Focus Topics Flashcards
What must a corporate finance firm do in regards to conflict of interest policy?
For corporate finance firms who are managing an offering of securities, the policy needs to have particular regard to the offering process
What is the minimum amount of employees to have The Pensions Regulator (TPR) regulate?
1
What does the The Pensions Act 2008 require?
all UK employers to put certain staff into a workplace pension scheme and contribute towards it.
Who conducts macro-prudential oversight for the EU financial system?
The European Systemic Risk Board (ESRB)
What body regulates European financial services?
The European Systemic Risk Board (ESRB)
What three bodies are within the European System of Financial Supervision (ESFS)
*The European Banking Authority (EBA).
* The European Securities and Markets Authority (ESMA).
* The European Insurance and Occupational Pensions Authority (EIOPA)
What must be done with client money under CASS?
Segregated from any other money held by the firm
How is client money held as per CASS?
This is achieved by the firm holding the client money in trust. The trust is a statutory trust, created by the rules laid down in CASS 7.17.2R.
CASS 6?
contains the custody rules which apply when a firm holds financial instruments of a client in the course of MiFID business
CASS 7?
when it holds client money in the course of its MiFID business
firm opts to comply with the MiFID client money rules
Who must firms register as the legal title for assets?
In the client nominee or other authorised person
What must a firm do when opening a client bank account?
Advise that bank must not commingle money
What happens if a bank does not countersign acknowledging agreement of trustee status within 20 days? No commingling
Must withdraw the money and deposit within another bank
When does client money not apply to firms?
When funds are held in connecting to DvP trades
Unless its 3 days over VD
When does a person have an interest in shares as per UK Takeover Rules
Derivative or long
Short does not ocunt
What is a relevant security as per UK Takeover Rules
. securities of an offeror which carry substantially the same rights
securities of the offeree company and an offeror carrying conversion or subscription rights
What is churning?
over-dealing and/or trading more frequently for a client in order to generate additional fees
What is the difference between churning and switching?
Switching is replacing an investment with another oen
FCA has guidance on switching, must be suitable
What is suitability?
reasonable steps to ensure that personal recommendations (or decisions to trade) are suitable for their clients’ needs.
What is covered by suitability requirements?
extend to capture all decisions whether to trade, including any personal recommendations made to a client on whether to buy, sell or take no action (hold) an investment.
How do firms providing portfolio management services act under suitability requirements?
under a mandate agreed with the client which permits the firm to carry out discretionary investment services.
When must a portfolio management services perform suitability assessments?
ahead of making a personal recommendation or providing investment advice which would require client to change mandate
where does the FCA advise firms to look for suitability risk?
checking for spikes or trends in the sales patterns of individual advisers
monitor poor sales practices in face-to-face
100% variable pay, based on sales, increases the risk of misselling
What does a firm need to make a suitability assessment?
investment background
financial situation
investment objectives
What is an insistent client?
Where client going against recommendation
What needs to be communicated to an insistent client?
that the firm has not recommended the transaction
the reasons why the transaction will not be in accordance with firm
the risks of the transaction
why the firm did not recommend that transaction to the client.
What does a firm need before executing on an insistent client?
Acknowledgement from the Insistent Client
How is suitability assessed for Professional Clients?
Per se - able to bear risks consistent with their objectives
Elective - cannot bear risks consistent with their objectives
What is a per se professional client?
An entity required to be authorised or regulated to operate in the financial markets.
When may a retail client be treated as an elective professional client?
Qualitative test - got the skills
Quantitative test:
10 big trades per year
500k EUR in port
worked in financial services for over a year
Do firms need consent from clients to their best execution policy?
No this is implied in relationship
What does MiFID II require firms to have about their order execution policy?
clearly articulates to clients how it seeks to obtain the best possible result for them.
When must firms review their order execution policy?
whenever a material event occurs, but at least annually.
When dealing with third party firms who is responsible for accuracy of information?
Only the third party firm
What sourcebooks covers conflict of interest?
