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Regs > Chapter 4 The FCA Conduct of Business and Client Asset Sourcebooks > Flashcards

Chapter 4 The FCA Conduct of Business and Client Asset Sourcebooks Flashcards

1
Q

Who does COBS apply to

A

Directly to firms conducting designated investment business or insurance business

Designated investment business includes dealing, broking, advising and managing MIFID instruments (shares bonds derivatives) and non MIFID instruments (packaged products, retail investment products etc)

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2
Q

How long should recording voice or electronic communications be kept for

A

5 years

Applies to communications with any client, or eligible counterparty

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3
Q

How does COBS apply to appointed representative

A

Indirectly. They are tied agents

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4
Q

Describe Retail Clients

A

Little knowledge/experience. Can opt up to be a elective professional client.
Has to take qualitative test and quant test (if its a MIFID business)

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5
Q

What are customers

A

NOT eligible counter parties

RC and PC only

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6
Q

Describe quant test for RC to opt up

A

Meet 2/3

-Portfolio> 500k EUR

-Average trade frequency 10 per quarter over previous 4 quarters

  • Works or worked in financial sector for >1 year
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7
Q

Describe per se professional clients

A

Per se
-Authorised/ regulated firm

  • Government, CB, Supranational
  • Other institutional investors eg SPV
  • Large undertaking
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8
Q

Conditions that large undertaking needs to satisfy

A
  • Balance sheet 20mEUR
  • Net turnover 40mEUR
  • Own funds 2mEUR

Above is for MIFID business. Non MIFID is different

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9
Q

Difference between per se and elective PC

A

Per se is normal

Elective professional client is retail client who opted up

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10
Q

Describe per se eligible counterparties

A

When per se professional clients deal amongst themselves they are treated as equals and known as per se eligible counterparties.

Can be
- Authorized/ regulated firm
- Gov, CB, Supranational

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11
Q

Describe elective eligible counterparties

A

Professional client who has opted up to be EEC

Available to any large undertaking (per se pc)

No available to other institutional investors eg SPVs

Procedure is you just have to obtain client info

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12
Q

What does FSMA 2000 say about promotions

A

Must not communicate a financial promotion unless

  • It is an authorised person
  • Content has been approved by an authorised person
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13
Q

Exceptions on FCA rules on communications of financial promotions

A

Communications

  • Exempt under FPO
  • From outside UK
  • Subject to takeover code or similar
  • Personal quotes
  • One-off promo thats not cold call
  • Image advert
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14
Q

Where do COBS communication rules apply

A

Retail clients only

written and unwritten comms

Fair, clear, not misleading

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15
Q

Main rules when showing past performance

A

Cover at least 5 years (or life of investment) in complete 12-month periods

State that it is not an indicator of future performance

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16
Q

Describe Distance Marketing Directive cancellation

A

Generally right to cancel OTHER PRODUCTS (eg ISAs) 14 calender days

30 calender days for life and pension products

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17
Q

Direct offer

A

Type of financial promo. Eg do application form

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18
Q

Permitted cold call features

A
  • Existing client envisages call
  • Marketable packaged product not highly volatile

Services related to realizable securities e.g. shares and bonds in liquid market. NOT WARRANTS

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19
Q

Suitability vs Appropriateness rules

A

Appropriateness rules apply to execution only business. Applies to MIFID business (RC and PC) and direct offers (RC only)

Suitability rules apply to both retail (MIFID AND NON MIFID) and professional clients (MIFID) for discretionary and advisory services

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20
Q

Suitability rules for retail clients

A

Meet the customers objectives

The customer is able to bear financial risks

Customer has necessary knowledge and experience to understand those risks

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21
Q

Suitability rules for elective PC

A

Meet the customers objectives

The customer is able to bear financial risks

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22
Q

Suitability rules for per se PC

A

Meet customers investment objectives

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23
Q

Where does appropriateness rule NOT apply

A

Execution only business with non complex financial instruments- shares/bonds/ units in UCITS scheme

If direct offer for professional client

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24
Q

Aims of appropriateness rules

A

Able to bear financial risks
Has knowledge and experience (retail clients only)

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25
Q

Execution factors

A

Price
Costs
Speed
Likelihood of execution
Settlement

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26
Q

Best execution criteria

A

Customer categorization
Type of order
Type of financial instrument traded
Characteristics of execution venues

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27
Q

Features of order execution policy

A

Prescribed info - list of execution venues and factors affecting firms choice of venues

Written 2 way agreement - monitored and reviewed annually. Notify customer of material changes

