Revision - Financial Services Industry

Question 1

What is the FSMA handbook

Answer 1

This provides the essential framework by which the FCA and PRA control the financial services industry.

• firms must be authorised
• the FSMA handbook authorises the FCA and PRA to issue rules which regulated firms must follow and gives them power to impose sanctions.

Parliament -
Chancellor of the Exchequer and Treasury
UK regulatory system
Bank of England
FPC - identifies systematic risks
PRA - regulating banks, insurers and complex investment firms
FCA - Enhancing confidence in financial services and markets including protecting consumers and promoting competition

Question 2

What is MiFID

Answer 2

Markets in Financial Instruments Directive
- European Union law which provides harmonised regulation for investment services across the 31 member states of the European Economic Area

The main objectives of the Directive are to increase competition and consumer protection in investment services.

The Markets in Financial Instruments Directive (Directive 2004/39/EC) provides:
 for harmonised regulation of investment services firms across the European Economic
Area (the 28 Member States of the European Union plus Iceland, Norway and
Liechtenstein) and a passporting system to enable investment firms authorised in one
member state to provide services in any other EEA state;
 for harmonised regulation of markets where financial instruments are traded (e.g. stock
markets).

The Directive is implemented in the UK by the Financial Services and Markets Act 2000 and
the FCA Handbook rules.

Question 3

Which state do investment firms covered by MiFID need to be authorised?

Answer 3

In their home state.

Then they are authorised under MiFID to provide services to customers in other EU states

Question 4

What is the main aim of MiFID?

Answer 4

To increase competition and consumer protection in investment services.

MiFID requires firms to take all reasonable steps to obtain the best possible result in the
execution of an order for a client. The best possible result is not limited to execution price but
also includes cost, speed, likelihood of execution and likelihood of settlement and any other
factors deemed relevant.

MiFID imposes pre-trade transparency requirements for trading in shares on a regulated
market or a multilateral trading facility

Question 5

What are the main provisions of the MiFID directive?

Answer 5

1) Applies to investment firms whose regular occupation is the provision of investment services to third paries
2) Firms carrying out investment activities must be authorised and have their Head Office and Registered Office in the same member state
3) Management staff must be fit and proper persons and changes in management should be reported to the FCA.
4) Must have capital to conduct business
5) Competent Authorities (e.g. the FCA) must monitor all authorised firms.

Question 6

Give details of the Market Abuse Directive

Answer 6

Seeks to prevent market abuse in order to preserve the smooth functioning of the EU financial markets.

Market abuse may arise in circumstances where investors have been unreasonably disadvantaged, directly or indirectly, by others who: have used information which is not publicly available (insider dealing);

Directive requires issuers to publish inside information as soon as possible and draw up lists of people with inside information.

Question 7

What is passporting?

Answer 7

Passporting rights allow firms to conduct business into the EEA under a single market directive.

Passporting rights only apply within the European Economic Area (EEA) unless you have notified the FCA of your intention to do so.

‘Arranging’ is
usually considered to take place in the location where the arranging takes place; ‘advising’ is
generally considered to take place where the advice is received (usually where the customer
is located); and ‘dealing’ is generally considered to take place where the acceptance takes
place, which in turn depends on the method of communication used.

Question 8

What is the role of the Prudential Regulation Authority (PRA)

Answer 8

Created by Financial Services Act 2012
Subsidiary of the Bank of England
Responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. In total the PRA regulates around 1,700 financial firms.

Two objectives are to:

1) promote the safety and soundness of these firms
2) specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders

PRA focuses primarily on the harm that firms can
cause to the stability of the UK financial system

The PRA makes forward-looking judgements on the risks posed by firms to its statutory objectives

The PRA works alongside the Financial Conduct Authority (FCA) creating a “twin peaks” regulatory structure in the UK

As a secondary objective, the PRA’s requirement to promote competition is subordinate to its general objective to ensure the safety and soundness of the firms that it regulates (and to its insurance objective).

The final report of the Parliamentary Commission on Banking Standards (PCBS), Changing banking for good, recommended the creation of a new secondary competition objective for the PRA

Question 9

What are the PRAs objectives?

Answer 9

1) to promote the safety and soundness of these firms
2) specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders.

The final report of the Parliamentary Commission on Banking Standards (PCBS), Changing banking for good, recommended the creation of a new secondary competition objective for the PRA. The Government accepted this recommendation and announced in its response to the PCBS (Cm 8661) published on 8 July 2013, that it would bring forward amendments to the Financial Services (Banking Reform) Bill to give the PRA a secondary competition objective.

