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R01 2023 > 8 - The Regulatory Advice Framework > Flashcards

8 - The Regulatory Advice Framework Flashcards

1
Q

Product Information

What are the FCA rules in packaged retail and insurance-based investment products

A

Key information document (KID)

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2
Q

Product Information

What are the FCA rules for non packaged retail and insurance-based investment products

A

Key Features Document (KFD)

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3
Q

What are the FCA rules for Collective Investment Scheme Investments

A

Key investor information Document (KIID)

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4
Q

Product Information

2022 - What did the FCA do to retail disclosure requirements?

A

Removed requirements for PRIIPs to display performance scenarios in KID

Introduced narrative description of disclosure

Treatment of venture capital trusts with regard to risk score shown on KID. VCT must have minimum risk score of 6/7

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5
Q

Product Information

Pure Protection Life policies - what is requirements that firms must undertake

How long is it kept for?

A

Send customer information by Solvency II Directive

Kept for 6 years

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6
Q

What documents does life office carry if they make profits?

A

Principles and practices of financial management

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7
Q

Financial Guidance

Two types of guidance

A

Provider guidance - product information supplied by one of providers representive directly to customer

Generic guidance - Generic information given to an individual on a type of product, as opposed to a specific product

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8
Q

Money and Pension Service (MaPS) - what does it aim to do

A

Launched in 2019 - To help improve people’s ability to manage money and debt more effectively by promoting financial inclusion

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9
Q

Money and Pension Service (MaPS) - 5 core functions

A
  1. Pension Guidance
  2. Debt Advice
  3. Money Guidance
  4. Consumer Protection
  5. Strategy
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10
Q

Financial Guidance

Pension Wise - what is it? Who is it available for?

A

Free impartial government service to help individuals over age of 50, with defined contribution pension schemes that require them to decide how to take benefits in retirements.

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11
Q

Financial Guidance

Six outcomes firms must achieve (FCA)

A
  1. Consumers confident that fair treatment of customers is central to firms culture
  2. Retail products and services are designed to meet the needs of identified consumers groups and are targeted accordingly
  3. Consumers are provided with clear information before and after sale
  4. Consumer advice is suitable and takes account of their circumstances
  5. Products perform as firms have led them to expect. Service is an acceptable standard
  6. Consumers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint
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12
Q

Consumer Duty

When did it come into force?

A

Came into force 31st July 2023 for new and existing products and from 31st July 2024 for closed books of business

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13
Q

Consumer Duty

What does it aim to do

A

Improve consumer outcomes by ensuring all firms consider the needs of retail clients and explicitly set ‘a higher standard of care across all retail markets’ (FCA CP21/36).

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14
Q

Consumer Duty

What are the three steps in Consumer Duty

A
  1. The consumer Principle
  2. Overarching cross-cutting rules
  3. Four Outcomes
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15
Q

Consumer Duty

What is Princple 12?

A

A firm must act to deliver good outcomes for retail clients

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16
Q

Consumer Duty

What is conduct rule 6?

A

You must act to deliever good outcomes for retail customers

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17
Q

Overarching Cross-cutting rules (FCA) what should firms do

A
  1. Act in good faith towards retail customers
  2. Avoid causing foreseeable harm to customers
  3. Support customers to pursue financial objectives
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18
Q

Consumer Duty

What are the Four Outcomes?

A
  1. Products and Services
  2. Price and Value
  3. Customer understanding
  4. Customer Support
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19
Q

Financial Advisers

Information about firms

Services

A

General requirement is to communicate information on the firm, it’s services and their fees in a fair, clear and not-misleading way.

Independent or restricted

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20
Q

Financial Advisors

Indepdendent financial Advisor

A

A firm presenting itself as providing independent advice may provide broad and general advice, or specialist and specific advice (focused independent advice)

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21
Q

Financial Advisors

Independent financial advisors

What do they not need to offer

A

Firms do not need to offer pension transfer/long term care insurance advice

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22
Q

Financial Advisors

Restricted Financial Advisors

Definition

A

a personal recommendation to a retail client in relation to products which is not independent advice’

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23
Q

Financial Advisors

Restricted Financial Advisors

Single-Tied Advisors

A

Restricted to one marketing group

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24
Q

Financial Advisors

Restricted Financial Advisors

Multi-tied

A

Restricted to a number of product providers

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25
Q

Financial Advisors

Restricted Financial Advisors

Whole of Market

A

These are restricted in terms of the types of products they can advise on, but offer impartial advice that considers all providers of those products. The adviser must explain exactly how their advice is restricted.

26
Q

Core Investment Advice Regime

Definition. What did it allow?

A

Allow restricted and independent advice firms to offer a service with customers with lower qualification threshold than full advice

Allowed for advice for customers who have excess cash holdings that could benefit from investing.

