Associated Legislation and

Regulation
Chapter 3

18 questions

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Chapter Overview
Associated Legislation and Laundering regulations
Regulation • Money laundering: other
• Market abuse: criminal acts considerations
- Insider dealing offences and defences - The bodies involved, e.g. NCA, FATF
- Requirement to disclose or control - The financing of terrorism
information
• Bribery and data protection
- Misleading statements and impressions
- Purpose of the Bribery Act
• UK market abuse regulation - Data Protection Act 2018
- Offences and defences
• Disclosure and transparency (home
- Key definitions study)
- PDMR regime - Disclosure and transparency rules
• Money laundering (DTR)
- Offences and defences - The Takeover Code
- Key definitions and legislative structure - Notifiable interests
- Obligations under the money - Prudential standards

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 Associated Legislation and
Regulation
Insider Dealing and Misleading Statements and Impressions

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 Further information
Criminal and Civil Offences Financial crime guide
The FCA have released:
Summary
• “A firm’s guide to preventing financial crime” which gives guidance on:
Insider Dealing Misleading statements
- Systems and controls
and impressions
- Money laundering and terrorist financing
S52 Criminal Justice Act 1993
Market abuse - Fraud
S89-91 FSA 2012

Criminal offence - Data security

UK MAR & FCA sourcebook Criminal offence
- Bribery and corruption
Intent
Civil offence Intent - Sanctions and asset freezes
• “Financial Crime Thematic Review” which shows the FCA’s opinion of
Beyond all reasonable doubt Beyond all reasonable doubt good practice/behaviour and poor practice/behaviour.
Effect

Ten years and/or unlimited fine Balance of probability Ten years and/or unlimited fine

Unlimited fine
Hints
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The term ‘MAR’
It is worth being aware that the term ‘MAR’ could refer either to the law (the
UK Market Abuse Regulation), or to the FCA’s Market Conduct Sourcebook
(FCA guidance as to its expectations around proper market conduct). You
need to look at the context within which the term is used to identify which is
meant.

Values in Finance
Rule of law – financial crime
The FCA enforces various financial crime laws, as set out in this chapter,
as part of its ‘market integrity’ statutory objective.

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 Further Information
Insider Dealing Insiders
An individual in possession of price-sensitive information is an insider if
(3.2.4) Insider dealing: Criminal offences they know that it is inside information, from an inside source.
S52 Criminal Justice Act 1993 Inside information Information comes from an inside source if they have it because:
• Dealing on… • They are an inside source themselves
Relates to particular securities/issuers
• Encouraging others to deal on… Specific or precise • They have access to the information by virtue of their employment, office
• Disclosure of… Has not been made public or profession
Scope of law Price sensitive
• They have access to the information from a person that is an inside
• Any financial instrument as defined under MiFID, which trades on source, or by virtue of their employment, office or profession
- UK/EEA/Gibraltar regulated market, MTF or OTF
- NASDAQ/SIX/NYSE
Control of inside information through insider lists
Excluded investments
Insider lists must contain:
• Bank accounts
• The identity of each person having access to inside information
• Commodity spot markets
• Spot and forward FX • The reason why such a person is on the insider list
• Insurance products • The date on which the insider list was created and updated

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Further information
Insider Dealing (Securities and Regulated Markets) Order 2023
This law brought CJA 1993 definitions of ‘inside information’ and
‘instruments covered’ into line with those in the Market Abuse Regulation.
The full detailed list of coverage can be found in your official Manual.

Hints
Public information
Information reported to a regulatory information service (RIS) is considered
public information.

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 Further information
Insider Dealing Definitions
Stabilisation: The artificial support of newly issued share prices by the
(3.2.5) Insider dealing: Defences appointed issuing house.
• General defences
- Did not expect the deal to result in a profit (or avoid a loss) due to the information Market information: Information that one would reasonably expect
- Believed on reasonable grounds that the information was already publicly available participants to deal on. For example, a predator company buying shares in
- Would have acted in the same way regardless of possessing the information the target before the takeover is announced.
- Did not expect the recipient to deal
• Special defences
- Price stabilisation rules
- Market information Hints
- Market makers in the ordinary course of business
Prosecution
Insider dealing: Enforcement
• LSE monitors transaction Although the FCA will use the CJA to secure a prosecution for insider
dealing, the power to prosecute this offence is given to the FCA by FSMA
• FCA prosecutes
2000.
Maximum penalty
• Ten years and/or unlimited fine

