UK Regulation & Ethics Flashcards

What is 'conflicts of interest' management required under MiFID II?

Answer: Firms must identify, manage, and disclose conflicts of interest between the firm/staff and clients to prevent client detriment

MiFID II requires firms to identify potential conflicts of interest that may harm clients, take steps to manage and mitigate them (e.g., through organisational arrangements, policies), and where conflicts cannot be managed, disclose them to clients so they can make informed decisions.

What are the key requirements of the UK's Anti-Money Laundering (AML) framework for investment firms?

Answer: Customer due diligence (CDD), ongoing monitoring, suspicious activity reporting, staff training, and maintenance of records

UK AML requirements include: CDD (verify client identity and understand business relationships); enhanced due diligence for high-risk clients (e.g., PEPs); ongoing monitoring; filing SARs to the NCA; staff training; and maintaining records for at least five years.

What is a 'Politically Exposed Person' (PEP) in the context of AML?

Answer: A senior foreign political figure, their family, or close associates who may pose higher money laundering risks due to their position and potential for corruption

PEPs are individuals entrusted with prominent public functions (heads of state, senior politicians, military officials, etc.) and their immediate family members and close associates. They require enhanced due diligence because their position creates a higher risk of corruption and money laundering.

What does GDPR (UK GDPR post-Brexit) require of investment firms regarding client data?

Answer: Personal data must be processed lawfully, fairly, and transparently; individuals have rights to access, rectify, and erase their data; data must be kept securely and not longer than necessary

UK GDPR requires a lawful basis for processing personal data, transparency with data subjects about how their data is used, data minimisation, accuracy, storage limitation, integrity and confidentiality. Individuals have rights including access, rectification, erasure, and data portability.

What is the FCA's approach to 'product governance' under MiFID II?

Answer: Requirements for manufacturers to design products for specific target markets and for distributors to ensure products reach appropriate clients

MiFID II product governance requires product manufacturers to identify a target market for each product and ensure it is designed to meet target market needs. Distributors must identify their target market and only sell products to appropriate clients, conducting regular reviews.

What is 'best interests' duty and how does it differ from 'best execution'?

Answer: Best interests is a broad duty to act in clients' overall best interests when providing services; best execution specifically relates to achieving the best outcome when executing orders

The best interests duty (under MiFID II and Consumer Duty) requires firms to act in clients' overall best interests across all services provided. Best execution is a specific obligation when executing orders, requiring the best possible result considering price, cost, speed, likelihood of execution, and other factors.