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Chapter 4 - COBS and CASS > Chapter 4 - COBS and CASS Focused Deck > Flashcards

Chapter 4 - COBS and CASS Focused Deck Flashcards

1
Q

What are the exceptions to the EEA Territorial Scope Rule?

A
  • Personal Account Dealing

- Financial Promotions

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2
Q

Which activity is exempt from COBS?

A
  • When firms execute client limit orders in respect of each other. (ECPs)
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3
Q

Which activities are subject to COBS?

A
  • Designated Investment Business
  • Life Insurance
  • Accepting Deposits - Financial Promotions
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4
Q

What does COBS consider a durable medium?

A
  • Paper
  • Storage + Retrieval e.g. PC
  • Website if conditions are met
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5
Q

Which activities are covered by COBS for ECP clients?

A
  • Personal account dealing
  • Execution only
  • Receiving and transmitting orders
  • Arranging
  • Ancillary Services
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6
Q

For MiFID large undertakings - Professional client, what are the requirements?

A

Any two of the following:

  • Net turnover = €40 million
  • Balance Sheet = €20 million
  • Firm’s own funds = €2 million
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7
Q

For non-MiFID large undertakings - Professional clients, what are the requirments?

A

Net share capital/assets = £5 million in the last 2 years.

Partnership or unincorporated association with net assets of = £5 million in the last 2 years.

Trustee of a trust = £10 million under management

Pension Fund = £10 million under management and at least 50 members.

Any two of the following

  • Net turnover = €25 million
  • Balance Sheet = €12.5 million
  • Average annual employees = 250
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8
Q

Under MiFID which test(s) must be conducted when recategorising a client as an elective professional client?

A

Qualitative
- Knowledge and expertise

Quantitative:

  • average of 10 significant sized transaction in each of the past 4 quarters.
  • Portfolio of at least €500,000
  • Worked in financial services for at least 1 year
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9
Q

For non-MiFID firms which test(s) must be conducted when recategorising a client as an elective professional client?

A

Qualitative

- Knowledge and expertise

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10
Q

For an elective ECP which test(s) must be conducted for recategorisation?

A

Qualitative:
- Knowledge and expertise

Quantitative if client is a local authority and:
- Has a portfolio of at least £10 million

and

  • has conducted an average of 10 significant sized transactions in each of the past 4 quarters.
  • is acting as the ‘administering authority’ of the Local Government Pension scheme
  • has at least 1 year experience in the relevant bit of financial services.
  • local authority is an EEA state and has additional criteria.
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11
Q

Which firm(s) need to provide Client Agreements?

A
  • Designated investment business - retail clients

- Ancillary MiFID business or third country business - professional and retail clients

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12
Q

Which firm(s) don’t need to provide a Client Agreement?

A
  • Life insurance company acting as principal
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13
Q

What is the record retention policy for client agreements?

A

Longest of:

  • 5 years
  • Duration of client relationship
  • Indefinitely if pension transfer, opt-out or FSVCs.
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14
Q

Which types of firms are exempt from the COBS rules on communicating with clients?

A
  • FPO - HM Treasury
  • unreg CIS
  • Subject to Takeover Code
  • Home reversion/purchase plan
  • non investment insurance contract
  • Personal quotes and illustration forms
  • One-off promotions (not cold calls)
  • Credit
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15
Q

When doesn’t the disclosure that an advert is a financial promotion need to be made?

A
  • In relation to professional and ECP clients
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16
Q

When does the rules on communicating with retail clients get disapplied?

A
  • Prospectus produced by 3rd party

- Excluded comms for non-MiFID business

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17
Q

What does the FCA recommend creators of financial promotions consult when making the promotions?

A

Code of Conduct for the Advertising of Interest Bearing Accounts

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18
Q

Which 4 products cannot be marketed through cold calling?

A
  • High volatility fund
  • Life policy linked to a high volatility fund
  • Packaged non-geared products
  • Warrants
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19
Q

For which types of promotions are authorised firms restricted from approving?