Keeping on target
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Which of the following investors would be committing an offence under the

insider dealing legislation of the Criminal Justice Act?
A. Hoopy plc deals in a rival company’s shares based on inside
information received from an inside source, making a profit
B. Sheila dealt on the silver bullion market using inside information that
she received from a friend, an inside source, and made a profit
C. Roger buys some gilt futures after receiving inside information from a
source at the Bank of England, and suffered a loss
D. Freughel Ltd sells a large quantity of shares in another company just
before the release of disappointing trading information to the
marketplace, based on inside information from the company’s
accountant, preventing a large loss.

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 Links
Misleading Statements and Impressions Connection to COBS
The legislation on Misleading Statements and Impressions adds weight to
(2.11.1) S89-91 FSA 2012: Misleading statements and impressions the FCA conduct of business rule, ‘fair, clear and not misleading’.
• S89 Misleading statements, e.g. lying to persuade someone to deal, concealing
relevant facts in takeover documents, etc.
• S90 Misleading impressions, e.g. abusive squeezes, market rigging
- Covers both recklessly created misleading impressions, and deliberately created
misleading impressions
Further information
• S91 Misleading statements in relation to benchmarks FCA Market Conduct Sourcebook
Firms and individuals participating in the financial markets are required to
Misleading statements and impressions: Defences
observe certain standards of conduct. The FCA’s Market Conduct
• Reasonably believed that statement or act was not false or misleading Sourcebook (which is known as ‘MAR’), set out these standards. The MAR
• Acted in conformity with price stabilising rules or control of information rules includes requirements relating to market abuse (in MAR 1) and the price
stabilising rules (in MAR 2). The Sourcebook provides guidance on the UK
(Chinese walls)
MAR in terms of what does and does not amount to market abuse and the
Maximum penalty factors that are taken into account in the determination of whether market
• Crown court: Ten years and/or unlimited fine abuse has occurred.

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Answer to question on previous slide:

C
Only individuals can be guilty of this offence. Any securities traded on
exchange are covered, which includes gilts. Commodities are specifically
excluded from the scope of this law.

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Associated Legislation and
Regulation
UK Market Abuse Regulation

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 Further information
Market Abuse Inside information
MAR defines inside information as information of a precise nature that:
(3.1.1) UK Market Abuse Regulation (MAR) • Has not been made public
• Market Abuse Regulation offences • Relates, directly or indirectly, to one or more issuers or to one or more
- A person shall not:
financial instruments; and
• If it were made public, would be likely to have a significant effect on the
• Engage or attempt to engage in insider dealing
prices of those financial instruments or on the price of related derivative
- Includes amending and cancelling orders
financial instruments (that is, it is information that a reasonable investor
• Recommend or induce another person to engage in insider dealing
would be likely to use as part of the basis of
• Unlawfully disclose inside information
their investment decisions)
- A person shall not engage in or attempt to engage in market manipulation

• Penalties
- Civil in UK
• Lighter burden of proof
• Effect-based Further information
Market manipulation
In brief, MAR defines ‘market manipulation’ as:
• Entering into a transaction, placing an order to trade, or any other
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- Gives false signals as to the supply, demand or price of a financial
instrument or related spot commodity contract
- Secures the price of a financial instrument or related spot
commodity contract at an abnormal or artificial level
- Employs a fictitious device or any other form of deception or
contrivance
• Disseminates information through the media, or internet, or any other
means which is likely to give false signals as to the supply, demand or
price of a financial instrument or related spot commodity contract
• Transmits false or misleading information in relation to a benchmark, or
any other behaviour that manipulates the calculation of a benchmark

The FCA Handbook provides guidance which expands upon this point.

