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CISI Cards - Technology in Investment > Technology in Investment - Chapter 2 > Flashcards

Technology in Investment - Chapter 2 Flashcards

1
Q

What is self regulation

A

`market participants agree on behaviours and a mechanism so disputes can be easily settled

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2
Q

What was the outcome of the financial services and markets act 2000 (FSMA)

A

established a new single regulator for the UK. (the FSA)

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3
Q

What is prudential regulation

A

concerned with financial soundness of regulated financial services firms.

Preventing investors and the economy from loss

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4
Q

What is business conduct

A

The way which business is done, how products are marketed and sold

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5
Q

What does part 2 of the Financial Services and Markets Act (FSMA cover (3 points)

A
  • Regulated and prohibited activities.
  • no person can carry on a regulated activity in UK unless authorized or exempt
  • authorization is bought about by relevant person applying to the regulator for permission. FSA grants permission
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6
Q

What are the regulated activities under FSMA

A

defined by type of investment and the range of activity. all regulated firms are expected to adhere to the 11 principles (fca)

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7
Q

What 3 sets of rules, as well as the UK regulator, monitors members from EU legislation

A

markets in financial instruments directive II (MiFID II)

capital requirements directive (CRD)

european market infrastructure regulation (EMIR)

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8
Q

What is the level 1 and level 2 legislation

A

1 - when EU legislates for europe as a whole

2 - detailed instructions that have to be complied with are usually found in individual legislation of member states. MiFID 2, EMIR & Basel 2

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9
Q

Who is responsible for level 2 legislation?

A

UK Government are responsible for MiFID 2, EMIR & Basel 2

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10
Q

What happened post the Financial Services act 2012?

A

This act was abolished and replaced with three new bodies:

FPC, PRA, FCA

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11
Q

What is the FPC

A

established within BoE
macro-prudential regulation of financial system as a whole.

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12
Q

What is the PRA

A

established within BoE
prudential regulation of large firms (1500) of their balance sheet

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13
Q

What is the FCA

A

regulation of all firms in retail and wholesale markets. also responsible for firms that dont fall in PRA scope (60,000 firms aprox)

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14
Q

What is the Europe-Wide regulation: European System of Financial Supervision (ESFS)

A

Institutional architecture of EU’s framework of financial supervision in response to the 2008 crash. replaced three existing committees with three new ones called European supervisory authority (ES

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15
Q

What makes up the ESA

A

insurance and occupational pensions authority (EIOPA)

European banking authority (EBA)

European securities and markets authority (ESMA)

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16
Q

What is the FCAs role (3 points)

A
  • Supervision of investment exchanges and monitoring firms market abuse
  • Insider dealing
  • Working closely with the PRA and FPC
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17
Q

When was the FCA and PRA begin work

A

April 2013

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18
Q

What is ESMA’s mission

A

protection of investors via a single rulebook

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19
Q

When did MiFID 1 enact?

A

enacted - 2004

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20
Q

When did MiFID 1 come into force?

A

November 2007

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21
Q

Why was MiFID 1 introduced

A

to set out European Union (EU) regulation in respect of securities and financial markets.

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22
Q

When did MiFID 2 commence

A

January 2018

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23
Q

What happened in October 2011

A

MiFID 1 was revised to make MiFID 2

MiFIR was introduced

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24
Q

What is MiFID 2

A

Comprehensive and profound set of reforms which is leading to a reshaping of financial markets

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25
Q

MiFIR proposals

A

although on EU, has global impact as it affects capital markets

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26
Q

What is a multi lateral trading facility (MTF)

A

Systems that bring together multiple parties that are interested in buying and selling financial instruments

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27
Q

What is a systematic internaliser

A

A firm executes client orders outside of an MTF or regulated markets

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28
Q
A
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29
Q

What is a systematic internalizer

A

A firm that executes client orders, outside of an MTF or regulated market

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30
Q

What is a pre-trade transparency

A

Aggregated order info available at the five best price levels on the buy/sell side

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31
Q

What does MiFID 2 make SIs undertake?

A

a public market making obligation

32
Q

What is transaction reporting for small firms?

A

Nominate a approved reporting mechanism

33
Q

What is transaction reporting for large firms?

A

Larger firms directly report to the regulator

34
Q

What is the rule with LEI’s

A

No LEI, No trade!!

