Financial Licensing Chapter 2 Quiz

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Questions and Answers

What is the required retention period for employees’ data after the last update?

Five years

Ten years (correct)

Seven years

Fifteen years

Which of the following behaviors is prohibited under the professional code of ethics?

Engaging in financial crimes (correct)

Providing financial advice

Participating in community service

Volunteering for charity events

What must applicants provide evidence of in relation to bonus mechanisms?

A comparison of bonuses among employees

The history of previous bonuses offered

The criteria for bonuses related to work goals (correct)

A summary of employee performance reviews

What is one requirement for the technical systems of a license applicant?

They require continuous updates Signup and view all the answers

Which of the following is NOT mentioned as a part of the behavior regulation?

Public service participation Signup and view all the answers

What guide must each license applicant submit regarding risk management?

A risk management guide Signup and view all the answers

What is the procedure that must be followed after a cybersecurity breach?

Inform the Authority and relevant entities immediately Signup and view all the answers

Which component is essential for managing cyber risks?

An information safety and protection system Signup and view all the answers

Which component is NOT part of the regulatory structure that licence applicants must provide?

Employee performance bonuses Signup and view all the answers

What responsibility must the senior management ensure in relation to the licensed body’s operations?

Specifying workflow for daily management Signup and view all the answers

What must the members of the board of directors acknowledge upon appointment?

Their awareness of duty limits Signup and view all the answers

What is the purpose of separating tasks within the licence applicant's regulatory structure?

To avoid conflicts of interest Signup and view all the answers

Which of the following is NOT a requirement for the employees regulation?

Performance evaluation system Signup and view all the answers

What should the licence applicant’s guide include in relation to employees?

Rules for employee efficiency and appropriateness Signup and view all the answers

Who bears responsibility for mistakes resulting from task distribution?

The senior officer representing senior management Signup and view all the answers

How often should the rules pertaining to employees be revisited and updated according to the license applicant's regulations?

As required, without a specified frequency Signup and view all the answers

What is one of the primary requirements that licence applicants must provide in relation to outsourcing?

An outsourcing guide with mechanisms for outsourcing tasks Signup and view all the answers

Which procedure is essential for ensuring the outsourced party will meet the outsourcing conditions?

Effective supervision of outsourced jobs and tasks Signup and view all the answers

What must applicants ensure regarding the confidentiality of data and information in outsourcing arrangements?

That the outsourced party maintains confidentiality Signup and view all the answers

Which of the following indicates a required action when establishing an outsourcing contract?

A copy of the contract must be provided to the Authority immediately Signup and view all the answers

What must not occur in relation to outsourcing all main tasks of the license applicant entity?

Outsourcing all main tasks, leaving no essential tasks to the entity Signup and view all the answers

What type of plans should be included in the procedures for outsourcing jobs or tasks?

Plans for emergency and management of outsourcing risks Signup and view all the answers

According to outsourcing requirements, what must be included in the outsourcing guide?

Procedures for due diligence in selecting the outsourced party Signup and view all the answers

What is a necessary procedure to ensure compliance with outsourcing obligations?

Ensure that the outsourcing arrangements do not affect obligations to clients Signup and view all the answers

What is required for financial eligibility in commercial activities?

No outstanding commercial debts Signup and view all the answers

Which factor is crucial for establishing experience and efficiency?

Previous experience in a similar field Signup and view all the answers

What kind of information is necessary to ensure honesty and integrity?

Valid and complete information Signup and view all the answers

What should not be present in the relevant records regarding compliance?

Administrative sanctions from any regulating authority Signup and view all the answers

What is the significance of not being listed in sanctions lists for an entity?

It helps ensure legitimacy in financial operations Signup and view all the answers

What timeframe is critical concerning prior violations for the entity's partners or board members?

Five years for any serious violations Signup and view all the answers

Which factor is essential for managing risks effectively within the financial activity?

Clarifying the extent of experience in the same field Signup and view all the answers

What type of violations should not have been committed by the licensed body or its partners in the two years prior to the filing request?

Moderate violations Signup and view all the answers

What is a condition under which confidentiality of information can be breached?

If the client agrees to disclose. Signup and view all the answers

What must a licence applicant provide regarding confidentiality of information?

A guide clarifying their mechanism for protecting confidentiality. Signup and view all the answers

What is essential regarding whistleblowing policies for licence applicants?

They should include a mechanism to ensure confidentiality of the whistleblower. Signup and view all the answers

Which of the following is NOT a circumstance under which confidential information may be disclosed?

If a competitive advantage is at stake. Signup and view all the answers

What must the policies and procedures for handling complaints include?

Just and orderly treatment of the complaints. Signup and view all the answers

What should be reported to the Authority in case of a violation?

All violations of relevant legislation. Signup and view all the answers

Which of the following is a requirement for licence applicants in relation to information confidentiality?

Providing a guide on protecting confidentiality. Signup and view all the answers

How should licence applicants respond to complaints filed by clients?

In a just, orderly, and immediate manner. Signup and view all the answers

What is required of the outsourced party in terms of data security and management?

They must ensure 'zero data loss' and keep back-up copies for ten years. Signup and view all the answers

What obligation must an outsourced party fulfill concerning previous agreements?

They must not have any outsourcing agreements terminated for breaches in the past year. Signup and view all the answers

What must the license applicant confirm regarding cloud computing?

Their understanding of the risks associated with cloud computing. Signup and view all the answers

What condition applies if the outsourced party desires to provide services for more than one licensed body?

