FCA's COBS & CASS Flashcards
Firms subject to COBS
UK firms conducting MiFID biz for UK clients within UK.
No longer applies to MiFID biz of UK MiFID firm carried on from est. in another EEA state.
Apply to non-UK MiFID firm carrying out MiFID biz in UK.
Exception - inv. research and personal acc. dealing, apply on home state basis only regardless of where conduct biz.
Per se professional clients categorisation
Need to be auth/regulated in financial markets, include: - credit institution
- inv. firm
- any other auth/regulated financial institution
- insurance co.
- CIS or mgmt co. of CIS
- pension fund or mgmt co. of pension fund
- commodity/commodity derivatives dealer.
- a local
- any other institutional investor
Large undertakings (MiFID & non-MiFID) - bs, turnover, funds meet certain level.
Govs., certain public bodies, central banks, supranational institutions.
Institutional investors whose main biz is investment in financial instruments.
ECP categorisation
Doesn’t include large undertakings.
- credit institution
- inv. firm
- financial institutions auth/regulated under EU legislation/ national law of EEA state.
- CIS auth under UCITS Directive or its mgmt co.
- pension fund or its mgmt co.
- national gov or its corresponding office
- supranational organisation
- central bank
- undertaking exempt from MiFID under Article 2(1)(k) (certain own acc dealers in commodities/ commodity derivatives) or Article 2(1)(l) (locals) of that directive
Only be ECP for:- executing orders, dealing on own acc., receiving & transmitting orders
Client agreements
RETAIL CLIENTS
Also PROFESSIONAL CLIENTS for MiFID biz.
Doesn’t apply to insurance firms issuing life policies as principal.
To include terms of agreement, info re firm & it’s svs.
Exceptions to Financial Promotion rules
Excluded Comms - exempt under FPO (HMT order)
- originate outside UK and can’t have effect within UK.
- overseas comms meeting criteria for exemption under FPO.
- subject to/exempt from Takeover Code
- personal quotes, illustration forms
- one off promotions that aren’t cold calls
- promotions re unreg CIS
EXEMPTION FOR EXCLUDED COMMS DOESN’T GENERALLY APPLY RE MiFID BIZ.
ECPs & COBS rules
Many rules disapplied for ECPs, including: -
• Large part COBS 2 - general conduct of biz obligations e.g. inducements
• Much of COBS 4 - communicating with clients, including fin promotions
• COBS 6.1 - provision of info about firm, it’s services & remuneration
• COBS 8 - Client agreements
• COBS 10 - Appropriateness requirements
• Certain parts of COBS 11 - e.g. best execution & client order handling
• Parts of COBS 12 - labelling of non-independent research
• COBS 14.3 - info re designated investments
*COBS 11.4 - Participants in regulated market don’t have to comply with client limit orders rule in respect of each other but must comply when executing orders on clients behalf.
Client Agreements
- Requirement applies to designated investment biz for retail clients, MiFID biz/ancillary services/equivalent 3rd country biz for retail & professional clients.
- Does not apply to insurance firms issuing life policies as principal.
- Provide in good time before bound by agreement or provision of investment services.
Information Requirements
- Nature & Risks of Investments - apply to retail clients for non-MiFID biz, retail & professional clients for MiFID biz.
- Info about Firm - retail clients, professional clients & ECPs
- Info Requirements re Managing Investment - must provide info to enable client to assess firm performance, more detailed for retail clients.
- Info on Safeguarding Investments/Money - retail clients, professional clients & ECPs
- Disclosure of Costs - retail clients, professional clients & ECPs
• Client info to be provided before provision of services, unless agreement concluded via distance comms.
Communicating/ Approving Financial Promotion Exemptions
- For qualifying credit, home purchase/reversion plan.
- Promotion for non-investment insurance contract.
- Promotion for unreg CIS (COBS 4.1.1(1)(c)), not allowed to communicate/approve.
- Promotion relating to credit agreement, consumer hire agreement, credit related regulated activity.
Suitability Report
• Applies to investment advice to acquire/sell any investment - equities, derivatives, structured products, unreg CIS.
• Applies to recommendation to:
- Acquire/sell holding in - reg CIS, investment trust with shares via investment trust savings scheme or where shares held in ISA.
- Buy, sell, surrender, convert, cancel, suspend contributions to personal or stakeholder pension scheme.
- Make income withdrawals or buy short-term annuity.
- Enter into pension transfer or opt-out.
- Life assurance policies
Timing of Suitability Report
- Life policies - before contract concluded, unless info given orally or cover needed promptly, then immediately after.
- Personal/stakeholder pension scheme - within 14 days of concluding contract if cancellation rules apply.
- All other cases - before transaction concluded, unless distance marketing comms apply & client consent, then ASAP after.
Appropriateness Assessment - When it’s Unnecessary
- Execution-only service, or for receipt/ transmission of client orders re particular fin instruments (below), & at client initiative.
- Client informed no requirement to do so, no protection benefit.
- Firm comply with obligations re conflicts of interest.
Particular fin instruments: -
• Shares listed on regulated/equivalent 3rd country market.
• Money market instruments, bonds, other securitised debt
• Holdings in UCITS funds
• Non-complex investments
Cancellation Periods
- Life & pension - 30 CALENDAR DAYS
- Cash deposit ISAs - 14 CALENDAR DAYS
- Non-life & pension (advised, non-distance contracts) - 14 CALENDAR DAYS
- Non-life & pension (distance contracts) - 14 CALENDAR DAYS
COBS Rules on Dealing & Managing
- COBS 11.2, 11.2A, 11.2B, 11.2C - Best execution
- COBS 11.3 - Client order handling
- COBS 11.4 - Client limit orders
- COBS 11.5A - Record keeping, client orders & transactions
- COBS 11.7 Personal account dealing
- SYSC 10A - Recording phone calls & electronic communications
Inducements - definition of minor non-monetary benefit
• Disclosed before provision of service to client.
• Capable of enhancing quality of service.
• Could not be judged to impair firm compliance to act honestly, fairly & professionally.
• Reasonable, proportionate, unlikely to influence firm behaviour to detriment of client & consists of: - info re fin instrument or inv service
- written material from 3rd party commissioned & paid for by corp or potential issuer to promote new issuance.
- participation in conferences, training events on features of specific fin instrument, inv service.
- hospitality of reasonable de minimis value.
