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CISI - Corporate Finance Regulation > Regulatory Infrastructure > Flashcards

Regulatory Infrastructure Flashcards

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1
Q

When was Brexit vote?

A

23rd June 2016

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2
Q

When did UK actually withdraw from EU?

A

31 January 2020

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3
Q

What is IP Completion day?

A

31 December 2020 - the end of the transition period that enabled most EU to continue to apply in the UK (IP stands for Implementation Period)

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4
Q

What is the UK and EU TCA?

A

Trade and Cooperation agreement agreed in December 2020

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5
Q

How do UK and EU treat each others financial services markets?

A

EU has yet to deem the UK jurisdiction be equivalent, whilst the UK allows EU firms continued access to UK markets

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6
Q

What was the Wholesale Markets Review?

A

Published in July 2021, a report by HM Treasury that reviewed ‘Wholesale Markets’ in the UK

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7
Q

How are Wholesale Markets defined?

A

Wholesale financial markets enable companies, public sector organisations, governments and financial institutions to raise short-term finance and long-term capital to fund growth; undertake domestic and international trade; manage financial and other risks; and pursue investment opportunities.

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8
Q

How does the UK government see EU regulation in regard to the UK markets?

A

EU regulation is not calibrated for the uniqueness of the UK markets

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9
Q

What is the Financial Services and Markets Bill?

A

Amongst other things, will prvide the powers and legislative structure for HM Treasury and the PRA/FCA to be able to proceed with the aim and objectives of the Wholesale Markets Review

The Bill revokes retained EU law relating to financial services and enable HM Treasury, the PRA, and the FCA, to replace it with legislation designed specifically for UK markets, in a way that builds on the UK’s existing approach to financial services regulation

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10
Q

What are the ‘Edinburgh Reforms’

A

Released in December 2022, HM Treasury published a package of reforms to financial services regulation, that build on the UK government’s vision of an open, sustainable, and technology-driven fiancial services sector

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11
Q

What are some of the main reforms in the Edinburgh Reforms?

A
  • Replacing PRIIPs rules (Packaged retail and insurance-based investment products)
  • Designing a new UK short selling regime
  • Review of the Senior Managers and Certification Regime (SM & CR)
  • Enhanced remit for the FCA & PRA
  • Reviewing the effectiveness of Investment research in improving UK capital markets
  • Reforming the Securitisation Regulation
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12
Q

When did the FCA become the UK national regulator, and what was the organisation before it?

A

April 2013

Financial Services Authority (FSA) was before the FCA.

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13
Q

Why may legislation often not be the best tools to use even if market failures exist?

A
  • Legislation is inflexible to amend or repeal if it does not have intended results
  • Subject to political special pleading
  • Disproportionate and costly to implement if firms have to update systems to comply
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14
Q

How did the Financial Services and Markets Act 2000 (FSMA) overhaul the UK regulatory environment?

A

Replaced a number of self-regulatory organisations (SROs) with a single statutory regulator, the FSA (which was later replaced by the FCA)

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15
Q

What was the tripartite system of financial oversight?

A

FSA shared responsibility with BoE and HMT to have broad responsibility for both the prudential and the conduct of business regulation of firms within the financial services secotr.

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16
Q

What was the outcome of the 2010 review of the UK regulatory system?

A

Outcome of review was the commencement of the Financial Services Act 2012, which created three new bodies:
- Financial Policy Committee (FPC)
- Financial Conduct Authority (FCA)
- THe Prudential Regulation Authroity (PRA)

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17
Q

What three new bodies were created as a result of financial services act 2012?

A

Financial policy committee
Financial conduct authority
Prudential Regulation Authority

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18
Q

What did the Financial Services Act 2021 do?

A

Makes amendments to the financial services legislative and regulatory framework following Brexit.

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19
Q

What is the Financial Policy Committee?

A

Official committee of the BoE. The FPC is charged with identifying, montiroing, and taking action to remove or reduce systemic risks

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20
Q

What powers do the FPC have?

A

Make recommendations and give directions to the PRA and the FCA on specific actions that should be taken in order to achieve the FPC’s objectives.

The BoE also has responsibilityt for the supervision of central counterparties and securieits clearing and settlement systems

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21
Q

What is the FCA responsible for?

A

Ensuring relevant markets function well and for the conduct regulation of all financial sevices firms

It is also responsible for the prudentail regulation of those financial sevices firms not supervised by the PRA, for exampls, asset managers

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22
Q

What firms are dual-regulated?

A

Banks, insurers, and major investment firms

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23
Q

How does dual-regulation work?

A

Work towards different objectives and act separately with firms, but coordinate internally to share information and data.

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24
Q

What are the FCA’s objectives (both strategic and operational)?

A

Strategic:
- Ensure that relevant markets function well

Operational:
- Secure an appropriate degree of protection for consumers
- To protect and enhance the integrity of the UK financial system, and
- To promote effective competition protecting the interest of consumers

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25
Q

How are the FCA and PRA funded?

A

Entirely from fees paid by the firms which they regulate

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26
Q

Who is the FCA accountable to?

A

The government on how it carries out its funcitions via HMT

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27
Q

Who is the PRA accountable to?

A

Unit of BoE, which is in turn accountable to Parliament

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28
Q

What is temporary product intervention?

A

FCA has lower risk tolerance than the FSA, and FSMA 2012 provided the FCA with temporary ruels (for up to a period of 12 months) to prohiit or ban any product that it considers is causing or will cause consumer protection pronlems.

