IMC UK Regulation & Ethics 2

Question 1

What is 'inside information' in the context of UK market abuse law?

Accepted Answer

Precise, non-public information that would likely have a significant effect on an instrument's price if made public

Answer

Inside information under UK MAR must be: (1) precise — capable of indicating a likely price direction; (2) not generally available — not public; (3) relating to an issuer or financial instrument; (4) price sensitive — likely to significantly affect prices if disclosed. Trading on such information is insider dealing.

Question 2

What are the FCA's 'Principles for Businesses' (PRIN)?

Accepted Answer

A high-level set of 12 principles representing the fundamental obligations firms owe to regulators, clients, and markets

Answer

The FCA's Principles for Businesses (PRIN) set out high-level, overarching standards of good conduct. They cover integrity, skill/care/diligence, management/control, financial prudence, market conduct, customer interests, communications, conflicts of interest, customer relationships, asset protection, relations with regulators, and financial crime prevention.

Question 3

What is the purpose of 'Chinese walls' (information barriers) in investment firms?

Accepted Answer

Organisational barriers to prevent the flow of price-sensitive information between different departments (e.g., corporate finance and trading) to prevent conflicts of interest and market abuse

Answer

Chinese walls (information barriers) are organisational and procedural measures to prevent inside information held in one part of a firm (e.g., M&A advisory) from flowing to another part (e.g., equity sales or proprietary trading), preventing market abuse and managing conflicts of interest.

Question 4

What is 'money laundering' and what are the three stages?

Accepted Answer

The process of disguising the proceeds of crime to make them appear legitimate; stages are placement, layering, and integration

Answer

Money laundering converts criminal proceeds into apparently legitimate funds through: (1) placement — introducing cash into the financial system; (2) layering — conducting complex transactions to obscure the trail; (3) integration — reintroducing the funds as legitimate assets.

Question 5

What is a 'suspicious activity report' (SAR) and who must submit one?

Accepted Answer

A report that must be submitted to the National Crime Agency (NCA) when there is knowledge or suspicion of money laundering or terrorist financing

Answer

Authorised persons must submit a SAR to the NCA's Financial Intelligence Unit (UKFIU) when they know, suspect, or have reasonable grounds to suspect that another person is engaged in money laundering or terrorist financing. Failure to report is a criminal offence.

IMC Practice Test

IMC Practice Test

IMC UK Regulation & Ethics 2