As a secondary objective, the PRA’s requirement to promote competition is subordinate to its
general objective to ensure the safety and soundness of the firms that it regulates (and to its
insurance objective).

However, the secondary objective requires the PRA to take a more proactive approach on competition than implied by its existing duty to “have regard” to the
need to minimise the adverse affects on competition of its exercise of its general functions.
This means that in taking action which advances its general and/or insurance objective it will
be expected to act in a way which advances its secondary objective.

Question 10

Do firms need to apply to the PRA for authorisation to carry out PRA regulated activities?

Answer 10

Yes Firms or individuals are required to apply to the Prudential Regulation Authority (PRA) for authorisation to carry on PRA regulated activities or for approval of individuals for PRA designated significant influence functions within dual-regulated firms.

Firms must also apply to, or notify, the PRA in relation to changes in control and close links, passporting, variation of the scope of a firm’s permission, cancellation of a firm’s Part 4A permission and waiving/modifying relevant handbook rules.

Question 11

Who is the PRA responsible for?

Answer 11

Banks, building societies, credit unions, insurers and major investment firms

Question 12

What does the PRA aim to do through its supervision?

Answer 12

It aims through its supervision to develop a rounded, robust and comprehensive view of these firms, to judge
whether they are being run in a safe and sound manner, and whether insurers are protecting policyholders appropriately.

The PRA divides the firms it supervises into five categories of “potential impact”and the frequency and intensity of supervision applied to firms varies in line with this.

The scale of a firm’s potential impact depends on its size, complexity and interconnectedness with the rest of the financial system.

Also varies the resource it applies to firms based on their proximity to failure and
resolvability

Question 13

Explain the Financial Conduct Authority (FCA)?

Answer 13

Responsible for promoting effective competition, ensuring
that relevant markets function well, and for the conduct regulation of all financial services firms.

This includes acting to prevent market abuse and ensuring that consumers get a fair deal from financial firms. The FCA operates the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers and independent financial advisers.

The FCA is a company limited by guarantee with 15 directors, all appointed by the Treasury,
eleven of which are non-executive. For 2007 it had 2,800 staff, a budget of £280m, and regulated 7,500 investment firms, 20,000 insurance brokers, mortgage brokers and insurance companies, and 165,000 approved individuals. Approved individuals are persons working within the financial services industry who perform ‘controlled functions’ such as management,
Investment management and custodianship of clients’ assets.

Question 14

What does the Financial Services and Markets Act 2000 do?

Answer 14

Part 1A Establishes the Financial Conduct Authority and the Prudential Regulation Authority as the regulators for the purposes of the FSMA, and sets out their duties and objectives.

S19 Imposes the general prohibition that no person may carry on a ‘regulated activity’ unless authorised or exempt. It is a criminal offence to do so (S23). Nor can persons, as part of a business seek to persuade others to engage in an investment activity without authorisation.
S26 Contracts made in breach of S19 by an unauthorised person are unenforceable against the other party except where the court gives leave. Money paid or property
transferred by the other party to the unauthorised person can be recovered, together with damages for any loss is suffered.
S367 Provides that the FCA can apply to court for a winding up order in relation to authorised firms, or those breaching S19 where they become insolvent or if it will be
in the public interest.
S382 A restitution order can be made against unauthorised persons.

Question 15

What are regulated activities? (FSMA)

Answer 15

Regulated activities are activities specified as such by an Order made by the
Treasury. The FSMA 2000 (Regulated Activities) specifies the following as regulated activities, although several of them
are subject to certain exclusions and threshold tests (see below)

 Accepting deposits
 Issuing electronic money
 Insurance
 Dealing in investments as principal
 Dealing in investments as agent
 Bidding in emissions actions
 Arranging deals in investments
 Credit brokering

the Regulated Activities Order specifies a number of
exclusions and thresholds. For example:
 Sums received by practising solicitors in the course of their profession are not treated as deposits for the purposes of the Order. Accordingly practising solicitors do not need to seek authorisation to accept such deposits as it is not a regulated activity (Regulated Activities Order (SI 2001/544), Article 7).