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29
Q

What instances may the FCA use temporary product intervention?

A
  • Products being sold outside their target market or being inappropriately targeted
  • Products where there is a significant incentive for inappropriate or indiscriminate targeting of consumers

some other cases too

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30
Q

What are the FCA’s powers?

A

Authorisation: working out whether to authorise firms
Supervision: Monitoring firms’ activiteis on an ongoing basies
Discipline and sanctions: Enable the FCA to enforce rules by punishing or limiting a firms activities
Enforcement: Enforces rules to deter breaches

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31
Q

How are the PRA functions exercised?

A

By the BoE, acting through its Prudential Regulation Committee (PRC)

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32
Q

Who is regulated by PRA?

A

Banks, building societies and credit unions (collectively known as ‘deposit takers’), insurers, and major investment firms.

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33
Q

What is a prudential regulator?

A

Promoting the safety and soundness of firms, seeking to minimise the adverse effects that they can have on the stability of the UK financial system

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34
Q

What is the BoE’s Special Resolution Unit (SRU)?

A

Implementing resolutions of failing UK banks and building societies under the special resolution regime (SRR) under UK Banking Act 2009

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35
Q

What is HMT?

A

HM Treasury is the department responsible for developing and executing the UK government’s public finance and economic policies.

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36
Q

What is the relationship between HMT and the FCA?

A

FCA reports to HMT, although FCA is operationally independent

HMT has the power to commission reviews and inquireis into aspects of the FCA’s operations

Through Parliament, HMT is able to change the nature of the FCA’s role, as it has already done twice

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37
Q

How often does FCA submit reports to HMT?

A

Required t submit a report at least once a year, detailing matters such as the way in which it has discharged its functions, the extent to which its objectives have been met, and any other important matters

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38
Q

What are the two main areas of stability that are tackled by the BoE to ensure it carries out its functions efficiently?

A

Monetary stability - stable prices and confidence in the currency

Financial stability - entails detecting and reducing threats to the financial system as a whole. It is in the area of financial stability that the PFC and the PRA operate

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39
Q

How does the BoE tackle monetary stability?

A

MPC adjusts the base interest rate to meet inflation target (currently set at 2% CPI)

Can also act as lender of last resort

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40
Q

What are RIEs and ROIEs

A

Recognised Investment Exchanges and Recognised Overseas Investment Exchanges

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41
Q

How is an RIE defined? What about ROIE?

A

An investment exchange which is recognised by the FCA under FSMA S.290

ROIE is an overseas RIE, whilst RIE are UK-only

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42
Q

What are the six RIEs in the UK?

A

ICE Futures Euripe
London Stock Exchange
London Metal Exchange
Aquis Stock Exchance
CBOE Europe
IPSX

These are also the six regulated markets in the UK

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43
Q

How many ROIEs at at September 2022?

A

29

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44
Q

What are DIEs?

A

Designated Investment Exchanges are overseas-based exchanges that are not regulated or supervised by the FCA and are not permitted to undertake regulated activities in the UK.

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45
Q

What are RCHs?

A

Recognised clearing houses facilitate the clearing and, somtimes, the settlement of trades.

Regulated by the BoE rather than FCA

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46
Q

What are DPBs?

A

Designated Professional Bodies - the authority that gives certifications for a profession, such as ICAEW for accountants

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47
Q

What professions does DPB status exist for?

A
  • Accountants
  • Solicitors
  • Actuaries
  • Chartered surveyors
  • Licensed conveyances
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48
Q

FCA relationship to investment exchanges and MTFs?

A

FCA regulates them, as well as firms that operate in financial markets

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49
Q

How does FSMA S.22 define regulated activities?

A

1) Specified activities (such as dealing, arraning, or advising), and
2) Specified types of investment (such as shares, bonds, deposits, or contracts of insurance)

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50
Q

What must a firm which wishes out to carry out a regulated activity be?

A

Authorised or exempt

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51
Q

What is a Part 4 permission under FSMA?

A

Authorisation from the FCA under FSMA in relation to each regulated activity it is authorised to conduct.

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52
Q

What is the general prohibition under Part II of FSMA?

A

No person may carry on a regulated acitivity in the UK, or purport to do so unless they are either an authorised or exempt person.

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53
Q

What piece of legislation details the specified investments and activities a person is authorised to do?

A

Secondary legislation issued under FSMA - principally the Regulated Activites Order (RAO) 2001

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54
Q

In an authorised person, what is ‘person’?

A

Natural persons and all other types of legal persons, such as incorporated bodies, partnerships, trusts and other types of unincorporated associations

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55
Q

Is breaching the General Prohibition a criminal or civil offence?

A

Criminal, and is punishable by a maximum penalty of two years in prison and/or an unlimited fine on conviction in the Crown Court.

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56
Q

What is a reasonable defence against a general prohibition charge brought upon you?

A

A firm could show that it has taken all reasonable precautions and exercised all due diligence to avoid committing the offence.

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57
Q

What is a client or customer able to do if a firm has conducted an authorised activity with them, despite not being authorised to do so?

A

The client or customer can get all moneyback + damages as these agreements in contravention of the general prohinition are unenforceable by that person against the other party to the agreement

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58
Q

What is an MTF?

A

Multilateral trading facility

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59
Q

List of regulated activites

A

Make list

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60
Q

What is COBS, and how do they apply?

A

Conduct of Business Sourcebook rules apply only to firms carrying out designated investment business, while others (such as the general prohibition) apply to all regulated activities

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61
Q

What are the specified investments within the Regulated Activities Order (RAO)?

