CAIA - 34 - Regulation and Compliance Flashcards Preview

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Flashcards in CAIA - 34 - Regulation and Compliance Deck (55)
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1
Q

The 3 key principles of financial regulations are:

1.

2.

3.

A

The 3 key principles of financial regulations are:

1. Transparency

2. Integrity and fairness

3. Social and Economic Protection through Law

2
Q

The ___ ___ ___ ___ ___ ___ ___ governs trading of securities on the secondary market and regulates exchanges and broker-dealers in order to protect the investing public.

A

The U.S. Securities Exchange Act of 1934 governs trading of securities on the secondary market and regulates exchanges and broker-dealers in order to protect the investing public.

3
Q

The Securities Exchange Act of 1934 created the ___ and ___ ___ to enforce federal securities laws and industry regulation.

A

The Securities Exchange Act of 1934 created the Securities and Exchange Commission to enforce federal securities laws and industry regulation.

4
Q

After the 1929 stock market crash, Congress enacted the ___ ___of ___ to regulate the offer and sale of securities to the U.S. public in the primary market.

A

After the 1929 stock market crash, Congress enacted the Securities Act of 1933 to regulate the offer and sale of securities to the U.S. public in the primary market.

5
Q

The Securities Act of 1933 has two basic objectives:

  1. Ensure ___ of ___ ___
  2. Establish laws against ___ and ___ activities
A

The Securities Act of 1933 has two basic objectives:

  1. Ensure transparency of financial statements
  2. Establish laws against misrepresentation and fraudulent activities
6
Q

The ___ ___ ___ of ___defines the role and responsibilities of investment advisers.

A

The Investment Advisers Act of 1940 defines the role and responsibilities of investment advisers.

7
Q

Until ___, most investment advisors were subject to regulation by the SEC and at least one state regulatory agency. The Investment Advisors Act was amended in ___and ___so that small and mid-sized advisors are regulated by the ___and large advisers are regulated by the ___.

A

Until 1996, most investment advisors were subject to regulation by the SEC and at least one state regulatory agency. The Investment Advisors Act was amended in 1996 and 2010 so that small and mid-sized advisors are regulated by the state and large advisers are regulated by the SEC.

8
Q

The ___-___Act was passed in ___to attempt to lower risk in parts of the U.S. financial system after the global financial crisis.

A

The Dodd-Frank Act was passed in 2010 to attempt to lower risk in parts of the U.S. financial system after the global financial crisis.

9
Q

The ___ ___ ___ ___ monitors the performance of “too big to fail” companies.

A

The Financial Stability Oversight Council monitors the performance of “too big to fail” companies.

10
Q

The ___ ___ ___ facilitates liquidation of large, complex financial institutions that are close to failing.

A

The Orderly Liquidation Authority facilitates liquidation of large, complex financial institutions that are close to failing.

11
Q

The ___ ___ ___ provides money to assist with liquidation of large financial companies placed in receivership.

A

The Orderly Liquidation Fund provides money to assist with liquidation of large financial companies placed in receivership.

12
Q

The ___ ___restricts commercial banks’ investments in hedge funds, private equity funds, and proprietary trading strategies; and regulates derivatives trading.

A

The Volcker Rule restricts commercial banks’ investments in hedge funds, private equity funds, and proprietary trading strategies; and regulates derivatives trading.

13
Q

All 50 state securities commissions have ___ ___ ___ designed to protect state interests and prevent fraudulent activities within a state.

A

All 50 state securities commissions have blue sky laws designed to protect state interests and prevent fraudulent activities within a state.

14
Q

Regulation of alternative investments focuses more on monitoring and controlling ___ ___than on ___ ___.

A

Regulation of alternative investments focuses more on monitoring and controlling systemic risks than on protecting investors.

15
Q

Two core principles embody the U.S. regulatory scheme:

  1. Eliminate or control ___
  2. Discourage ___ ___
A

Two core principles embody the U.S. regulatory scheme:

  1. Eliminate or control fraud
  2. Discourage insider trading
16
Q

Investors in 3c1 hedge funds should be an ___ ___with a net worth of $___ million or income of $___in each of the past two years or $___jointly with a spouse.

A

Investors in 3c1 hedge funds should be an accredited investor with a net worth of $1 million or income of $200,000 in each of the past two years or $300,000 jointly with a spouse.