Question 16

What activities are PRA-regulated activities? (FSMA)

Answer 16

S22A Gives the Treasury power to specify by order the activities that are PRA-regulated.
These are specified in the FSMA (PRA-Regulated Activities) Order 2013 (SI
2013/556) and include:
 accepting deposits (i.e. by banks, building societies and credit unions);
 effecting and carrying out contracts of insurance (insurers);
 dealing in investments as principal but only if designated by the PRA (large
investment firms - see further below);
 managing the underwriting capacity of a Lloyd’s syndicate as a managing agent
at Lloyd’s;
 the activities of Lloyd’s itself.

Under the Order, the PRA is able to designate investment firms for prudential
supervision.

It should be noted that firms which are regulated by the PRA for prudential purposes
are also subject to conduct regulation by the FCA (i.e. they are dual-regulated).

Question 17

Who are Authorised persons (FSMA)?

Answer 17

S31 Are those persons or firms who have been granted permission under Part 4A of the FSMA to carry out one or more regulated activities, or a firm with an MiFID passport
or a person who is otherwise authorised in accordance with the FSMA (e.g. as a EEA passporting firm).

Part 4A Sections 55A to 55Z4 (inserted by the FSA 2012) set out the requirement to apply for permission to carry on a regulated activity to the appropriate regulator (i.e. the
PRA for a PRA-regulated activity or the FCA for all other regulated activities).

Question 18

What are the threshold conditions for authorisation? (FSMA)

Answer 18

S55D Provides that an applicant seeking authorisation to carry out a regulated activity must satisfy the threshold conditions set out in Schedule 6. These differ depending
on the nature of the regulated activity and whether authorisation from the FCA or PRA is required. The threshold conditions seek to ensure that the UK is the
appropriate place for a firm to be authorised and regulated for the purposes of MiFID and that various other requirements for authorisation under MiFID are satisfied. For example, under the threshold conditions:
 If the applicant is a corporate body it must have its registered office and head office in the UK.
 If the applicant is not a corporate body but has its head office in the UK, it must carry on business in the UK.
 The applicant must have a suitable business model to carry out its activities.

Sections 325 to 333 provide that designated professional bodies can certify individuals or partnerships to carry out certain exempt regulated activities without having to be authorised by the FCA

Question 19

What are controlled functions and who must they be carried out by?

Answer 19

S59 Authorised firms must ensure that certain controlled functions within their business are performed by an authorised person. Controlled functions are designated by the FCA and PRA in the relevant Handbook Rules under powers given by the FSMA.

Controlled functions include being a director, partner, compliance officer of a regulated firm, and various other significant management functions.

Question 20

Who are exempt persons? (FSMA)

Answer 20

S38 The Treasury is given power to exempt various bodies or categories of persons from
the general prohibition by Order. People who are exempt can perform regulated
activities to which the exemption applies without having to seek authorisation. The
relevant Order is the FSMA 2000 (Exemption) Order 2001 (SI 2001/1201 as amended). It provides for exemption in relation to all regulated activities (except
insurance contracts) for certain bodies, including:
 The Bank of England
 The European Central Bank
 The International Monetary Fund

It also establishes a large number of exemptions for specified bodies and persons in relation to specific regulated activities, for example:
 for school banks in relation to accepting deposits;
 for local authorities and social housing providers in relation to providing
mortgages;
 for trade unions in relation to the provision of certain types of strike income
protection insurance;
 for insolvency practitioners in relation to debt management;
 for charities in relation to certain types of collective investment scheme.

S39 Exempts appointed representatives
S285 Exempts Recognised Investment Exchanges, Recognised Clearing Houses and Recognised Central Counterparties from the S19 ‘general prohibition’ in
relation to the activities for which they are recognised. This does not mean they are unregulated. RIEs must apply to the FCA for recognition and are regulated by it.
Clearing Houses and Central Counterparties must apply to the Bank of England for recognition and are regulated by it. In all cases, there are EU passporting rules
enabling RIEs, RCHs and RCCPs recognised in another EEA state to operate in the UK.
S326 Exempts certified members of designated professional bodies from the general prohibition in relation to exempt regulated activities.

Question 21

What is the the Public Register? (FSMA)

Answer 21

S347 The FCA must keep a register of authorised and approved persons, nomads and brokers, recognised clearing houses, investment exchanges, MTFs, authorised unit trusts and OEICs together with contact addresses. Article 23 of MIFID requires the names of any tied agents used by investment firms to be included.

SI 2001/544 provides that the register must also include certified issuers of electronic money (Reg. 9K), Crest members authorised to send dematerialised instructions (Reg. 45), and registered insurance mediators (Reg. 93).
The register is open to public inspection and includes the names of persons who have been prohibited by the FCA from engaging in investment business.