A

XXX

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62
Q

How often do FPC meet and what do they consider?

A

4 times a year and consider systemic risk.

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63
Q

What is an example of systemic risk that FPC consider?

A

Liquidity crises that affects multiple banks

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64
Q

How does the FPC liase with PRA and FCA?

A

FPC gives instructions to both the PRA and the FCA

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65
Q

How would you define the types of companies that the PRA oversees

A

Large financial institutions that would have large knock on effects if they collaped

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66
Q

What kind of thing is reserve capital?

A

High-quality collateral such as government bonds

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67
Q

Who supervises clearing houses?

A

BoE

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68
Q

Who handles prudential regulation of non-macro firms?

A

FCA

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69
Q

Difference between authorised and approved?

A

Authorised is at the firm level, where as approved is at the person level

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70
Q

What does the Primary Markets division of the FCA do?

A

Is the competent authority for listing and prospectuses, writing and enforcing the listing rules. This is also the part of the FCA that is responsible for overseeing takeovers and mergers.

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71
Q

How is the local competent authority determined?

A

The local competent authority is determined by the headquarters of the company

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72
Q

What powers did FSA 2012 introduce?

A

FSA 2012 gave the FCA specific intervention powers in addition to existing powers
A) Product intervention
a. Banning or prohibit a product for up to 12 months without consultation
B) Financial promotions
a. Able to ban misleading financial promotions.

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73
Q

In a criminal case, who prosecutes: the FCA or the criminal courts?

A

FCA prosecutes, even if crown court oversees the case

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74
Q

What are the two types of FCA objective?

A

Strategic and Operational

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75
Q

How is the FCA held accountable?

A
  • HMT can appoint and dismiss the FCA board and chairman
  • FCA submits an annual report
  • FCA must carry out an investigation and report to HMT if there has been a significant regulatory failure
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76
Q

Where does the money raised from regulatory fines go to?

A

Treasury, not FCA; this is to prevent conflict of interest

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77
Q

Through what body does the BoE maintain monetary stability? What about financial stability?

A
  • BoE is accountable to parliament and has two main objectives – monetary stability (MPC) and financial stability (PRA & FPC)
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78
Q

What is the FPC responsible for?

A

Reducing risks to the financial system; makes recommendations and directions to PRA and FCA

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79
Q

How does the PRA describe the approach by which it advances its objectives?

A

PRA advances its objectives through an approach which is:
- Judgement based
- Forward looking
- Focused

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80
Q

How does PRA help failing banks?

A

PRA works with BoE’s Special Resolution Unit (SRU) under the Special Resolution Regime (SRR) to manage failing UK banks

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81
Q

What is the rule FSMA S 19 The General Prohibition

A

A firm must not conduct a regulated activity unless Authorised or Exempt

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82
Q

What happens if a firm breaches the general prohibition?

A

What happens if there is a Breach? Criminal offence, up to two years in prison + an unlimited fine. Contracts are unenforceable.

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83
Q

In the context of FCA regulation, what does authorised and exempt mean?

A

Authorised: Has a Part 4A permission.
Exempt: Applies to a list of organisations that don’t need authorisation

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84
Q

What is an example of a firm that is exempt from FCA regulation?

A

RIEs are exempt, because they are self-policing so don’t need authorisation.

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85
Q

What are some of the post-Brexit developments to UK regulation?

A

Post-Brexit Developments
- UK has temporarily “on-shored” existing EU regulations
- Wholesale Markets Review 2021: Determined how much of existing EU regulation needed to be amended, to ensure calibration to the uniqueness of UK markets
- Financial Services and Markets Bill/Act: Gives the FCA/PRA and HMT the powers to proceed with the aims and objectives of the Wholesale Markets Review and future reviews
- The Edinburgh Reforms: A major package of changes to UK FS regulation that aims to set the agenda for an open, sustainable, and technology-driven financial services sector.

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86
Q

What is a directive?

A

Directive: An instruction for the local governments to amend their local laws

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87
Q

What does Regulated Activities Order cover?

A

What constitutes a regulated activity and the asset classes that it covers

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88
Q

What do Perimeter Guidelines cover?

A

What activities are excluded, and if the firm has an exemption

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89
Q

What is a CIS?

A

Collective Investment Scheme - basically anything that collates funds and then invests, including index and mutual funds

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90
Q

What are examples of some specified investments in FCA?

A
  • Deposits
  • Electronic money
  • Transferable securities
  • Derivates
  • Rights to investments
  • Emissions
  • Property
  • Credit agreement
    These groups are a summary of 25 different specified investments
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91
Q

What are some examples of some investments that are not specified?

A
  • Premium bonds and national savings certificates
  • Property and commodities (bought directly)
  • Options on commodities (with exception of precious metals)
  • Bills of exchange, trade bills, letters of credit, bankers drafts cheques
  • Loans
  • Spot FX
  • Fixed odds betting
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92
Q

What is Designated Investment Business?

A

xxx

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93
Q

What is the only form of insurance that is a specified investment?

A

Only insurance that would be covered is life assurance, other forms of insurance such as house insurance is not an investment vehicle.

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94
Q

What activities are excluded from FCA authorisation?

A
  • Dealing as principal
    o Where not holding out as a “market maker” or certain other activities as principal
  • Employee share schemes
  • Media tip sheets and programmes
    o Opinion that is not investment advice
  • Overseas person
    o As long as they haven’t marketed services in UK
  • Unremunerated (unpaid) Trustees, nominees and personal representatives
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95
Q

What are exempt persons?

