Chapter 3 - Assc Legislation and Regulation

Question 1

An employee of a regulated business received information that made him suspicious that a breach of the Proceeds of Crime Act had occurred. Why may he have been not guilty under the ‘failure to disclose’ conditions?

Answer 1

One of the conditions which need to be satisfied to support failure to disclose is that the information giving rise to the knowledge or suspicion came to him during the course of business in a regulated sector.

Question 2

Under the UK Bribery Act 2010 how should senior management make its commitment to combating bribery known within the organisation?

Answer 2

A firm has a defence to the offence of failing to prevent a bribe if it can show that it has put in place adequate procedures to prevent bribery. Communicating policies and procedures to staff and to others who will perform services enhances awareness and helps to deter bribery by making clear the basis on which the organisation does business.

Question 3

Under the European Union (EU) Transparency Directive, which of the following is a threshold notification level for shareholdings?

Answer 3

The notification requirement for shareholdings is triggered when the size of holdings reaches, exceeds or moves below certain thresholds. In the Directive these thresholds are set at 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%.

Question 4

Depositing criminally-obtained cash directly into a building society account is an example of which stage of the money laundering process?

Answer 4

Placement is the introduction of the money into the financial system. Typically, this involves placing the criminally-derived cash into a bank or building society account, a bureau de change or any other type of enterprise which can accept cash, such as, for example, a casino.

Question 5

One of the general defences available to someone accused of insider dealing is that the individual:

Answer 5

For the offence of insider dealing, the general defences are that the defendant: (a) did not expect the dealing to result in profit; (b) believed on reasonable grounds that the information had been sufficiently widely disclosed to ensure none of those taking part would be prejudiced by not being aware of the information; or (c) would have acted in the same way regardless of being in possession of the information.

Question 6

A UK bank receives deposits derived from an activity which is legal in another country, but illegal in the UK. Under the Serious Organised Crime and Police Act (SOCPA) 2005, does this constitute a money laundering offence?

Answer 6

SOCPA grants a defence for alleged offenders if they can provide evidence that the conduct was not criminal in the country where it happened. The UK Secretary of State has reserved the right to prescribe certain offences as relevant criminal conduct, which may be legal where it occurs, but is still illegal in the UK, and therefore still needs to be reported.

Question 7

Which set of rules enables an issuer to delay the release of information in order to prevent market abuse?

Answer 7

The Disclosure Guidance and Transparency Sourcebook sets out specific circumstances in which an issuer can delay the public disclosure of inside information.

Question 8

If a trade takes place on the London Stock Exchange (LSE) between two member firms of the same seniority, who must report the trade?

Answer 8

Trade reporting is only required from member firms and the responsibility for trade reporting rests with the more senior party to the trade, ie, the market maker member firm. If the two parties to the trade are of the same seniority, it is the selling member firm that reports the trade.

Question 9

An employee who destroyed documents relevant to a money laundering investigation was cleared of the offence of prejudicing the investigation. This was because they:

Answer 9

The offence of prejudicing investigations includes falsifying, concealing, destroying or otherwise disposing of documents relevant to an investigation. The offence is not committed if the person did not know or suspect that documents were relevant to the investigation.

Question 10

The trade reporting period for the London Stock Exchange (LSE) begins at what time on each business day?

Answer 10

The trade reporting period is the period when the LSE system is able to accept trade reports. It runs from 7.15am to 5.15pm every business day.

Question 11

The ‘data controller’ for a small stockbroking firm must be registered with which body?

Answer 11

Any firm determining the way personal data is held and processed is a ‘data controller’ and is, therefore, responsible for compliance with the Data Protection Act; all data controllers must be registered with the Information Commissioner’s Office.

Question 12

To comply with the General Principles of the UK Takeover Code, before making a bid an offeror must

Answer 12

Principle 5 states that ‘An offeror must announce a bid only after ensuring that s/he can fulfil in full any cash consideration, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration’.

Question 13

A bank breached the Financial Conduct Authority (FCA) Systems and Controls rules because a member of its compliance function team:

Answer 13

A compliance function should be staffed by an appropriate number of competent staff who are sufficiently independent to perform their duties.

Question 14

A person accused of insider dealing successfully used the ‘special defence’ provisions by arguing that they were acting in the role of:

Answer 14

The special defence provisions mean that if a market maker can show that they acted in good faith in the course of their business as the market maker, they will not be deemed guilty of insider dealing or encouraging another to deal.