Question 22

Is it a criminal offence to make misleading statements and impressions?

Answer 22

Under section 397 of the FSMA, it was a criminal offence to make statements, promises or
forecasts either knowing them to be misleading, or recklessly, or to conceal material facts in
doing so, with the intention of inducing another person to buy, hold, or sell investments.
The section 397 offence was repealed by the Financial Services Act 2012 and replaced by
three separate offences:
 misleading statements (section 89 of the 2012 Act);
 misleading impressions (section 90 of the 2012 Act); and
 misleading statements etc. in relation to benchmarks (section 91 of the 2012 Act).

Together, the new s. 89 and s. 90 offences cover largely the same ground as the previous offence under s. 397 of FSMA, although the s. 90 misleading impressions offence is slightly broader than its predecessor in that it includes misleading impressions made recklessly in addition to those made intentionally.
The new s. 91 offence for misleading statements etc. in relation to benchmarks was introduced in response to the final report of the Wheatley Review of LIBOR, which recommended that the criminal law should be amended to cover manipulation of LIBOR.
Section 90 of the FSMA provides that issuers are liable to compensate investors who purchased securities in reliance on a misleading prospectus or listing particulars.

Question 23

What does the Proceeds of Crime Act 2002 provide in relation to Money laundering, terrorist financing and financial crime?

Answer 23

The Proceeds of Crime Act 2002 provides that:
 money laundering or assisting a money launderer is punishable by up to 14 years’ imprisonment and/or an unlimited fine,
 tipping off a money launderer that he is under investigation is punishable by up to 5 years’ imprisonment;
 failure to report a suspicion of money laundering is punishable by up to 5 years’ imprisonment.

The Terrorism Act 2000 (as amended by the Anti-terrorism, Crime and Security Act 2001)
creates similar offences in relation to terrorist financing.

The Money Laundering Regulations 2007 (which implement the EU Money Laundering
Directive) place a general obligation on firms within its scope to establish adequate and
appropriate policies and procedures to prevent money laundering and terrorist financing.
Failure to comply with this obligation is an offence

Question 24

What is money laundering and what are the three stages?

Answer 24

Money laundering is the process by which criminals try to conceal the source of their finances.
The money might be the result of a bank robbery, drug trafficking, people trafficking or any criminal offence. The object is to put the ‘dirty money’ into the financial system and to then withdraw it as a “clean” source of cash which can then be used to buy cars, houses, or even
entire businesses.

Money laundering is often a three-stage process. The first is placement which puts the dirty money into the financial system. This is followed by integration which means that the incoming money has satisfied any checks made against it. If integration fails, the money which
has been placed is frequently abandoned. The final step is layering which is the withdrawal of clean integrated money and its subsequent use to buy cars, businesses, shares, or anything at all.

In relation to shares money laundering might be carried out in the following ways:

1. ) On a flotation or public offering of shares an enormous application is made for shares. The application is scaled down and the applicant receives a clean cheque as a refund for the shares he did not receive.
2. ) Multiple applications are made for shares, often by providing concert parties with dirty money. They quickly transfer the shares to one person who then sells them and receives a clean source of cash.
3. ) A new client asks a broker to buy £100,000 of shares and sells them soon after for £98,000 or even £101,000.

Any application to take up shares should be rejected if payment is made in cash and a third party cheque should always be rejected.

Question 25

What is the role of a Money Laundering Reporting Officers and do firms need to appoint one?

Answer 25

Yes the SYSC Sourcebook requires authorised firms to

 appoint a Money Laundering Reporting Officer, with responsibility for oversight of its compliance with the rules on systems and controls against money laundering;

The MLRO would
 establish systems and controls to guard against money laundering;
 allocate to a director or senior manager (who may also be the money laundering reporting officer) overall responsibility within the firm for the establishment and maintenance of effective anti-money laundering systems and controls.

The MLRO role is a controlled function. Accordingly MLRO appointments must be approved by the FCA. If the MLRO is not the director or senior manager with overall responsibility for money laundering, he or she will report to them. The MLRO will usually be the person who
acts as the nominated officer for the purposes of the Money Laundering Regulations 2007.