A

Exempt Persons: Appointed representatives (for a firm), institutions (Like IMF, BoE, ECB, and other supranationals), recognised exchanges and clearing houses

96
Q

Who are exempt from the general prohibition?

A

Exempt from General Prohibition: Professionals (member of DPBs), Member of Lloyds

97
Q

Examples of ROIE?

A

Recognised Overseas Investment Exchange

Nasdaq, Eurex

98
Q

What are examples of Designated Investment Exchange (DIE)?

Why are they classed as DIEs?

A

E.g. NYSE, Tokyo SE.

Don’t have direct access to UK market, have to go through an agent

99
Q

Who oversees Recognised Clearing Houses?

A

BoE

100
Q

Examples of RCHs?

A

Examples include LCH, ICE Clear Europe, LME Clear Ltd. ROCH is also available.

101
Q

What is AIM in context of RIE?

A

Technically, AIM is an MTF owned by the London Stock Exchange.

102
Q

What are the 11 Principles for Businesses which apply to firms under the FCA handbook?

A

1) Integrity
2) Skill, care, and diligence
3) Management control
4) Financial prudence
5) Market conduct
6) Customers’ interest (Treating Customers Fairly)
7) Communications with clients
8) Conflicts of interest
9) Customers: Relationships of trust
10) Clients’ assets
11) Relations with regulators

103
Q

What is the new 12th principle called consumer duty?

A

Aim: To ensure retail customers receive good outcomes, setting a higher standard than Principle for Business 6 alone and introducing Principle 12: “A firm must act to deliver good outcomes for retail clients”

104
Q

What are the key behaviorus expected from the 12th principle for business?

A

Key Behaviour’s expected:
- Act in good faith to retail customers
- Avoid causing foreseeable harm
- Enable and support customers to pursue their financial objectives

105
Q

What happened to passporting rights and equivalence post brexit?

A

Brexit transition period ended on 31/12/20
- Passporting rights ceased
- ‘Equivalence’ yet to be granted by EU to UK

106
Q

Who do UK MiFID and non-UK MiFID apply to?

A
  • UK investment firms and credit institutions
  • Third country firms operating via equivalence
107
Q

What was MiFID designed to do?

A

Harmonise market rules in EEA

108
Q

What are some things that MiFID introduced?

A
  • Market transparency standards
  • Harmonisation of Conduct of Business rules, consistency of investor protection
  • Regulation of MTFs
  • EU firms can ‘passport’ services/activities throughout EU without need for separate authorisation
    o Core activities can be passported, but ancillary activities cannot be passported on their own, only allowed if in conjunction with a core activity
109
Q

Can ancillary activires be passported under MiFID?

A

Sort of; core activities can be passported, but ancillary activities cannot be passported on their own, only allowed if in conjunction with a core activity

110
Q

What instruments are covered within MiFID?

A
  • Transferable securities
  • Units in CIS
  • Money market instruments
  • Financial, commodity, credit, climate derivatives, CFDs
  • Forward rate agreements and swaps (currency, equity, rates)
  • Options on any of the above
  • Safeguarding and custodian
111
Q

What instruments are not covered by MiFID?

A

Non-MiFID
- Bank accounts
- Spot FX
Within MiFID, the scope is financial instruments (so deposits, insurance, property finance etc not included)

112
Q

What are Article 2 MiFID examptions?

A

Article 2 MiFID exemptions: Insurance and collective investment undertakings and treasury activities

113
Q

What are Article 3 MiFID exemptions?

A

Available for firms that only provide advice or transmit orders, but do not hold client funds

114
Q

In the context of MiFID II, what are circuit breakers?

A

Halt trading - expand

115
Q

What are the Two different systems for individuals performing ‘controlled functions’?

A
  • Approved Persons (APER)
  • Senior Managers & Certification Regime (SM & CR)
116
Q

What are the controlled Functions under APER

A
  • FCA governing functions, e.g. director, CEO, non-exec director
  • Customer dealing function
117
Q

How do you determine fitness & propriety for an approved person?

A
  • Honesty, integrity and reputation
  • Competence and capability
  • Financial soundness (bankruptcy vs overdraft)
118
Q

Under approved persons, when a person ceases to perform a controlled function, the firm must:

A
  • Notify the FCA within seven days
  • Indicate if clean or qualified (dirty) withdrawal (qualified = dirty)
119
Q

What are the 7 principles in the APER?

A

Statement of Principle: approved persons
1) Integrity
2) Skill, care and diligence
3) Proper standard of market conduct
4) Deal with regulator in open way
Which apply to all approved persons
5) Proper organisation of business
6) Skill, care, and diligence in management (of the business)
7) Comply with regulatory requirements (of the business)
5-7 applies only to significant influence functions

120
Q

What are the SM & CR rules?

A

This is the ‘new’ regime, whereby regulatory approval only for key senior individuals, e.g. chairman, CEO, director, heads of audit, compliance, and money laundering officer
Certification regime: Firms to internally assess, on an annual basis, fitness and propriety of any other employee who poses risk to customer or firm, a ‘material risk taker’

121
Q

What are the categories for firms under SM&CR?

A

SM&CR Categories:
- Limited scope
- Core
o 5 prescribed responsibilities (plus one extra for fund managers)
- Enhanced
o 12 prescribed responsibilities (plus one extra for fund managers)

Prescribed responsibilities = number of job roles at firm

122
Q

What are the types of senior manager controlled function?