Special customer instructions count as best result

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28
Q

Client order handling rules

A

Prompt and sequential

Except - interest or customer/ material difficulty

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29
Q

Aggregation allowed when

A

Order allocation policy in place
Timely allocation
Fair allocation

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30
Q

Limit order not executed immiediately must be made public unless

A

Customer instructs otherwise

Limit order greater than normal market size

31
Q

Exceptions to transaction confirmation to clients

A

Non mifid business can request not to receive

mifid business has no exception - has to be sent by next business day

32
Q

Periodic statement contents

A

Client portfolio
Value and comp
Total fees
Total dividends and interest

33
Q

Depreciation notice

A

If 10% fall

34
Q

How often periodic statements sent

A

general - every 3 months and clients can ask for annual

derivatives - every month

35
Q

Exception to personal dealing rules

A

Life policies

Shares in certain class of fund like CIS

Funds managed independently

36
Q

Who does CASS 6 custody rules apply to

A

Mifid and non-mifid businesses

37
Q

Who does CASS 7 client money rules apply to

A

MIFID businesses but opt in available to non-MIFID business

38
Q

How often should reconciliations take place

A

As often as necessary

39
Q

When should shortfall be corrected

A

FOR CLIENT MONEY held by firm,close of business on the day of reconciliation

40
Q

WHo/what does CASS not apply to

A

-ICVC and UCITS schemes
-Incoming EEA firms
-BCD credit institution
-Coins held for value of metal
-Money due and payable to firm
-money held for delivery vs payment but max 3 days

41
Q

When can firm use clients assets

A

Right to use clause

42
Q

Describe CASS audit

A

Required annually and submitted to FCA within 4 months of audit. Standard set by Financial Reporting Council

43
Q

Mandate accounts

A

Client gives control of assets or liabilities eg direct debit

44
Q

what is a CASS resolution pack

A

Specific documents and info relating to client money and assets

45
Q

COBS / CASS quick reference

A
46
Q

Record keeping general rule for MIFID business from date of dispatch

A

5 years

47
Q

General rule for non MIFID business

A

3 years

48
Q

General rule for pension contracts, stakeholder pensions, life assurance

A

5 years

49
Q

Pension transfers and opt outs, free standing additional voluntary contributions (FSAVCs)

A

Indefinitely

50
Q

Recording of telephone communication

A

5 years from creation of record

51
Q

Keeping records offsite

A

Must be readily accessible

52
Q

Rules that apply to retail clients only

A

Financial promo
Retail investment product disclosures (KID, KIID, KFD)
Suitability report

53
Q

What is churning

A

Churning is the practice of over-dealing in a client’s securities in an attempt to generate fees.

54
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

The rule covers ‘all customers’ for MiFID business

55
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

56
Q

Which of the following is not defined as a packaged product according to COBS?

A

A government or public security

57
Q

Where an investment bank is providing research to a fund manager a firm must apply a separately identifiable charge for this research. 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

£200 million

Research on companies with a market capitalisation of below £200 million will be exempt – meaning that UK-based fund managers do not have to pay for this research. UK asset managers can continue to pay for this research if they so wish – due to operational limitations.

58
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

59
Q

An analyst at an authorised firm makes a trade for their personal account in the units of a UCITS collective investment scheme. According to the FCA rules, how soon should they contact their compliance team to inform them of any increase in the number of units they hold?

A

There is no need if the analyst has no management relationship with the CIS

60
Q

The firm is holding money belonging to clients. When would it NOT need to comply with the client money rules? If the money is:

A

Coins held for the value of their metal

61
Q

When a firm trades with an eligible counterparty, which one of the following rules does not apply?

A

Selling and advising

62
Q

If a firm is aware that Bob is acting as an agent for Bill, then Bill will be the firm’s client if:

A

Bob and the firm have agreed in writing to treat Bill as the client

63
Q

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

A

All clients

64
Q
A
65
Q

Under the COBS, a professional client or an eligible counterparty can ask for a re-categorisation in which of the following cases?

A

IIt is permitted on a trade by trade basis
IIIt is permitted in general for all trades
IIIIt is permitted on individual instrument classes

66
Q

A firm that manages a client’s investments must ensure that which of the following occurs?

A

They specify any index against which performance will be compared

67
Q

When carrying out client orders the firm must ensure:

A

Retail clients must be informed of problems

Orders must be promptly and accurately recorded - there is no specific timeframe given. Ie not necessarily 1 business day

Comparable orders must be carried out sequentially except in specific conditions

68
Q

Which of the following best describes the cancelation period offered to a client of the firm?

A

Compulsory for certain products

69
Q

Which of the following sets of information is NOT required in a direct offer financial promotion to a retail client?

A

Execution venues where trading will occur

Execution venues will be in an order execution policy.

Following is required in direct offer:
The firm and its services
Costs and charges
Safekeeping of client money

70
Q

Which of the following statements complies with the inducements rules?

A

An acceptable commission is one that has been paid to a client

In relation to designated investment business or, in the case of MiFID business, another ancillary service, a firm must not pay to, or accept from, a person other than the client any fee or commission (or provide or receive any non-monetary benefit).

71
Q

A client approaches your firm wishing to engage you to provide a discretionary service on his account. In order to trigger the requirement to provide a client agreement before providing services the client must be:

A

Either a retail client or professional client, as both are protected by this rule

72
Q

Under the regime created by the retail distribution review, which of the following is TRUE?

A

The charge can be ongoing and based on a percentage of the funds invested

Advisers must move to fee-based charging. This can be an upfront fee or an ongoing fee based on a percentage of the funds invested (as long as an on going service is provided). Fees should be itemised and disclosed up front, but this should be based on the service provided not the product.

73
Q

If an independent financial adviser (IFA) passes on the business of a client to a life assurance company, which of the following would be true? The life assurance company:

A

Can rely on the information about the client provided by the IFA

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