A
  • Real-time promotions

- Unregulated CIS unless able to legitimately promote it themselves.

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20
Q

If certain rules are disapplied for a financial promotion, what must a firm do with regards to the promotion?

A
  • The firm must include a statement in the promotion stating that the rules have been disapplied - e.g. in respect of a professional or ECP client.
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21
Q

Which activities do the rules on suitability apply to?

A
  • Personal recommendations
  • Manage investments
  • Manage a personal, stakeholder or occupational pension (except under MiFID)
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22
Q

For which type of client would a firm need to produce a suitability report for?

A

Retail client

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23
Q

Which types of instruments need a suitability report prepared post the introduction of the MiFID regime?

A
  • Equities
  • Derivatives
  • Life insurance policy
  • Structured products
  • Unregulated CIS
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24
Q

Which types of instruments need a suitability report prepared pre introduction of the MiFID regime?

A
  • Regulated CIS
  • Trust Savings Scheme
  • Stocks and Shares ISA
  • Buy, sell or cancel rights under a pension scheme
  • Income withdrawals from a short term annuity
  • Pension opt-out or transfer
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25
Q

When must a suitability report be provided for a pension scheme?

A
  • Within 14 days of the conclusion of the contract
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26
Q

When must a suitability report be provided for a life insurance policy concluded over the telephone?

A
  • Immediately and through a durable medium.

- The firm will need to comply with the regulations of the Distance Marketing Directive (DMD).

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27
Q

Do suitability reports need to be provided for professional and ECP clients?

A

No - however the firm must consider the ability for an elective professional client to bear losses. They cannot assume that they can.

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28
Q

Which activities are exempt from producing a suitability report?

A
  • Small life policy from a friendly society.
  • Personal recommendation about a regulated CIS
  • If the client is habitually outside the EEA.
  • Recommendation to increase contributions or premiums to an existing packaged product.
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29
Q

To what types of sales do the rules on appropriateness apply to?

A
  • Non advised sales
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30
Q

Which firms are subject to the rules on appropriateness?

A
  • Investment firms (unless management firms since these are covered under suitability rules).
  • Arranging deals in warrants and derivatives in relation to a direct offer promotion for retail clients
  • Assessing appropriateness for another MiFID firm.
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31
Q

When is an appropriateness assessment not necessary?

A

In relation to
- Execution only services
- Receiving and transmitting client orders
and
- the firm complies with Principle 8 of managing conflicts of interest.

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32
Q

Which instruments are exempt from appropriateness rules if done on an execution only basis?

A
  • Holdings in a UCITS fund
  • Shares in a regulated market
  • Money market, bonds and other securitised debt
  • non-complex investments
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33
Q

What is a non-complex investment?

A
  • Not a derivative
  • Has sufficient liquidity
  • It is publicly available and there is sufficient information on it.
  • The liability to the client is not greater than the cost of acquiring the investment.
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34
Q

A retail client is engaged in arranging deals for warrants and derivatives and has been doing so since November 2009 - would an appropriateness assessment be required?

A

Yes, the client would only be considered as having the necessary expertise and knowledge if they had been engaged in that activity before 1 Nov 2007.

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35
Q

Who would have to produce a Key Investor Information Document (KIID)?

A
  • Authorised Fund Managers (AFM)

- UCITS funds

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36
Q

When would a firm not have to produce a KIID?

A
  • It has already provided the information in another document.
  • Another firm has agreed to produce the KIID
  • In relation to reinsurance and pure protection contracts.
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37
Q

When would a Key Features Document (KFD) need to be produced?

A
  • MiFID business for retail clients:
  • Packaged products
  • Key information illustration for packaged products
  • Child Trust Fund (CTF)
  • Cash deposit ISA
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38
Q

What is the definition of a PRIIP?

A

A packaged product that provides exposure to multiple underlying instruments and delivers capital accumulation over a period of time.

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39
Q

Which types of clients are PRIIPS marketed to?