A

Four types of (senior manager) controlled function:
- FCA governance
- FCA required
- Other high level management
- Systems and controls

123
Q

Code of Conduct (COCON) rules under SM&CR?

A

Code of Conduct (COCON) rules under SM&CR
Rule 1; You must act with integrity
Rule 2: You must act with due skill, care and diligence
Rule 3: You must be open and co-operative with the regulators
Rule 4: You must pay due regard to customers interests and treat them fairly
Rule 5: You must observe proper standards of market conduct

124
Q

What are the second tier or senior conduct rules under the SM&CR regime?

A

Second tier or Senior Conduct (SC) rules:
SC1: You must ensure business of your firm is controlled effectively
SC2: You must ensure business of your firm complies with regulations
SC3: You must ensure you delegate responsibly and effectively
SC4: You must disclose information which the regulator would reasonably expect
The second tier are only for senior managers only

COCON rules are for the people running the firms, rather than the firms themselves

125
Q

What is Senior Management Arrangements, Systems and Controls (SYSC)?

A

Summarises the job roles for a SMF
Apportionment of senior management responsibilities: Knowing and recording who does what, with record to be retained for six years

126
Q

Under MiFID and non-MiFID, how long should records be kept for?

A

General record keeping: MiFID – five years; Non-MiFID: three years.

Remember using number of letters in MiFID and Non

127
Q

When considering how firms are supervised by the FCA, what are the two categories?

A

Either fixed portfolio or flexible portfolio.

128
Q

When considering fixed portfolio supervision by the FCA, how would you define it?

A

Fixed portfolio – large firm so has large consequences; has a named FCA supervisor

129
Q

When considering flexible portfolio supervision by the FCA, how would you define it?

A

Flexible portfolio – for smaller firms, general contact centre; often a team of people that can engage interchangeably

130
Q

What are the types of supervisory approach from the FCA?

A

Supervisory approach:
- Proactive: Looking for thigns
- Reactive: Event-driven
- Thematic: Diagnostic

131
Q

What are the four rules that the FCA has for information gathering powers?

A

S 165 - S 168

132
Q

What is S 165?

A

FCA Information Gathering Powers:
S 165: Provides powers for FCA to ask for information. Only allowed to take away copies
S 166: Firm must commission a skilled person to product a report
S 167: Power to appoint an investigator to assess general firm conduct
S 168: Power to appoint investigator to assess particular regulatory breach

133
Q

What is S 166?

A

FCA Information Gathering Powers:
S 166: Firm must commission a skilled person to product a report

134
Q

What is S 167?

A

S 167: Power to appoint an investigator to assess general firm conduct

135
Q

What is S 168?

A

FCA Information Gathering Powers:

S 168: Power to appoint investigator to assess particular regulatory breach

136
Q

What discipline measures does the FCA have?

A
  • Sanctions
    o Public statement of misconduct (approved person)
    o Public censure (authorised firm)
    o Unlimited fines
  • Other enforcement powers
    o Private warning (first reveal that a firm is under investigation)
    o Restitution order (redress)
    o Varying or cancelling permission (firm)
    o Withdrawal of approval (individual, temporary ban)
    o Prohibition order (S56 FSMA order) (individuals, lifetime ban)
137
Q

What is the disciplinary process after FCA deems there has been a breach?

A

Reviewed by RDC, which is an independent part of the FCA; only chairman is FCA employee
Regulatory Decisions Committee:
1) Written warning notice sent to accused
2) Has access to FCA documents
3) Accused may make oral/written representations

138
Q

Once under review by RDC, what are the three outcomes?

A

Three outcomes:
- Supervisory Notice
- Decision Notice
o Decision not accepted, appeal within 28 days  sent to Upper Tribunal
o Or Decision Accepted  Final Notice: Sanction implemented, published on FCA website
- Notice of discontinuance
The measures above are the outcome if you get a decision notice.

139
Q

What is rule S 59?

A

S 59: Relates to a firm allowing an individual to undertake a controlled function without approval

140
Q

What is rule S 71?

A

S 71: Individual can sue an individual due to loss of breach of S 59 or S 56 (aka breaching prohibition order)

141
Q

What is rule S 138D?

A

S 138D: Gives a private individual the right to sue the firm for loss due to firm rule breach

142
Q

What is a scheme of arrangement?

A

A scheme of arrangement is a statutory procedure whereby a company makes a compromise arrangement with its shareholders and/or creditors, allowing it to restructure itself.

The company (through its directors) proposes a new corporate structure for itself; shareholders and/or creditor approve the structure; the courts then approve the structure, and the new structure is immediately in effect

143
Q

What are the two types of company constitution and what are the differences between them?

A

Two types of company constitution: Private and Public

Private:
- Can’t offer shares to public (i.e. only to people known to them)
- Minimum one shareholder

Public:
- Can offer shares to public
- Minimum share capital of £50,000 with all share premium and 25% nominal value paid up
- Two or more shareholders

144
Q

What is a memorandum of association?

A

Details of company identity and a simple statement of intent of the initial shareholders to form a company and become members of it

145
Q

What are articles of association?

A

Articles of Association: Written rules agreed by the company
- Internal rulebook
- Includes coverage of powers of directors, conduct of meetings, share classes, shareholder voting, and dividend rights
- Often based on model or standard articles

146
Q

What are the rules for timings of AGMs?

