The Regulation of Financial Markets Institutions

Question 1

What is meant by primary legislation?

Answer 1

New law

Question 2

What is meant by delegated legislation?

Answer 2

Amending existing law

Question 3

What happens if EU directives are not implemented by law by the due date?

Answer 3

They have a vertical direct effect - given precedence over national law

Question 4

What is MiFiD?

Answer 4

Markets in Financial Instruments Directive
Allows firms to trade throughout EEA with a single authorisation (single passport).
Obtained from home state regulator (FCA)
Host state conduct of business rules apply

Question 5

What changes were made to MiFiD through MiFiD II?

Answer 5

• a regulated OTF
• strengthened transparency
• limited size of positions held in commodity derivatives
• rules to avoid risks and creation of disorderly markets from high frequency electronic trades
• increased information on products and services

Question 6

MiFiD distinguishes between ___ and ____?

Answer 6

Investment services and activities and ancillary services

Question 7

What is MiFiR?

Answer 7

Sets out reporting requirements in relation to disclosure of trade data to public and authorities
Extends MiFiD to incorporate more asset classes
Does NOT need to be implemented into law

Question 8

What is UCITS

Answer 8

Undertaking Collective Investments under Trade Securities (Funds)
Allows a collective investment scheme authorised in any EU member state to be marketed in any other marketing state.
Local tax and marketing laws apply

Question 9

What changes were made with UCITS III?

Answer 9

• More passported activities
• simplified prospectus
• more financial instruments

Question 10

What changes were made with UCITS IV?

Answer 10

• passport for management countries
• procedures for cross-border fund mergers
• key investor information document (KIID) replaces prospectus

Question 11

What changes were made with UCITS V?

Answer 11

More rules on responsibilities of depositories

Question 12

What does AIFMD cover?

Answer 12

Management, administration, and marketing of alternative investment funds (AIFs)?

Question 13

When are AIFMs required to be authorised by their home state regulator?
When AUM exceeds ___ for AIF using leverage
When AUM exceeds ___ for AIF not using leverage

Answer 13

€100m
€500m

Question 14

How often is reporting by AIFMs requires to their home state regulator?

Answer 14

Quarterly, semi-annually, or annually

Question 15

What does the European Market Infrastructure Regulation state

Answer 15

OTC derivatives trades must be reported and risk managed

Question 16

What are the 3 main requirements for OTC trades?

Answer 16

• standardised trade reporting
• compulsory CCP clearing
• risk management procedures

Question 17

What is the Foreign Account Tax Compliance (FATCA)

Answer 17

US law to prevent tax evasion by US citizens using offshore banking facilities

Question 18

In what way do non-US financial institutions need to abide by FATCA?

Answer 18

30% withholding tax on payments of US source income
All foreign financial institutions required to provide info about their US customers

Question 19

Who are the Financial Policy Committee (FPC)?

Answer 19

Committee of the BoE
Monitors stability of financial system
Has powers of direction over FCA and PRA

Question 20

Who are the Financial Conduct Authority (FCA)?

Answer 20

Overseen by Treasury
CONDUCT regulation of banks, insurers, and all investment firms

Question 21

Who are the Prudential Regulatory Authority (PRA)?

Answer 21

Legal entity within BoE
Promotes safety and soundness of firms it regulates
PRUDENTIAL regulation of banks, insurers, and large investment firms