Note: only at consultation stage

27
Q

Financial Advisors

Charges

6 rules

A
  1. Firm should not charge different rates for different providers that could both be suitable for clients needs
  2. Adviser charges must be disclosed up front
  3. Fees should be inline with level of service provided
  4. Ongoing chargies only levied where an ongoing service is provided
  5. Fees should be discussed in monetary terms - not percentages
  6. Advisory fees can be deducted by provider in form of charges - facilitation
28
Q

Stakeholder products (range)

3

A
  1. Short-term deposit-based stakeholder product
  2. Medium-term collective or life stakeholder product and
  3. Long-term stakeholder pension scheme
29
Q

Charges for stakeholder product

A

Providers of medium-term investment product and pension product

Maxiumum annual charge of 1.5% of value of plan/pension each year

Reduce to 1% after 10 years

30
Q

Financial Promotions

Where rule does not apply

A

Financial communications rules don’t apply to:

  • communications to one recipient;
  • specific product for a specific recipient;
  • personal quotations or illustrations;
  • a promotion containing only:
    • firm name
    • contact point
    • logo
    • brief factual description of firm
    • activities
      * fees
    • products
31
Q

Financial Promotions

Non-Real time Promotions (ie written)

Rules

A

Approval - By an individual with the appropriate expertise to verify it meets the rules. Promotion must be regularly reviewed if ongoing and withdrawn if it fails rules.

Records - Keep records on usual indefinite, 6 year (Life and pension contracts), 5 year (all others in case MIFID or MIFID), 3 year basis (non -MIFID(including the approver name).

Content - Include firm and address/contact point. Fair, clear and not missleading.

Past Performance - Usual statement.

Tax - If it refers to tax must state that tax treatment depends on individual circumstances and may be subject to change.

32
Q

Financial Promotions

Real time promotions

Rules

A
  • Fair, clear and not missleading
  • Make clear the purpose of the promotion at the start, identify themselves and their firm
  • If communication wasn’t previously approved, check the recipient wishes them to continue
  • Give recipient a contact point
  • Not at an unsocial hour, unlisted phone number or without permission
33
Q

Financial Promotions

What is required by firms who offer direct Offer Promotions

A
  • Confirmation firm is regulated by FCA;
  • Full name & address of person offering the investment (and of person authorising the promotion if different)
  • If promoter can’t hold client money, name of person payment should be made to
  • Details of charges and expenses
  • Details of related commissions or remuneration
34
Q

Direct Offer Promotions

Potential customers should also receive

A
  • Confirmation that the firm can be contacted for advice, an IFA should be contacted if the firm doesn’t offer advice
  • General description of the nature and risks
  • Summary of the taxation of the investment and taxation consequences for the average investor.
35
Q

Financial Promotions

Unsolicited real-time financial promotions (cold-calling)

Rules

A

This must not be done unless the recipient has an established customer relationship with the firm, or the promotion relates to a generally marketable packaged product which is not a higher volatility fund (or a life policy linked to one).

36
Q

Financial Promotions

E-Commerce

Rules

A
  • Minimum information (name, address, email) easily, directly, permanently available
  • FCA stats disclosure given along with Financial Services Register number
  • Clear information about services
  • Information on how to place an order
  • Means of identifying and correcting input errors prior to making an order
  • Orders acknowledged without delay, although they don’t have to be accepted.
37
Q

Advice

Know your customer (KYC)

What if client gives information

Record Keeping

A

If a client declines to give details on any given subject (particularly income), the adviser should record this on the fact-find and any suitability report for future reference.

Where a firm arranges a pension opt-out or pension transfer from an occupational pension scheme for a retail client it must keep a clear record indefinitely, even if no advice was given or the advice was not to transfer.

38
Q

Advice

Suitability Report

When is it required

A
  • Buying or selling OEICs
  • Takes up insurance based contract
  • Income Withdrawls
  • Purchases short term annuity
  • Enters into pension opt out
  • Takes up life Policy
39
Q

Suitability Report

What does it contain

A
  • Specify advice given and how it meeets preferences of client
  • Why firm has concluded recommendation is appropriate
  • Any disadvantages of transaction
40
Q

Advice

Suitability Report

When is it sent (Timing)

A
  • Investment (Before transaction is concluded)
  • Pension transfer (before transaction is concluded)
  • Personal pension scheme (not life policy) no later than 14th day after contract is concluded
  • Life policy (before contract is concluded (unless info is provided orally)
  • Otherwise asap contract ended
41
Q

Advice

Suitability Report

When is it not required

A
  • Firm acting as investment manager for a retail client makes a personal recommendation relating to a regulated OEIC
  • Client is habitually resident outside UK. not present in UK when consenting to proposal form
  • Personal recommendation is made to increase a regular premium to existing product where previous single premiums have been paid
42
Q

Advice

Application Form

Who should complete?

A

Client knows what they apply for - especially for life assurances. Make sure it is signed and client agrees with information

43
Q

MIFID II

What is it?