35
Q

What records are used to monitor market abuse

A

Post trade transaction reports via ESMA

36
Q

Why has BREXIT affected UK regulation

A

No longer required to forward data to ESMA

37
Q

What is best execution

A

Obligation of the sell side of a firm to take all steps to ensure the best price for selling or buying

38
Q

Article 21 of MiFID requires firms that execute orders on behalf of clients to? (4 points)

A
  • Establish an execution policy
  • Disclose policy to clients
  • Monitor effectiveness and correct deficiencies
  • Be able to demonstrate the clients request was executed inline with the policy
39
Q

What is an OTF

A

An OTF is an organized trading facility

40
Q

What is a third country firm

A

firms outside of the EU that have business or a branch inside the EU. UK is now an example

41
Q

What is investor protection (3 rules)

A
  • Independent advice is banned
  • Advice must meet certain criteria
  • Non-complex instruments updated to remove Structured UCITS
42
Q

handling of client assets (3 rules)

A

-Record-Keeping
- Segregation
- Reconciliation

43
Q

Cost and Charges Reporting ( 2 types )

A
  • Ex ante (Pre-sales)
  • Ex post (Post-sales)
44
Q

Reporting percentage

A

Any move of 10% or more in a portfolio must be reported within 24 hours to the investor

45
Q

Inducements

A

No more the ‘minor’ benefits are permitted under MiFID 2

46
Q

3rd party research inducements rule

A

3rd party Research has to be paid by firm itself or separate client account

47
Q

What is a client agreement

A

Under MiFID 2, investment firms have to provide:

A basic written agreement, setting out the essential rights and obligations of the firm and the client

47
Q

What is included in the client agreement

A
  • Information about the firms and services
  • Instruments and strategies
  • Execution values
  • Client money
  • Order handling
  • Client money & assets
47
Q

How long must telephone recordings be retained?

A

5 years

48
Q

What is suitability

A

Understanding clients capacity for loss

49
Q

What are the six tech implications of MiFID 2

A
  • Transaction reporting
  • Trade Reporting
  • Best execution reporting
  • Cost & Charges
  • Recording additional client data
  • Tracking research consumption
50
Q

6 Principles of the GDPR

A

-Lawfulness, fairness & Transparency
-Purpose Limitation
-Data minimization
-Accuracy
-Storage Limitation
-Integrity and confidentiality

51
Q

What is the USA’s version of the GDPR

A

American Data and Privacy Protection Act (ADPPA) - 2022

52
Q

Rule 2.1 of the Conduct of Business Sourcebook (COBS)

A

Firms always act honestly, fairly and professionally in accordanc with clients best interest

53
Q

What are the two components to Senior Managers & Certification Regime (SMCR)

A

Senior Managers Regime

Certification regime

54
Q

What is Japans version of the GDPR

A

Act of the protection of personal information (APPI) - 2003

55
Q

What is the Aussies version of the GDPR

A

Privacy act - 1998

56
Q

Senior management arrangements, systems and controls (SYSC) (4 purposes)

A

21 Individual rules

  1. Encourage firms directors and senior managers to take responsibility
  2. Amplify principle 3
  3. Directos and senior managers to be responsible
  4. Create a common platform of systems and controls
57
Q

What is principle 3

A

A firm must take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems

58
Q

What 2 things do firms need to do to re-enforce Senior Managers Regime

A
  • Ensure each senior manager has a statement of responsibilities
  • Produce a firm responsibilities map
59
Q

What is the BCBS

A

Basel Committee on Banking Supervision.

60
Q

What is the certification regime

A

Applies to ‘Material Risk Takers’

  • Have identified all certified individuals

-Have assessed them as fit and proper

-Have assessment of fitness of staff

61
Q

What is the Bank for International settlements

A

a primary global standard setter for prudential regulation for banks

62
Q

How are the technological implications of the Approved Persons Regime managed?

A

Monitoring staff capability

63
Q

Three Technological implications for the Senior Managers & Certification Regime (SM&CR)

A
  • All senior managers statements of responsibilities

-Responsibilities map

  • Details of the regulatory approvals
63
Q

What is an approved person

A

An individual who is approved to do one or more activities.

64
Q

How can one become an approved person (3 requirements)

A
  • FCA’S ‘Fit and Proper’ test and follow its principles
  • Comply to the code of practice
  • Report anything that could effect their ongoing suitability to adhere to the FCA
64
Q

How should client assets be handled under CASS.

A

segregated from firms assets and regularly reconciled

65
Q

What is equation for Pillar 1 of the Basel Committee

A

Capital requirement
Capital ratio = ————————————————–
(Credit risk exposure + market risk exposure + operational risk exposure)

66
Q
A
67
Q
A
68
Q

Why was the BCBS set up

A

Messy liquidation of a German bank in 1974

69
Q

How many pillars in Basel 2

A

3

70
Q

What are the 3 pillars in Basel 2

A
  1. Minimum capital requirements (Pillar 1)
    2.Supervisory review (Pillar 2)
    3.Market discipline (Pillar 3)
71
Q

What is the basic indicator approach?

A

Hold a fixed percentage (alpha) set by Basel at 15%. Useful for smaller firms.

72
Q

What is standardized approach

A

Uses Risk Weighted Assets to calculate the operational risk

73
Q

What is the Advanced Measurement Approach

A

Most risk sensitive, allows banks to use their own measurement system for calculating the capital at risk. Uses VAR and must be held at 99% confidence and a period of 250 days

CISI Cards - Technology in Investment (20 decks)

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