A
  • Must be every calendar year, max. gap 15 months and within six months of financial year end
147
Q

How much notice is needed for an AGM?

A
  • Greater or equal to 21 calendar days’ notice period; via email, website, or hard copy
148
Q

How can members vote in an AGM?

A
  • Member has right to:
    o Attend and vote or appoint proxy
    o Propose resolutions and circulate max 1,000 word statement regarding the meeting is supported by 5% of voting rights or 100 shareholders of greater than £100 paid up shares each
    o Vote by poll (proportional by voting right %) vs vote by presence (hands up, hands counted)
149
Q

For Quorum in an AGM, how many members or proxies are required to be present?

A

At least two

150
Q

What is the typical agenda for an AGM?

A
  • Agenda incudes
    o Appoint directors and auditors
    o Approve accounts and hence dividend
151
Q

When are General Meetings (GMs) used?

A

Used when there is not an AGM, but there is an important update to discuss.

152
Q

How much notice do you need for GMs?

A

Need 21+ days for listed companies (but can be reduced by prior vote to 14 days), but 14+ days for all other companies

152
Q

Difference between ordinary and special resolutions?

A

Ordinary resolutions: Require > 50% votes cast
Special resolutions: Require >= 75% votes case

153
Q

What is the threshold for a GMs notice period to be completely waived?

A

Notice period can be waived completely if 95% of voting shares consent

154
Q

What alterations to capital structure can be paid without needing to be raised at an AGM or GM?

A

Alterations to capital structure:
- General rule – must maintain share capital = creditor protection
- Exceptions:
o Return of excess capital to shareholders (e.g. share buybacks)
o Extinguish liability if shares not fully paid up
o Cancellation of permanently lost capital (eliminating retained losses)
- All three of the exceptions require special resolution

155
Q

What is a scheme of arrangement?

A

Schemes of Arrangement: Where a company makes compromise arrangement with shareholders allowing it to restructure

156
Q

What are the two types of scheme of arrangment?

A

Reconstruction: Used to rescue a company in financial difficulties, preserving the business
Amalgamation: Combination of two companies; majority of plc takeovers use this method

157
Q

Under a scheme of arrangment, what are the required procedures?

A
  • Explained to shareholders and creditor meeting date set
  • Separate meeting for shareholders and creditors
  • Approval by 75% (special resolution) in value AND majority in number of those voting at each meeting
  • Application to court to sanction scheme
158
Q

What is the difference between a squeeze out and a sell out?

A

Squeeze out: if bidder acquires 90% of shares and voting rights, may force minority to sell their holding; key is to recognise the voting rights angle for a squeeze out

Sell out: If a bidder acquires 90% of the shares by value in a company, may force bidder to buy the minority holding

159
Q

Look at the regulations around rights issues

A

Look at the regulations around rights issues

160
Q

What are the penalties for providing financial assistance to an entity that is trying to takeover your firm?

A

Financial assistance: It is illegal for a public company to give financial assistance to a third party for purchase of its own shares.

Contracts void, directors liable for losses, fines and/or two years jail

161
Q

What are the exceptions in the rules about providing financial assistance to someone trying to purchase your company?

A

Exceptions:
- Principal purpose of transaction is not provision of financial assistance or is an incidental part of a larger purpose, e.g. lending in ordinary course of business
- Where loan is made to employees as part of an employee share scheme

162
Q

When can a company investigation by BEIS inspector may be appointed?

A
  • After 200+ shareholder ask or holder of 10%+ issued shares or ordinary resolution passed
163
Q

What is an Section 793 Investigation?

A
  • Requiring information on shareholdings
  • Asking an individual to disclose interest in past 3 years; if sole in past 3 years, they must identify who they sole to
164
Q

What is the penalty for providing wrong information in a Section 793 investigation?

A

If false information – two years in jail and/or fine. If not response – remove voting/dividend rights

165
Q

In Insider Dealing and Market Manipulation regulations, what are the criminal and civil offences?

A

Insider Dealing and Market Manipulation
- Criminal Offences:
o CJA 93 – Insider dealing
o FSA 2012 Part 7 – Misleading Statements
- Civil Offence:
o Market Abuse Regulation (MAR)

166
Q

Under insider dealing and market manipulation offences, what are the difference between pursuing criminal vs a civil case?

A

You need a really strong case for a criminal offence (given that it needs to be beyond doubt in criminal court, rather than beyond a balance of probabilities)

167
Q

What acts define UK’s regulation around Money Laundering and Terrorism?

A
  • When money laundering occurs
    o POCA 2002
  • Anti-money laundering (prevention)
    o Money laundering regulations
    o SYSC
    o JMLSG Guidance Notes
  • Terrorism Act 2000
168
Q

What is the definition of insider dealing?

A

Insider Dealing:
- Criminal offence for an individual who is an insider to use inside information to attempt to make a profit

169
Q

Who enforces and prosecutes insider dealing?

A

FCA

170
Q

What is the punishment for insider dealing?

A
  • Enforced and prosecuted by FCA
  • Punishment determined and imposed by the court
  • Maximum punishment:
    o Magistrates’ Court: Six months in jail and/or £5,000 fine
    o Crown Court: ten years in jail and/or unlimited fine
171
Q

What securities are included under CJA93?

A

Security under CJA93:
- Securities and derivatives

172
Q

Definitions for inside source and inside information?

A

Inside source: someone that works for the company or you deal with someone at the company that discloses information to you

Inside information: Unpublished, price sensitive, specific/precise, relate to particular security or issuer

173
Q

What is the difference between general and special defences to insider dealing?