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 Hints
Market Abuse Organised Trading Facility (OTF)
“Organised trading facility (OTF)” means a multilateral system which is not
(3.1.1) Scope of MAR a regulated market or MTF and in which multiple third parties buying and
• Applies to financial instruments selling interests in bonds, structured finance products, emissions
- Traded, admitted to trading or for which a request for admission to trading on a
allowances or derivatives are able to interact in the system in a way which
regulated market and multilateral trading facility (MTF) or organised trading facility
results in a contract.
(OTF)
- Traded over-the-counter and which have an affect on the price or value of the above

• Applies to emissions allowance

• For the offence of market manipulation, also applies to commodity derivatives Further information
and commodity spot markets Disclosure and transparency rules (DTR)
The disclosure and transparency rules in the FCA handbook highlight:
• Promotes prompt and fair disclosure
• Sets out when disclosure can be delayed
• Sets out how information should be kept confidential, e.g. insider lists
Controlling inside information.
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Disclosure rules have two key requirements for controlling inside
information:
• Denying access – need to know basis of disclosure
• Breaches of confidentiality – requires a public ‘holding’ announcement
with as much detail as possible.

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 Further information
Market Abuse 1. Insider dealing
This is where an insider deals, or attempts to deal, in a financial instrument
(3.1.2) FCA Market Conduct Handbook Guidance on the basis of inside information.
• Behaviour that amounts to market abuse
- Insider dealing 2. Improper disclosure
- Improper disclosure This is where an insider discloses inside information to another person,
- Manipulating transactions
other than in the proper course of his/her employment, profession or duties.
- Manipulating devices
3. Manipulating transactions
- Dissemination
- Benchmark manipulation
This is behaviour which consists of effecting transactions or orders to trade
that are likely to:
• Give a false or misleading impression as to the supply of, or demand for,
• Regulator sanctions
or price of, the financial instrument; or
- Withdrawal of regulated status
• Secure the price of such financial instruments at an abnormal or
- Financial penalties
artificial level
- Public statements
- Applying to courts for injunctions and restitution
4. Manipulating devices
Behaviour that consists of effecting transactions or orders to trade which
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employ fictitious devices or any other form of deception or contrivance.

5. Dissemination
This behaviour consists of the dissemination of information by any means
which gives, or is likely to give, a false or misleading impression as to a
financial instrument by a person who knew, or could reasonably be
expected to have known, that the information was false or misleading.

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 Further information
Market Manipulation Market soundings
A 'sounding' is where a firm is hired by an issuer that wishes to tap the
(3.2.2/3.3.2) Legitimate Behaviour market for funds, but wishes to identify investor appetite for its issue and
• Legitimate ways to behave (‘safe harbours’) the level of the interest payable on the bonds. A sounding can include the
- Share buy-back programmes and stabilisation measures
disclosure of 'non-public' information which is sensitive and considered to
be 'insider information‘.
- FCA rules
- Takeover Code
- Market soundings
• Requires formalised process, including disclosures, notifications of confidentiality and
recordkeeping

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 Further information
Market Abuse FCA guidance regarding STORs
A suspicious transaction or order is one where there are ‘reasonable
(3.1.3) Reporting of suspicions grounds’ to suspect it might constitute market abuse, such as insider
• Suspicious transaction and order reports (STORs) dealing or market manipulation.
- Reporting suspicions extended from transactions only, so as to include orders
- Firms must report suspicions to the FCA without delay Firms and trading venues should ensure that staff, especially those
• Firms should not ‘second-guess’ whether the regulators would consider an event to be responsible for managing financial crime risks, are provided with effective
suspicious training to identify potentially suspicious transactions and orders.
• STORs should contain:
- Identity of reporting person submitting STOR
- Description of the order or transaction
- Reasons for which market abuse is suspected of the order or transaction
- Means of identifying any person involved in the order or transaction
- Any other supporting documents needed by the FCA for investigation

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 Further information
Market Manipulation PDMR trading limit
MAR introduces a de minimis threshold, below which transactions will not
(3.3.3) Managers’ transactions require disclosure. This is set at €5,000 per calendar year (note that this
• MAR PDMR regime: should be calculated without netting of transactions).
- Persons discharging managerial responsibility (PDMRs) (i.e. employees and directors)
dealing in their own company’s shares must disclose to both their company, and to the
FCA, within three business days of the transaction
- PDMRs must not deal during closed periods
• Year-end or half-yearly results: 30 days prior to announcement

• Breach does not constitute a criminal offence

- Disciplinary action would be taken by FCA against individual or company

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 Associated Legislation and
Regulation
Money Laundering: The Main Offences and Controls

