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Regs Exam > Chapter 4 (FCA Conduct of Business Sourcebook/ Client Assets > Flashcards

Chapter 4 (FCA Conduct of Business Sourcebook/ Client Assets Flashcards

1
Q

When does a retail client need to be assessed for appropriateness?

A

For non-advised services (execution and arranging) in complex products (derivatives and warrants)

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2
Q

Financial advisers acting for retail clients must not accept commission for their services, but a fee instead. Which piece of regulation stipulates this rule?

A

The Retail Distribution Review

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3
Q

A firm may treat a client as an elective professional client for non-MiFID business if:

A

The qualitative test is passed and there is a statement that protection will be lost

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4
Q

When can a retail client expect to receive information regarding their right to cancel an agreement to purchase units in an authorised unit trust?

A

Before (or where that is not possible, immediately after) the consumer is bound by the contract; and they must do so in a durable medium.

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5
Q

What is ‘client money’?

A

Any money ‘due to the firm’ is not client money.

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6
Q

Who does the COBS apply to

A

Firms conducting designated investment business (dealing; broking; advising; managing, and includes all MiFID instruments and non-MiFID designated investments), firms conducting insurance business (only business-related ones like life assurance) from an establishment maintained by them, and indirectly to appointed representatives

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7
Q

5 conditions where firm is allowed to communicate with via a website

A

Evidence its appropriate method of communication; client has consented to it; client is notified of website; info is kept up to date; info is continuously accessible to client

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8
Q

How long should good quality voice/electronic record be kept for

A

5 years

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9
Q

Who can opt up to an eligible counterparty?

A

Large undertakings

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10
Q

To be defined as a large undertaking, company must satisfy what

A

At least 2 of:
Balance sheet €20m
Net turnover €40m
Own funds €2m

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11
Q

What criteria do MiFID businesses who are retail clients need to meet to opt up to elective professional client?

A

Qualitative test, and quantitative test (meet 2 of the following 3:
Average trade frequency 10/quarter over previous 4 quarters
Portfolio > €500k
Works or worked in financial sector for at least 1 year in professional capacity

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12
Q

What are per se eligible counterparties?

A

Certain per se professional clients (authorised/regulated firm; CB; gov’t; supranational) who are conducting eligible counterparty business (i.e., dealing with one another)

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13
Q

What is needed for a firm to rely on info from a non-MiFID firm?

A

Info in writing; non-MiFID firm is independent of info subject; non-MiFID firm is competent

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14
Q

S21 FSMA 2000 says that a firm must not communicate a financial promotion unless what

A

It is an authorised person, or the content has been approved by an authorised person

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15
Q

Criteria for showing past performance

A

Must cover at least 5 years in complete 12-month periods; reference periods and sources must be shown; state its not an indicator of future performance; if relevant currency stated and warning of currency risk; disclose effect of fees and commissions (i.e. show net returns as well as gross returns)

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16
Q

Criteria for showing simulated past performance

A

Must be based on actual performance of a similar investment/index and comply with same rules as past performance

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17
Q

Criteria for showing future performance

A

Project with reasonable assumptions; disclose net returns (show fees and commissions); warn forecasts are not reliable indicators; DONT use future performance based on simulated past performance

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18
Q

What must a direct invitation from a financial promotion to an investment contain?

A

Info about the firm and its services, the safekeeping of client investments and money, and costs and charges

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19
Q

What must the distance marketing directive contain?

A

The right to cancel (in UK generally 14 calendar days, and 30 for life and pension products)

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20
Q

What must an unwritten promotion identify at the start

A

Caller name; employer; purpose of call

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21
Q

What else must the unwritten promotions do?

A

Ask whether client wishes to continue with call, and terminate if they want, provide client with contact point in event of a cancellation, communicated at an appropriate time of day

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22
Q

When is cold calling only permitted

A

For an existing client expecting a call, for all retail clients where promotion relates to generally marketable packaged products - not derivatives - (i.e., regulated investment scheme, investment trust savings scheme, pension scheme) and services relating to readily realisable securities other than warrants

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23
Q

Process for remuneration disclosure for adviser serving client

A

Advisers charges agreed in advance with client ‘as early as practicable’ in a durable medium or via website (no commissions allowed and clients can pay upfront or have it deducted from investment over time)

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24
Q

In a research payment account, firm must disclose what

A

Budget (and charges) before providing services, and annual information on the total costs each customer has incurred for 3rd party research

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25
Q

When can a firm ‘front run’

A

When its a market maker acting in good faith (normal course of business), or when doing unsolicited client orders

