FCA Conduct Of Business & client assets Flashcards
What is COBS?
Conduct of Business Sourcebook
What is aim of COBS?
Move towards outcomes focused approach rather than compliance with detailed and prescriptive rules
Which firms are subject to COBS?
Based on geography, e.g. with a link to UK through location or UK client
Activities subject to COBS?
Designated investment business
Long term insurance business
Accepting deposits
Do the COBS rules apply to appointed reps?
Firms must ensure appointed representatives comply with COBS rules when they communicate financial promotions
Rules for firms using electronic media to communicate with customers?
Allowed, but must be up to date and client must consent to that method and evidence they have access to internet
What is the COBS definition of a client?
Client is someone the firm provides or intends to provide, or has provided a service in course of regulated activity (and ancillary MIFID business)
3 classifications of clients?
Retail
Professional
Eligible counterparty
What are per se professional clients?
Regulated entities
Large companies
National and regional governments
Institutional investors
What are the balance sheet requirements to be a per se professional client for MIFID?
2 of the 3:
20M EUR balance sheet
turnover 40M
2M Own funds
What are the requirements to be a per se professional client for non-MIFID?
-Net assets (or share capital) of £5M in last 2 years
- 2/3 of 12.5M EUR balance sheet, 25M turnover and average 250 employees
- Trustee of trust or pension scheme with assets £10M+
Difference in eligible counterparties and per se professional client list?
Large undertakings not on the eligible counter parties list
What type of business allows for eligible counter party classification?
Executing orders
Dealing on own account
Receiving and transmitting orders
Risk from being a ECP (eligible counterparty)?
Many of the COBS rules do not apply (although not a huge issue given these are large firms familiar with the rules)
Who is the firms client if an agent is being used?
Firm should consider the person to whom it is providing services it’s client, even if they are an agent unless agreed in writing otherwise
When can a retail client be treated as an elective professional client?
- Qualitative test (assess their knowledge)
- 2/3 are true;
- an average of 10 significant transaction in last 4Qs
- portfolio over 500k EUR
- client works in FS for a least year covering these types of transactions
What steps must be taken to reclassify retail as elective professional?
Client must put in writing their wish to be reclassified and firm respond with clear written warning. Client to respond and confirm acceptance of risks
How long must client agreements be retained?
Whatever is longest from
- 5 years
- Duration of the relationship
- indefinitely for pensions
6 consumer outcomes from FTOC?
- Fair treatment central to firms philosophy
- products designed for clients needs
- clear information
- suitable advice given
- acceptable standard of service
- no unreasonable barriers to switch or complain
What should financial promotions contain?
- warning on capital being at risk
- balanced short, medium and long run yields shown
- clear on info and remuneration
- clear which bits are regulated
- clear if the product is a 3rd party product
Examples of excluded communications?
- exempt under FPO e.g if it’s not related to the UK
- subject to takeover code
- one off, non cold calls
Types of communication methods covered under COBS?
Real time
Cold calls
Non real time communications
Direct offer promotions
What must an adviser do to be considered independent?
Only recommendations given are based on comprehensive and fair analysis of the financial markets
What is a restricted advisor?
Don’t recommend instruments from the whole market