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 Further information
Money Laundering and Financial Crime The Criminal Finances Act 2017 and MLR 2017
The Criminal Finances Act 2017 amends the Proceeds of Crime Act 2002,
(3.4.1) Money laundering: The control framework making provisions in connection with terrorist property and criminalising the
• Proceeds of Crime Act 2002 failure to prevent tax evasion both in the UK and outside the UK.
- Amended by Serious Organised Crime and Police Act 2005
- Criminalises money laundering and set out the offences and penalties

• The Money Laundering Regulations 2017

- Detailed regulation setting out administrative provisions for companies at risk of
handling funds for money laundering Hints
- Complies with the money laundering directive
MLR 2017
• Senior management arrangements, systems and controls (SYSC)
The full title for the Money Laundering Regulations is:
- High-level rules and guidance for authorised firms
• The Money Laundering, Terrorist Financing and Transfer of Funds
- Makes reference to JMLSG guidance
(Information on the Payer) Regulations 2017 (MLR 2017).
• Joint Money Laundering Steering Group guidance MLR 2017 is UK law, which originally brought the EU Fourth Money
- Guidance on how to implement anti-money laundering provisions Laundering Directive (4MLD) into UK legislation. MLR 2017 has since been
- Not binding amended so as to incorporate the Fifth and Sixth Money Laundering
Directives into UK law.
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 Further information
Money Laundering and Financial Crime Serious Organised Crime and Police Act 2005
Refines the definition of ‘criminal conduct’.
(3.4.2) Money laundering: The three stages
Under POCA a bullfighter in Spain, for example, would be guilty of money
• Legislation laundering if they brought their earnings to the UK. SOCPA amended this
- Proceeds of Crime Act 2002 definition to consider local legislation when assessing proceeds of crime.
• As amended by Serious Organised Crime and Police Act 2005 and Criminal Finances Act 2017

1. Placement: 2. Layering: 3. Integration:

Proceeds of any crime are Payments are taken from The money appears
placed into a bank or building the bank and used to buy as a legitimate source
society different investments to of income
cover the audit trail
Further information
Drug sales Business Economic Crime (Transparency and Enforcement) Act 2022
Fund Public Register of Overseas Entities
Fraud Bank
Manager
Robbery • Foreign companies and beneficial owners holding property investments in
Property
UK must register
• Failure to register is a criminal offence – maximum penalty 5 years in jail
or unlimited fine
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• Strengthening of regime around ‘unexplained wealth orders’
• Tightening of UK sanctions regime

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 Hints
Money Laundering and Terrorist Financing Cryptoassets activities
Businesses carrying out certain cryptoasset activities, for example digital
(3.4.1) The Money Laundering Regulations 2017 wallet providers, need to comply with the regulations in relation to those
• Risk assessments activities and register with the FCA.
- Assessing money laundering and the financing of terrorism risk for the firm
• Policies, controls and procedures to mitigate and manage risk
- Proportionate to the size and nature of firm
- Appoint a director as responsible for compliance with these regulations
• Reliance
- Must conduct due diligence on any ‘relied-upon’ party at start of business
arrangement
- Cannot rely upon CDD by firms in high-risk jurisdictions

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 Further information
Money Laundering and Terrorist Financing Customer Due Diligence
High risk factors include:
(3.4.1) The Money Laundering Regulations 2017
• Any case identified by the firm under its risk assessment (or in
• Customer due diligence information provided by the supervisory authorities) where there is a high-
- Identification procedures risk of ML/FT
• Obtain satisfactory evidence regarding identity as soon as reasonably practicable • Any transaction with a person established in a high risk third country
• For companies, this includes the ownership and control structure
̵ European Commission publishes a list
- For example, shareholders and senior managers
- Enhanced CDD • Where the client has not been physically present for identification
• Politically exposed persons (PEPs)
purposes
• High-risk factors • In respect of a relation to correspondent banking relationships
- Simplified CDD • In any case where a customer has provided false or stolen identification
• Case-by-case basis documents or information on establishing a relationship
• In any case where a transaction is complex and unusually large or there
is an unusual pattern of transactions.
• Transactions related to oil, arms, precious metals, tobacco products,
cultural artefacts, ivory or other items related to protected species, or
archaeological, historical, cultural and religious significance, or of rare
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Politically Exposed Persons

A PEP is defined as:
'an individual who is or has, at any time in the preceding year, been
entrusted with a prominent public function, other than as a middle-ranking
or more junior official. Under the definition of a PEP, firm’s obligation to
apply EDD measures to an individual ceases after they have left office for
one year, or a longer period if the firm considers that it might be appropriate
– in order to address risks of ML/FT in relation to that person'.

