REGS BIBLE Chapter 3 Flashcards
1
Q
What are the three offences defined under S52 CJA 1993?
A
- Dealing on inside information
- Encouraging others to deal on inside information
- Disclosure of inside information?
2
Q
Which 4 conditions have to be met for information to be considered ‘inside information’ under CJA S52?
A
- relates to particular securities/issuers
- specific or precise
- not been made public
- price sensitive
3
Q
What does S52 CJA relate to?
A
Insider dealing
4
Q
Is insider dealing a criminal or civil offence?
A
Both
5
Q
What replaces burden of proof for civil offences?
A
Balance of probability (a lighter burden of proof)
6
Q
How can misleading impression and insider dealing offences be prosecuted as civil offenses?
A
Under UK MAR which encapsulates both S52 CJA and S89-91 FSA
7
Q
Is market abuse a criminal or civil offence?
A
Civil
8
Q
What two conditions are there for proving a criminal offence?
A
- must prove intent
- evidence must be beyond all reasonable doubt
9
Q
What are the criminal punishments for S52 CJA and S89-91 FSA offences?
A
Max 10 years imprisonment and/or unlimited fine
10
Q
What must conditions must be met to prove a civil offence under UK MAR?
A
- behaviour of individual has abusive/damaging effect to interest of others
- balance of probability
11
Q
What is the maximum punishment for a civil offence under UK MAR?
A
Unlimited fine (FCA cannot enforce imprisonment)
12
Q
What instruments are covered under S52 CJA?
A
- equities (shares, ADRs, warrants)
- tradable debt (corporate/government bonds, gilts etc)
- derivatives (options, futures, CFDs)
13
Q
What investments are excluded from S52 CJA (out of scope of criminal law)?
A
- assets with no secondary market (eg. bank account, unit trusts)
- commodities and commodity derivs
- spot and forward FX
- insurance
NOTE: must be traded on a regulated market/via professional intermediary to be criminally prosecuted
14
Q
What does S89 FSA 2012 relate to?
A
S89 - Misleading statements (lying)
15
Q
What is considered public information?
A
Information reported to a regulatory information service (RIS)
16
Q
What does S90 FSA 2012 relate to?
A
Misleading impressions (eg. abusive squeezes, market rigging)
17
Q
What does S91 FSA 2012 relate to?
A
Misleading statements in relation to benchmarks (eg. LIBOR)
18
Q
What are the general defences for insider dealing?
A
- did not expect to make profit (or avoid loss)
- believed on reasonable grounds information was public
- would have acted the same regardless of info
- did not expect recipient to deal
19
Q
What 3 things must insider lists include?
A
- identity of each person having access to inside information
- reason why such a person is on the list
- date on which the list was created and updated
20
Q
What are the 3 special defences for insider dealing?
A
- Price stabilisation rules
- Market information (market sensitive but NOT inside info)
- Market makers in ordinary course of business (in good faith)
21
Q
What are the two steps to prosecuting insider dealing?
A
- LSE monitors transactions and tips off regulators of any unusual patterns
- FCA then prosecutes if it has good quality evidence to criminal burden of proof
22
Q
What is the general defence for Misleading statements and impressions?
A
- reasonable believed statement/act was not false/misleading
23
Q
What are the 3 special defences for S89-91 FSA 2012?
A
- Acted in conformity with price stabilisation rules
- Compliance with control of information rules (ie. Chinese walls in place)
- Compliance with share buy-back rules
24
Q
Can companies be disciplined under UK MAR?
A
Yes - both individuals and firms can be prosecuted for a civil offence
25
What is the scope of MAR? (think products)
- financial instruments traded on a regulated market/MTF/OTF
- Emissions allowance (eg. carbon credits)
- for market manipulation it also applies to commodity derivs and commodity spot markets
26
what amounts to market abuse according to the FCA Market Conduct handbook Guidance?
- insider dealing
- improper disclosure
- manipulating transactions
- manipulating devices
- dissemination
- benchmark manipulation
27
What are the 4 civil penalties under UK MAR?
- withdrawal of regulated status
- financial penalties without limit
- public statements
- apply to courts for injunctions/restitutions
28
What are 4 examples of legitimate behaviours (safe harbours)
- Share buy-back programs and stabilisation measures
- FCA rules
- Takeover code
- Market soundings
29
What are STORs?
Suspicious Transactions and Order Reports
30
How soon must firms report suspicions to the FCA?
Without delay (should never second-guess)
31
What 5 things must a STOR contain?
