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LEVEL 6 Regulation and Compliance > GLOSSARY > Flashcards

GLOSSARY Flashcards

1
Q

Aggregation

A

Multiple client orders are bundled up together and processed as a single order.
Customers must be notified of this procedure and its advantages and disadvantages.

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2
Q

Allocation

A

The division of a single aggregated order between two or more investors’ accounts.

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3
Q

Appointed Representative

A

Can be any type of person (individual or company).

It/they must be party to a contract with an authorised person which allows it/them to carry out regulated activities, and the authorised person must accept responsibility for the conduct of these regulated activities in writing.

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4
Q

Approved Persons (APER)

A

Individuals approved by the FCA to undertake controlled functions.

These individuals are forced to comply with the FCA’s Statements of Principle for Approved Persons and Code of Practice for Approved Persons.

With extension of SM&CR, APER now applies to only a limited number of individuals.

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5
Q

Authorisation

A

The Financial and Services Market Act 2000 requires firms to obtain authorisation prior to conducting investment business.
Authorisation is gained by receiving one or more Part 4a Permissions from the FCA.
Under section 19 FSMA
It constitutes a form of STATUS or CONDITION for the carrying out of a regulated activity.

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6
Q

Bank of England (BoE)

A

The UK central bank, which acts as the government’s banker and determines interest via the Monetary Policy Committee.

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7
Q

Best Execution

A

Firms take into account not only price factors but issues such as costs, speed, likelihood of execution and settlement and all these in the light of the size and nature of the deal. Determining the means of obtaining the best outcome for a client.

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8
Q

Capital Requirements Directive (CRD)

A

Sets out financial rules for financial firms that apply to banks, building societies, and some investment firms.
Aim of CRD is to ensure that firms hold adequate financial resources and have adequate systems and controls to prudently manage the business and risks.

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9
Q

Certification Regime

A

Part of the Senior Managers & Certification Regime (SM&CR).
Individuals will not be approved by the regulators, rather they will be given a certificate by the firm to confirm they are ‘fit and proper’ to perform their role.
The FCA and the PRA have different criteria as to who is subject to the regime.

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10
Q

Chinese Walls

A

Barriers to the flow of information set up in large firms, to prevent the movement of confidential information between departments and to manage potential conflicts of interest.

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11
Q

Churning

A

Excessive trading by an investment firm in order to generate commission, regardless of customers interests

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12
Q

Client

A

Individuals or firms that conduct business through an authorised person.
Every client is either a customer (retail/professional) or an eligible counterparty.

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13
Q

Client Assets

A

Securities or other assets (including cash) held by a firm on behalf of its clients.
The assets have to be kept seperate from the firm’s own assets.

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14
Q

Collective Investment Scheme (CIS)

A

Open ended funds such as unit trusts or open ended investment companies (OEIC) and also known as investment companies with variable capital (ICVCs).

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15
Q

Common Platform Firm

A

Firms subject to either Capital Requirements Directive (UK CRD) or the UK Markets in Financial Instruments Directive regime (UK MiFID)

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16
Q

Compulsory Jurisdiction

A

Range of activities for which complaints fall compulsorily within the Financial Ombudsman Service (FOS)

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17
Q

Conduct of Business Rules (COBS) Rules

A

Rules made by the FCA under the FSMA act 2000 dealing with the relationship between an authorised firm and the clients.

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18
Q

Conduct Rules

A

Part of the Senior Management and Certification Regime (SM&CR).
The FCA and PRA will approach mean that all UK-based employees of relevant firms will be subject to high level conduct rules.
Additional rules for individuals subject to Senior Managers Regime.

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19
Q

Contracts for Differences

A

Investment instrument consisting of a contract under which the parties hope to make a profit (or avoid a loss) by reference to movements in the price of an underlying asset.
The underlying asset does not change hands.

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20
Q

Contracts of Insurance

A

Financial products specified by Part III of the Regulated Activities Order 2001, with two subdivisions: general and long term insurance contracts.

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21
Q

CREST

A

Recognised Clearing House
Organisation in the UK that facilitated the clearing and settlement of trades in UK and Irish company shares, particularly in dematerialised form.
CREST changes its operating and legal name to Euroclear & Ireland in 2007.
Term CREST is still used for the clearing and settlement system itself.

