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CII J07 > 8 - Financial advice - legal & regulatory enviroment > Flashcards

8 - Financial advice - legal & regulatory enviroment Flashcards

1
Q

FCA principles for business

A
  1. Integrity - firm must conduct its business with integrity
  2. Skill, care, and diligence - a firm must conduct its business with skill, care, and diligence.
  3. Management & control - firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
  4. Financial prudence - must maintain adequate financial resources.
  5. Market conduct - observe proper standards of market conduct.
  6. Consumer interest - pay due regard to interests of customers and treat them fairly.
  7. Communication with clients - pay due regard to the information needs of clients and communicate information in a way that is clear, fair, and not misleading.
  8. Conflicts of interest - manage conflicts of interest fairly.
  9. Customers: relationship of trust - take reasonable care to ensure the suitability of advice & discretionary decisions for customers who rely on its judgement.
  10. Clients assets - arrange adequate protection for clients assets when responsible for them.
  11. Relationship with the regulator - open and cooperative and disclose anything the regulator would reasonably expect notice of.
  12. Consumer Duty - Firms must act to deliver good outcomes for customers.
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2
Q

FCA’s strategic objective - operational objectives

A

Integrity
Competition
Consumer protection

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3
Q

CD Cross cutting rules

A
  1. Firms must take all reasonable steps to avoid causing foreseeable harm.
  2. Firms must take all reasonable steps to enable customers to meet their financial objective.
  3. Firms must act in good faith towards customers.
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4
Q

CD Outcomes

A
  1. Consumer understanding
  2. Products and services
  3. Customer service
  4. Price and value
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5
Q

Fair treatment of customers

A

Longstanding regulatory principle that places the customer at the centre of the business.

Based on principle 6 & enforced by COBs 2.1.1 - a firm must act honestly, fairly & professionally in accordance with the best interest of its clients.

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6
Q

Vulnerable customers

A

Vast majority will be vulnerable at some point in their lives - transitional vulnerability.

Characteristics categories to define vulnerability
1. Health
2. Life events
3. Resilience
4. Capability

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7
Q

Health vulnerability

A

Physical disability
Severe or long term illness
Hearing or visual impairment
Mental health condition
Addiction
Low metal capacity or cognitive ability

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8
Q

Health vulnerability

A

Physical disability
Severe or long term illness
Hearing or visual impairment
Mental health condition
Addiction
Low metal capacity or cognitive ability

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9
Q

Life event vulnerability

A

Retirement
Bereavement
Income shock
Relationship breakdown
Domestic abuse
Caring responsibilities
Other circumstances such as leaving care, seeking asylum, modern slavery.

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10
Q

Resilience vulnerability

A

Inadequate or erratic income
Over indebtedness
Low savings
Low emotional resilience

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11
Q

Resilience vulnerability

A

Inadequate or erratic income
Over indebtedness
Low savings
Low emotional resilience

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12
Q

Capability vulnerability

A

Low knowledge or confidence managing finances
Poor literacy or numeracy skills
Poor English language skills
Poor or non existent digital skills
Learning difficulties
No or low access to help or support

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13
Q

ESG

A

Environmental, social and governance.

“Green finance or socially responsible investing or sustainable investing”

Achieving positive consumer outcomes means making appropriate enquiries about clients ESG preferences.

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14
Q

Ethical behaviour - CII code of ethics

A
  1. Comply with the code & all relevant laws and regulations.
  2. Act with the highest ethical standards and integrity.
  3. Act in the best interest of each client.
  4. Provide a high standard of service.
  5. Treat people fairly, regardless of age, disability, gender reassignment, pregnancy & maternity, marriage and civil partnerships, race, religion & beliefs, sex and sexual orientation.
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15
Q

The advice process - 4 broad stages

A
  1. KYC
  2. Analysis of needs
  3. Presentation of recommendation
  4. Ongoing service
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16
Q

COBs Disclosure requirements

A

Adviser status - restricted or full advice

Service to be provided, i.e. in one area or full advice

Cost of the advice - at outset and on an ongoing basis

17
Q

COBs required behaviours (4) and firm specific behaviours (5)

A

Mandatory behaviours
4 main areas
- Disclose status, service & costs
- Establish KYC requirements
- Product or service disclosure
- Cancellation rights & AML

Firm specific requirements
- Full FF rather than limited advice
- explaining how the service proposition is unique
- elements of the firms disclosure they must emphasise
- how they use a specific risk tool to establish ATR
- positioning the use of cash flow

18
Q

Requited and firm specific behaviours

A

Mandatory behaviours
4 main areas
- Disclose status, service & costs
- Establish KYC requirements
- Product or service disclosure
- Cancellation rights & AML

Firm specific requirements
- Full FF rather than limited advice
- explaining how the service proposition is unique
- elements of the firms disclosure they must emphasise
- how they use a specific risk tool to establish ATR
- positioning the use of cash flow

Other non mandatory areas might include soft skills:
People skills
Questioning- open or closed
Understand the clients needs in terms of pace & detail/complexity of the meeting
Dealing with client questions
Clarity of explanations
Ability to build rapport

19
Q

Role of T&C supervisor

A

Monitor conduct and the fair treatment of customers.

Improve and develop the skills of the advisor.

20
Q

T&C supervisor - 3 main elements of the observation process

A
  1. Pre meeting
    - Jointly agree what they want to get out of the observation
    - Ensure the adviser knows what is being observed and the required standard
    - Agree how the supervisor will be introduced and in what circumstances they will intervene
    - confirm what the adviser hopes to achieve with the client
    - agree time, location etc.
    - Supervisor explain what happens after observation
    - Previously identified development needs regarded to see if they have been resolved
    - where recommendations being made to the client, they should be reviewed for completeness.