A

Special defences are because they are very unique cases that only apply to a select few firms

174
Q

What are some general defences for insider dealing?

A

General Defences:
- Did not epect to profit
- Believed on reasonable grounds that it was published
- Would have dealt anyway
- Did not expect any person to deal or profit from deal (disclosing only)

175
Q

What are some special defences for insider dealing?

A

Special:
- Market maker
- Market information (including bid facilitation)
- Stabilisation

176
Q

Under part 7 of FSA 2012 which defines misleading statements and impressions, what is the type of offence and what is the maximum penalty for commiting this offence?

A

Criminal offence and hence maximum penalty of sevcen years imprisonment

177
Q

What is S 89, S 90, and S 91?

A

o S 89 Misleading Statements: Making a misleading statement, or concealing material facts to induce another person to enter into an agreement
o S 90 Misleading Impressions: Creating a misleading impression of the market or price in order to induce another person to take actions
o S 91 Misleading statements or impressions relation to benchmarks: Making a misleading statement, or acting to create a misleading impression, in the course of setting a relevant benchmark

178
Q

What are the defences to misleading statements and impressions?

A
  • Defences:
    o Price stabilisation
    o Chinese Walls
    o Did not believe conduct would create misleading impression
179
Q

Under market abuse, what is the maximum punishment?

A

Civil offence, so cant go to prison

Instead, can be hit with an unlimited fine

180
Q

What are the 2 offences under MAR Insider dealing, and 3 offences under MAR Market Manipulation?

A

2 offences MAR Insider Dealing:
- Insider dealing
- Unlawful disclosure

3 offences MAR Market Manipulation:
- Manipulating devices
- Manipulating transactions
- Dissemination of false or misleading information

181
Q

What are accepted market practices?

A

Accepted Market Practices (AMPs) sometimes known as safe harbours are defences against accusations of market abuse

182
Q

What is a definition of Money Laundering?

A

Process by which criminals seek to hide the true origins of money derived from activities (whenever they may occur) considered by the UK to be criminal conduct, e.g. drugs, terrorism, tax evasion, minor theft

183
Q

What act attempts to track and regulate money laundering?

A

Proceeds of Crime Act 2002 (Amended by SOCPA 2005):

184
Q

What are the four types of money laundering offence and what are their associated penalties?

A
  • Assistance: 14 years in jail and/or fine
  • Failure to disclose: five years in jail and/or fine
  • Prejudicing an investigation: five years in jail and/or fine
  • Tipping off: five years in jail and/or fine
185
Q

Summary of UK Money Laundering Regulations 2017:

A
  • Authorised firms report to the FCA, others to HMRC
  • Regulations cover three areas:
    o Due diligence: including identifying customer
    o Internal policies: Record keeping, staff training, reporting of suspicions
    o Supervision and registration: Powers of supervisory bodies (FCA, HMRC)
  • Failure to comply is a criminal offence (two years in jail and/or fine)
186
Q

Summary of JMLSG Guidance Notes 2017

A
  • Guidance for firms on how to interpret and implemtn the AML regulations; not mandatory to follow, but if you use, cant use safe harbour defences included within them
  • Firms myst take a risk-based approach and have high-level policy statement
  • Part 1: General guidance, Part 2: Sectoral guidance, Part 3: Specialist guidance
187
Q

When must KYC be undertaken?

A

KYC: Must be undertaken when entering a business relationship or undertaking a transaction of €15,000

188
Q

What are the two types of KYC due dilgence and how can they be defined?

A

Simplified due diligence – low risk products or customers
Enhanced due diligence – higher risk customers or services

189
Q

How are the Terrorism Act 2000, Counter Terrorism Act 2008 different to money laundering regulations?

A
  • Intended use of money is the issue, not the source
  • Similar punishments as under POCA 2002 plus: non-compliance with a Treasury Directive: two years jail + unlimited fine
190
Q

Are offences under Bribery Act 2010 and Criminal Finances Act 2017 civil or criminal offences?

A
  • Criminal offence: Maximum penalty = ten years in prison + unlimited fines
191
Q

What offences are covered by Bribery Act 2010 and Criminal Finances Act 2017? Think S 1, S 2, S 6, S 7

A
  • Offences include:
    o S 1 Offering, promising or giving a bribe
    o S 2 Requesting, agreeing to receive or accepting a bribe
    o S 6 Bribery of a foreign public official
    o S 7 Corporate liability for failing to prevent bribery
192
Q

What is the criminal finances act 2017?

A

LOOK UP

Criminal financea act 2017:
- Companies liable if they fail to prevent tax evasion
- Unexplained wealth orders
- Extended powers to investigate potential money laundering/terrorist finance

193
Q

What is the maximum prison sentence for conducting unauthorised regulated activites?

A

2 years

194
Q

What is the maximum prison sentence for making misleading statements and impressions?

A

7 years

195
Q

What is the maximum prison sentence for conducting insider dealing?

A

10 years

196
Q

What is the maximum prison sentence for assisting money laundering?

A

14 years

197
Q

What is the maximum prison sentence for failing to report money laundering?

A

5 years

198
Q

What is the maximum prison sentence for tipping off someone who has conducted money laundering?

A

5 years

199
Q

What is the maximum prison sentence for prejudicing a money laundering investigation?

A

5 years

200
Q

What is the maximum prison sentence for institutional liability in context of money laundering?

A

LOOK UP

2 years

201
Q

What is the maximum prison sentence for bribery?

