of transactions intended to conceal the origins of the illicit money.
  3. Integration - the process by which laundered money is finally converted into the proceeds of a legitimate business or investment portfolio.
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3
Q

At which stages of the money laundering process would most likely involve a financial services business?

A
  • Placement and layering
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4
Q

What are the main rules to combat money laundering?

A
  • Specific legislation
  • applies to everyone and defines what represents a criminal offence and the penalties for such offences.
  • Money Laundering Regulations
  • applies to a stated range of financial sector businesses, such as life assurance companies.
  • FCA rules and guidance
  • applies in different ways to various categories of FCA regulated businesses.
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5
Q

What is the Proceeds of Crime Act 2002?

A

It created the following criminal offences:

  • concealing, disguising, converting or transferring criminal property or removing it from the UK.
  • acquiring, possessing or using criminal property.
  • failing to disclose that someone else is engaged in money laundering.
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6
Q

What is NCA?

A
  • National Crime Agency
  • They exist to recover the proceeds of criminal activity.
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7
Q

What are Money Laundering Regulations 2017 (MLR)?

A
  • They implement the requirements of the EU’s Fourth Money Laundering Directive, since supplemented by the Fifth MLD, which came into force in UK in January 2020.
  • It requires systems to be created and maintained for the prevention and control of money laundering for effective training to be in place.
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8
Q

What are the 3 types of due diligence?

A

Customer Due Diligence (CDD) - includes verifying the identity of the customer, and obtaining information on the purpose for the business relationship.

Simplified Due Diligence (SDD) - measures to a particular business relationship or transaction if it determines that, taking into account its risk assessment, the business relationship or transaction presents a low degree of risk.

Enhanced CDD - needed if customer is not present for the transaction or a PEP, measures are required such as production of additional documents to establish identity, confirmation of identity from an appropriate FI or payments through an account with credit institution in customer’s name.

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9
Q

How to establish client verification?

A
  • Valid passport
  • ID card
  • Photocard driving license (Full or provisional)
  • Firearms certificate
  • Shotgun licence
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10
Q

What are alternative methods for client verification?

A
  • Old-style driving licence supported by an additional document such as a utility bill showing current address.
  • Home visit, if clear the house is the client’s personal residence, as 1 of 2 means of identification.
  • Client’s bank or other reputable FI asked to verify their identity.
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11
Q

When does client verification occur?

A
  • It should take place before any transactions are completed.
  • Clients records should be kept for 5 years.
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12
Q

What is Electronic Identity Verification (eIDV)?

A
  • Systems that use public and private databases to confirm an individual is who they claim to be; using personal information such as name, date of birth, National Insurance number and address.
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13
Q

When verifying companies, what following details must be established?

A
  • Company registration number
  • Registered address
  • Evidence the individual has authority to act for the business
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14
Q

What is a Money Laundering Reporting Officer (MLRO)?

A

The appointment of, and the policies and procedures put in place by, the MLRO.

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15
Q

What is Customer Due Diligence (CDD)?

A

Verifying the ID of customers and information about the intended nature of business reationship.

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16
Q

What is ongoing monitoring?

A

Scrutinising transactions to ensure they are consistent with previous knowledge of the client.

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17
Q

What are identification procedures?

A

2 stages:

  1. Obtaining information from a client (name, address, DOB etc).
  2. Verifying this using a reliable independent source.
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18
Q

What is staff awareness and training?

A

To make sure all staff are aware of relevant legislation, and have received training on ID procedures, and how to recognise suspicious transactions.

Regular re-training is also necessary.

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19
Q

What is enforcement?

A

The right to enter and inspect premises, and impose penalties, with partners and directors imprisoned for up to 2 years if they fail to comply.

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20
Q

What is suspicious activity reporting?

A
  • This must be reported to the MLRO, who will then consider the matter in light of all relevant information available, and decide whether or not to make disclosure to National Crime Agency (NCA).
  • MLRO is required to make reports to NCA, where they know or suspect or have reasonable grounds for knowing or suspecting, that a person is engaged in money laundering or terrorist financing.
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21
Q

What is firm annual reporting?

A
  • MLRO must report annually to senior management and the firm’s governing body about the effectiveness of its systems and controls.
22
Q

What is record keeping?

