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Platforms, Wealth Management and Service Providers > Chapter 6: Regulatory framework > Flashcards

Chapter 6: Regulatory framework Flashcards

1
Q

What does the rolling stock method allow firms to do?

A

Check investments throughout the year, as opposed to having to count everything at the same time.

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2
Q

The audit committee are what line of defence in the model?

A

Third line

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3
Q

Information disclosure to clients before providing services.

A
  • The firms and it’s services
  • Designated investments and proposed investment strategies
  • Execution venues
  • Costs and associated charges
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4
Q

Information about the form and compensation arrangements

A

• Name of address of firm and contact details
• Method and language of communication
• Statement that the form is authorised, and the competent authority
• Nature, frequency and timings of performance reports
• Information about the conflicts of interest policy
• Any compensation scheme available
(FSCS)

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5
Q

Order execution policy

A
  • Two way policy to be sent to clients
  • Monitor effectiveness of order routing system to ensure they get the best execution
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6
Q

Timely execution is?

A

Orders executed promptly and sequentially.

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7
Q

What is the purpose of transcation confirmations?

A

Ensure clients are advised of the essential details of transaction. E.g. Contact note

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8
Q

When are transaction confirmations not required?

A

• If the client receives the information from another person
• The investments are in discretionary account

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9
Q

What is included in Periodic information? (Periodic statements)

A

Client portfolio - total fees and charges
Value and composition- Total dividends and interest.

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10
Q

When are periodic statements sent?

A

General rule- prepared every 3 months
Derivatives- Prepared every month

Both sent out promptly

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11
Q

CASS purpose

A

Adequate protection for client assets by platform operators as custodians

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12
Q

Permissible reconciliation methods for physical assets held are? (rare for a platform)

A

• Total count method - a single process
• Rolling count method - a phased approach

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13
Q

Permissible reconciliation methods (internal + external)

A

• Internal - comparing the aggregated internal position to the individual client positions
• External- compared to internal records

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14
Q

What is target market analysis?

A

Firms need adequate and appropriate product oversight and governance processes.

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15
Q

What 4 factors are part of target market analysis?

A

• Target market analysis
• Stress testing and scenario analysis
• Information sharing and disclosure
• Proportionality

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16
Q

KID, KIID, KFD

A

• KID (PRIIP)
• KIID (UCITS scheme)
• KFD (Non-PRIPP) e.g. personal pension plan

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17
Q

What is the pre investment disclosure document?

A

•Requirements in FCA fund sourcebook.
• They tend to be more details then the other types of docs.
• More specific risks associated with these funds

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18
Q

Factors of Complaints

A

• Procedures must be in place
• Record keeping
• MIFID business
• UCITS
• Non-UCITS

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19
Q

For client money and asset reporting what must happen? ( for medium and large firms)

A

• Complete Client money and asset return (CMAR)
• Send this using GABRIEL

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20
Q

Where are requirements of CMAR contained?

A

SUP (supervision sourcebook) NOT in the CASS

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21
Q

What are the data protection principles?

A

• Lawfulness, fairness and transparency
• Purpose limitation
• Data minimisation
• Accuracy
• Storage limitation
• Integrity and confidentially
• Accountability

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22
Q

If a data controller identifies a breach, who must be informed and when?

A

The ICO and within 72 hours.

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23
Q

What are the three categories of information security controls?

A

• Physical
• Logical
• Encryption

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24
Q

What is the required frequency for physical assets reconciliation

A

As often as necessary but at least once every 6 months

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25
Q

What is CASS 6 ?

A

Client safe custody assets

Restricts the way in which a firm can register ownership of client assets.

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26
Q

What two methods can the firm choose from for Internal Custody record check?

A

• Internal custody reconciliation method (ICRM)
• Internal system evaluation method (ISEM)

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27
Q

FCA 3 standard rates of investment growth are? Tax-exempt wrappers

A

Lower rate: 2%
Intermediate rate: 5%
Higher rate: 8%

28
Q

FCA 3 standard rates of investment growth are? Other products

A

Lower rate: 1.5%
Intermediate rate: 4.5%
Higher rate: 7.5%

29
Q

What does the FCA DISP rule require?

A

Requires that every six month each firm provide the FCA with reporting on all complaints receive from Eligible complaints.

30
Q

What are the two reports the FCA designed for complaints?

A

Payment services regulation (PSR)
Client money and asset reporting

31
Q

What are the three lines of defence:

A

• First line: Business operational management
• Second line: Risk management and Compliance functions
• Third line: Internal and External Audit

32
Q

what does Client assets sourcebook do?

A

Sets out methods and controls to minimise risk that investors money or assets could be lost.

33
Q

What does COBS do?

A

Sets out obligations on a firm when providing services to its clients. Includes: promotions, performs transactions, defines and explained its services, and reports activity to its customers.

34
Q

What is ‘root cause analysis’?

A

Standard for firms to conduct this to determine whether individual breaches are isolated cases or have arisen because of broader weaknesses within the control mechanisms in place within the firm.

35
Q

What is COBS 2.2 and 2.2A regarding?

A

Information disclosure before providing services

36
Q

Appropriate information that should be provided to the investor before providing service?