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 Further information
Money Laundering and Terrorist Financing Suitable evidence
Individuals
(3.4.1) The Money Laundering Regulations 2017
• Examples of proof of identity include a passport or driving license.
• Education and training for employees
• Evidence of address is also required: e.g. a utility bill or entry on the
- The law and regulations relating to anti-money laundering (AML) electoral roll. A passport is not evidence of address.
- Recognising suspicious transactions
Companies
- Proper ways to report
• It may be necessary to carry out checks on the company and individuals
• Employees report to MLRO, who reports to National Crime Agency (NCA)
representing the company.
• Record keeping • Evidence should be obtained from independent sources: e.g. companies
• Five years house, company accountants and lawyers.
• Criminal offences for directors/senior managers
- Failure to comply with the money laundering regulations (two years and/or unlimited
fine)
- Recklessly making a statement in context of money laundering which is false or
misleading (two years and/or unlimited fine) Hints
Record Keeping
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All records should be kept for 5 years after:
• The business relationship has ended or
• An occasional transaction
The requirements state that there is no need to keep records of occasional
transactions beyond ten years.

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 Further information
Money Laundering and Financial Crime Suspicion
Examples when a firm may be suspicious of the motives of a new/existing
(3.4.3) The Proceeds of Crime Act 2002 client include:
General offences • A reluctance of a new client to provide identification documents
• Concealing • An unnecessary use of a third party to act as an intermediary
14 years
• Arrangements (assisting) and/or • Continual patterns of unusual trading
unlimited fine • A request for non-market price transactions
• Acquiring and/or possessing
• The constant use and transfer of bearer securities
• An introduction from a suspicious party or jurisdiction
• Knowingly prejudicing an investigation (five years and/or unlimited fine)

Regulated sector offences

Keeping on target
• Failure to report (five years and/or unlimited fine) With regard to the POCA 2002, the MLR 2007 and the Terrorism Act 2000,
• Tipping off (two years and/or unlimited fine) which of the following statements is false?

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A. Justin suspects that a client is paying money into a bank account in
anticipation of funding a terrorist activity, but fails to report this. Justin
could go to prison for up to five years.
B. Sydney helps the clients of her accountancy practice to prepare
Hints financial accounts in such a way as to hide criminal funds passing
Failure to disclose: other details through their business. This is punishable with a prison term of up to
fourteen years.
Defence
C. Samantha agrees to hide a suitcase containing a considerable amount
It is a defence to the accusation of failure to disclose if the employee can
of cash in her garden shed for a friend. If this money is the proceeds of
prove they had had inadequate or no training on recognising suspicious
criminal activity, Samantha could face up to five years in prison.
transactions.
D. Gillian has been accused of assisting a money launderer within her job
Reasonable suspicion
as a teller at a retail bank. An acceptable defence would be that she
An employee can be found guilty of failing to report a suspicion they did not
lacks training in recognising suspicious transactions.
have, if they ought reasonably to have had a suspicion.
The test as to whether there are reasonable grounds to know or suspect
money laundering is called the ‘objective test’.
No offence is no defence
A person can be prosecuted for failing to report a suspicion regardless of
whether an offence of money laundering has been substantiated.