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22
Q

CRIMINAL JUSTICE ACT (CJA) 1993

A

Provisions relating to Insider Dealing, including a definition.

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23
Q

DATA PROTECTION ACT (DPA) 2018

A

Legislation governing how personal data should be held and processed and the rights of access to it.

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24
Q

Designated Investment Exchange (DIE)

A

Overseas exchange designated by the FCA as meeting certain standards of investor protection in terms of such criteria as market efficiency, transparency and liquidity.

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25
Designated Professional Body (DPB)
Bodies whose members are able to carry on limited financial services business without the need for authorisation from the FCA, providing the limited financial services are incidental to their business. - Lawyers - Accountants - Chartered Surveyors
26
Directives
Legislation issued by the European Union to members states after requiring them to enact and implement local legislation.
27
Disclosure and Transparency Rules (DTR)
FCA Sourcebook; the rules apply to issuers of securities on certain markets. The aim of the rules is to make provisions to ensure that information relating to publicly related securities is properly handled and disseminated. Aim of the rules is to implement the Transparency Directive and ensure there is adequate transparency of and access to information in the UK Financial Markets.
28
Durable Medium
Paper or any instrument which enables the recipient to store information addressed personally to them in a way accessible for future reference for a period of time adequate for the purposes of the information.
29
Eligible Counterparty (ECP)
A client under UK MiFID client categorisation is either a per se eligible counterparty or an elective eligible counterparty. A number of MiFID provisions do not apply to activities undertaken by ECPs.
30
European Economic Area (EEA)
27 member states of the European Union plus Ireland, Litchenstein and Norway. Allows them to be a part of the EU's single market
31
Exempt Persons
Firms exempt from the need to be authorised to carry on regulated activities. The term includes bodies such as recognised investment exchanges and recognised clearing houses.
32
Financial Conduct Authority
Replaced the FSA. Body responsible for regulating conduct in retail/wholesale markets, supervising the trading infrastructure that supports the markets. Prudential regulation of those not regulated by the PRA.
33
FCA Handbook
Documents containing FCA Rules and Guidance
34
Financial Ombudsman Service (FOS)
Body established to investigate and determine the outcome of complaints made by eligible complainants. The FOS can make awards, when appropriate, up to maximum threshold limit plus costs
35
Financial Policy Committee (FPC)
Responsible for monitoring and taking action to remove or reduce systems risk with a view to enhancing and protection the UK financial system.
36
Financial Services Act 2012
Primary legislation through the government-enacted reforms to the UK financial services regulatory structure. Its main role is to amend the FSMA 2000 and replace the FSA with the FCA, setting out their additional powers.
37
Financial Services Act 2016
Strengthens the governance and accountability of the Bank of England. - ending subsidiary status of the PRA - allows the National Audit Office to undertake money reviews of the Bank - protects tax payers from firm failure - updating resolution planning and crisis management arrangements between the Bank and Treasury, ensuring senior managers across financial services can be held accountable for failures that occur on their watch.
38
Financial Services Act 2021
The act is seen as the first step by the UK government in taking back control of the regulatory framework post-Brexit. Included IFPR, amendments to the PRIIPs regime and UK Market Abuse Regime.
39
Financial Services (Banking Reform) Act 2013
BANKING REFORM ACT 2013 - Implemented the recommendations of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards (PCBS) to put in place strict rules on: - Bank ring-fencing -Implement bail-in - Make sweeping changes to enhance individual accountability and raise standards in banking (SMCR)
40
Financial Services Authority (FSA)
Agency created to be the single financial regulator in the UK. April 2013 it was split into two.
41
Financial Services Compensation Scheme (FSCS)
Created to provide a safety net for customers in the case of firms that have ceased trading, and cannot meet their obligations to the customers.
42
FUTURE
Legally binding arrangement by which parties commit to sell/buy a quantity and quality of an asset from another party on a specified date in the future - BUT at a price agreed today.
43
Home State
Term used for the EU country where a financial services firm conducting cross-order business. within the EU, is based.
44
Host State
The term used for a European Union country in which a financial services firm is doing business from another EU member state.
45
Inside Information