During the meeting
- introductions as agreed
- remain unobtrusive
- observe and record evidence on observation aid
- intervene where asked or if necessary

Post meeting
- Ask adviser for their views - self appraisal
- Provide feedback by evidence
- Reconcile differences
- Agree development plan

21
Q

3 stages of money laundering

A
  1. Placement of illicit cash through financial institutions - banks, building societies, into collective investment schemes.
  2. Layering - series of transactions designed to conceal the origin of the illicit money. False names, ficticious transactions, swift movement of money.
  3. Integration - finally converted into the proceeds of a legitimate business.
22
Q

Personal responsibility in relation to AML

A

Knowingly assisting in laundering crimes - up to 14 years imprisonment & or a fine

Failure to report suspicion of money laundering - upto 5 years in prison & or a fine.

Tipping off - upto 5 years imprisonment and or a fine.

23
Q

Money laundering & terrorist financing regulations 2019 (MLR 2019)

A

MLR 2019 introduced a:

  • a wider definition of high risk factors to include where a party is based in a high risk country or the beneficiary of a life policy.
  • strengthening due diligence relating to the beneficial owner of corporate clients
  • requirement for regulated firms to report to Companies House any discrepancies between the information they hold on their customers compared to Companies House records.
24
Q

Money laundering & terrorist financing regulations 2019 (MLR 2019)

A

MLR 2019 introduced a:

  • a wider definition of high risk factors to include where a party is based in a high risk country or the beneficiary of a life policy.
  • strengthening due diligence relating to the beneficial owner of corporate clients
  • requirement for regulated firms to report to Companies House any discrepancies between the information they hold on their customers compared to Companies House records.
25
Q

Key money laundering requirements for regulated firms are….

A
  • Take a risk based approach (MLR2017 introduced a black list of high risk jurisdictions that require enhanced due diligence)
  • Undertake customer due diligence
  • If customer not present, undertake enhanced due diligence
  • Simplified due diligence if low risk
  • PEPs - consideration of whether enhanced due diligence required.
  • conduct ongoing monitoring of business relationships.
26
Q

Identification requirements

A

Identify customer by obtaining information such as name, address & DOB.

Verify the information through independent documents or information.

27
Q

Data protection principles

A
  1. Lawfulness, fairness and transparency - lawful basis to obtain, processed fairly and firms should be open and honest about what they are processing and why.
  2. Purpose limitation - info should not be used for anything other than the purpose it was obtained in the first place.
  3. Data minimisation - only collect what you need.
  4. Accuracy - accurate and up to date.
  5. Storage limitation - only keep for as long as needed for original purpose.
  6. Integrity and confidence - appropriate security measures to protect data.
  7. Accountability - take responsibility for what they do with the data. Provide information via a privacy notice.
28
Q

Lawful processing of data (DP)

A
  1. Consent - given freely & distict from other T&Cs. Must be positive opt-in. Simple process to withdraw consent.
  2. Contract - it must be necessary to fulfil a contract.
  3. Legal obligation - necessary to comply with the law.
  4. Vital interests - necessary to protect someone’s life. Limited in scope and only applies to life and death situations.
  5. Public task - public authorities in order to perform a task in the public’s interest.
  6. Legitimate interest - necessary for an organisations legitimate interests.
29
Q

DP legislation rights

A
  1. Right to be informed - told about the collection and use of data, retention period and who it will be shared with.
  2. Right of access - right to know if storing data & right to receive a copy (SAR).
  3. Right to rectification - inaccurate data corrected.
  4. Right to erasure - “right to be forgotten” Right not absolute & only in certain circumstances.
  5. Right to restrict processing - right to restrict or suppress use of data. Maybe store but not use.
  6. Right to data portability - have personal data transferred in safe, secure way. Allows data subjects to use applications or services to find a better deal.
  7. Right to object - can object in certain circumstances. Can stop data being used for marketing.
  8. Rights in relation to automatic decision making & profiling - has the right not to be subject to a decision made by automatic processing or profiling. Must be able to obtain human intervention and challenge decision.
30
Q

FCA definition of a complaint

A

Any oral or written expression of dissatisfaction, whether justified or not, from or on behalf of a person, about the provision of, or failure to provide, a financial service which alleges the complainant has suffered, or may suffer a financial loss, material distress or material convenience.

31
Q

Complaints - Consumer awareness rule

A

Firms must:
- Publish details of their internal process for dealing with complaints

  • refer eligible complainants in writing to these details at or just after the point of sale
  • provide the details on request or when acknowledging a complaint
32
Q

ESG objective examples for a firm

A

Environmental - contribution to preserve the environment.
Zero carbon emissions
Recycling/ responsible waste management.

Social - Supporting people and society
Supporting charities, encouraging diversity and inclusion, promoting openness towards mental health.

Governance - the way a business is run
Hiring and onboarding practices, board make up & supervision practises.

33
Q

Complaint resolution rules

A

A firm must:

  1. investigate the complaint competently, diligently and impartially.
  2. Assess fairly, consistently and promptly.
  3. Offer redress or remedial action when appropriate.
  4. Explain the assessment, decision and what remedial action or redress being offered, clearly and promptly.
  5. When remedial action or redress accepted, comply promptly.
34
Q

Complaint resolution rules

A

A firm must:

  1. investigate the complaint competently, diligently and impartially.
  2. Assess fairly, consistently and promptly.
  3. Offer redress or remedial action when appropriate.
  4. Explain the assessment, decision and what remedial action or redress being offered, clearly and promptly.
  5. When remedial action or redress accepted, comply promptly.

CII J07 (22 decks)

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