Investment Management Certificate (IMC) Unit 1 — The Regulatory and Financial Environment Flashcards

24 sample cards from the Unit 1 — The Regulatory and Financial Environment deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What are the principal UK statutes and regulations governing anti-money laundering?

   The Proceeds of Crime Act 2002 (POCA), the Terrorism Act 2000, and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs).

2. What is Customer Due Diligence (CDD) and when must Enhanced Due Diligence (EDD) be applied?

   CDD is identifying and verifying a customer (and beneficial owner) and understanding the purpose of the relationship. EDD applies in higher-risk situations, e.g. politically exposed persons (PEPs), high-risk third countries, or unusually complex/large transactions.

3. What is a Suspicious Activity Report (SAR) and to whom is it submitted?

   A report of known or suspected money laundering/terrorist financing made (usually via the firm's Money Laundering Reporting Officer, MLRO) to the National Crime Agency (NCA).

4. What is the criminal offence of 'tipping off'?

   Disclosing to a third party (e.g. the customer) information likely to prejudice a money laundering investigation, after a SAR has been or is being made — an offence under POCA.

5. What is the difference between money laundering and terrorist financing?

   Money laundering disguises the proceeds of crime (illegitimate source) so they appear legitimate; terrorist financing provides funds for terrorism and the funds may come from legitimate sources — the focus is on the destination/purpose rather than the origin.

6. Under the Market Abuse Regulation (MAR), what are the three core types of market abuse?

   Insider dealing (and unlawful disclosure of inside information) and market manipulation.

7. What is 'inside information' under the Market Abuse Regulation?

   Information of a precise nature, not generally available, relating directly or indirectly to one or more issuers or financial instruments, which if made public would be likely to have a significant effect on the price of those instruments (price-sensitive).

8. Distinguish civil market abuse (MAR) from the criminal offence of insider dealing.

   Civil market abuse under MAR is enforced by the FCA without needing to prove criminal intent; criminal insider dealing under Part V of the Criminal Justice Act 1993 requires proof to the criminal standard (beyond reasonable doubt) and can lead to imprisonment.

9. Give two examples of market manipulation.

   Examples include 'wash trades'/fictitious transactions to create a false impression of activity, spreading false or misleading information, and abusive 'spoofing/layering' of orders to move prices artificially.

10. What are the principal UK offences under the Bribery Act 2010?

    Bribing another person, being bribed (receiving a bribe), bribing a foreign public official, and the corporate offence of failure of a commercial organisation to prevent bribery.

11. What is the only defence available to the corporate 'failure to prevent bribery' offence under the Bribery Act 2010?

    That the organisation had 'adequate procedures' in place designed to prevent bribery by persons associated with it.

12. What are financial sanctions and who administers them in the UK?

    Restrictions (e.g. asset freezes, prohibitions on dealing with designated persons/countries) administered in the UK by the Office of Financial Sanctions Implementation (OFSI), part of HM Treasury.

13. What are the four pillars/components of the CFA Institute / CFA UK ethical framework that members must follow?

    The Code of Ethics and the Standards of Professional Conduct, underpinned by acting with integrity, placing client interests first, maintaining professional competence, and upholding market integrity.

14. Under the CFA Institute Code of Ethics, whose interests must members place above their own?

    The integrity of the profession and the interests of clients must be placed above members' own personal interests (clients first).

15. What is the principle of 'professional integrity' as applied by CFA UK members?

    Acting with honesty, fairness, diligence and respect; placing client and market integrity ahead of personal gain; avoiding and disclosing conflicts of interest; and not engaging in conduct involving dishonesty, fraud or deceit.

16. In the UK, what is the difference between a tax 'avoidance' and tax 'evasion'?

    Tax avoidance is arranging affairs within the law to minimise tax (legal, though aggressive avoidance may be challenged); tax evasion is illegally not paying tax due (e.g. concealing income) and is a criminal offence.

17. What are the main UK income tax bands and rates for 2023/24 (excluding the personal allowance)?

    Basic rate 20% (income up to £37,700 above the allowance), higher rate 40% (£37,701–£125,140), and additional rate 45% (over £125,140).

18. What is the UK standard personal allowance for income tax (2023/24) and how is it tapered?

    £12,570; it is reduced by £1 for every £2 of adjusted net income above £100,000, so it is fully withdrawn once income reaches £125,140.

19. What are the UK dividend tax rates for 2023/24 and the dividend allowance?

    Dividend allowance £1,000; then 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate).

20. How is income tax calculated across the bands? Give the general approach.

    Tax is charged progressively: deduct the personal allowance from total income, then apply each rate to the slice of taxable income falling within that band. Income is taxed in order: non-savings income first, then savings income, then dividends.

21. What is Capital Gains Tax (CGT) and what are the 2023/24 annual exempt amount and main rates?

    CGT is tax on the gain made when disposing of a chargeable asset. The annual exempt amount for 2023/24 is £6,000. Main rates: 10% (basic-rate taxpayers) and 20% (higher/additional-rate) on most assets; 18% and 28% on residential property and carried interest.

22. How is a chargeable capital gain calculated?

    Gain = disposal proceeds − (acquisition cost + allowable costs such as enhancement expenditure and incidental costs of acquisition/disposal). Allowable losses and the annual exempt amount are then deducted before applying the CGT rate.

23. Name three taxes other than income tax and CGT that form part of the UK tax system.

    Inheritance Tax (IHT), Stamp Duty / Stamp Duty Reserve Tax (on share transfers) and Stamp Duty Land Tax (on property), Value Added Tax (VAT), corporation tax, and National Insurance contributions (any three).

24. What are the main UK tax wrappers and their key tax advantages?

    ISAs — income and gains free of income tax and CGT (£20,000 annual subscription limit, 2023/24); pensions (e.g. SIPPs) — tax relief on contributions and tax-free growth, with up to 25% of the fund taken tax-free; both shelter investments from income tax and CGT.

What this deck covers

Unit 1 — The Regulatory and Financial Environment flashcards FAQ