They need to obtain the Authority’s approval. Signup and view all the answers

What must be ensured regarding the location of servers used by the outsourced party?

They must be secured within the State. Signup and view all the answers

What is not a responsibility of the outsourced party regarding data confidentiality?

Reviewing and analyzing customer data. Signup and view all the answers

What must the outsourced party provide to demonstrate compliance with data security requirements?

An audit report from an external auditor annually. Signup and view all the answers

Which of the following is required of the outsourced party in respect to the capital market institutions?

They must adhere to additional requirements specified by the institutions. Signup and view all the answers

Study Notes

Chapter Two: Licensed Bodies

This syllabus area will cover approximately 14 of the 100 examination questions.
Topics covered include: Introduction, General Provisions, Licensing Financial Activities, Further Licence Applicant Requirements.

Introduction

The chapter draws on Securities and Commodities Authority (SCA) Decision No. 13 of 2021.
The decision sets obligations and expectations for firms applying for a licence to perform financial activities.
Licensed bodies must disclose their legal status (Article 8), state of emergency (Article 9), place of business (Article 10), and close ties (Article 11).
Disclosure of legal status, including being licensed by the Authority, is important for those potentially affected by misbehaviour.
Licensed bodies must disclose their licensing by the Authority, the licence category, and the financial activity conducted.
All documents and work papers must include a letterhead stating the body is licensed by the Authority, along with licence number and addresses. This applies to all communications.
Licensed bodies cannot set conditions exempting or limiting responsibilities for performing financial activity, unless under force majeure or emergency conditions.
Licensed bodies should not use or copy the Authority's logo without permission.
Article 9 also covers emergency procedures and what to do in those events.

1. General Provisions: Legal Status, Place of Business, and Close Ties

Licensed bodies must know their obligations regarding legal status, emergency situations, locations (head office, branches) and close ties to other entities.
Disclosure of legal status includes the licensed body being under Authority control and supervision.
All documentation and correspondence must include a letterhead stating its licence status and number..
The Authority has the right to inspect head offices and branches.

1.2 Inspections and Investigations

The Authority may control and inspect licensed bodies to confirm compliance with applicable laws and regulations.
Violations may be detected during inspections or presented by complaints/reports.
Licensed bodies must respond to Authority inquiries within a specified timeframe.
Employees must be prepared for investigations and meetings as requested by the Authority.
Information, documents, and records, related to financial paper transactions or to the licensed activity, may be requested by the Authority.
The Authority may access electronic and non-electronic records, computer data and systems.

1.3 Sanctions Available to the Authority

If provisions are violated, the Authority can impose administrative sanctions.
These sanctions may include a notice, a financial fine (no more than AED 100,000), a suspension of activity (up to 1 year), or suspension of unlicensed activities.
The Authority may also cancel a licence if there is a failure to meet conditions, significant violations, problems with payments, or a judicial bankruptcy judgement.
Reasons for sanctions, like failures to comply, will likely lead to the publication of the firm's name and sanctions in various ways.

2. Licensing Financial Activities: Licensed Financial Activities and Categories

The section outlines different types of financial activities for licensing, along with legal approval/regulatory oversight for practising financial activity.
Topics covered include financial activities (like trading broker, securities dealer, financial consultations); specific categories; duties/obligations; and involvement of the board of directors/Senior Management.

3. Further Licence Applicant Requirements: Governance, Administration, Employees, & Technical Systems

Applicants must provide governance regulations that detail: the number of board members & senior management, duties & responsibilities, commercial targets & strategies for achieving targets, and frameworks for management according to best standards.
The applicants must also provide administrative regulations outlining the administrative hierarchy, processes, & protocols for avoiding conflicts of interest, and tasks for the senior management board, focusing on efficiency & effective management.

3.1 Governance, Administration, Employees, and Technical Systems

A framework for personnel management and supervision is necessary.
This includes an "employee regulation" guide with mechanisms for updating rules, tracking employee tasks, and defining periods.

3.2 Risk Management, Compliance and Internal Audit

Applicants must submit a risk management guide covering policies/procedures for managing risks and potential issues.
A compliance regulation guide must ensure policies, procedures, periodicity and clarity in regulatory compliance are in place (specifically how staff access resources effectively and provide reports on any violations).
A 'regulatory guide' detailing internal audit processes, focusing on independent audit processes and procedures, is required.

3.3 Information Confidentiality

Applicants must clarify procedures for safeguarding the confidentiality of information, outlining circumstances where disclosure is permitted (e.g. by law, with client agreement, or if no longer confidential).

3.4 Complaints Handling

A guide is essential with explicit policies and procedures for promptly, fairly, and efficiently managing complaints from clients filed on any licensed firm's activity.

3.5 Outsourcing and Cloud Computing

Outsourcing procedures and guidelines, including for cloud computing, are required.
The guide should cover the risks of outsourcing, plans/procedures to ensure quality in outsourcing and cloud computing activities.
Documents/proof of compliance, including contracts, management strategies, & personnel management are necessary for all.

3.6 Record Keeping Requirements

Procedures for keeping both electronic and non-electronic records (related to the licensed body, transactions, and activities) and ensuring recovery from these must be well-documented.
A 10-year record retention period is typically required.

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Description

This quiz focuses on Chapter Two of the syllabus, which covers licensed bodies and their obligations as per the Securities and Commodities Authority Decision No. 13 of 2021. Test your knowledge on topics such as financial activities licensing and applicant requirements. Prepare to explore important disclosure practices and legal stipulations for licensed entities.