Chapter 2 Powers of the Authority

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Questions and Answers

Which action can the Authority take if it believes a person is not fit to be employed by a regulated entity?

Vary the requirements for the position

Suspend a person's license

Recognize the entity for operational flexibility

Prohibit the person from employment (correct)

What can the Authority do to ensure investors are protected according to the SMO?

Conduct investigations into all entities

Approve directors of all companies

Publish statements of misconduct for violations (correct)

Delegate powers to private auditors

Under what circumstance may the Authority apply for a Court injunction?

To prevent a company from changing its directors

To require payment from a debtor

To restrain a person from conducting regulated activities without a license (correct)

To approve changes in auditing requirements

What does the Authority have the power to mandate regarding assets held by a regulated person?

Transfer them to a third party approved by the Authority Signup and view all the answers

What action can the Authority take regarding regulated persons who default in payment obligations?

Present a petition to the Court to wind them up Signup and view all the answers

Which of the following can be a result of conducting misconduct by a regulated person?

Publication of a statement of misconduct Signup and view all the answers

What can the Authority do if it finds that the requirements of a regulated entity are not being met?

Vary the license or requirements Signup and view all the answers

What is one consequence the Authority can enforce on a regulated person for employing a disqualified person?

Publish a statement of misconduct Signup and view all the answers

What is the primary characteristic that defines market abuse?

It pertains to actions observed in relation to market securities deemed inappropriate by regular market users. Signup and view all the answers

Which of the following is NOT considered a condition for market abuse under Section 241(2)?

Behaviour that is based on generally available information. Signup and view all the answers

Which trading strategy is characterized by trading the same securities without transferring beneficial ownership?

Wash trades. Signup and view all the answers

What motivates errant traders to manipulate the market?

Achieving illicit gains and preventing losses. Signup and view all the answers

How do securities regulators typically respond to market misconduct?

By closely supervising and monitoring trading activities. Signup and view all the answers

Which of the following actions could be classified as providing false or misleading information in the context of market misconduct?

Deliberately inflated projections of stock performance. Signup and view all the answers

What is the potential consequence of being found guilty of market misconduct?

A hefty fine, imprisonment, or both. Signup and view all the answers

What type of market manipulation involves quoting fictitious orders before deleting them?

Layering. Signup and view all the answers

What does the term 'prospects of success' refer to in the context of resource deployment?

The potential outcome of a legal action. Signup and view all the answers

What was one reason stated for the continued malpractice in regulatory enforcement?

The fading memory of past scandals. Signup and view all the answers

Which of the following actions is considered insider dealing?

An employee sells shares after hearing about a pending contract cancellation. Signup and view all the answers

Which scenario does NOT constitute insider dealing?

An employee discloses inside information as part of their job duties. Signup and view all the answers

What has Martyn Hopper suggested regarding the current state of enforcement?

Complexity in the world creates challenges for prosecutors. Signup and view all the answers

Why is assessing the merits of a case considered difficult before evidence is gathered?

Because the availability of evidence is often unclear. Signup and view all the answers

What distinguishes principles-based from rules-based regulation?

Principles-based regulation focuses on outcomes, while rules-based is more prescriptive. Signup and view all the answers

What is one issue highlighted regarding the transfer of lessons from past scandals?

They are often ignored by newer generations. Signup and view all the answers

What is the purpose of the Financial Markets Services Panel as established under Section 254 of the SMO?

To allow impacted license applicants or holders to make representations Signup and view all the answers

Which of the following actions constitutes an offence in relation to the SMO?

A person knowingly provides an auditor with misleading information Signup and view all the answers

Who supervised the SEC investigation mentioned in the content?

Sanjay Wadhwa Signup and view all the answers

What is the final authority to appeal a decision made by the Financial Markets Services Panel?

The Minister of Finance Signup and view all the answers

What does Principle 2 require of the Regulator according to the IOSCO objectives?

The Regulator should be operationally independent and accountable Signup and view all the answers

What type of committee does Section 252 of the SMO allow the Authority to establish?

Complaints Committee Signup and view all the answers

What does Principle 4 specify regarding the operations of the Regulator?

The Regulator should adopt clear and consistent regulatory processes Signup and view all the answers

What penalty did Calice agree to pay?

$222,184 Signup and view all the answers

What is the purpose of the Investor Compensation Scheme established by the Authority?

To compensate eligible investors in financial difficulty Signup and view all the answers

What penalty can be imposed on a person who contravenes the SMO or its regulations?

A fine of up to $10 million or imprisonment for up to 10 years Signup and view all the answers

What happens if a body corporate commits an offence due to the actions of an individual in the organization?

Both the body corporate and the individual may be found guilty Signup and view all the answers

What is the consequence of failing to pay the required fees to the Authority?

Late payment penalty Signup and view all the answers

Under the SMO, which of the following is exempt from taxation for collective investment schemes?

Income and capital gains taxes Signup and view all the answers

If someone abets or attempts to commit an offence under the SMO, what is true about their liability?

They may be deemed to have committed an offence Signup and view all the answers

What is the role of the Committee regarding complaints against regulated persons?

To investigate complaints independently and make recommendations Signup and view all the answers

What type of activities qualifies as an offence under the SMO?