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Associated Legislation and
Regulation
Other Controls for Money Laundering
and the Financing of Terrorism

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 Further information
Money Laundering and Financial Crime JMLSG Guidance
Senior management roles should include a MLRO and a senior manager
(3.4.4) The joint money laundering steering group (JMLSG) responsible for the direction and oversight of anti-money laundering and
• The JMLSG is a combination of UK trade associations including the BBA. combating the financing of terrorism (AML/CFT).
• Guidance notes on how to implement the Money Laundering Regulations.
• Risk-based approach Adequate documentation should be produced, including the policy and
procedures of the firm to implement AML/CFT. This documentation must
• Guiding principles
include a named employee responsible for its implementation and an
- Customers’ identities verified before acceptance assessment of the firm's risks. These documents must be specific to the
- Knowing the customer on an ongoing basis firm's business and customer risks – a generic document is not adequate.
- Adequate training of staff As part of the risk-based approach, the JMLSG identifies high-risk and low-
- Recognition of the importance of prompt reporting risk clients.
• Risk mitigation approach
- Summary assessment of money laundering and terrorist financing risk
- Allocation of responsibilities to specific persons
- Summary of firm’s procedures
- Summary of firm’s monitoring

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Answer from previous slide

C
Samantha agrees to hide a suitcase containing a considerable amount of
cash in her garden shed for a friend. If this money is the proceeds of
criminal activity, Samantha could face up to five years in prison.

This is false as she could face 14 years in prison.

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 Further information
Money Laundering and Financial Crime Financial Action Task Force
• A global inter-governmental money laundering and terrorist financing
(3.4.5) The money laundering reporting officer and the nominated officer watchdog.
• A responsible person • Sets and monitors recommendations/standards.
- POCA, The Terrorism Act and MLR require a nominated officer • Holds countries to account that do not comply.
- FCA requires a MLRO
FCA SYSC
- Generally both roles performed by the same person and called MLRO
The SYSC requirements place obligations upon senior management of the
• MLRO will report to the National Crime Agency (NCA) firm to ensure they have in place systems and controls appropriate to the
business for preventing money laundering and terrorist financing.
Senior managers must carry out a risk assessment, considering:
National Crime Agency (NCA)
• The nature of the firm’s products and services
• A powerful body of operational crime fighters • The nature of its client base and geographical location; and
- Objective is to tackle organised crime, defend the UK’s borders, fight fraud and cyber-
• The ways in which these may leave the firm open to abuse by criminals
crime, and protect children and young people
- Led by a senior chief constable
- Accountable to the Home Secretary

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Keeping on target
Under the Money Laundering Regulations a firm must ensure that they
have appropriate internal controls. One of these is the appointment of a
money laundering reporting officer. Which of the following is not true of the
MLRO?
A. They fulfil a required control function within the firm
B. They are the internal and external point of contact for matters arising in
relation to money laundering
C. They are responsible for taking reasonable steps to establish and
maintain adequate arrangements for awareness and training
D. They are a member of the National Crime Agency

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 Further information
Money Laundering and Financial Crime Terrorist acts
The use or threat of action designed to influence a government or intimidate
(3.4.7) Terrorism the public in order to advance a political, religious or ideological cause,
• Terrorism Act 2000 and Anti-Terrorism Crime Security Act 2001 which:
- Obligation to report suspicions of: • Involves serious violence
• Provision of funds for terrorism • Involves serious damage to property
• Use and possession of terrorist funds • Endangers a person’s life
• Laundering money which is terrorist property
• Creates a serious risk to the health or safety of public
- Failure to report (five years and/or unlimited fine)
• Interferes with or seriously disrupts an electronic system
• Counter Terrorism Act 2008
- Gives extra powers to His Majesty’s Treasury (HMT) to impose directions on firms suspected of
handling funds to be used for terrorist activities
- Powers include:
• Customer due diligence and monitoring
- Increasing the identification requirements
• Systematic reporting
- HMT can require information without application to the courts
• Limiting or ceasing business
- Where the Financial Action Task Force (FATF) requires
- Where HMT believes there is a significant threat to national interests

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Answer to question on previous slide:

D
The MLRO is an employee of the firm, and although they pass
on suspicions to NCA they are not members of this agency.