A
  • Records of a clients ID must be kept for 5 years after the end of customer relationship or 5 years from when transaction was completed.
23
Q

What are protection measures?

A
  • The names of those reporting suspicious transactions must be kept confidential.
24
Q

What are financial sanctions?

A
  • A criminal offence to make payments, or allow payments to be made to targets on sanctions list maintained by HM Treasury.
  • Firms need to have appropriate means of monitoring payment instructions to ensure no payments are made to targets or their agents.
25
Q

What are examples of suspicious activity reporting (SAR)?

A
  • When a client is using intermediaries to protect their identity or hide their involvement.
  • A sudden significant improvement in client finances, but they are unable to explain where money came from.
  • Money being paid by a third party, who does not appear to have any connection with the client.
26
Q

Who does GDPR apply to?

A
  • Data controllers - those who say how and why personal data is processed, with processors required to maintain records of personal data and processing activities.
  • Data processors - those who act on behalf of controllers, must ensure their contacts with processors comply with GDPR.
27
Q

What is Data Protection Act (DPA) 2018?

A

This is wider in scope than GDPR covering:

  • the processing of general data
  • law enforcement processing
  • national security processing
  • regulation and enforcement
28
Q

What are the 6 data protection principles for personal data?

A
  1. Processed lawfully, fairly and in a transparent manner in relation to individuals.
  2. Collected for specified, explicit, and legitimate purposes, and not further processed in a manner that is incompatible with those purpose.
  3. Adequate, relevant and limited to what is necessary in relation to purposes for which they are processed.
  4. Accurate, and where necessary kept up to date.
  5. Kept in a form which permits identification of data subjects for no longer than necessary for purpose for which personal data is processed.
  6. Processed in a manner ensures appropriate security of personal data, including protection against unauthorised or unlawful processing and against accidental loss, destruction or damage, using appropriate technical or organisational measures.
29
Q

Where should all businesses handling personal data register to?

A
  • They may register with Public Register of Data Controllers maintained by Information Commissioner’s Office (ICO).
  • Firms must provide information about the type, and purpose of data they process and identify who has access to it.
  • All firms have a duty to report certain types of data breach to ICO.
30
Q

What are the GDPR rights to individuals?

A
  • Right to be informed
  • Right of access
  • Right to rectification
  • Right to erasure
  • Right to restrict processing
  • Right to data portability
  • Right to object
  • Rights in relation to automated decision making and profiling.
31
Q

What is a complaint?

A

Under FCA rules, a complaint is any oral or written expression of dissatisfaction, whether justified or not from or on behalf of a person about the provision of or failure to provide a financial service.

The complaint should allege the complainant has suffered financial loss, material distress or material inconvenience which related to an activity which comes under jurisdiction of the Financial Ombudsman.

32
Q

What are eligible complainants?

A
  • Consumers
  • Micro-enterprises with fewer than 10 employees and turnover or balance sheet total of no more than 2m euro.
  • Charities with annual income of less than £6.5m
  • Trustees of a trust with net asset value of less than £5m
  • Consumer buy-to-let (CBTL) consumers
  • Small business with annual turnover of less than £6.5m and fewer than 50 employees or a balance sheet total of less than £5m.
  • Guarantors
33
Q

What should a firm do if it receives a complaint?

A
  • Should supply a copy of the complaints procedure to the complainant, unless matter is resolved within 3 business days.
  • Firm is only required to send a summary resolution document.
34
Q

What is a summary resolution document?

A
  • Refers to the fact that the complainant has made complaint and the matter is considered to be resolved.
  • Tells the complainant they have the right to refer the matter to FOS.
  • Indicates whether time limits for doing so will be waived.
  • Provides the FOS website address.
  • Refers to the availability of further information on the FOS website.
35
Q

What are the complaints timescale?

A
  • Firm must acknowledge complaint within reasonable time (for the firm to decide what is reasonable and be able to justify this).
  • Firm must keep the complainant informed of the process.
  • Firm must provides a final or other response within 8 weeks from the date of written acknowledgement of the complaint.
36
Q

What are the stages of a complaint timescale?