17
Q

Investors in 3c7 hedge funds should be a ___ ___, who is an individual investor with minimum investments of $___ million or an institutional investor with minimum investments of $___ million

A

Investors in 3c7 hedge funds should be a qualified purchaser, who is an individual investor with minimum investments of $5 million or an institutional investor with minimum investments of $25 million

18
Q

Prior to Dodd-Frank, convicting an individual of aiding or abetting required the SEC to establish ___ and substantial ___. Now it merely has to show ___.

A

Prior to Dodd-Frank, convicting an individual of aiding or abetting required the SEC to establish knowledge and substantial assistance. Now it merely has to show recklessness.

19
Q

Asset size for regulatory purposes is calculated as ___ ___ ___ ___.

A

Asset size for regulatory purposes is calculated as regulatory assets under management.

20
Q

A hedge fund may register with only the state if it is between $___-___million, is located in a state that ___ ___and is subject to ___by the state.

A

A hedge fund may register with only the state if it is between $25-100 million, is located in a state that requires registration and is subject to examinations by the state.

21
Q

Non-U.S. based hedge funds with more than ___ U.S. clients and investors with AUM of more than $___million must register with the SEC.

A

Non-U.S. based hedge funds with more than 15 U.S. clients and investors with AUM of more than $25 million must register with the SEC.

22
Q

Once a hedge fund determines that it must register with the SEC, it completes and files ___ ___

A

Once a hedge fund determines that it must register with the SEC, it completes and files Form ADV

23
Q

___ ___ of Form ADV provides information about the hedge fund, its manager, and all associated persons.

A

Part 1 of Form ADV provides information about the hedge fund, its manager, and all associated persons.

24
Q

___ ___ of Form ADV requires information for the hedge fund’s clients

A

Part 2 of Form ADV requires information for the hedge fund’s clients

25
Q

Rule ___ requires registered advisers to establish internal compliance programs, which includes having a chief compliance officer who develops compliance procedures and whose primary responsibility is overseeing and managing compliance issues.

A

Rule 206(4)-7 requires registered advisers to establish internal compliance programs, which includes having a chief compliance officer who develops compliance procedures and whose primary responsibility is overseeing and managing compliance issues.

26
Q

The CCO is responsible for the following:

  1. ___ and ___
  2. Review of ___ ___
  3. ___ ___
  4. ___ ___
  5. ___of ___
A

The CCO is responsible for the following:

  1. Testing and reporting
  2. Review of marketing materials
  3. Record keeping
  4. Annual review
  5. Code of Ethics
27
Q

There are 2 important compliance issues regarding marketing materials:

  1. No ___ or ___
  2. ___must be ___-___
A

There are 2 important compliance issues regarding marketing materials:

  1. No testimonials or endorsements
  2. Performance must be long-term
28
Q

Marketing materials must include the following:

  1. ___ or ___ ___ affecting performance
  2. Performance ___-of-___
A

Marketing materials must include the following:

  1. Market or economic conditions affecting performance
  2. Performance net-of-fees
29
Q

Gross performance (may/may not) be presented be presented with net figures.

A

Gross performance may be presented be presented with net figures.

30
Q

Custodial fees (do/do not) need to be netted out of marketing materials.

A

Custodial fees do not need to be netted out of marketing materials.

31
Q

Performance results (may/may not) deduct the highest fee charged to a client.

A

Performance results may deduct the highest fee charged to a client.

32
Q

Gross performance (may/may not) be presented one-on-one to investors and institutions.

A

Gross performance may be presented one-on-one to investors and institutions.

33
Q

There are 3 types of SEC inspections:

1.

2.

3.

A

There are 3 types of SEC inspections:

1. Regular

2. Cause

3. Sweep

34
Q

High-risk managers have inspections ___, whereas low-risk managers are ___ ___.

A

High-risk managers have inspections frequently, whereas low-risk managers are randomly selected.

35
Q

___ inspections occur when the SEC focuses on a number of advisers located in a specific region or engaged in certain activities.

A

Sweep inspections occur when the SEC focuses on a number of advisers located in a specific region or engaged in certain activities.

36
Q

Section ___ must be filed by advisers who beneficially own more than 5% of a class of publicly traded equity securities within ___ days.

A

Section 13(d) must be filed by advisers who beneficially own more than 5% of a class of publicly traded equity securities within 10 days.

