10 UK Regulatory Environment (2) Flashcards
List the five sections of the Conduct of Business Sourcebook (COBS) that are most relevant to SA2. (5)
COBS2: Conduct of Business Obligations.
COBS4: Communicating with clients, including financial promotions.
COBS6: Information about the firm, its services and remuneration.
COBS13: Preparing product information.
COBS20: With profits
Summarise the rules of COBS4: Communicating with clients, including financial promotions. (3)
- All communications with customers must be clear, fair and not misleading.
- Separate treatment is given to cold calls and other promotions that are not in writing.
- Specific rules are included in the way that past performance can be used in financial promotions.
Summarise the rules of COBS6: Information about the firm, its services and remuneration. (4)
- The rules require the disclosure of certain information to customers when contact is first made.
- A prospective policyholder must receive an “initial disclosure document” (IDD) which includes information on the nature of the firm and its services and how it is remunerated for them.
- The IDD will also state whether firm is providing independent, restricted or no advice.
- There are also details of calculating “commission equivalence” amounts (updated from 1/1/13 to allow for RDR).
Summarise the rules of COBS13: Preparing product information. (6)
- A prospective policyholder must receive at or before the point of sale a customer-specific “key features” document.
- The KFD must include a table with four columns of figures for each of the first 5 years of the contract and for each 5th year thereafter:
- Total premiums paid to date
- Total charges to date
- The effect of deductions to date
- The surrender or transfer value that may be available
- Projections of the maturity benefits must be shown based on the central rate of return along with a lower and higher rate of return. The effect of charges on the central assumption is also shown as a reduction in yield figure.
List the four main areas that COBS20 (with profits) covers. (4)
- TCF
- PPFM
- Communications with policyholders
- With-profits governance.
What do the rules cover in COBS20. (7)
- MVRs - Detail on the circumstances in which MVRs can be applied.
- Distributions - Circumstances under which bonus distributions can be made or surplus transferred.
- NB - The terms on which with profits new business should be accepted.
- DIE - The process for reattribution of the inherited estate.
- Run-Off - Details required in run-off plans if firms close (or effectively close) to new business.
- CVAS - The use of target payout ranges.
- WPC - The establishment and responsibilities of a With-Profits Committee to inform the decision making of the firm’s governing body.
List ten areas covered by a PPFM. (10)
- Payouts - how they are determined:
- RB policy
- TB policy
- Smoothing policy
- Charges and expenses
- Equity
- Between generations of policyholders (DIE)
- Between policyholders and shareholders
- Investment strategy
- Business risk and how it is managed
- Closure to NB
Summarise seven particularly important requirements relating to the PPFM. (7)
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- Drafting - the PPFM should not be cautiously or broadly drafted.
- Funds - a company with >1 with-profits fund can decide whether to have >1 PPFM.
- Notice - 3 months notice must be given for changes to principles whereas it is ok to inform retrospectively within 12 months for changes to practices. Only policyholders affected need be notified.
- Cross-subsidies - a company must detail its practice with regard to cross-subsidies between different generations of policyholders.
- Scope - the PPFM need only cover issues that are reasonably foreseeable and that may impact the with-profits business.
- Availability - the PPFM need only be made available on request.
- Assessment of Compliance - a company’s governance must involve an independent assessment e.g. by a with-profits committee of whether the fund has been run in compliance with the PPFM. The independent assessor must produce an annual report.
What does COBS2 cover? (2)
- COBS2 is the Conduct of Business Regulations.
- The rules require a firm to act honestly, fairly and professionally in accordance with the best interests of the client.