A

Retail clients

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40
Q

What defines what a retail client is?

A
  • MiFID

- Insurance Mediation Directive (IMD)

41
Q

What is the document that needs to prepared for a PRIIP?

A

Key Information Document (KID)

42
Q

Which types of firms need to produce a KID?

A
  • Retail investment companies
  • Life insurance companies
  • Discretionary investment management companies
  • CIS
  • Fund Managers
  • Stockbrokers
  • Operators of a retail distribution platform
  • Financial advisers
43
Q

What are the 4 groups that PRIIP can be classified under?

A
  1. Investment Fund
  2. Insurance-based investment
  3. Structured term deposit
  4. Structured securities
44
Q

To which type of client do the cancellation rules apply?

A

Retail clients

45
Q

What is the notice period for life insurance policies?

A

30 days

46
Q

What is the notice period for pension contracts?

A

30 days

47
Q

When is it not necessary to inform the client of their right to cancellation?

A

When this information has already been provided by the firm or another person under COBS.

48
Q

What is the cancellations record keeping retention period for pension opt-outs, transfer or FSVCs?

A

Indefinitely

49
Q

What is the cancellation records keeping retention period for a life insurance policy?

A

5 years

50
Q

What is the cancellation records keeping retention period for a pension contract?

A

5 years

51
Q

What is the cancellation records retention period for everything else?

A

3 years

52
Q

To which sorts of firms are the rules on Personal Account dealing apply to?

A
  • Designated investment business carried out in the UK
  • Passported activities of an EEA branch of a UK MiFID firm.
  • UK branch of an EEA MiFID firm
53
Q

Can the disclosure of the conflicts of interest policy be made online?

A

Yes - if it is disproportionate to the size of the investment document.

54
Q

In relation to corporate finance companies, what arrangement must be detailed in their conflicts of interest policy?

A
  • Their policy must mention arrangements for pricing and allocation of investment offered to their clients.
55
Q

At what point must a firm disclose their shareholdings in an issuer?

A

When shareholdings are in excess of 5%

56
Q

When do the rules on disclosing conflicts of interest not apply?

A

When disseminating investment information on behalf of someone else.

57
Q

What specific restrictions are placed on financial analysts producing investment research?

A

They are prevented from dealing ahead

58
Q

When can a financial analyst deal ahead

A

If dealing with an instruction only client or a market maker acting in good faith.

Otherwise, will need consent from legal and compliance department.

59
Q

For restricted investment research, over what time period must changes to the output of the research recommendation be made?

A

12 months

60
Q

How often must reporting on conflicts of interest be done?

A

Quarterly

61
Q

What must quarterly reports on conflicts of interest include?

A
  • The proportion of buy, hold and sell orders carried out.
  • The proportion of investments by category, issued by an issuer that a firm has provided investment banking services to in the last 12 months.
62
Q

Which clients are subject to rules on inducements?

A

Professional and Retail clients

63
Q

In respect of portfolio management services, to which types of clients do the rules on inducements apply?

A

Retail clients

64
Q

Can a firm providing independent and restricted advice and portfolio management services, receive fees from non-UK clients?

A

No, unless it is a minor non-monetary benefit

65
Q

Under MiFID can a firm receive non-monetary benefits?

A

Yes, but only if:

  • they are management fees or from a third party
  • are proper fees - settlement, custody fees etc.

and even then, they must not:

  • impair compliance with client best interest duty
  • must be disclosed to the client
  • must enhance the quality of service provided to the client.
66
Q

In relation to inducements, what are the record keeping requirements for MiFID business?

A

Records of payments/benefits must be maintained.

67
Q

When does a non-MiFID firm need to disclose inducements it’s received?

A
  1. In relation to third party payments if it does not impair compliance with the client best interest duty.

Does not need to meet the disclosure and enhancement tests.

  1. In relation to retail non-MiFID business for the sale of packaged products. Reasonable non-monetary benefits do not have to be disclosed.
68
Q

What are the two ways a firm can pay for investment research?

