CISI IAD UK and International Regulatory Framework — Questions and Answers
Question 1: What is MiFID II and what are its main objectives?
- A UK-specific regulation covering the mortgage market
- The EU Markets in Financial Instruments Directive II, a comprehensive regulatory framework governing investment services across EU/EEA member states, aiming to improve transparency, investor protection, and market integrity (Correct answer)
- A regulation governing cryptoasset trading in the UK
- A directive governing insurance product distribution across the EU
Correct answer: The EU Markets in Financial Instruments Directive II, a comprehensive regulatory framework governing investment services across EU/EEA member states, aiming to improve transparency, investor protection, and market integrity
MiFID II (effective January 2018) is the EU's regulatory framework for investment services. Its key objectives are to increase market transparency (pre- and post-trade reporting), improve investor protection (suitability, appropriateness, cost disclosure), reduce conflicts of interest, and promote fair, efficient markets.
Question 2: How has Brexit affected the application of MiFID II to UK firms?
- MiFID II no longer applies in any form to UK firms following Brexit
- The UK retained MiFID II requirements in UK domestic law, referred to as 'onshored MiFID II' or UK MiFID, which continues to apply to UK-authorised investment firms (Correct answer)
- UK firms are now exempt from all EU financial regulations
- UK firms must still apply full EU MiFID II rules as a condition of selling into EU markets from the UK
Correct answer: The UK retained MiFID II requirements in UK domestic law, referred to as 'onshored MiFID II' or UK MiFID, which continues to apply to UK-authorised investment firms
Following Brexit, the EU's MiFID II was incorporated into UK domestic law. UK firms are now subject to 'onshored' UK MiFID requirements (now being reviewed under the FCA's investment management reforms), which are substantively similar to the EU version but evolving.
Question 3: What is the EU's AIFMD (Alternative Investment Fund Managers Directive) designed to regulate?
- The management of UCITS retail funds across the EU
- The management of alternative investment funds (hedge funds, private equity, real estate funds) by alternative investment fund managers operating in or marketing into the EU (Correct answer)
- The regulation of individual retail investors investing in alternatives
- The rules governing crypto fund management across EU member states
Correct answer: The management of alternative investment funds (hedge funds, private equity, real estate funds) by alternative investment fund managers operating in or marketing into the EU
The AIFMD regulates the managers of alternative investment funds (AIFs) — including hedge funds, private equity, real estate, and other non-UCITS funds — operating in or marketing to EU investors. It covers authorisation, capital requirements, leverage limits, and investor disclosure.
Question 4: What is the FCA's 'Senior Managers and Certification Regime' (SM&CR) designed to achieve?
- To provide senior managers with enhanced pay protections
- To improve individual accountability in financial services by requiring firms to identify senior managers responsible for key functions, certify the fitness of certain staff annually, and apply conduct rules to all employees (Correct answer)
- To exempt senior managers from whistleblowing obligations
- To require senior managers to hold the CFA qualification
Correct answer: To improve individual accountability in financial services by requiring firms to identify senior managers responsible for key functions, certify the fitness of certain staff annually, and apply conduct rules to all employees
SM&CR aims to make individuals — not just firms — accountable for their decisions. Senior managers must be approved by the FCA, with their responsibilities mapped out in a Statement of Responsibilities. Certified staff must be assessed as fit and proper annually. Conduct rules apply broadly.
Question 5: What is the purpose of the EU's Markets Abuse Regulation (MAR)?
- To regulate the advertising of investment products to retail investors
- To prohibit insider trading and market manipulation, maintaining the integrity of EU financial markets by criminalising the misuse of inside information (Correct answer)
- To regulate the merger and acquisition of EU-listed companies
- To set capital adequacy requirements for market makers
Correct answer: To prohibit insider trading and market manipulation, maintaining the integrity of EU financial markets by criminalising the misuse of inside information
MAR (effective 2016) prohibits insider dealing (trading on inside information), market manipulation (creating artificial prices or volumes), and the improper disclosure of inside information. It applies to all financial instruments admitted to EU trading venues and their related OTC derivatives.
Question 6: What is the 'UCITS' framework?
- A UK framework for regulating defined benefit pension schemes
- An EU regulatory framework for collective investment schemes (Undertakings for Collective Investment in Transferable Securities) allowing passporting of retail funds across EU member states (Correct answer)
- A US framework for exchange-traded funds
- An OECD framework for sovereign wealth fund governance
Correct answer: An EU regulatory framework for collective investment schemes (Undertakings for Collective Investment in Transferable Securities) allowing passporting of retail funds across EU member states
UCITS is an EU regulatory framework that sets standards for retail investment funds — including diversification requirements, eligible assets, liquidity, and investor disclosure. UCITS-compliant funds can be marketed across EU member states using a single authorisation (passport).
CISI IAD UK and International Regulatory Framework
What is MiFID II and what are its main objectives?