Chapter 3: The Regulation of Financial Markets and Institutions p2. Flashcards
(30 cards)
Under the Trustee Act 2000, how much of a fund should be invested into gilts and other fixed income securities?
There is no minimum. Under the default provisions of the Trustee Act 2000, trustees may make any investment of the kind that they could if the funds were their own, with the exception of overseas land.
One of the conditions for a merger to qualify for investigation by the Competition and Markets Authority is where the merged company has a market share of more than what percentage?
25%. The CMA will consider whether a bid is against the public interest based on the market share of 25% (‘share of supply’ test). This is the criterion to suggest that there will be a ‘substantial lessening of competition’.
A merger may be referred to the Competition and Markets Authority if the value of the turnover of the company being taken over exceeds what amount?
£70m. This is the ‘turnover test’.
How many principles are there in the Takeover Code (the City Code) and how are the principles enforced?
The Code has six general principles and has statutory force.
Following a takeover announcement by a company, what can the CMA do under the Enterprise Act 2002 if requests for information are not met?
The Competition and Markets Authority may impose fines if its requests for information are not met. Failure to comply with a request for information may result in a fine.
What is true under the Trustee Act 2000?
a. The Act allows trustees to delegate functions to agents, including their powers of investment.
b. Restrictions in the trust deed will override the wider investment powers provided for in the Act.
c. Under the Act, trustees can make any investment of any kind that they could as if the fund were their own, except for investment in overseas land.
What are the seven main blocks of the FCA Handbook?
High Level Standards, Prudential Standards, Business Standards, Regulatory Processes, Redress, Specialist sourcebooks, Listing Prospectus & Disclosure
What are the threshold conditions for authorisation that is applied specifically by the FCA?
a. Appropriate resources
b. Effective supervision
c. Business model
What are the mentioned principles in the FCA’s 11 Principles for Businesses?
- Integrity, 2. Skill, care and diligence, 3. Management and control, 4. Financial prudence, 5. Market conduct, 6. Customer’s interests, 7. Communications with clients, 8. Conflicts of interest, 9. Customers: relationships of trust, 10. Client’s assets, 11. Relations with regulators.
To whom do the Principles for Businesses of the FCA apply?
All authorised firms. The principles for Businesses are for the protection of all customers and apply to all authorised firms.
Which of the regulators’ Principles for Businesses states: ‘A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement’?
Principle 9: Customers: relationships of trust.
SYSC rules on apportionment of responsibilities relate to, and expand on, the Principle for Businesses entitled what?
Management and control. SYSC states that a firm must take reasonable care to establish and maintain appropriate systems and controls.
Who does the Conduct Rules (COCON) apply to?
Some apply to all certified staff and some apply to senior managers only. There are Individual Conduct Rules that apply to all certified staff (some rules are FCA-only), and are also second-tier Senior Management Conduct Rules.
Retail investment advisers are required to hold a Statement of Professional Standing that is issued by who?
An FCA-accredited body. Retail investment advisers are required to hold a Statement of Professional Standing (SPS) if they want to give independent or restricted advice. This rule has applied since the end of 2012, when the RDR changes came into effect.
What Statements of Principle apply only to persons carrying out controlled functions with significant influence?
a. Must comply with all of the regulatory requirements
b. Due skill, care and diligence in management
c. Business of the firm is organised and controlled effectively
Significant influence functions are those controlled functions that also have senior management responsibilities.
Which Conduct Rule is a first-tier Individual Conduct Rule?
You must observe proper standards of market conduct.
When a retail investment adviser has carried our 28hours of unstructured Continuing Professional Development (CPD) and 16 hours of structured CPD, what further CPD hours must they complete to meet the FCA annual requirement for CPD?
Retail investment advisers must carry out at least 35 hours of CPD annually, of which 21 hours must be structured. If you complete 5 hours of structured CPD, you will have met the requirement.
What are the recognition requirements applying to an investment exchange?
The exchange must be authorised to conduct regulated activities.
What is the main rationale for enabling the FCA to make product intervention rules that are temporary?
a. To avoid imminent possible detriment to consumers.
When a discretionary manager buys and sells investments more than would be reasonably expected, given the client’s agreed investment strategy, the rule that is specifically being breached is the rule related to what?
Churning involves dealing too frequently than is the client’s best interests.
When does appropriateness need to be established?
For non-advised sales in respect of complex instruments. Appropriateness rules apply where investment services are provided, other than making personal recommendation and managing investments and where the investments are deemed to be ‘complex’, such as warrants.
What is a per se professional client?
An entity requiring authorisation or regulation to operate in the financial markets and a non-MiFID business with capital of £5 million.
What are permissible goods and/or services in connection with the use of dealing commission arrangement?
Research providing original thought. Only research and goods or services relating to the execution of trades are permitted uses of dealing commission.
What is the main purpose of client money rules?
To protect and segregate customer assets from those of the firm in case the firm gets into financial difficulties. The FCA’s Principle for Businesses 10 (Clients’ assets) requires a firm to arrange adequate protection for clients’ assets when the firm is responsible for them. An essential part of that protection is the proper accounting and treatment of client money.