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Associated Legislation and
Regulation
Bribery and Data Protection

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 Further information
Money Laundering and Financial Crime Facilitation payments
Facilitation payments are payments to induce officials to perform routine
(3.5) The Bribery Act 2010 functions they are otherwise obligated to perform. They are considered
bribes under the Bribery Act.
• Four offences
Prosecutors consider:
- S1: Paying bribes
- S2: Receiving bribes • Whether a payment amounts to a bribe; and, if so,
- S6: Bribery of foreign officials • Whether a prosecution is in the public interest.
• Defence is to show that ‘local written law’ required the payment to be made You can continue to pay for legally required administrative fees or fast-
- Facilitation payments are bribes under the Act track services. These are not facilitation payments.
- S7: Failing to prevent bribery
• Firms are liable for failing to prevent a person from bribing on their behalf
- Full defence may be possible if proof of ‘adequate procedures’ being in place to prevent
bribery are shown
- Hospitality is not prohibited

• Maximum penalties:
- Individual – ten years jail term and/or unlimited fine
- Company – unlimited fine

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 Further information
The Data Protection Act DPA 2018 and the EU General Data Protection Regulation (GDPR)
The EU GDPR became effective on 25 May 2018, at which point it was
(3.9.1) The Data Protection Act 2018 made effective in the UK by the DPA2018. The DPA 2018 has a wider
• Principles of data protection scope than the GDPR.
- Processing must be lawful and fair Note, under the GDPR, organisations can be fined up to 4% of their annual
- Purposes of processing must be specified, explicit and legitimate worldwide turnover (or, if greater, €20,000,000) for breaches of certain
- Personal data must be adequate, relevant and not excessive provisions.
- Personal data must be accurate and kept up to date
- Personal data must be kept for no longer than is necessary
- Personal data must be processed in a secure manner

• The information Commissioners Office enforcement powers. Penalties:

- Higher Keeping on target
• Up to £17.5 million or 4% of global turnover for failure to comply with:
- Data Protection Principles The Data Protection Act (DPA) 2018 provides for the way in which personal
- Data subjects rights data must be dealt with in order to protect the rights of the persons
- Transfer of data to third countries concerned. Which of the following best defines personal data?
- Standard A. Data that identifies an individual
• Up to £8.7 million or 2% of global turnover for other failures, e.g. administrative
B. Data that identifies any person
C. Data that identifies or can be used to identify an individual
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D. Data that identifies or can be used to identify any person

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Associated Legislation and
Regulation
Disclosure and Transparency Regulations

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 Further information
The Disclosure and Transparency Rules An interest in shares
An investor can have an interest in the shares owned by other people. The
(3.7.4) Disclosure rules rules list these people as connected parties. Connected parties are as
• EU Transparency Directive outlines disclosure thresholds as follows: follows:
- 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% • The investor’s spouse
• UK Disclosure rules require disclosure to the issuer within two business days when: • The investor’s children (less than 18 years old)
- Reach 3%
• Companies controlled by the investor (holds at least one third of the
- (Above 3%) change up or down to the next whole % point
voting rights)
- Fall below 3%
- Fund managers – at 5%, 10% then every % point • Concert parties: Any person where there is an agreement to influence the
- Market makers – exempt below 10% company together
- Custodians and bare nominees – exempt
- Shares held as collateral - exempt

• Issuer then tells the markets

• Companies Act 2006 S793 Letter requires disclosure of shares held:
- At present time
- In the last three years

Knowledge | Skills | Conduct

Answer to question on previous slide:

C: Data that identifies or can be used to identify an individual
Personal data only includes information relating to natural persons who can
be identified or are identifiable (directly or indirectly) from that information

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 Further information
The Disclosure and Transparency Rules Important definitions under the Takeover Code
Acting in concert
(3.7.2) The UK Takeover Code
• A company and other members of the same group
• Administered by the Takeover Panel (also known as the Panel on Takeovers and
• A company and its directors
Mergers, or ‘PTM’)
• A company and its pension fund
• Code ensures that shareholders are treated fairly and are not denied the opportunity to
decide on the benefits of a takeover • A fund manager and its discretionary portfolio
- Not to do with: • A client and its professional adviser
• Financial or commercial advantages/disadvantages
• Competition policy

• Six General Principles

Dealings
- All shareholders given equal treatment and protected • Any action that may increase or decrease a holding in a relevant security
- Shareholders given sufficient time and information to decide
- Board of target to act in best interests of company as a whole
Interest in shares
- False markets must not be created
- Predator to make a bid only after ensuring they can meet cash requirements of bid • A person who owns relevant securities or has a right to exercise or direct
- Target company not to be hindered in its business affairs for any longer than is necessary the voting rights on them