Information relating to a specific security or an issuer, which is not publicly known and which would affect the price of the security if it was made public.
46
Insider Dealing
One of the several offences of the Criminal Justices Act 1993 Committed by an insider in possession of unpublished price sensitive information if they attempt to deal in affected securities, encourage others to deal, or pass the information on.
47
Integration
The third stage of money laundering. When the funds appear to become legitimate
48
Joint Money Laundering Steering Group (JMLSG)
Group made up of 14 trade bodies in the financial services sector. It has published guidance notes which set out how firms should interpret and implement Money Laundering Regulations. - Guidance not binding but when there is a breach compliance with the guidance is relevant to an enforcement court.
49
Layering
Second stage of money laundering. Funds passed through several transactions in order to distance from the true origin of the money.
50
LCH Limited
Independent clearing house which acts as a central counterparty for trades executed on Euronext Liffe, the London Metal Exchange (LME) and Intercontinental Exchange Futures. Also for certain trades on the London Stock Exchange.
51
LONDON STOCK EXCHANGE
Dominant market for trading in securities, especially shares and bonds. Recognised investment exchange.
52
MARKET MAKER
A firm which quotes bids and offer prices for a named list of securities in the market. A firm is under an obligation to make a price in any security for which it is market maker at all times.
53
Markets in Financial Instruments Directive (MiFID)
EU Directive that came into effect NOVEMBER 2007 Repealed and replaced on JANUARY 2018 by MiFID II. Workbook refers MiFID II and MiFIR collectively as MiFID - since end of Brexit transition period it is known as UK MiFID.
54
Markets in Financial Instruments Regulation
Came into effect alongside MiFID II in 2018 following a review of MiFID following the financial crisis of 2007-08. Regulation does not require a member state to transpose it into local law
55
Misleading Statement
Term used for false information given about an investment in order to affect its value. Criminal Act under Section 89-92 of Financial Services Act 2012 and a form of market abuse.
56
Money Laundering (ML)
Process whereby criminals attempt to conceal the true origins of the proceeds of their criminal activities and give them the appearance of legitimacy by introducing them into the mainstream financial system.
57
MULTILATERAL TRADING FACILITY
MTF is defined as a multilateral system, operated by an investment firm or a market operator, bringing together multiple third-party buying and selling interests in financial instruments - in the system and non-discretionary rules - in a way that results in a contract. Operating a multi-lateral trading facility is an investment service to which MiFID applies
58
National Crime Agency
Law enforcement agency to which suspicions of money laundering must be reported by a firm's money laundering reporting officer (MLRO)
59
Nominated Officer (NO)
A term for the officer who is required to receive a firm's internal suspicion reports under Proceeds of Crime Act 2002, the Terrorism Act and the Money Laundering Regulations. Usually the same individual as the money laundering reporting officer
60
OPEN ENDED INVESTMENT COMPANY (OEIC)
It is a collective investment scheme (CIS) constituted as an open-ended company. Share capital can expand or contract to meet investor supply and demand. INVESTMENT COMPANY WITH INVARIABLE CAPITAL.
61
OPTION
Gives the holder the right to (but not obligation) to buy or sell a fixed quantity of an underlying asset or or before a date in the future.
62
HOLDER OF A CALL OPTION
Right to buy the underlying asset at a given price.
63
HOLDER OF A PUT OPTION
Rght to sell the underlying asset at a given price.
64
Organised Trading Facility
Multilateral system which is not an RM or an MTF. Multiple third-party buying and selling interests in bonds, structured finance products, emission allowances or derivatives are able to interact in the system in a way that results in a contract. Unlike RMs and MTFs, OTFs will have discretion on how to execute orders, subject to pre-transparency and best execution obligations. MiFID activity.
65
Part 4A Permission
Specific activity which an authorised firm is permitted to carry on. It is so called because Part 4A permissions are granted by the FCA and/or the PRA under Part IV of the Financial Services and Markets Act (FSMA 2000).
66
Passporting
Method by which firms authorised in one European Union country, under MiFID, are permitted to carry out regulated activities in another state without the need to become fully authorised in that state. Following Brexit this ceased to apply to UK firms.
67
Placement
First stage of money laundering, in which money is introduced into the financial system.
68
Principles for Business
12 Principles for the FCA, to be observed by authorised firms. New 12th Principle was added to the FCA handbook following implementation of the Consumer Duty in July 2023.
69
Proceeds of Crime Act 2002 (POCA)
Legislation which contains Anti-Money laundering provisions
70
PRODUCT INTERVENTION AND PRODUCT GOVERNANCE (PROD)