SYSC 6.3 includes guidance which suggests that a firm’s systems and controls should include:
 training for its employees in relation to money laundering;
 reporting by the MLRO to the firm’s governing body and senior management, including an annual report on the operation and effectiveness of its anti-money laundering
systems and controls;
 documentation of its policies and risk profile in relation to money laundering;
 measures to ensure that money laundering risk is taken into account in its day-to-day operation; and
 measures to ensure that procedures for identification of new customers do not unreasonably deny access to its services to potential customers who cannot
reasonably be expected to produce detailed evidence of identity.

The FCA monitors compliance with the anti-money laundering requirements for both FCA and PRA regulated firms, other than payment institutions, which are monitored by HMT.

Question 26

One of the principle AML/CTF steps that firms must take under Money Laundering regulations is Know your client (KYC). Explain this concept.

Answer 26

One of the principal AML/CTF steps that firms must take under the Money Laundering Regulations is to verify the identity of their clients (the so-called ‘Know Your Client’ (KYC) rules). For individuals this will be by seeking evidence of identification such as a passport,
driving licence etc., and checking the stated address against the electoral register, and asking to see utility bills despite the fact that such bills are easily forged. For corporate clients, checks can be made at Companies House. A certified copy of the Memorandum and Articles is often requested, together with a Certificate of Good Standing from Companies House. Proof of the directors’ addresses could also be sought. In March 2005 the Joint Money Laundering Steering Group announced that in future an electronic check at Companies House would
normally be sufficient.
Enhanced due diligence must be exercised in connection with politically exposed persons,
their spouses and children in order to reduce money laundering and terrorist financing.
Politically exposed persons are: heads of state, ministers, supreme court members, directors of state-owned businesses, central bankers, ambassadors, MPs, senior Civil Servants and high ranking officers in the armed forces.
Records of identity checks must be maintained for 5 years after the client relationship ceases.

Question 27

What are Suspicious Activity Reports

Answer 27

Under the Money Laundering Regulations, POCA and the Terrorism Act, firms must report suspicious transactions to the Serious Organised Crime Agency, which is now part of the National Crime Agency. The nominated officer (usually the MLRO) must decide whether to
make a report and must keep a register of all suspicious transactions reported to SOCA.

On receipt of a suspicious activity report (SAR), SOCA investigates the matter and passes its findings to the police. SOCA received nearly 250,000 suspicious activity reports in 2010. SARs go beyond money laundering and can cover any suspicious activity in an account. A report
would be made, for example, if a number of cheques are bounced on an account which had previously been in credit in case a terrorist is trying to obtain cash. This is exactly what happened in the case of one of the London Underground Bombers in 2005.

On reporting a suspicious transaction, the client funds must be frozen and the transaction cannot be processed without permission from the NCA. This causes difficulties because freezing the funds may alert a possible money launderer that an investigation is under way.

Question 28

Who needs to register with HMRC?

Answer 28

The Money Laundering Regulations 2007 provide that the following persons and businesses with an annual turnover of more than €64,000 must register with HMRC on an annual basis, for monitoring and supervision unless they are supervised by a regulatory body such as the
FCA, Law Society or accountancy bodies.
High Value Dealers who accept cash payments of €15,000 or more. This would embrace
auctioneers, estate agents, jewellers, car dealers, art and antique dealers and casinos.
Money Service Businesses This embraces bureaux de change, money transfer agents such
as hawala brokers, and cheque cashing businesses.
Company Service Providers This embraces company formation agents and persons who provide secretaries and directors for companies.
Accountancy Service Providers This embraces auditors, accountants and tax advisers.

Question 29

What is whistle blowing and what are the recommendations to firms in this regard?

Answer 29

Computershare define whistle blowing as: “The deliberate voluntary disclosure of individual or organisational malpractice by a person who has privileged access to data, events or information about actual, suspected or anticipated wrongdoing within or by an organisation
that is within its ability to control” September 2007

Employment legislation protects employees who blow the whistle on their employers from unfair dismissal and other types of victimisation, not just in the financial services industry.

The FCA / PRA Senior Management Systems and Controls sourcebook encourages financial
services firms to establish internal whistleblowing procedures

Some of the most famous whistleblowers include:
Mark Felt, who, as the Deputy Director of the FBI, and using the pseudonym “Deep Throat”, gradually revealed the secrets of the Watergate affair to two journalists at the Washington Post, resulting in the resignation of Richard Nixon in 1974.

Michael Woodford was sacked in October 2011 after serving for just two weeks as the CEO of Olympus, the Japanese camera manufacturer. He had questioned certain fees paid to obscure Cayman Island companies (which appear to have been used to hide previously
unreported losses). In June 2012, Woodford was awarded £10 million in an out-of-court settlement with Olympus over his dismissal.

