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?

<p>They require continuous updates (C)</p> Signup and view all the answers

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

<p>Public service participation (B)</p> Signup and view all the answers

What guide must each license applicant submit regarding risk management?

<p>A risk management guide (A)</p> Signup and view all the answers

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

<p>Inform the Authority and relevant entities immediately (D)</p> Signup and view all the answers

Which component is essential for managing cyber risks?

<p>An information safety and protection system (D)</p> Signup and view all the answers

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

<p>Employee performance bonuses (A)</p> Signup and view all the answers

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

<p>Specifying workflow for daily management (B)</p> Signup and view all the answers

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

<p>Their awareness of duty limits (C)</p> Signup and view all the answers

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

<p>To avoid conflicts of interest (B)</p> Signup and view all the answers

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

<p>Performance evaluation system (C)</p> Signup and view all the answers

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

<p>Rules for employee efficiency and appropriateness (A)</p> Signup and view all the answers

Who bears responsibility for mistakes resulting from task distribution?

<p>The senior officer representing senior management (D)</p> 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?

<p>As required, without a specified frequency (C)</p> Signup and view all the answers

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

<p>An outsourcing guide with mechanisms for outsourcing tasks (B)</p> Signup and view all the answers

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

<p>Effective supervision of outsourced jobs and tasks (A)</p> Signup and view all the answers

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

<p>That the outsourced party maintains confidentiality (B)</p> Signup and view all the answers

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

<p>A copy of the contract must be provided to the Authority immediately (A)</p> Signup and view all the answers

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

<p>Outsourcing all main tasks, leaving no essential tasks to the entity (B)</p> Signup and view all the answers

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

<p>Plans for emergency and management of outsourcing risks (C)</p> Signup and view all the answers

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

<p>Procedures for due diligence in selecting the outsourced party (C)</p> Signup and view all the answers

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

<p>Ensure that the outsourcing arrangements do not affect obligations to clients (C)</p> Signup and view all the answers

What is required for financial eligibility in commercial activities?

<p>No outstanding commercial debts (D)</p> Signup and view all the answers

Which factor is crucial for establishing experience and efficiency?

<p>Previous experience in a similar field (D)</p> Signup and view all the answers

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

<p>Valid and complete information (B)</p> Signup and view all the answers

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

<p>Administrative sanctions from any regulating authority (B)</p> Signup and view all the answers

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

<p>It helps ensure legitimacy in financial operations (A)</p> Signup and view all the answers

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

<p>Five years for any serious violations (B), Two years for all types of violations (D)</p> Signup and view all the answers

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

<p>Clarifying the extent of experience in the same field (B)</p> 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?

<p>Moderate violations (B)</p> Signup and view all the answers

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

<p>If the client agrees to disclose. (A)</p> Signup and view all the answers

What must a licence applicant provide regarding confidentiality of information?

<p>A guide clarifying their mechanism for protecting confidentiality. (D)</p> Signup and view all the answers

What is essential regarding whistleblowing policies for licence applicants?

<p>They should include a mechanism to ensure confidentiality of the whistleblower. (A)</p> Signup and view all the answers

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

<p>If a competitive advantage is at stake. (A)</p> Signup and view all the answers

What must the policies and procedures for handling complaints include?

<p>Just and orderly treatment of the complaints. (D)</p> Signup and view all the answers

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

<p>All violations of relevant legislation. (A)</p> Signup and view all the answers

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

<p>Providing a guide on protecting confidentiality. (D)</p> Signup and view all the answers

How should licence applicants respond to complaints filed by clients?

<p>In a just, orderly, and immediate manner. (D)</p> Signup and view all the answers

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

<p>They must ensure 'zero data loss' and keep back-up copies for ten years. (B)</p> Signup and view all the answers

What obligation must an outsourced party fulfill concerning previous agreements?

<p>They must not have any outsourcing agreements terminated for breaches in the past year. (D)</p> Signup and view all the answers

What must the license applicant confirm regarding cloud computing?

<p>Their understanding of the risks associated with cloud computing. (C)</p> Signup and view all the answers

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

<p>They need to obtain the Authority’s approval. (C)</p> Signup and view all the answers

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

<p>They must be secured within the State. (C)</p> Signup and view all the answers

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

<p>Reviewing and analyzing customer data. (B)</p> Signup and view all the answers

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

<p>An audit report from an external auditor annually. (B)</p> Signup and view all the answers

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

<p>They must adhere to additional requirements specified by the institutions. (B)</p> Signup and view all the answers

Flashcards

Outsourcing

The process of hiring a third-party company to perform specific tasks or functions that were previously done in-house.

Cloud Computing

A type of outsourcing where services are delivered over the internet, allowing businesses to access resources and software without physically owning them.

Due Diligence in Outsourcing

The process of evaluating and choosing an appropriate outsourcing partner.

Supervision of Outsourced Tasks

Ensuring ongoing oversight and control over outsourced tasks to ensure quality and compliance.

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Outsourcing Compliance

Ensuring the outsourced party complies with regulations and industry standards.

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Outsourcing Risk Management

Having backup plans in place to manage disruptions or problems related to outsourcing.

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Impact of Outsourcing on Obligations

Ensuring outsourced arrangements don't hinder the ability to meet client obligations and authority requirements.

