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FCA Regulation > Regulation Chapter 3 > Flashcards

Regulation Chapter 3 Flashcards

1
Q

Features of ‘inside information’

A
  • unpublished
  • price sensitive
  • specific or precies (not rumor)
  • relates to a particular security/issuer
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2
Q

Someone commits the offence of insider dealing if they….

A
  • deal
  • encourage someone else to deal
  • disclose inside information
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3
Q

Which legislation would the regulator use to pursue someone for inside dealing?

A

CJA 1993

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4
Q

Where does the regulator get power from?

A

FSMA 2000

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5
Q

The instruments for insider dealing cover…

A
  • shares
  • bonds
  • warrants
  • depository receipts
  • futures, options, CFDs (on securities)
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6
Q

The instruments NOT covered in insider dealing are…

A
  • commodities/commodity derivatives (doesn’t help to know that e.g. one farmer is struggling..)
  • currencies/currency derivatives (FX is driven by interest rates, so insider trading would come from central banks who know what the monetary policy will be. But, we assume that people from the central bank don’t share this info.)
  • collective investment scheme (CIS) units/shares (you don’t choose the specifics, they do it)
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7
Q

General defenses for when you are accused of insider dealing and disclosing

A

Dealing:

  • no advantage (profit) expected
  • believed the informaiton had been widely disclosed
  • would have dealt anyway

Disclosing:

  • did not expect recipient to deal
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8
Q

Special defenses for when you are accused of insider dealing

A
  • market makers
  • market informaiton (e.g. pre-bid fascilitation)
  • price stablilisation

These are stronger than the general defenses

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9
Q

Market manipulation general prohibition.

a person shall not engage or attempt to engage in….

A
  • manipulating transactions
  • dissemination (speading information to give false/misleading impression of investment)
  • benchmark manipulation
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10
Q

Market manipulation is a ….. offence.

A

CRIMINAL!

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11
Q

What you need to know about managers’ transactions.

A
  • anyone who has a managerial responsibility (and people close to them) must NOTIFY the issuer and the FCA (for shares, debt instruments, and related derivatives)
  • CLOSED PERIODS. Cannot conduct transactions in their company’s shares/related instruments during the closed period. This is 30 DAYS before announcement of interim or financial reports.
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12
Q

Investment recommendations obligations

A
  • need to maintain objectivity and disclose any confict of interest.

(There is conflict of interest if the organisation:

  • has an existing position in the investment concerned
  • trades contrary to their own recommendation
  • in a corporate finance advisor to/has another relatiomnship with the company in question)
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13
Q

Money Laundering definition and steps

A

it is the turning of ‘dirty money’ into money which appears to be from legitimate origins.

steps:

  • placement
  • layering
  • integration
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14
Q

Rules and regulations of money laundering

A

proceeds of crime act POCA 2002 (specifies criminal offences of money laundering)

serious organised crime and police act SOCPA 2005 (helps define ‘criminal conduct’. Secretary of State also reserves the right to prescribe certain offenses)

money laundering, terrorist financing and transfer of funds regulations MLR 2017 (administrative provisions that firms need to have to combat money laundering)

senior management arrangements, systems and controls SYSC (sourcebook) (rules and guidance on the way anti-money laundering provisions are implemented)

joing money laundering steering group JMLSG (guidance) (guidance on how firms should interpret and implement anti-money laundering provisions. NOT manditory. Shows best practice).

(thses are the legislations used to pusue)

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15
Q

Offences under the proceeds of crime act (POCA) 2002

(and defence agains 1-3)

A
  • concealing
  • arrangements (being concerned in an arrangement)
  • acquisition, use and possession
  • failure to discluse (e.g. if you suspect someone is laundering money)
  • tipping-off

Defence against 1-3: make the required disclosure to the MLRO

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16
Q

Money Laundering Regulations have 3 main requirements

A
  • Administrative (ID procedures (KYC), and internal reporting procedures for suspicious (MLRO))
  • Training (at least every 24 months)
  • Preventive (internal controls)

failure to comply –> Criminal offence!!

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17
Q

JMLSG’s Guidance on KYC

A
  • IDENTIFY the customer
  • VERIFY the information
  • information about the intended NATURE OF BUSINESS RELATIONSHIP
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18
Q

When should evidence of identity be obtained?

A

as soon as reasonably practicable after first contact

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19
Q

If they cannot verify identity….

A
  • do NOT proceed with business relationship
  • consider report to the National Crime Agency (NCA)
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20
Q

For PEPs you do….

A

Enhanced Due Diligence (EDD) because..

  • more susceptible ot money laundering and bribery etc.

PEP = politically exposed persons. They are entrusted with prominent public functions

21
Q

the FCA’s requirements. for ML

Firms must….