A
  1. Prompt - within 5 working days, send copy of complaints procedure, assign someone to handle complaint, provide contact detaisl of referral.
  2. ‘Keep the client informed’ - within 4 weeks, send summary of complaint, investigate summary, details of offer, and time limit, and details of FOS.
  3. Within 8 weeks - send final response as at 4 weeks, explain when firm will be able to resolve complaint, and customers right to refer FOS within next 6 months.
37
Q

What is true about the Financial Ombudsman Service (FOS)?

A
  • Time limits apply to making of a complaint to the FOS.
  • FOS decisions binding on both complainant, and respondent to compliant.
  • Max. binding award FOS can make against respondent to complaint is generally £355,000 plus associated costs.
  • FOS jurisdiction is restricted to activities carried on, in or from a UK establishment.
38
Q

What is the FOS liability status?

A
  • Consists of a chief ombudsman, and panel of ombudsmen.
  • Not liable for their actions unless bad faith or breach of Human Rights Act 1998.
39
Q

When should eligible complainant refer matter to FOS, within earliest of?

A
  • 6 months after firms final response
  • 6 years after event complained about,or if later
  • 3 years after complainant knew, or should have known, that they had cause for complaint.
40
Q

When can FOS conside complaints outside certain time limits?

A
  • In exceptional circumstances, or in certain cases involving pensions.
41
Q

What is the decision process for FOS?

A
  • Must notify decisions with reasons in writing to both parties.
  • Complainant must accept or reject decision within specified time limit.
  • If accepted, its bind on respondent.
  • If rejected, they are free to pursue matter in court.
  • If ‘no response’, treated as rejection by complainant and respondent no longer bound by decision.
42
Q

When can the FOS assign awards?

A
  • For distress or inconvenience, interests and costs.
  • Recommend a higher award against respondent, but not binding.
  • Respondent cannot be awarded against claimant, but complainant can be charged with own costs if conduct has been unreasonable.
  • Directions award tells firms what action they must take to put things right for the customer.
43
Q

What is meant by compulsory jurisdiction for FOS?

A
  • Takes in all regulated activities, plus mortgages and unsecured lending, paying money by plastic card, ancillary banking services and consumer credit.
  • Can also deal with complaints about NS&I.
44
Q

What is a Pensions Ombudsman?

A
  • They have a memorandum of understanding with FOS for personal pensions and small occupational schemes.
  • Under agreement, FOS deals with compliants concerning circumstances of sale, while Pension Ombudsman handles any problems concerning management or admin of scheme.
45
Q

What is FSCS?

A
  • Financial Services Compensation Scheme
  • The compensation fund of last resort for customers of authorised financial services firms, if firm becomes insolvent or ceases trading the FSCS may pay compensation.
  • Covers private individuals, and smaller businesses.
  • Most eligible in respect of LT insurance, and all for compulsory insurance.
46
Q

What is ‘in default’ elibility mean by FSCS?

A
  • The firm is unable (or likely unable) to satisfy protected claims against it (e.g. protected deposit, protected insurance contract, protected investment business).
47
Q

When will a claim to FSCS relate to?

A
  • A protected deposit
  • A protected insurance contract
  • A protected investment business
48
Q

What are the compensation limits for the FSCS?

A
  1. Deposits, Investments & Home Finance - 100% of first £85,000 per person, per authorised firm.
  2. LT Insurance Business - No upper limit on amount of protection; product providers - 100% of claim with no upper limit, intermedaries - 90% with no upper limit.
  3. Pensions - Pension provider - 100% of claim, SIPP operator - 100% of claim up to £85,000.
  4. General Insurance - 90% of claim no upper limit for non- compulsory insurance; 100% of claim/unexpired premiums with no upper limit for compulsory insurance (e.g. employers liability insurance).
49
Q

When can FSCS reduce compensation?

A
  • Evidence of contributory negligence by claimant.
  • Paying full amount would provide greater benefit than claimant might reasonably have expected.
  • Payment would provide greater benefit than avaiable on similar investments with other firms.
50
Q

What are additional duties of FSCS?

A
  • Try to make arrangements to secure continuity of insurance for LT insurance policyholders by transferring business to another insurer.
  • Safeguard policyholders of insurance companies in financial difficulties.

CII R01 - Financial Services, Regulation & Ethics (23 decks)

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