26
Q

Rule on personal account dealing doesnt apply to personal transactions when

A

Funds are managed independently, shares in certain classes of fund (e.g., regulated collective investment schemes), life policies

27
Q

Prescribed info for order execution policy

A

A list of execution venues, factors that will affect firms choice of venues, warning about specific client instructions

28
Q

Generally, how should orders be done in client order handling

A

Promptly recorded and allocated, carried out sequentially (FIFO)

29
Q

Exceptions (notify retail client) for order handling

A

Interests of client, material difficulty

30
Q

Requirement to confirm a transaction to clients

A

In a durable medium and no later than the next business day

31
Q

Timings for periodic statements

A

Suitable intervals, and generally ever 3 months, unless derivatives are in portfolio then every month

32
Q

When should you send out a depreciation notice

A

If during a period of assessment, there’s a 10% fall in the portfolio value

33
Q

How often should you reconcile records of client asset balances

A

As often as necessary

34
Q

Other reconciliation to client rules

A

Shortfalls corrected as soon as possible (close of business on day of reconciliation), write to FCA if unable to reconcile

35
Q

When is CASS audit required

A

Annually and submitted to FCA within 4 months of audit

36
Q

What is a mandate account

A

Where client gives a firm control over their assets/ liabilities - firm must establish and maintain adequate records and controls

37
Q

General time limits for record keeping

A

Non-MiFID: 3 years from date of dispatch
MiFID: 5 years from date of dispatch

38
Q

Record keeping for telephone communications

A

5 years from creation of record

39
Q

If client has/doesn’t have a contract, 2 different scenarios for record keeping

A

Has: Record from end of contract/relationship
Doesn’t have: Record from dispatch

40
Q

If a retail MiFID client has opted up successfully but then falls short of quantitative criteria after some time, what should happen?

A

Reclassify the individual as a retail client and notify the client of the action

41
Q

The FCA implemented changes under UK MiFID that fund managers do not have to pay if the research provided relates a company with a market market capitalisation below:

A

£200m

42
Q

If a client is unwilling to provide sufficient information for a firm to assess suitability in respect of a personal recommendation, what should the firm do next?

A

Act for a professional client on a non-advised execution only basis as long as the client provides instruction for the trades

43
Q

The custody rules do not apply to delivery versus payment transactions if…?

A

Delivery occurs within 3 business days

44
Q

3 examples of a packaged product according to COBS

A

Regulated investment scheme, investment trust savings scheme, pension scheme, regulated CIS

45
Q

What must the firm’s conflict of interest policy ensure?

A

All groups have sufficient guards on the information flow between each other (not necessarily Chinese Walls)

46
Q

A firm wishes to execute a client order outside a regulated market or multilateral trading facility. When would this be permitted under the FCA conduct of business rules?

A

If there is prior consent from the client

47
Q

According to COBS, what is not considered an execution venue?

A

Retail broker

48
Q

When is the FCA’s Conduct of Business Rule relating to suitability required? When the firm is performing:

A

Discretionary MiFID services on behalf of retail and professional clients

49
Q

When a firm uses a website to promote a product and gives the facility for an online application this would be considered to be?

A

Direct non real-time offer

50
Q

4 things in best execution criteria

A

Client categorisation; type of order; type of investment; execution venues (and for a retail client, costs payable to the execution venue)

51
Q

A firm has just executed an order for a retail client. Within what period of time must the confirmation of trade be sent?

A

Within 1 business day

52
Q

The FCA rules on financial promotions expand which Principle for Businesses?

A

Customers’ interests

53
Q

The COBS relating to financial promotions require an individual with appropriate expertise to check that the promotion is fair, clear and not misleading. For which of the following types of financial promotion is such a confirmation exercise required before issue?

A

Non real-time financial promotions

54
Q

To whom do the client money rules apply?

A

All clients

55
Q

If a firm communicates with a client solely by telephone, when must information on any agreement be provided?

A

In good time before the consumer is bound by a distance offer or contract

56
Q

When is the KID (Key Information Document) required?

A

For advice on structured products, funds, and derivatives

57
Q

What are proper fees?

A

Those necessary for the provision of business (e.g., custody costs, settlement fees, legal fees); office
software wouldn’t count as a proper fee

58
Q

To whom should a firm produce a document about compensation claims when carrying on MiFID business?

A

All clients

59
Q

According to the FCA Conduct of Business Rules Sourcebook, which of the following is the best definition of durable media?

A

Media that can be accessed by clients and allows unchanged reproduction of the information

60
Q

With regard to financial promotions, the need to be ‘fair, clear and not misleading’ applies to:

A

Retail clients only

61
Q
A

Regs Exam (5 decks)

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