Any actions that violate the SMO or its regulations Signup and view all the answers

Study Notes

Authority Powers

The Authority has power to refuse, grant, exempt, recognise, designate, vary, suspend, and impose requirements on licences and activities related to regulated people.
The Authority can conduct investigations, issue prohibition orders, and issue supplementary regulations, directions, guidelines, and codes.
The Authority can warn, penalise, and compound. The Authority can also approve directors of companies before an appointment and impose requirements for auditors.
The Authority can appoint an independent auditor.

Authority Intervention Powers

The Authority may exercise its powers if it is believed that it is desirable to protect investors or if the regulated person is not fit to carry on its regulated activities or has contravened the Securities Market Order (SMO).
Section 230 of the SMO details the authority's power to intervene in situations involving a regulated person who is "unfit" or violates the SMO.
The Authority has intervention powers in the form of prohibiting employment of unfit individuals by regulated persons, publishing statements of misconduct, prohibiting regulated persons from engaging in specific transactions or businesses, prohibiting regulated persons from dealing with assets, requiring asset transfer and holding by a third party, requiring regulated persons to maintain assets in Brunei Darussalam to meet their investment business liabilities, seeking court injunctions to restrain unlicensed activities, petitioning the court to wind up regulated persons unable to pay debts, and imposing, rescinding, or varying prohibitions or requirements by written notice to the regulated person.

Market Misconduct

Market abuse, insider dealing, and providing false or misleading information or statements are considered serious offenses.
The Authority has specific intervention powers to address these market misconducts.
Securities regulators around the world, including the BDCB, recognize the severe threat or risk these misconducts pose to financial system stability and soundness, and closely monitor trading activity.
The commission of these market conduct offenses is considered a crime and can result in hefty fines, imprisonment, or both.

Market Abuse

Market abuse is defined as behavior that:
- Occurs in relation to qualifying securities traded on a market.
- A regular market user would consider a failure to observe the reasonably expected standard of behavior for their position in the market.
- Satisfies one or more of these conditions:
  - Based on information not generally available but relevant in deciding investment transaction terms.
  - Likely to give a regular market user a false or misleading impression of supply, demand, price, or value of investments.
  - Seen by a regular market user as distorting the market.
Common market abuse strategies include wash trades, pump-and-dump schemes, and layering, all of which aim to manipulate the market for illicit gains or loss prevention.

Insider Dealing

Examples of insider dealing include an employee of a publicly traded company who knows about a significant client's contract termination (price-sensitive information) and sells their shares before the information is public to avoid loss.
Under the SMO, an insider person committing insider dealing is deemed guilty of an offense.
Insider dealing involves the following actions:
- An insider directly or indirectly transacts securities using inside information.
- An insider discloses or passes inside information to others.
- An insider suggests or recommends another person to engage in securities dealings using inside information.
Insider dealing does not include transactions carried out under agreements concluded before gaining access to inside information or disclosure of inside information by an insider as part of their job duties.

False or Misleading Information or Statements

Providing material false or misleading information context of an SMO-related application is illegal.
Describing or holding oneself out as a regulated person when not is also subject to the law.
Knowingly or recklessly providing a material false or misleading information to an auditor is also considered an offense.

Financial Markets Services Panel

The Financial Markets Services Panel (Panel) is established under the SMO to allow license applicants or holders impacted by the Authority's decisions to make representations or refer the matter to the Panel.
This panel acts as a system of checks and balances in the implementation of the SMO's rules and regulations, ensuring the accountability and procedural fairness of the Authority as a securities regulator.
The Panel's decisions can be appealed to the Minister of Finance, whose decision is final.

Complaints Committee

The Authority establishes a Complaints Committee to investigate regulated person-related and Authority-related complaints independently.
If the Committee finds the complaint unwarranted, it can recommend for its dismissal.

Investor Compensation Scheme

The Authority has the power to establish an Investor Compensation Scheme under the SMO.
This scheme aims to compensate eligible investors when a regulated person faces financial difficulties.

Other General Provisions

Licence Fees

All licensed persons must pay annual licence fees, periodical fees, or administrative charges as determined by the Authority.
Failure to pay these fees can lead to late payment penalties.

Offences by Body Corporate

If a body corporate commits an offense, and it is proven that the offense was consented to, supported, or attributable to the neglect of relevant corporate persons like directors, managers, secretaries, members, or equivalent, both the person and body corporate can be charged.

General Penalty

Anyone found violating the SMO or its regulations faces a fine of up to $10 million, imprisonment for up to 10 years, or both.
Specific penalties can supersede this general penalty.
A person can be found guilty of an offense even through indirect acts.
- Abetting the commission of an SMO-related offense, including overseas actions related to a Brunei-based business.
- Attempting to commit an offense.
- Being party to a criminal conspiracy.

Tax and Filing Exemptions

The SMO exempts Collective Investment Schemes from:
- Income, capital gains, and other taxes.
- Estate, inheritance, succession, or similar taxes.
- Duty on instruments relating to property transfers to or by a collective investment scheme.

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Description

Test your knowledge on the powers and intervention capabilities of the Authority as outlined in the Securities Market Order. This quiz covers the various actions the Authority can take concerning regulated individuals and activities, emphasizing its role in investor protection and adherence to regulations. Perfect for those studying financial regulations or governance.