Question 30

Explain the Public Interest Disclosure Act 1998

Answer 30

The Public Interest Disclosure Act 1998 protects employees, executive directors (but not non executives),
agency staff and home workers, the self-employed, the armed forces or volunteers from being victimised by their employer if they make a protected disclosure (i.e.
blow the whistle).
An employee who is unfairly dismissed for whistle blowing can be awarded unlimited compensation by an industrial tribunal. Victimisation means that it is unlawful to dismiss an employee or to cause any detriment to the employee under the pretence of redundancy,
demotion or lack of promotion.

A protected disclosure is a qualifying disclosure made to one of the following:
 the employer (or the person specified by the employer under any internal
whistleblowing procedure);
 where the disclosure concerns the actions of a person other than the employer, that
person;
 if the disclosure is made in the course of obtaining legal advice, a legal adviser;
 in the case of employees of non-governmental public bodies, the relevant Government
Minister;

A qualifying disclosure is a disclosure made to one of the above which, in the reasonable belief
of the worker, is in the public interest and tends to show that one or more of the following has
been, is being, or is likely to be, committed:
 a criminal offence; or
 a failure to comply with any legal obligation; or
 a miscarriage of justice; or
 the putting of the health and safety of an individual in danger; or
 damage to the environment; or
 deliberate concealment relating to any of the above.

Workers now have to show that it was in the public interest to disclose.

Question 31

What is an External Public Disclosure?

Answer 31

When someone whistleblows to the papers etc.

Workers can also claim protection under PIDA for making external disclosures (e.g. a
disclosure to the press rather than to their employer or a prescribed regulator), but only if:
 they have already made an internal disclosure to no apparent effect, or
 they reasonably believe that to do so will lead to victimisation, or
 they reasonably believe that an internal disclosure will lead to evidence of the
malpractice being concealed or destroyed.

Question 32

What does SYSC 18 (Systems and Controls) say firms must do?

Answer 32

The FCA and PRA encourage authorised firms to adopt an internal whistle-blowing culture
(see SYSC 18). SYSC 18.2.2 suggests that in large firms, this could be done by:
 Providing all employees with a written copy of the company’s whistle-blowing procedure and a formal statement that the company takes whistle-blowing seriously.
 Giving a clear indication of which activities are covered, and distinguish between whistle-blowing and the mere airing of grievances.
 Assuring employees that genuine whistle-blowers will not be victimised and explain the consequences of making a malicious allegation.
 Providing a clear channel for whistle-blowers to state their case without involving their own line management
 Permitting employees to report to an officer such as the internal auditor or the Company Secretary.
 Having a disclosure system which by-passes the usual channels so that allegations about illegality connived at by top management could be made to independent persons
such as the members of the audit committee.
 Explaining the extent to which a whistle-blower’s identity will be protected.

Information disclosed by a whistle-blower is confidential provided that it does not impede an investigation. In the event of fraud a police investigation may follow and the whistle-blower may be asked to give evidence in court. For this reason a number of whistle-blowers prefer to
remain anonymous even though this may make it more difficult to follow up their allegations.

Question 33

Give an example of whistle blowing?

Answer 33

In both the Enron and WorldCom “accounting” scandals whistle-blowing did take place. It was ineffective because it was revealed to the chief executives who were the crooks who organized everything. Information was also passed to the auditors and legal advisers - but
they were raking off such enormous fees that they no longer had any vestige of independence,
and did not act. Sherron Watkyn, the Enron whistle blower, said in a subsequent radio interview, “it was a crazy world out there, we were assessed every six months and if we weren’t in the top two tiers we didn’t get our bonus”.

NB: When taking examinations or preparing assignments it should be noted that some of
these examples of whistleblowing do not relate to the financial services industry. Examples
within the industry are rarely made public unless they result in a criminal prosecution or form
part of a case before an Industrial Tribunal.

Question 34

What is an MTF?

Answer 34

MiFID changed the rules to allow financial instruments to trade not only on stock exchanges but on any multilateral trading facility and to get the best price for their client.

Can deal in shares which have been admitted to trading on a regulated market such as the LSE but also to establish a market in unlisted shares.

For eg, the lSE operates the London stock exchange for trading listed company shares, but also AIM as an MTF for smaller companies and Turquise as an MTF for trading shares listed on other regulated markets.

Some MTFs operate a lit (with pre-trade transparency) and dark markett (with no pre-trade transparency)