Requirements for firms in respect of product oversight and governance processes (the systems and controls firms have in place to design, approve, market and manage products through the products' lifecycle to ensure they meet legal and regulatory requirements)
71
Prohibition Order
An order which may be exercised by the FCA under powers given to it under Section 56 of the FSMA 2000. Prohibition prohibits the individual in whom it is granted from carrying out particular controlled functions on the grounds which they are not fit and proper.
72
PRUDENTIAL REGULATION AUTHORITY
Responsible for the prudential regulation of firms including banks, investment banks, building societies and insurance companies.
73
Public Interest Disclosures Act (PIDA) 1998
Act, among other things, provides protection for employees who disclose suspicions of wrongdoing.
74
Recognised Clearing House
A term used to denote those clearing houses recognised by the FCA as providing appropriate standards of protection in the provision of clearing and settlement facilities to certain markets. LCH Clearnet and Euroclear UK are two examples of five organisations granted this status.
75
Recognised Investment Exchange (RIE)
A term used to denote UK exchanges which operates markets in investments, meeting certain standards set by the FCA.
76
Recognised Overseas Investment Exchange (ROIE)
Overseas exchange offering membership or providing facilities within the UK, and having recognised by the FCA.
77
Regulated Activities
Activities for which authorisation from the FCA is required. Regulated activities are defined in relation to both to the activities themselves, and to investments they relate.
78
REGULATED ACTIVITIES ORDER 2001
Statutory instrument which defines the range of regulated activities
79
Regulatory Decisions Committee (RDC)
Committee of the FCA which is responsible for disciplinary decisions.
80
Senior Managers & Certification Regime (SM&CR)
Regime introduced by the PRA and the FCA to bring individual accountability to staff working in the banking industry. Three parts to it - Senior Managers Regime - Certification Regime - Conduct Rules Regime applied to relevant firms (UK banks, building societies, credit unions and investment firms regulated by the PRA which have decision as principal) and insurance companies. Implementation was phased in for insurers subject to Solvency II requirements, claim management companies and investment firms
81
Stabilisation
Activity of supporting the price of a new issue of securities or bonds in order to minimise the volatility that can arise with new issues.
82
Tax and Chancery Chamber of the Upper Tribunal (Upper Tribunal)
Took over the role of the Financial Services and Markets Tribunal in 2010. Independent of the FCA and appointed by the government's Ministry of Justice.
83
Threshold Conditions
Conditions which a firm must meet before the FCA will authorise or continue to authorise it.
84
Tipping Off
An offence established under various pieces of anti-money laundering and terrorist financing legislation. Disclosing the fact an investigation is under way.
85
Training and Competence Sourcebook (T&C)
Part of the Business Standards block of the FCA handbook which sets out the FCA's requirements in connection with all staff (but in connection with people employed in controlled functions) Sourcebook includes commitments which firms must make in connection with training and competence, including with regard to staff training.
86
TREASURY (HM Treasury)
Government department responsible for formulating and implementing the government's financial and economic policies. Responsible for regulation.
87
UK Primary market function
Competent authority for listing in the UK is the FCA. Used to be known as the UK Listing Authority
88
Undertaking for Collective Investment in Transferable Securities (UCITS)
A type of collective investment scheme established under the UCITS directives. These directives are intended to harmonise European Union member states laws to allow for the marketing of UCITS schemes across EU borders.
89
Unit Trust
A form of collective investment constituted under a trust deed. Unit trusts are open-ended investments. The underlying value of the assets is always represented by the total number of units issued, multiplied by the unit price, less the transaction or management fee charged and any other associated costs. Each fund has a specified investment objective.
90
Voluntary Jurisdiction
The jurisdiction of Financial Ombudsman Service (FOS) in which persons participate by contract
91
Whistleblowing
Term when an individual raises concerns over wrongdoing Public Disclosure Act 1998 provides some statutory protectionf for whistleblowers.
92
Permission
Authorised persons must hold the relevant permission to carry out specified activities under section 20 of FSMA. Permission is concerned with the legal right, authority or entitlement to carry on the particular financial activity or activities concerned Breach is not an offence but can be subject to FCA enforcement procedures
92
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LEVEL 6 Regulation and Compliance (17 decks)

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