37
Q

Section ___ must be filed quarterly by fund managers with investment discretion of $100 million or more.

A

Section 13(f) must be filed quarterly by fund managers with investment discretion of $100 million or more.

38
Q

Section ___ must is a short form of section 13(d) and can be filed by institutional investors or passive investors that own more than 5% of a publicly traded stock.

A

Section 13(g) must is a short form of section 13(d) and can be filed by institutional investors or passive investors that own more than 5% of a publicly traded stock.

39
Q

Section ___ must be filed by fund managers that own more than 10% of outstanding publicly traded stock.

A

Section 16 must be filed by fund managers that own more than 10% of outstanding publicly traded stock.

40
Q

Registered investment advisers with at least $150 million in AUM are required to file Form ___.

A

Registered investment advisers with at least $150 million in AUM are required to file Form PF.

41
Q

Large hedge fund advisers have at least $___ billion in AUM and must file Form PF within ___ days of the end of each fiscal quarter.

A

Large hedge fund advisers have at least $1.5 billion in AUM and must file Form PF within 60 days of the end of each fiscal quarter.

42
Q

Large liquidity fund advisers have at least $___ billion in AUM and must file Form PF within ___ days of the end of each fiscal quarter.

A

Large liquidity fund advisers have at least $1 billion in AUM and must file Form PF within 15 days of the end of each fiscal quarter.

43
Q

Large private equity fund advisers have at least $___ billion in private equity funds and must file form PF within ___ days of each fiscal quarter.

A

Large private equity fund advisers have at least $2 billion in private equity funds and must file form PF within 120 days of each fiscal quarter.

44
Q

Private equity fund advisers are exposed to ___ conflicts of interest

A

Private equity fund advisers are exposed to more conflicts of interest

45
Q

Private equity funds ___ required to register with the SEC.

A

Private equity funds are required to register with the SEC.

46
Q

The ___ model was established by the EU in response to the 2007-2008 GFC. It places emphasis on:

  1. ___
  2. ___ risk
  3. ___Risk
  4. ___
A

The AIFMD model was established by the EU in response to the 2007-2008 GFC. It places emphasis on:

1. Valuation

2. Counterparty risk

3. Operational Risk

4. Liquidity

47
Q

The ___ for ___ ___ in ___ ___ is a set of EU directives that provide a uniform regulatory regime for creating, managing, and marketing collective investment vehicles in EU countries.

A

The Undertakings for Collective Investment in Transferable Securities (UCITS) is a set of EU directives that provide a uniform regulatory regime for creating, managing, and marketing collective investment vehicles in EU countries.

48
Q

UCITS requires all positions to be marked to market ___ and requires due diligence on ___ ___.

A

UCITS requires all positions to be marked to market daily and requires due diligence on service providers.

49
Q

The EU considered UCITS a way to expand its influence into ___ and ___ ___ and has urged these regions to adopt the standards. The ___is a companion directive and applies to non-UCITS (alternative) investments.

A

The EU considered UCITS a way to expand its influence into Asia and South America and has urged these regions to adopt the standards. The AIFMD is a companion directive and applies to non-UCITS (alternative) investments.

50
Q

Several entities are exempt from AIFMD regulation:

1.

2.

3.

A

Several entities are exempt from AIFMD regulation:

1. Family offices

2. Non-marketed funds

3. Sub-threshold funds

51
Q

AIFs that acquire control of non-listed companies are subject to ___ ___ ___, which impose restrictions on AIFMs’ abilities to extract assets from the companies in the form of distributions.

A

AIFs that acquire control of non-listed companies are subject to asset stripping rules, which impose restrictions on AIFMs’ abilities to extract assets from the companies in the form of distributions.

52
Q

In Hong Kong, hedge funds are regulated by the ___ and ___ ___.

A

In Hong Kong, hedge funds are regulated by the Securities and Futures Commission.

53
Q

In Singapore, the primary hedge fund regulator is the ___ ___of ___.

A

In Singapore, the primary hedge fund regulator is the Monetary Authority of Singapore.

54
Q

In South Korea the regulatory body is the ___ ___ ___.

A

In South Korea the regulatory body is the Financial Supervisory Service.

55
Q

In Japan, hedge funds are regulated by the ___ and ___ ___ ___.

A

In Japan, hedge funds are regulated by the Securities and Exchange Surveillance Commission.

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