A

• firm and it’s services
• designated investments and proposed investment strategies, including appropriate guidance on warning/risks associated with those investments
• execution venue
• cost and associated charges

37
Q

What does COBS 6.1 specify?

A

Certain disclosures must be made in good time before the provision of investment business to the client.

38
Q

What does COBS 16 and 16A do?

A

Rule requires that the firm provides to its client adequate reports on the services provided by the firm. Rule also contain requirements for reporting following events/actions.

39
Q

What reports come under COBS 16?

A

• occasional reporting
• periodic reporting
• statement of client financial instrument or client money

40
Q

What’s the difference between COBS 16 and 16A?

A

16A requires a MIFID firm to provide essential information about the transaction while COBS 16 talks instead of trade confirmation information.

41
Q

Elements that come under ‘ Trade Confirmation Information

A

• identification of the UCITS scheme
• date of execution
• Number of units involved
• the unit price at which the units were subscribed or redeemed.

42
Q

What does SYSC 4 set out?

A

Sets out a number of general requirements that the FCA expects any ‘common platform firm’ to implement.

43
Q

What does SYSC 7 set out?

A

This rule requires that various types of firms- such as banks and designated investment firms establish, implement and maintain adequate risk management policies and procedures.

44
Q

For an Internal custody record check, the firm can choose from what two methods:

A

• Internal custody reconciliation method (ITRM)
• Internal system evaluation method (ISEM)

45
Q

What is required frequency for internal custody record check and for the external custody reconciliation?

A

As often as necessary but at least once a month.

46
Q

For physical asset reconciliation, the firm can choose between what two methods?

A

• Total count method
• Rolling stock method

47
Q

For physical asset reconciliation, what is the required frequency?

A

As often as necessary but at least once every six months.

48
Q

What’s the difference between Total count method and Rolling stock method?

A

The total count method requires all vault assets to be counted in a single process, while the rolling stock method allows this to occur in phases.

49
Q

A “short fall exist” where the firms holdings?

A

Are not sufficient for its obligations to its clients.

50
Q

For shortfall, what is different for asset positions?

A

The firm might conclude there is no need to take such action if the custodian is still working to achieve market settlement of a trade.

51
Q

Each firm must determine how often it carries out reconciliation checks and must take into account:

A

• the frequency, number and value of transactions that the firm undertakes in respect of clients safe custody assets, and

• the risks to which clients safe custody assets are exposed, such as nature, volume and complexity of the firms business and where and with whom the safe custody assets are held.

52
Q

For CASS 7, the firm must ensure it has established.

A

‘ Adequate organisational arrangements to minimise the risk of loss or diminution or client money’.

53
Q

Where client money is held with an associated company of the firm (known as ‘relevant group entity’), the total amount held by group entities must not at any point exceed?

A

20% of the total client money held in the firm.

54
Q

What nine elements make up the CMAR return? Client money asset returns

A
  1. Information about the firm
  2. high/low balances
  3. Client money segregation structure
  4. Resource and requirement
  5. Client money reconciliations
  6. Segregation of safe custody assets
  7. Safe custody asset record checks and reconciliations
  8. Record keeping and breaches
  9. Outsourcing and offshoring
55
Q

What are the seven principles of data protection?

A
  1. Lawfulness, fairness and transparency
  2. Purpose limitation
  3. Data minimisation
  4. Accuracy
  5. Storage limitation
  6. Integrity and confidentiality
  7. Accountability
56
Q

When breaches have been identified for data protection, in what time must the ICO be notified?

A

Within 72 hours of the breach being identified.

57
Q

Failing to notify the ICO for any breaches can result in a fine of ..?

A

Greater of £10m or 2% of the data controllers global turn over from the previous financial year.

58
Q

Any data breaches relating to infringements of the data’s subject individual privacy rights can results in a fine of up to?

A

Greater of £20m or 4% of the data’s controllers annual global turnover.

59
Q

Platforms operators need to consider a range of practical issues concerning protection of their own data, as well as their clients and employees data:

A

• security culture
• physical security
• encryption
• password protection
• data segregation
• portable devices
• outsourcing arrangements
• reconciliation

60
Q

What does the first line of defence consist of?

A

Consists of various controls an firm implements to deal with day to day business operations and transactions.

61
Q

What functions in companies are linked to risk management and compliance roles?

A

• enterprise risk management
• quality monitoring
• compliance
• IT security
• legal
• health and safety
• environmental

62
Q

What is the third line of defence?

A

This is the independent assurance provided by the firms audit committee and the internal audit function that reports to that committee.

63
Q

What level of cover do banks, building societies and credit union deposits have?

A

100%, £85,000 per person per firm or £170,000 in cases of joint accounts with two names.

64
Q

What level of cover do authorised investment businesses and pension and annuities have?

A

100%

65
Q

What level of cover do insurance contracts have and what is the maximum payment?

A

Either 90% or 100% depending on the contact and the payment is unlimited.

66
Q

How frequently are transaction reports sent to the FCA?

A

Daily

67
Q

To whom is the CMAR submitted and how often?

A

FCA, monthly

Platforms, Wealth Management and Service Providers (9 decks)

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