A
  • appoint a MONEY LAUNDERING REPORTING OFFICER (MLRO)
  • give a director or senior manager (who may also be the MLRO) overall RESPONSIBILITY for effective anti-money laundering systems and controls
  • establish SYSTEMS AND CONTROLS to identify, assess, monitor, and manage ML risk including
  • TRAINING employees for ML stuff
  • provide information to directors and senio management (including at least ANNUAL REPORTS by the MLRO)
  • DOCUMENT ML POLICIES
22
Q

terrorism is defined as….

(by the Terrorism Act 2000)

A

use or threat of action where it…. involves

  • serious violence against a person
  • serious damage to property
  • person’s life
  • serious risk to health or safety of public
  • designed to interfere with/disrupt electronic system
  • designed to influence government or intimidate the public
  • for advancing a political, religious, or ideological cause.

YOU HAVE TO REPORT. It is a CRIMINAL OFFENCE not to disclose a suspicion of terrorist activity.

23
Q

Differences between money laundering and terrorist financing

A
  • Possible to commit terrorist acts with small amounts of money, while ML is always about a lot.
  • ML is always about dirty money, terrorism is not necessarily
24
Q

The Bribery Act 2010 four offences

A
  • offering, promising, or giving a bribe to another person
  • requesting, agreeing to receive, or accepting a bribe from another person
  • bribing a foreign public official
  • the corporporate offence of failing to prevent bribery
25
Q

Penalties for breaching the offences of the Bribery Act 2010

A

Individuals: 10 years maximum imprisonment

Corporate: unlimited fine

26
Q

Purpose of control of inside information (under the Disclosure and Transparency Rules DTR)

A
  • promote prompt and fair disclosure of info
  • set out circumstances for delayed disclosure
  • set out requirements to ensure such information is kept confidential to protect people from doing insider dealing

if you breach confidentiality??? issuer must have measures in place to enable PUBLIC DISCLOSURE viar RIS (regulatoru information service) if you cannot ensure confidentiality

27
Q

Disclosure Rules EU, USA, UK

A

EU: Transparency Directive

  • notification requirement: holdings reach, exceed, or move below 5, 10, 15, 20, 25, 30, 50, and 75%
  • shareholder must notify issuer within 4 days. Issuer must notify market quickly.

USA: SEC Rules

  • notification threshold: 5%
  • acquirer must notify issuer and the SEC within 10 days

UK: UKLA’s Disclosure Rules (exceed the requirements of the EU directive, super-equivalence, so they are more intense)

  • disclose within 2 days when a holding reaches 3%, (once above 3) goes up or down to the next whole % (e.g. 3.8 to 4), or falls below 3%.
  • this includes shares held by ‘connected parties’! (spouse, children under 18, compamnies controlled by investor, concert parties.
28
Q

What is the Companies Act Section 793 Letter?

A

It specifies that you can request disclosure (via a written notice) of a shareholder’s total interest in a company.

  • you can do this asking for holdings in the last 3 years.
  • if sent to nominee company, the company secretary responds
  • if you ignore, shares are frozen.
29
Q

United Kingdom Takeover Code

A
  • Panel on Takeovers and Mergers (PTM) City Code (it is a framework for takeovers, and ensures that shareholders are treated fairly)
  • 6 principles (equivalent treatment, sufficient time and information, best interest of the company as a whole, no false markets, ensure the cash consideration can be fulfilled, offeree company must not be hindered)
  • Important terms in the City Code: ‘acting in concert’
30
Q

What is PTM

A
  • Panel on Takeovers and Mergers (PTM) City Code (it is a framework for takeovers, and ensures that shareholders are treated fairly)
31
Q

6 Principles united kingdom takeover code (PTM)

A
  • equivalent treatment of holders of securites of same class
  • sufficient time and information to holders of offeree to make decision on the bid
  • board of offeree must act in best interest of the company as a whole
  • no false markets in the securities of the offeree created
  • can only place offer once ensured the cash consideration can be fulfilled.
  • offeree company must not be hindered
32
Q
A
33
Q

‘acting in concert’ term used in the City Code:

A

persons actively co-operating to obtain consolidated control of a company.

can be….

  • company and other group companies
  • company and its directors
  • company and its pension fund
  • fund manager and discretionary managed investment vehicles
  • client and its professional advisers
34
Q

Purpose of Trade and Transaction reporting

A

Trade reporting: feedback about market depth and liquidity –> market transparency!

Transaction reporting: facilitates settlement and provides information to regulators (to monitor for market abuse etc.)

35
Q

Reporting Channels and Systems for Trade reporting

order book vs off order book?

who is responsible to report?

where is the publication?