A
  • With own funds

- From Research Payments Account funded through specific research fees charged to client

69
Q

Which firms are not subject to the payment for research rules?

A

Non EEA firms and Non EEA clients

70
Q

Which firms are subject to COBS best execution rules?

A
  • AIFM
  • residual CIS

Required to take all reasonable steps.

71
Q

What must all MiFID firms do in relation to best execution?

A

Take all sufficient steps

72
Q

How often should a report on best execution policies be submitted?

A

Annually

73
Q

Must consent be obtained for a non-MiFID best execution policy to be followed?

A

Yes but can be implied

74
Q

Do portfolio managers have to obtain client consent to proceed with a best execution policy?

A

No, they don’t.

75
Q

With regards to client limit orders, when must an unfulfilled order be disclosed.

A

Immediately, retail client to be informed.

  • Can be made public through MTF or order book trading system.
76
Q

When doesn’t a firm need to make an unfulfilled client order public?

A

If the order is greater than the normal market size.

77
Q

What must be established before an aggregation of client orders can take place.

A

An allocation must be established.

78
Q

When do exemptions to personal account dealing with regards to best execution apply?

A
  • Discretionary management firm where the manager has no prior communication with the relevant person.
  • Fund where the relevant person is not involved in management.
  • Life insurance policies
79
Q

How soon after an order has been confirmed must a firm send confirmation of the deal?

A

No later than the next business day. Also no later than the next business day if the order is received from a third party.

80
Q

How long must firms keep records of order confirmations in relation to MiFID business?

A

5 years from date of dispatch

81
Q

How long must firms keep records of order confirmations in relation to non-MiFID business?

A

3 years from date of dispatch

82
Q

When must investment managers send periodic statements?

A

Quarterly, there are exceptions.

83
Q

When must investment managers send reports for deal-by-deal confirmations or higher risk investments?

A

Every 12 months

84
Q

When must investment managers send reports for portfolios that have been leveraged?

A

Monthly

85
Q

How long must a firm produce and retain a copy of a periodic statement for MiFID business?

A

5 years

86
Q

How long must a firm produce and retain a copy of a periodic statement for non-MiFID business?

A

3 years

87
Q

For retail clients, if a limit is placed on an uncovered open position, when must a firm inform the client of a breach of the limit?

A

By the end of the business day

88
Q

When must a notification of a portfolio depreciation be notified?

A

10% depreciation and every 10% depreciation after that.

Also for each contingent liability or leveraged investment that drops by 10% from the original value.

89
Q

When would the client money rules not apply?

A

In relation to a DvP transaction

90
Q

What are the proforma documents introduced?

A
  1. Client asset disclosure document

2. Acknowledgement letter from the bank

91
Q

How often must an external audit of the client’s assets and money safeguarding systems and controls be conducted?

A

Annually

92
Q

Who does CASS not apply to?

A
  1. ICVCs
  2. incoming EEA firms
  3. UCITS schemes
  4. Credit institution (bank) - BCD
  5. Coins held for their own metal value
  6. DvP
  7. Money due and payable to firm
  8. Business is carried on in firm’s name on behalf of client.
  9. Client transfers full control of assets/money to firm
93
Q

What are the reporting requirements for prime brokers?

A

Daily reporting - disclosure of rehypothecation provisions are required.

94
Q

How much client money can be deposited intra-group?

A

20%

95
Q

When are liens accpetable?

A

In regards to custody services e.g. intra-day payments, contractual settlement and standing lines of credit.

96
Q

How often is the Client Money and Assets Return (CMAR) submitted to the FCA?

A

Monthly - by large and medium CASS firms.

97
Q

What is the body and book responsible for setting the standards of a CASS audit?

A

Financial Reporting Council - Client Asset Assurance Standard (Standard).

98
Q

How long does an auditor have before having to send the client assets report to the FCA?

A

4 months

Chapter 4 - COBS and CASS (8 decks)

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