Week 2 Law

• The financial services and markets act (2000) and Mar (2016)


  Introduced to prevent practices designed to influence the financial markets for personal gain
• Financial services and markets act (2000) and Mar (2016) Includes the following

  • Insider dealing
  • Distortion & misleading behaviour
  • Manipulating transactions
  • Manipulating devices
  • Dissemination
• Breach of the Code of Market Conduct may result in the following

  • Unlimited fines issued by the FCA
  • Public reprimand by the FCA
• Money laundering


  The process by which the proceeds of crime are converted into assets which appear to have legal rather than illegal source - the aim is to disguise the source of the property to allow the holder to enjoy it free from suspicion as to its source
• Proceeds of crime act 2002 - Primary source of legislation regulating money laundering
• There are three categories of money laundering offence

  • Laundering
  • Failure to report
  • Tipping off
• Concealing or disguising


  Concealing or disguising its nature, source, or location
• Criminal property


  Property that the alleged offender knows, or suspects constitutes or represents benefit from any criminal conduct
• Laundering usually consists of three phases

  1. Placement - the initial disposal of the proceeds of crime into an apparently legitimate business activity or property

  2. Layering - The transfer of money from business to business, or place to place, to conceal its initial source

  3. Integration - The result of the previous steps, whereby the money now takes on a legitimate source
• Failure to report


  Individuals carrying on a "relevant business" must disclose knowledge or suspicion of money laundering where they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering
• "Relevant business" includes banks, accountants, and lawyers
• Must disclose, as soon as practically possible, to

  1. Designated Money Laundering Reporting Officer (MLRO) within their organisation

  2. Directly to the National Crime Agency (NCA)
• Tipping off


  Offence to make a disclosure likely to prejudice a money laundering investigation
• You must not make your client aware that you have made a report to your MLRO or the NCA
• Penalties


  • Money laundering - Max of 14 years imprisonment and/or unlimited fine
  • Failure to report - Max 5 years imprisonment and/or unlimited fine
• Regulations 2017 transposes and gives effect to the following

  • EU fourth money laundering directive (2015) into UK law
  • The global Financial Action Task Force (FATF) standards
• Regulations 2017 updated 2007 regulations for the following

  • Electronic communication, money transfers, online gambling
  • Terrorism, pre-paid cards and e-money
  • Shell banks, PEPs, sanctions
  • Trust and beneficial ownership
  • Most risk-based approach
• Secondary legislation - Regulations 2017 requires firms to put the following preventive measures and staff training in place

  • Know your client (KYC)/ due diligence checklists must be completed for all clients at the start of the relationship and periodically
  • Client ID and address - proof
  • Sources or income and capital
• Secondary legislation applies to

  • Financial firms
  • Accountants, lawyers, insolvency practitioners, estate agents and all gambling firms
• Money laundering and terrorist financing 2019 and transfer of funds regulations (2017)

  
  

  Secondary legislation replaces money laundering regulations 2007 and fills gaps

  • Transposes EU fourth ML directive into UK law
  • Gives effect to the global Financial Action Task Force

  Updated 2007 regulations for global and technological developments:

  • Electronic communication, money transfers, online gambling
  • Terrorism, pre-paid cards and e-money
  • Shell banks, PEPs, sanctions
  • Trust and beneficial ownership
• Bribery


  The offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in charge of a public or legal duty
• The Bribery Act 2010 came into force on July 1st, 2011
• The Bribery Act 2010 creates four offences


  • Bribing
  • Being bribed
  • Bribing a foreign official
  • Failure to prevent bribery
• Penalties under the Bribery Act 2010


  • For individuals = maximum 10 years imprisonment
  • Commercial organisations = unlimited fine
• The bribery act 2010 policies - Organisations must put in place anti-bribery policies, training, and procedures
• The Market Abuse Regulation (MAR)

  Came into effect on July 3rd, 2016 to increase market integrity and investor protection, enhancing the attractiveness of securities markets for capital raising

  Strengthens previous UK market abuse framework by extending its scope to new market platforms and behaviours
• MAR strengthens the previous UK market abuse framework by extending its scope to new markets, new platforms, and new behaviours
• MAR contains prohibitions of

  • Insider dealing
  • Unlawful disclosure of inside information
  • Market manipulation
• Insider dealing


  According to the Criminal Justice Act 1993 (CJA93) Insider Dealing is a criminal offence
• An individual will be guilty of insider dealing if they have "price sensitive information" as "an insider" and they


  • Deal in price affected securities based on that information
  • Encourage others to deal in those prices affected securities
  • Disclose the information to anyone, other than in the proper performance of their duties
• Inside information


  Relates to a specific security or company, must not have been made public, and if made public would be likely to have a significant effect on the price
• A person has information as an insider only if they know it is inside information and they have it from an insider source
• Consequences of insider dealing

  • Summary conviction - Limited fine, Max 6 months imprisonment
  • Indictment - Unlimited fine, Max 10 years imprisonment
  • If a company director - Breach of statutory duties and may be liable to account to company for any profit made
• Defences under CJA 1993 for insider dealing

  • No knowledge or expectation that information would lead to profit
  • Belief that information is already available to the public
  • Proof that they would have done what he did even without the information
  • Proof that the information was not expected to be use by third party to profit in company security
• Market Abuse


  The financial services & markets act (2002) & MAR (2016) introduced to prevent practices designed to influence the financial markets for personal gain
• Market abuse includes


  • Insider dealing
  • Distortion & misleading behaviour - Behaviour that gives false or misleading impression of either the supply of, or demand for, an investment; or behaviour that otherwise distorts the market in an investment
  • Manipulating transactions - Trading, or placing orders to trade, that gives a false or misleading impression of the supply of, or demand for, one or more investments, raising the price of the investment to an abnormal or artificial level
  • Manipulating devices - Trading, or placing orders to trade, which employs fictitious devices or any other form of deception or contrivance
  • Dissemination - giving out information that conveys a false or misleading impression about an investment or the issuer of an investment where the person doing this knows the information to be false or misleading
• Consequences of market abuse

  • Unlimited fine issued by the FCA
  • Public reprimand by the FCA