A
  • Order book transactioons are AUTOMATIC, IMMEDIATE trade reports.
  • Off order book transactions (quote driven):
  • trade reporting period (TRP) 7.15am-5.15pm
  • trades 7.15am-8am: report by 8am
  • trades 8am-5.15: report within 3 minutes
  • trades after 5.15pm: report by 7.45am the next day

Who is responsible to report?: Seniority. if same, then the selling member.

publication: via Stock Exchange Daily Official List (DOL)

36
Q

Reporting Channels and Systems for Transaction reporting

reporting deadlines & to what system?

responsibility to report?

A

reporting deadline:

  • domestic transactions to CREST by 8:00pm
  • international transactions via Omego by 9:00pm

who reports?

Both parties!

37
Q

Data Protection Act (DPA) 2018 firm responsibilities

A
  • notifying the Infromation Commissioner’s Office (ICO) that they are processing information
  • processing personal information in accordance with the data protection principles.
38
Q

Data Protection Principles

A
  • processing must be lawfully and fair
  • purposes of processing must be specific, explicit and legitimate
  • personal data must be adequate, relevant and not excessive
  • personal data must be accurate and kept up-to-date
  • personal data must be kept for no longer than it is necessary
  • personal data must be processed in a secure manner
39
Q

Information Commissioner’s Office (ICO)

& penalties

A

all data controllers (FIRMS) need to REGISTER WITH THE ICO

have tougher enforcement penalties available:

criminal: UNLIMITED FINES
civil: FINES UP TO 500,000 pounds

40
Q

GDPR

applies to…

penalties…

A

applies to..

DATA CONTROLERS and DATA PROCESSORS

penalties….

fines of 4% of annual worldwide turnover (or e20M) for breaches of certain provisions

41
Q

Record Keeping Requirements

General relevant periods for firms

&

requirements relating to specific activities

A

General relevant periods for firms: retain all records for…

  • MiFID business: at least 5 YEARS
  • non-MiFID business: at least 3 YEARS

requirements relating to specific activities:

  • client classification: relevant period AFTER the firm ceases to carry on business
  • client agreements: relevant period or duration of the client relationship if longer
  • trade confirmations: relevant period from the datre of DISPATCH
42
Q

What is Passporting?

A

it is under MiFID

if you’re in the EEA, you can do it

The home and host state play parts in it. Their responsibilities:

  • home state resp: authorisation and prudential supervision (so, if you’re authorised by your country, you are also in the other!)
  • host state resp: conduct of business rules

(if activities non-MiFID, follow rules of country you are in)

43
Q

Core MiFID Activities

A
  • dealing on own account/on behalf of clients (principle or broker)
  • portfolio manager
  • investment advice
  • underwriting/placing
  • operating MTF/OTFs
44
Q

Instruments covered by MiFID

and NOT covered by MiFID

A
  • transferable securities (anything you can buy and sell)
  • money market instruments
  • financial and commodity derivatives

NOT:

  • bank accounts
  • foreign exchanges
45
Q

MiFID II and MiFIR

A

MiFID (2007)…

  • amended by MiFID II
  • added MiFIR (requirements for trade transparency and mandatory trading of derivatives on organised venues)

key elements:

  • SCOPE covers more instruments
  • ELECTRONIC TRADING new category of trading venue (OTFs)
  • TRANSPARENCY AND TRANSACTION REPORTING extended to bonds and derivatives (not just equities)
  • INVESTOR PROTECTION new criteria for advice to be independent
  • PRODUCT INTERVENTION can permanently ban products
46
Q

UCITS

what it does &

permitted investments &

products directive

A
  • enables compliant UNIT TRUSTS/CVCs to be marketed accross the EEA
  • Home state authorisation/jost state marketing and tax rules

permitted investments:

  • solely invested in TRANSFERABLE SECURITIES
  • no more that 10% from a SINGEL ISSUER (forced diversification)
  • no more than 5% in OTHER CIS (also forced diversification)
  • money in bank deposits only as ANCILLARY LIQUID ASSETS (not part of investment strategy)
  • financial DERIVATIVES only for HEDGING

Products directive:

  • widened the previous investment powers of UCITS to enable them too invest in:
  • money market instruments
  • other CISs
  • bank deposits
  • fianncial derivatives
  • index tracker funds
47
Q

Prospectus Regulation

A
  • July 2019
  • sets out COMMON STANDARDS for information about an issuer and securieties being issued (so that the prospectus look the same)
  • requires:
  • a prospectus to be produced whenever there sia. public offer of securities admitted to trading on a regulated market
  • definition of relevant ‘competent authority’: prospectus content to be approved by the relevant (home state) regulator (FCA here)
48
Q

EMIR (European Markets Infrastructure Regulation)

A

introduced to improve the transpareny and redue some risk associated with the OTC derivatives market

  • main requirements:
  • reporting obligation for OTC derivatives: all trades registered with a trade repository (TR)
  • central counterparty for all OTC derivatives trades. greater market safety by reducing counterparty and operational risks

FCA Regulation (5 decks)

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