The Regulatory Environment Questions Flashcards
What is the status of an EU Regulation and an EU Directive?
EU Directive - Applies to all member states. These have to be transposed into the law of each member state within a set time period.
An EU Regulation - a binding legislative act of the EU which has ‘direct effect’ i.e. it becomes immediately enforceable in law in all member states, simultaneously. Regulations can be distinguished from directives in that they do not need to be transposed into national law
Legislative measures are first proposed by the European Commision (EC) and then adopted by co-decision by the council of ministers of the members states and the European PArliment.
Both Regulations and Directives have to be published int the official journal and come into force on a specified date. Member states are given a period of 18 months to implement directives by transposing them into law.
What is the concept of better regulation, as considered by the FCA?
The FCA views better regulation as a strategic priority. Better regulation means:
1) Introducing new regulations only if there is a demonstratable market failure and where the cost of regulation can be shown to be less than that of allowing the market failure to persist and integrating the economic assessment of the likely effects of legislative proposals into the policy-making progress
2) Consulting at all stages in the introduction of new regulations
3) Always considering one-off regulatory interventions, such as thematic or catalytic work, rather than introducing new formal regulations
4) Subsequent evaluation
Legislation is often not the best tool to use as it can be inflexible and difficult to amend, subject to political special pleading and costly to implement if firms have to update systems to comply
What is the consequence of carrying out regulated activities when not authorised?
FSMA provides General Prohibition, whereby carrying on regulated activities or purporting to do so without being authorised or subject to exemptions is a criminal offence. The offence is punishable by 2 years in prison and or an unlimited fine.
IT may be a defence if a firm can prove it has exercised all due diligence to avoid committing the offence
What defence is available under FSMA for the offence of carrying on regulated activities without being authorised or exempt?
The General Prohibition may be a defence if a firm can prove it has exercised all due diligence to avoid committing the offence
What activities constitute Designated Investment Business?
DIB - a subset of regulated activities which excludes commercial banking, lending and general insurance activities
1) Dealing in investments as principal or agent
2) Arranging deals in investments
3) Operating an MTF
4) Operating an OTF
5) Managing Investments
6) Assisting in the administration and performance of a contract of insurance
7) Safeguarding and administrating investments
8) Sending dematerialised instructions
9) Establishing, operating and winging up a collective investment scheme
10) Establishing, operating or winding up a stakeholder pension scheme
11) Advising on the conversion or transfer of pension benefits
12) Providing basic advice on stakeholder products
13) Advising on investments
14) Agreeing to carry on a specified activity
15) Operating an electronic system in relation to lending
16) Advising on P2P Agreements
What is the FCA’s enhanced process called?
The FCA’s enhanced process is called ‘Intense Supervision’ - outcomes-focused supervision based on the following principles
1) Forward-looking and interventionist
2) Focused on judgement, not process
3) Consumer-centric
4) Focused on the big issues and causes of problems
5) Interfaces with executive management/boards
6) Robust when things go wrong
7) Focused on the business model and culture as well as product supervision
8) Viewing poor behaviour in all markets through the lens of the impact on customers
9) Orientated towards firms doing the right right
10) Externally focused, engaged and listening to all sources of information
What are the 5 types of controlled function?
Certain functions within Authorised firms are Controlled Functions
CF and SIF (Significant influence functions)
1) Governing Functions - Persons responsible for directing the affairs of the business - directors (company) or partners (Partnership) or someone working in that capacity
2) Required Functions - specific individual functions the FCA considers fundamental to effective control. For example, Compliance oversight function, or MLR function
3) Systems and Controls Functions - Functions which provide the governing body with the information it needs to meet the requirements of principal 3 for the principles of business
4) Significant Management Function - in larger firms, where there is a layer of management below the overnmeing body which has responsibility for a significant business unit
NOT SIF
5) Customer Function - giving advice on dealing, arranging deal or managing investments. These individuals have contact with customers
What does section 165 of FSMa permit the FCA to do?
Section 165 Provides the FCA with statutory powers to require firms to provide it with specific information or documents to support its supervisory and enforcement functions
What are the regulatory enforcement measures available to the FCA?
The regulatory enforcement measures available to the FCA are:
1) Private warnings - issued when the FCA has concerns regarding the behaviour of a firm or approved person, but decides it is not appropriate to bring formal disciplinary action
2) Variation of permission - The part 4a permission granted to the firm by the FCA can be varied on the FCA’s own initiative
3) Withdrawal of a firm’s authorisation - The FCA will consider cancelling a firm’s part 4A permission if the FCA has serious concerns about a firm or the way its business is being conducted, or, if a firm’s regulated activities have come to an end but it has not applied for cancellation of its part 4A permission
4) Withdrawal of approval from an approved person - the FCA must first issue a warning notice to the approved person and relevant firm, followed by a decision notice. The decision notice can be referred to the Upper Tribunal.