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Data Confidentiality in Outsourcing

Safeguarding sensitive information and data when outsourcing.

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Financial Eligibility

Meeting financial obligations on time, demonstrating financial stability, and having the ability to manage future financial commitments.

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Experience and Efficiency

Possessing necessary experience in the field of financial activity and demonstrating the capability to manage risks effectively.

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Honesty and Integrity

Providing truthful and complete information, maintaining a clear record free of any negative legal or financial issues.

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Compliance

Adhering to all relevant laws and regulations governing financial activity.

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Sanctions Compliance

Not appearing on any international sanctions lists related to money laundering, terrorism financing, or illegal organizations.

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Clean Criminal Record

A history of honest and legal conduct within the past five years, particularly regarding financial matters.

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No Ongoing Investigations

Avoiding any criminal or administrative investigations related to financial wrongdoing.

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No Previous Sanctions

Being free from any legal or administrative sanctions in the financial field.

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Commercial Targets and Strategies

A description of the applicant's business goals and how they plan to achieve them, with clear strategies for supervision and management.

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Sound Management Framework

A framework designed to ensure sound and responsible financial management, protecting both clients and stakeholders.

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Acknowledgement of Duties and Responsibilities

Acknowledgement from the board of directors or managers affirming their understanding of their duties and responsibilities.

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Employee Data Record

A detailed record of employee information that is continuously updated, certified, and includes tasks, responsibilities, and practice dates.

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Administrative Regulation

A comprehensive guide outlining the administrative structure, including roles, responsibilities, and procedures to avoid conflicts of interest.

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Task & Responsibility Distribution

The process of assigning and reviewing tasks to employees, ensuring compliance with the applicant's practices and procedures.

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Professional Code of Ethics

A code of conduct that prevents employees from engaging in activities that could harm the company's reputation or violate financial regulations.

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Bonus Mechanism Evidence

Evidence detailing how bonuses are calculated based on performance, goals, risks, job roles, and financial activity.

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Employee Supervision

The process of observing and supervising employees and workers to ensure they adhere to the licensed entity's standards.

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Employee Regulation

A guide that outlines the requirements for all employees to meet efficiency and appropriateness standards.

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Technical Systems Requirements

Technical systems, programs, and updates necessary for performing financial activities, along with safeguards against cyber threats.

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Employee Regulation Revision

A mechanism for regularly updating and revising the rules and regulations that govern employees.

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Cyber Risk Management Guide

A plan for managing cyber risks, including procedures for responding to incidents, notifying authorities, and ensuring information security.

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Risk Management Guide

A document outlining an organization's risk identification, assessment, mitigation, and monitoring processes.

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Internal Audit

An independent function that reviews and audits an organization's financial and operational processes to ensure accuracy and compliance.

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Outsourcing Agreement Termination

Licensed bodies must ensure that the outsourced party has never had an outsourcing agreement terminated for breach of obligations or violation of laws within the previous year.

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Responsibility for Outsourced Party

The licensed body bears the full responsibility for any failures, breaches, or violations by the outsourced party.

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Server Location Requirement

Licensed bodies must ensure that the outsourced party's servers and computer resources are located within the state.

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Annual Security Audit Report

The outsourced party must provide an annual data and information security audit report to both the Authority and relevant capital market institutions.

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Data Loss Prevention and Protection

The outsourced party must have a system in place to ensure no data loss and protection from any violation for a period of 10 years, including backups.

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Cloud Computing Risk Understanding

Licensed bodies must confirm that they understand the risks associated with using cloud computing.

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Outsourcing and Data Confidentiality

The outsourced party is prohibited from reviewing the information and data, and must maintain confidentiality.

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Additional Requirements from Institutions

If the licensed body is a member of capital market institutions, the outsourced party must meet any additional requirements specified by these institutions.

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Information Confidentiality

The process of disclosing confidential information only under specific circumstances such as legal requirement, client consent, service necessity, non-confidential status, or upon request from authorities.

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Reporting Breaches (Whistleblowing)

When employees report any violations or breaches of rules and regulations to senior management and authorities. This protects whistleblowers by keeping their identities confidential while investigations are conducted.

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License Applicant Requirements for Information Confidentiality & Reporting Breaches

The requirements for license applicants regarding information confidentiality and reporting breaches. These include a guide to protect confidentiality and policies for handling whistleblowing cases.

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Information Confidentiality Guide

A guide that outlines how companies protect client information and ensure it is not leaked or disclosed improperly. It clarifies the allowable circumstances for disclosure.

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Whistleblowing Policy

A document summarizing a company's policies for handling employee reports of violations of rules and regulations. This includes protecting whistleblowers from any retaliation.

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Complaints Handling Procedures

Just, timely, and orderly procedures for handling complaints filed by clients. These procedures outline how complaints are investigated and resolved.

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License Applicant Requirements for Complaints Handling

The requirements for license applicants regarding their complaints handling procedures, including just, orderly, and timely resolution of client complaints.

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Complaints Handling Policies

A plan for dealing with any complaints filed by clients, ensuring that complaints are addressed justly, orderly, and promptly.

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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.
  • 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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Chapter Two Licensed Bodies PDF

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.

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