Knowledge | Skills | Conduct Relevant securities

• The securities under offer
• Equity share capital of offeror or offeree
• Other connected investments, e.g. convertible instruments

150
 Further information
Transaction and Trade Reporting Trade reports submission

(3.8) Reporting channels and systems: All clients

Firm 1 Firm 2 Responsibility to trade report
Trade report Transaction report
Member firm Non-member Member firm
Why? MiFID post-trade Market surveillance
transparency
Market maker Broker dealer Market maker
Who? Senior/Selling firm Both counterparties
Market maker Market maker Selling market maker
When? Automatic By T+1
Within 3 mins
Broker dealer Broker dealer Selling broker dealer
To whom? To exchange To the regulator via
approved reporting When?
mechanisms Reporting period: 7.15am to 5.15pm every business day
E.g. UnaVista and TRAX
Time of trade Submission of report

7:15 – 8:00 Before 8:00

Knowledge | Skills | Conduct

8:00 – 17:15 Within 3 minutes or 17:15, whichever is sooner

After 17:15 Before the start of the next reporting period

Hints
MiFID pre-trade transparency
MiFID pre-trade transparency ensures that available orders are visible to
market participants.

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Transaction and Trade Reporting
(3.8.2) Other reportable transactions
• European Markets Infrastructure Regulation (EMIR)
- EMIR is regulation of OTC derivatives to encourage greater transparency and better,
more effective risk management
- Reporting obligations
• All derivative contracts must be reported to a trade repository, e.g.
• Applies to both financial and non-financial counterparties

• Short Selling Regulations (SSR)

- Requirement to disclose net short positions
• Could be private or public disclosure depending on the size

• Securities Financing Transaction Regulation

- Securities financing transactions must be reported to a trade repository
- Specific disclosure for rehypothecated assets
- Financial counterparties only in the UK

Knowledge | Skills | Conduct

152
 Further information
Prudential Standards Prudential standards
Basel III introduced many new capital, leverage and liquidity standards to
(3.10.1) Prudential standards strengthen the regulation, supervision and risk management of the banking
• Capital Requirements Directive sector.
- Implements the Basel Framework CRD IV
• Pillar 1 The Fourth Capital Requirements Directive (CRD IV) is the EU’s
- Minimum capital requirements for credit, market and operational risk interpretation of Basel III. It has three primary aims:
• Pillar 2
1. The requirement for banks to hold more and better capital
- Supervisory review – discussion with regulator on whether additional capital should be held
• Pillar 3 2. Setting up a new governance framework giving supervisors new powers
- Disclosure of risks and risk management to improve market discipline to monitor banks more closely and take action through possible
sanctions
• Principles for Businesses 4: Financial Prudence
3. Creating a single rulebook for banking regulation, improving both

>
The capital Capital transparency and enforcement.
resources of an Adequacy
More and better capital
authorised firm Requirement
(what the firm has) (set by the FCA) Firms subject to the CRD requirements must consider the quality of capital
Must always
be greater
that is held. Capital is broadly split into three tiers:
than …
1. Core Tier 1 capital – for example, permanent share capital, reserves,
Knowledge | Skills | Conduct externally verified interim profits.
2. Tier 2 capital – for example, long-term subordinated debt and
revaluations reserves.
3. Tier 3 capital – for example, short-term subordinated debt and interim
trading book profit and loss.

Hints
The FCA is introducing a single sourcebook for FCA Investment firms
under the Investment Firms Prudential Regime.

153
Chapter Review
Associated legislation and regulation • Money laundering: Other
• Market abuse: criminal acts considerations
- The bodies involved, e.g. NCA, FATF
- Insider dealing offences and defences
- The financing of terrorism
- Requirement to disclose or control
information • Bribery and data protection
- Misleading statements and impressions - Purpose of the Bribery Act
• UK Market Abuse Regulation - Data Protection Act 2018
- Offences and defences • Disclosure and transparency (home
- Key definitions study)
- PDMR regime - Disclosure and transparency rules
(DTR)
• Money laundering
- The Takeover Code
- Offences and defences
- Notifiable interests
- Key definitions and legislative structure
- Prudential standards
- Obligations under the Money
Laundering Regulations

Knowledge | Skills | Conduct

154