FCA Conduct of Business Sourcebook Flashcards
When are the COBS rules applicable? (3)
1) Accepting deposits
2) Designated investment businesses (DIB)
3) Long-term insurance business
What are the inducement rules?
A firm must not pay to or accept from a person other than the client any fee, commission or non-monetary benefit.
Must provide disclosure about existence and amount of fee
What are the rules regarding reliance on others? (i.e. third party firms)
A firm receiving information from third party firm must establish in writing that:
i) not connected with firm and
ii) competent to provide information
What is a financial promotion?
An invitation or inducement to engage in investment activity that is communicated in the course of business
Which principles of business are most relevant for financial promotions?
Principle 6 and 7
Interests of customers and communication with clients
Which legislation covers financial promotion?
S21 of FSMA
COBS 4
What are the rules for past (3), simulated (1) and future performance (2)?
Past performance must:
1) Not be the most prominent feature,
2) Covers at least five years (or length of investment)
3) State that it is not an indicator of future performance
Simulated past:
1) Must be based on actual performance of similar investment/index
Future:
1) Must not be based on simulated past performance
2) Warn that forecasts are not reliable indicators
What type of cold calls are permitted?
1) An existing client that envisages a call
2) Promotion relates to deposits, marketable packaged products, readily realisable securities other than warrants
What is required for ‘real-time promotions’?
1) Must be communicated at appropriate time of day
2) Must identify caller, employer and purpose of call
3) Clarify whether client wishes to continue
4) Give contact point
Define a client
Someone whom a firm provides, intends to provide, or has provided a service in the course of carrying on a regulated activity
List per se professional clients (6)
- Authorised / regulated firm
2) Central bank
3) Government
4) Supranational
5) Large undertaking
6) Other institutional investors
Define retail client
Any client that is not a professional client and not an eligible counterparty
What are the requirements for an elective professional client?
Qualitative test (all businesses)
Quantitative test (for MiFID firms meet 2/3):
1) Avg trade frequency >10 per quarter over previous four quarters
2) Portfolio >500K EUR
3) Works or worked in financial sector for >1 year professionally
What are the record-keeping requirements in relation to client categorisation?
5 years for MiFID business
3 years for non-MiFID
What are rules regarding conflict of interest?
1) Managing
Firm must maintain and operate effective organisational arrangements to prevent CoI
2) Disclosing
When arrangements not sufficient, risk of damage must be disclosed in writing before undertaking business for client
3) Recording
Keep and regularly update record of services for firm with conflict of interest
What is the rule for conflicts of interest and investment research?
An FCA firm must not knowingly deal for its own account until clients for whom the publication was intended have had a reasonable time to react to it
What are the exceptions to conflicts of interest and investment research?
1) Market maker dealing in normal course of business
2) Execution only client
What is the purpose of personal account dealing rules?
Prevent inappropriate dealing which are:
1) Prohibited under MAR
2) Involve misuse or disclosure of confidential client information
3) Conflict with firm’s obligations to client
What are the exceptions to personal account dealing rules? (3)
1) Discretionary funds
2) Shares in UCITS scheme
3) Life policies
What are the rules on suitability?
To ensure personal recommendations are suitable for clients’ needs with reference to the clients:
1) Knowledge and experience
2) Financial situation
3) Investment objectives
When must a firm provide suitability report? (5)
1) Life assurance policies
2) Collective Investment Trusts
3) Investment Trust Companies
4) Pension schemes
5) Short-term annuity
What is best execution?
A firm must take all reasonable steps to ensure they obtain the best possible results for clients
What are the criteria for best execution? (4)
1) Client categorisation
2) Type of order
3) Type of financial instrument
4) Execution venues
What are the procedures in client order handling?
1) Promptly recorded and allocated
2) Carried out sequentially
What are the requirements for a large undertaking as a professional client?
Satisfy at least two of:
- Balance sheet 20m EUR
- Net turnover: 40m EUR
- Own funds: 2m EUR
