Financial Crime and Market Abuse
Domain 3 tests the financial crime regimes - money laundering, terrorist financing, sanctions, bribery and fraud - and the market abuse offences that overlay them.
Money laundering and terrorist financing
The three classic stages are placement, layering and integration. The regime is risk-based: customer due diligence, enhanced due diligence for politically exposed persons, high-risk jurisdictions and correspondent relationships, identification of beneficial owners, ongoing monitoring and record keeping. Suspicious activity reports go to the firm's nominated officer and onward to the national financial intelligence unit - the NCA in the UK. Tipping off and prejudicing an investigation are separate offences. There is no de minimis threshold and no requirement for proof: suspicion is enough, and attempted transactions count. Terrorist financing is distinct - often small sums, fundraising and charitable channels - but uses the same reporting architecture.
Sanctions and bribery
Targeted financial sanctions require asset freezes and screening against designated lists. The UK Bribery Act 2010 creates offences of bribing, receiving a bribe, bribing a foreign public official, and the strict section 7 corporate offence of failing to prevent bribery, defended only by adequate procedures. The FCPA prohibits bribery and imposes accounting controls; its narrow facilitation-payment exception is a common trap.
Market abuse
Insider dealing, unlawful disclosure of inside information and market manipulation are the core behaviours. Inside information is precise, non-public and price-sensitive. Attempted insider dealing is an offence, as are benchmark manipulation and spoofing or layering. Defences and safe harbours include legitimate business conduct, properly conducted market soundings, buy-back programmes and wall-crossing. Firms maintain insider and restricted lists, run trade and communications surveillance, and submit suspicious transaction and order reports to the regulator.
Worked example
An analyst is told in a private meeting that a client will announce a takeover. He passes the information to a friend who buys shares. The analyst is exposed for unlawful disclosure; the friend for insider dealing. Had the analyst's firm wanted to trade, the client would have needed to follow the market-sounding procedure and the firm would have been wall-crossed. It is irrelevant that the friend made no profit; the attempt is enough, and cancelling or amending an order can itself be manipulation.
Traps that cost marks
Mixing up the stages of laundering; thinking small sums are not reportable; requiring proof before reporting; forgetting attempted insider dealing; treating a STOR as the same as a SAR; assuming a gifts register alone satisfies the Bribery Act.