Question 15

The Disclosure Rules are related to which of the following?

Answer 15

The purpose of the Disclosure Rules is to prevent insider dealing and market abuse.

Question 16

A client appears to have a lack of concern over penalties imposed when moving funds from one investment product to another. What stage of money laundering is this most likely to be an example of?

Answer 16

Layering involves moving the money around in order to make it difficult for the authorities to link the placed funds with the ultimate beneficiary of the money. This might involve buying and selling foreign currencies, shares or bonds in rapid succession; investing in collective investment schemes, or insurance-based investment products; or moving the money from one country to another

Question 17

Hilary, an employee of an authorised firm, was found to have breached the Market Abuse rules. This was most likely because she:

Answer 17

Market abuse is a statutory offence that covers financial market manipulation and insider dealing.

Question 18

As part of its know your customer procedures, a firm carried out enhanced due diligence on one of its new clients. This was required because the:

Answer 18

Enhanced due diligence must be conducted where the client, or family member of the client, has been entrusted with prominent public functions other than as a middle-ranking or more junior official.

Question 19

A market trader has acquired confidential information about a security which falls outside the scope of inside information. This is because it:

Answer 19

For the purposes of the Market Abuse rules, inside information is information of a precise nature which has not been made public, relating, directly or indirectly, to a financial instrument, and which, if it were made public, would be likely to have a significant effect on the price of the financial instrument or on the price of related derivative financial instruments.

Question 20

When producing a list of investment recommendations, the research department of a bank was obliged by its duty of care to disclose certain information. This was because:

Answer 20

The regulations impose a duty of care on producers of research or recommendations suggesting an investment strategy that they should employ reasonable care to ensure that they maintain objectivity but also disclose any conflict of interest that may exist in relation to that investment.

Question 21

Mary has overall responsibility for her firm’s anti-money laundering systems and controls. To comply with the FCA’s rules, this means that she must be:

Answer 21

Each authorised firm must give a director or senior manager (who may also be the MLRO) overall responsibility for the establishment and maintenance of effective anti-money laundering systems and controls.

Question 22

Which one of the following is an example of the money laundering offence of arrangements?

Answer 22

The offence of arrangements is when a person enters into an arrangement which the person knows, or suspects, facilitates the acquisition, retention, use or control of criminal property for another person.

Question 23

What standards determine whether behaviour constitutes market abuse?

Answer 23

The regulations acknowledge that in relation to insider trading there is certain behaviour that is considered legitimate and as such will not constitute an offence. Similarly, there are provisions for accepted market practice in respect of market abuse.

Question 24

A listed firm wants to know whether a specific corporate action would be classed as a reportable transaction under the FCA rules. It was correctly advised that the key test is whether

Answer 24

Corporate actions are deemed to be reportable actions where these include an element of choice.

Question 25

Under Section 7 of the Bribery Act 2010, the offence of vicarious liability can be committed by:

Answer 25

The Bribery Act provides an offence of vicarious liability. A commercial organisation can be guilty of this offence if the bribery is carried out by an employee, an agent, a subsidiary or another third party

Question 26

One of the main purposes of the Disclosure and Transparency Rules is to prevent:

Answer 26

The purpose of the Disclosure and Transparency Rules is to promote prompt and fair disclosure of information, to set out when disclosure can be delayed, and to set out requirements to ensure confidentiality in order to protect investors and prevent insider dealing.

Question 27

Under the Data Protection Act, for what maximum period can data be held?

Answer 27

As long as required. The Data Protection Act lays down six principles, which must be complied with. One of these is that personal data shall not be kept for longer than is necessary.

Question 28

Under the Disclosure and Transparency rules, where there is a breach of confidentiality an issuer must:

Answer 28

Under the DTR rules, issuers must have measures in place that enable public disclosure to be made via an approved regulatory information service as soon as possible.

Question 29

In order to combat the risk of terrorism, which organisation may issue a direction to firms in the financial sector?

Answer 29

Under Schedule 7 of the Counter-Terrorism Act, the Treasury may issue directions to firms.

Question 30

A company director was permitted to sell their shareholding during the company’s closed period. This was allowed because they:

Answer 30

Anyone with managerial responsibility is restricted from dealing on their own account during the closed period before the company’s financial report is announced. This restriction may be lifted to allow a trade in exceptional circumstances such as severe financial difficulty requiring immediate realisation of funds.