A

Markets in Financial Instruments Directive II - improve functioning of financial markets and strengthen investor protection

44
Q

Who is exempt from MiFID

A

Financial advisors who do not hold client assets or money are classified as exempt. Article 3 firms - MiFID optional exemption firms. (sitill subject to a number of requirements - but not whole range)

45
Q

Who monitors MiFID

A

MiFID II is implemented and monitored by each of the EU’s member-state regulators (local, unlike MIFIR which is based centrally)

46
Q

MIFID II main requirementsof firms

General

A
  • Disclosure of costs and charges that relate to their retail recommendations
  • Product governance
  • Describing advice services
  • Structured deposit
  • Suitability
  • Recording conversations
  • Inducements
47
Q

Insurance Distribution Directive

What did it aim to do

A

The IDD aimed to enhance consumer protection when buying insurance (including general insurance, life assurance and insurance-based investment products (IBIPs)), and to support competition between insurance distributors by creating a level playing field.

48
Q

Client Relationships

Retail Clients
Professional Clients
Eligible Counterparty

A

Retail clients are not eligible counterparties or professional clients and are offered the greatest amount of protection under FCA rules.

Professional clients can be either “per se” or “elective”. Elective does not satisfy per se definitions but are still professional clients rather than retail

Eligible counterparty can only be applied to clients in respect of eligible counterparty business

49
Q

Professional clients ‘per se’

A
  • Credit instiution
  • Investment firm
  • Insurance company
  • Autohrised or regulated financial institutions
  • Institutional investor
  • MiFID business - large undertaking - balance sheet total 20m euro, net over 40m euro or funds of 2m euro
50
Q

Transition from retail client to elective professional

Elective professional requirements

A

Quantitative test:

Client has carried out transaction in relevant market at average frequency of 10 per 1/4 over previous 4 quarters

Size of client financial instrument portfolio, defined as including cash deposits and financial instruments exceeds 500 thousand euros

Client worked or has worked in financial sector for 1 year in professional position

51
Q

Types of client in insurance business

A

Consumer - person who acts for purpose outside trade or profession
Commercial Consumer - customer who is not consumer
Customer - refers to both consumers and commercial customers

52
Q

Client Relationships

Status disclosure

Information of firm on first contact (8)

A
  • Name and address of firm
  • Methods of communications to be used
  • Firms regulatory status
  • Details of how firm is paid
  • Details of services provided
  • Details of loans and ownerships
  • How to complain
  • Coverage of FSCS
53
Q

Client Relationships

Charges

Disclosure related to charges

A

Firm must disclose the basis of it’s charges and details of any income receivable by it or it’s associate due to that business.

Before arranging a retail investment product they must disclose any remuneration payable by it to it’s employees or agents.

54
Q

Client Agreement (Terms of business)

Records - how long should they be kept for

A

Must provide to client before conducting business
Records of client agreements
* Five years
* Duration of relationship with client
* Pension transfer, pension conversion - indefinitely

55
Q

Types of Service

4 different types offered

A
  • Best Execution - mainly applies to s&s not life assurance, OEICs, firms take steps to ensure transaction is carried out best
  • Execution Only - investor states exactly what they want and does not receive any advice cannot complain to FOS
  • Limited Advice - limited advice rather than full financial review - advisor should record on fact find.
  • Non-advised sales - No personal recommendation is made to client, but still give sufficient information on products
56
Q

Insistent Clients

Definition

A

An insistent client is characterised as follows:
the firm has given the client a personal recommendation;

the client decides to enter into a transaction which is different to that recommended by the firm in the personal recommendation; and

the client wishes the firm to facilitate that transaction.

57
Q

Introducer Organisations 4 categories

organisations that introduce business to firms

A
  1. Authorised by FCA
  2. Regulated by a Designated professional Body
  3. Exempt firms
  4. Not Fca - accredited
58
Q

Client relationships

Cancellation rights

By product

A

14 days:
* Cash ISA
*Designated investments when sold at distance

Units in regulated collective investment scheme, transfer of child trust fund, open or transfer an ISA and EIS - only when sold face to face

30 days
Life Policy (including pension annuity or within wrapper)
Personal stakeholder pension, pension transfer, variation of existing personal stakeholder pension, personal recommendations for lifetime ISA (non-distance)

59
Q

Cancellation rights

A

A client can exercise a cancellation right by serving notice on the provider by post or in any other manner the provider states is acceptable.

The right is only valid if served on the provider (or its AR) within the time limit but if sent by post it is treated as served when posted, not when received. The provider must keep records of cancellation and withdrawal for the standard periods.

60
Q

Record keeping

Duration

A
  • indefinitely - pension transfer
  • 5 years - life policy ,pension contract, lifetime isa, stakeholder pension scheme
  • 3 years in other case
61
Q

Monitoring and Reviewing client plans

Ongoing monitoring

How often should clients meet

A

Periodic assessment - annual assessment for clients (Under MIFID II)

R01 2023 (11 decks)

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