What are a sell out and squeeze out?
1) Squeeze-out - where a bidder has offered to acquire all of the shares in a company not currently held by them and has acquired / agreed to acquire 90% of the shares to which the offer related nad 90% of the voting rights attached to those shares, the bidder can oblige shareholders to sell any remaining shares to them at the price offered in the original take over offer
Sell-out - Where the bidder has acquired or contracted to acquire at least 90% in value of tall the shares in the target company, those shareholders who did not accept the offer have the right to oblige the bidder to acquire their shares. This right must be exercised within 3 months from either the end of the period within which the offer can be accepted or the date of notice to shareholders informing them of their right to exercise their sell out rights, whichever is later
What are the main statutory rights of a shareholder
Shareholder Rights:
1) Notice period for meetings
- Public companies must hold an AGM within 6 months of the financial year end.
- Private companies do not have to do this, unless specific in their articles
Notice for an annual general meeting (AGM)
- for public company shareholders must be given at least 21 calendar days notice of an AGM
- for private companies, shareholders must be given 14 calendar days notice of an AGM
Notice for a general meeting
- 21 calendar days, however, a listed company can reduce this notice period time for a meeting which is not an AGM to 14 days if shareholders pass a resolution at their AGM each year allowing the shortening of the general notice period, providing that the company allows shareholders to vote at such meetings via electronic means
- For all other companies, the notice period is 14 calendar days
- GMs may be held at short notice if shareholders representing 95% of the voting rights agree to the notice period (public companies) or 90% (Private)
2) Shareholders or the court calling a meeting - shareholders representing 5% or more of the voting shares may require the directors to convene a GM (public and private comps)
3) Resolutions
- Decision proposed and voted on at GMs are known as resolutions
- Ordinary resolutions - require a simple majority, greater than 50%.
- Special resolutions - require 75% of votes cast to be passed
4) Meetings - a meeting can only validly pass resolutions if it is quorate (has the requisite number of attendees). A quorum is 2 members unless otherwise stated in a company’s articles
5) Unfair prejudice
- under sections 994-8, a shareholder may petition the court if they consider the company’s affairs are being conducted in a way that is unfairly prejudicial to the interest of some or all of the shareholders, or that it is proposing some prejudicial act or omission
What is a Memorandum of Association, and what is its main purpose?
The memorandum of association is the external rulebook of the company, governing its relationship with the outside world.
Now, the memorandum simply has to state the name of the company, whether the company has a share capital or not (i.e. limited by shares or guarantee) and that each of the subscribers listed wishes to form a company and has agreed to become a member.
What are the main offences set out in the Proceeds of Crime Act (POCA) in relation to money laundering?
The 5 main offences of POCA in relation to money laundering are:
1) Concealing - an offence to conceal or disguise criminal property or to convert, transfer or remove such property from the jurisdiction
2) Arranging - being concerned in an arrangement which the person knows, or suspects, facilitates the acquisition, retention, use or control of criminal property for another person
3) Acquisition, use and possession - acquiring, using or having criminal property
4) Failure to disclose
5) Tipping off
What are the penalties for Money Laundering Offences?
Penalities for
1) Concealing/arrangements/acquisition, use and possession - applies to all persons and businesses (not just financial services firms). Person would be sentenced to imprisonment for up to 14 years, or an unlimited fine, or both
2) Failing to disclose and tipping off - apply only to persons in the regulated sector. Carries a sentence of up to 5 years, or an unlimited fine, or both
What is the offence of insider dealing, and what financial instruments are caught by the insider dealing legislation?
To be guilty a person must be an insider who is in possession of inside information, and how commits one of three specific offences
1) They deal in price-affected securities when in possession of inside information
2) They encourage someone else to deal in price-affected securities when in possession of inside information
3) They disclose inside information, other than in the proper performance of their employment, office or progression
For a deal (acquisition or disposal of price affected securities) to be caught under the insider dealing legislation, it must take place on a regulated market or through a professional intermedietary
Only certain instruments are caught under the insider dealing legislation - described as securities. These are:
1) Shares
2) Debt securities
3) Warrants
4) Depository receipts
5) Options
6) Futures
7) CFDs
This does not cover commodities or derivatives on commodities, such as options and futures on agricultural products, metals or energy products, nor foreign exchange or derivatives on FX. Nor does it includes shares in OEICs (Open-ended investment companies) since these won’t be price-sensitive, the price of the fund is determined by the prices of the underlying investments held