A

10 years

202
Q

Which of these are civil remedies available to a client with whom a business has conducted unauthorised investment business:
- Void the contract
- Prosecute the business
- Enforce the contract
- Obtain damages for losses suffered

A

All but prosecute - prosecution occurs in a criminal case and is not a civil remedy

203
Q

Are both RIEs and DIEs regulated by the FCA?

A

Only RIEs are regulated by the FCA

DIEs are overseas-based exchanges, but they are not regulated or supervised by the FCA and are not permitted to undertake regulated activities in the UK

204
Q

What are Recognised Clearing Houses and who are they regulated by?

A

Facilitate the clearing and, sometimes, the settlement of trades.

RCHs are supervised by the BoE rather than the FCA

205
Q

Are RCHs exempt from needing FSMA Part 4A permission?

A

Yes - are exempt from needing permission to undertake the relevant regulated activities

206
Q

What is an ROCH and what is the benefit of them?

A

A recognised overseas clearing house is a clearing house declared by order of the BoE, which has neither its head office nor its registered office in the UK.

It enables overseas clearing houses to offer regulated activities in the UK.

207
Q

For a new applicant for listing planning to have debt and equity securities listed, what is the minimum total value of the securities to be listed?

A

£900,000 - equity securities will have to have a market value of £700,000, whilst debt securities will have to have a market value of £200,000.

Therefore, the combined minimum amount is £900,000.

208
Q

Under MiFID, what type of spread betting is covered?

A

Only spread betting in relation to financial assets (such as shares).

209
Q

What is the Tax and Chancery Chamber of the Upper Tribunal (TCCUT)?

A

It is an appeals process for those subject to a Decision Notice from the Regulatory Decisions Committee (RDC).

210
Q

To whom is the Tax and Chancery Chamber of the Upper Tribunal accountable?

A

In order for it to bs fully independent, the TCCUT is seperate from the FCA and HM Treasury and is part of the Ministry of Justice.

211
Q

What five abusive behaviours does the market abuse regime cover?

A

Insider dealing
Unlawful disclosure
Manipulating transactions
Manipulating devices
Dissemination

212
Q

Who is exempt from s 19 (general prohibition) of FSMA

A

Local authority

213
Q

In an explanatory statement of a scheme of arrangement, what information should be contained?

A
  • Details of proposed arrangement
  • The effect of the compromise or arrangement on the material interest of the directors of the company in so far as it is different to the interests of others
214
Q

What are the four section headers that summarise the tools of supervision afforded to the FCA?

A
  • Identify
  • Evaluate
  • Diagnose
  • Remedy
215
Q

What is not one of the FCA’s supervisory tools?

  • Monitoring
  • Due diligence
  • Diagnostic
  • Preventative
A

Due diligence

216
Q

When are foreign exchange contracts covered by the Regulated Activities Order?

A

If they are speculative forward contracts or options on Forex, i.e. not spot

217
Q

Does the Financial Services Act 2012 cover misleading information?

A

Yes

218
Q

What are the required functions in the controlled functions?

A

Apportionment and oversight, as well as Compliance Officer and MLRO

219
Q

If you are investing as a principal, can you breach s 19?

A

No - this would be the defence of dealing as principal (ie for their own account) and not holding themselves out to the market

S 19 - General Prohibition: no person may carry on a regulated activity in the UK, or purport to do so, unless that person is an authorised person or an exempt person.

220
Q

Do the nominated office and MLOR have to be separate persons?

A

Nope - in many cases they are the same person

221
Q

Why are people with prescribed responsibilities subject to regulatory approval?

A

Typically assigned to senior managers, who need to be approved under the SM&CR.

222
Q

Which firms is section 793 of the companies act 2006 applicable to?

A

Public companies

Is about disclosing shareholdings

223
Q

Can the FCA wind up a firm that breached a rule?

A

No - only a court has the power to do this

224
Q

When should a conflict of interest be disclosed?

A

When it is not preventable

225
Q

How would you describe the role of a non-executive director?

A

A person responsible for providiing an overview of the company’s activities sand supervising other directors, but is not involved in the day-to-day operations of the business

226
Q

What is the difference between a specified and designated investment?

A

Designated investment is a narrower scope than specified investment

227
Q

What is the maximum penalty for a breach of the Bribery Act by a commercial organisation?

A

An unlimited fine - imprisonment is not applicable to a business

228
Q

If a firm has a conflict that it is unable to prevent, what must it do?

A

Disclose it in sufficient detail for the client to take an informed decision

229
Q

What is the penalty for market abuse?

A

An unlimited fine - market abuse is a civil offence, so you could not go to jail for it

230
Q

Is it Lloyd’s or Lloyd’s members which are exempt from the requirement to seek authorisation from the FCA?

A

Lloyd’s members

231
Q

What are the four class tests to assess the materiality of a transaction?

A

Gross assets, profits, consideration, and gross capital

232
Q

In reducing share capital of a business, what is the difference between public and private company?

A

Private just has to be approved by special resolution, public has to be approved by special resolution AND by court

233
Q

Can a firm which is not authorised issue a financial promotion?

A

A firm which is not authorised may issue a financial promotion if it is first approved by an authorised firm

234
Q

Which act gives the FCA the power to prosecute under part V of CJA 1993 for insider dealing?

A

FSMA 2000, gives power to prosecute for insider dealing under CJA 1993 and for money laundering under POCA 2002

235
Q
A

CISI - Corporate Finance Regulation (8 decks)

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