- Identity of reporting person
- Description of order/transaction
- Reasons for which market abuse is suspected
- Means of identifying any person involved in order/transaction
- Any other supporting documents
32
What is the MAR PDMR regime?
Persons discharging managerial responsibility (eg employees and directors) dealing in own company's shares must disclose to both company and FCA within 3 business days of transaction
33
What is the closed period in which a PDMR cannot trade?
30 days prior to announcement of Year End or Half Year results
34
Is a breach of MAR PDMR regime a criminal offence?
No - disciplinary action would be taken by FCA against individual or company
35
What is the de minimise threshold set by MAR at which PDMR do not need to disclose transactions?
5000 euros per calendar year (without netting the transactions)
36
Which legislation criminalises money laundering?
POCA 2002
37
What is the Money Laundering Regulations 2017?
Detailed regulations setting out administrative provisions for any companies at risk of handling firms for money laundering/terrorist financing
38
What is the JMLSG guidance?
Joint Money Laundering Steering Group guidance is industry guidance notes on how to implement MLR compiled by a panel of industry practitioners
NOT Binding
39
What are the 3 stages of money laundering according to POCA 2002 and who is most at risk at each stage?
1. Placement - banks
2. Layering - fund managers, investment firms
3. Integration - anyone
40
What does the Economic Crime (Transparency and Enforcement) Act 2022 dictate regarding public register of overseas entities?
- Foreign companies and beneficial owners holding property/investments in UK must register
- Failure to do so is a criminal offence punishable with max. 5 years imprisonment/unlimited fine
41
What are the 4 general offences under POCA 2002?
- concealing
- arrangements (assisting)
- acquiring/possessing
- knowingly prejudicing an investigation
42
What is the max penalty for concealing/arranging/acquiring ML/proceeds of ML?
14 years and/or unlimited fine
43
What is the max. penalty for knowingly prejudicing a ML investigation?
5 years and/or unlimited fine
44
What are the 2 regulated sector offences under POCA 2002 and their respective punishments?
- Failure to report; 5 years and/or unlimited fine
- Tipping off; 2 years and/or unlimited fine
45
Can a person be prosecuted for failing to report a ML suspicion even if there was no ML offence?
Yes - no offence is no defence; if they reasonably ought to have had a suspicion they can be prosecuted
46
What is a defence against accusation of failure to disclose ML?
Inadequate/no training to recognise suspicious activity
47
Which legislation dictates the appointment of a MLRO?
MLR 2017
48
According to MLR 2017, can companies rely on CDD from any firm?
No - cannot rely upon CDD by firms in high risk jurisdictions (eg. country on sanctions list)
49
When is enhanced CDD required according to MLR 2017?
- for politically exposed persons (PEPs) and any family members/known close associates
- customers from high-risk jurisdictions
- customers involved in dual-purpose goods
- where client has not been physically present for identification
- when customer has provided false/stolen identification
- complex transactions
50
When is simplified CDD allowed according to MLR 2017?
Where risk is considered low - firm can decide what they consider low risk
eg. authorised firm already vetted by a regulator
51
What is the difference in the identification procedures for individuals vs companies in process of CDD?
individuals - proof of id and address
companies - includes ownership and control structure, usually identified through third party
52
Which third party in the UK typically carries out CDD for firms?
Companies House
53
Who does the MLRO report to?
NCA - the national Crime Agency
54
What are the two types of suspicions with regards to ML and which should be reported?
objective - has evidence
subjective - no evidence
both should be reported
55
How long should CDD record be kept?
5 years
56
What is the max punishment for SMFs who fail to comply with the MLR?
2 years and/or unlimited fine
57
Who is the NCA led by and accountable to?
Led by senior chief constable
Accountable to Home Secretary
58
What are the 4 offences under the Bribery Act 2010 and their sections?
S1 - paying bribes
S2 - receiving bribes
S6 - bribery of foreign officials
S7 - failure to prevent bribery
59
Are facilitation payments considered bribes?
Yes - however note that paying for legally required admin fees and fast-track services is not facilitation
60
Is hospitality considered bribery?
no
61
What are the maximum penalties for individuals and companies under the Bribery Act 2010?
Individual - 10 years and/or unlimited fine
Company - unlimited fine
62
What is a defence of S6 under the Bribery Act 2010?
Showing that local written law required payments to be made (may be a cultural custome)
63
What is a defence of S7 under the Bribery Act 2010?
proof of adequate procedures in place to prevent bribery
64
What is the key distinction between ML and Financial Terrorism?
- Money from ML can never be from a legitimate source, however money being distributed into terrorism can be
1. small amounts
2. from a legitimate source
65
What 3 suspicions are we obligated to report under the Terrorism Act 2000 and Anti-Terrorism Crime Security Act 2001?
- provision of funds for terrorism
- use and possession of terrorist funds
- laundering money which is terrorist property
66
What is the Counter Terrorism Act 2008?
Gives HMT powers to impose directions on firms suspected of handling funds to be used for terrorist activities
67
What are 3 powers of HMT under the Counter Terrorism Act 2008?
- CDD and monitoring (can increase identification requirements)
- Systematic reporting (HMT can require info without application to courts)
- Limiting or ceasing business
68
When can HMT limit/cease business of a firm under Counter Terrorism Act 2008?
- Where FATF (financial action task force) requires
- Where HMT believes there is significant threat to national interests
69
What are the disclosure thresholds under the EU Transparency Directive?
5, 10, 15, 20, 25, 30, 50 ,75% - at any of these levels shareholder must notify company that they hold this level of shares
70
How many business days does a shareholder have to disclose ownership to issuer under the UK Disclosure rules?
2
71
What is the general threshold rule at which shareholder must notify issuer under UK Disclosure rules?
from 3% and any percentage point thereafter
72
What are the 4 special threshold rules under UK Disclosure rules?
Fund managers - notify at 5%, 10% and every percentage point thereafter
Market makers - exempt below 10%
Custodian and bare nominees - exempt
shares held as collateral - exempt
73
Why are custodians, bare nominees, and shares held as collateral exempt from UK Disclosure rules?
Because they are not considered beneficial owners
74
What letter may an issuer send out on suspicion that a notifiable interest has not been disclosed?
S793 Letter
75
What does Companies Act 2006 S793 Letter require disclosure of?
Shares held:
- At present time
- In last 3 years
76
What is another name for the S793 letter
Enquiry notice
77
What are the 4 types of connected parties?
- spouse
- minor children
- any company in which you hold 1/3 of shares
- concert parties
78
Who administers the UK Takeover code?
the Takeover Panel (aka. the Panel on Takeovers)
79
What is UK Takeover code's aim?
To ensure shareholders are treated fairly and not denied opportunity to decide on benefits of a takeover
80
What is excluded from UK Takeover code?
- Financial/Commercial pros/cons
- Competition policy
81
Whose interests does the UK Takeover code protect?
Shareholders
Markets
Target company
82
What are the 6 general principles of the UK takeover code
- all shareholders given equal treatment and protected
- shareholders given sufficient time and information to decide
- board of target to act in best interests of company as a whole (includes customers, employees, suppliers)
- false markets must not be created
- predator can only make bid after ensuring they can meet cash requirements of bid
- target company not to be hindered in business affairs for any longer than necessary
83
What is a trade report ?
UK MiFID requirement to publish all historic prices and volumes of trades conducted on an exchange
84
To whom are trade reports made?
To the relevant exchange
85
What is the reporting time frame for trade reports?
Within 3 minutes
86
If a trade is not conducted via an orderbook (whereby report is made automatically) who must make the report?
The senior member on the trade
If equal in seniority then the selling firm
87
What are 2 examples of approved reporting mechanisms for transaction reports?
UnaVista, TRAX (via these mechanisms to the regulator)
88
Who must make the transaction report?
both parties (buying and selling)
89
What is the reporting timeframe for transaction reports?
End of next day
90
What does a trade report include vs a transaction report?
trade - time, volume, price
transaction - all details of trade in standardised format
91
Which body regulates OTC derivatives?
European Markets Infrastructure Regulation (EMIR)
92
What are the reporting obligations under EMIR?
All derivative contracts must be reported to a trade repository
applies to both financial and non-financial counterparties
93
What do the short selling regulations (SSR) dictate?
Must disclose all net short positions
disclosure generally private but may require public disclosure if position is large enough
94
What are the 3 pillars of the basel framework implemented in CRD?
1. Minimum capital requirements for credit, market, and operational risk
2. Supervisory review (discuss w regulator whether additional capital should be held)
3. Disclosure of risks and risk management
95
Who sets the capital adequacy requirement for solo vs dual regulated firms?
solo - FCA
dual - PRA
96
When must regulator be notified if capital falls to or below the capital adequacy requirement?
Immediately
97
When must regulator be notified in regards to capital adequacy reuirement?
- when capital falls to or below that level specified by the regulator
- if firm systems are unable to calculate actual capital resources