SYSC
Where does COB apply?
For any business carried in the UK, regardless of firm or client nationality
Whats the max FSCS payout?
85,000
What is 90% protected
All other insurance aside from
* Compulsory insurance.
* Long-term insurance.
* Professional indemnity insurance.
* Claims arising from the death or incapacity of the policyholder due
to sickness, injury or infirmity.
What is a super complaint?
allows a consumer body to raise competition and consumer issues with the FCA
When is a disclosure of conflict of interest made?
As a last resort if internal controls will not mitigate it
What are the disclosure thresholds set by the UK Transparency Directive?
5
10
15
20
25
30
50
75
Where there is an unfair term in a contract what can the FCA do?
Apply to court for an injunction to prevent its enforcement
From what date are firms required to keep CDD and terrorist docs in the specified time period?
From the end of the business relationship, 5 years
What does R mean in the FCA handbook
Rule
What is vicarious liability?
Where commercial organisation has failed to prevent bribery
Who must renumerate an adviser who recommends a unit trust?
The client
When must firms maintain seperate insider lists?
For each transaction they perform
How long is Pillar 1 of a fixed portfolio firm proactive supervision period?
12 to 36 months
Who must a financial promotion be understood by
The average member of the target group
What is the max mkt cap before inducement rules are no longer waived
£200m
What are firms prohibited from making cold calls on?
high vol funds and life assurance
What is the latest time a designated investment business can provide agreement for a retail client?
Has to be before service provided
What must a firm do if has doubts of appropriateness of a deal?
Warn client
What must a firm do if cannot execute limit order?
Make it public unless instructed otherwise
Who does inducement rules apply to?
Retail and professional clients
What is the latest point a suitability report be issued for a stakeholder pension if cancellation rules apply
14 days after concluding contract
When is money excluded from client money rules?
It is owed to firm in the form of fees outstanding
Under MiFID business, how long must trade confirmations be retained?
5 years after date of dispatch
If investment company appoints an adviser who advises customers, who is the customer a client of?
ACE and the investment company jointly
Which clients require a client agreement for discretionary services?
Retail and professional
Graham accepts regular deposits from the director of a small overseas company. Which of the stages of money laundering could Graham find himself under suspicion of under the Money Laundering Regulations?
Placement
Is a non-executive director always required to be an approved person?
Yes
Can a third party appeal to the Tribunal on behalf of an authorised firm against a decision notice?
Yes, if the appeal is made within 28 days of the notice being issued
What is the closed period?
30 calendar days before company report
What happens if a trade is made during the closed period?
Company is required to make information on these trades public
If an authorised firm is conducting unauthorised regulated activities, what kind of matter is it?
Criminal matter
When a firm provides designated investment business to a retail client, do the examination requirements in training and competency requirements apply for derivatives deals?
No
Is a rebate on a fee paid by a client is an acceptable payment by a firm for inducements?
Yes
How often does a firm need to report complaints to the regulator?
once every 6 months
The Tax and Chancery Chamber of the Upper Tribunal is considered a?
A government department
Do conduct of business rules apply to long-term insurance business in relation to life policies?
Yes they apply to all designated investment businesses
Once a warning notice has been issued, what would be issued next to inform the firm that the investigation is no longer proceeding?
Notice of discontinuance
What is the right to appeal to the Tax and Chancery Chamber of the Upper Tribunal following the issue of a decision notice?
There is a right to appeal in all circumstances
Can an person be authorised and exempt at the same time?
No
What activities are firms undertaking intra-group/joint dealing excluded from?
Dealing in investments as principal or as agent;
Arranging deals;
Managing investments; and
Safeguarding and administering investments.
Under UK MAR where a person has reasonable suspicion regarding an order or a transaction in a financial instrument when placed on any trading venue, they should notify the FCA when?
once a full investigation has been completed to assess the nature of the event
Do internet websites qualify as a durable medium?
No, unless they meet certain criteria
What is the difference between a statement of misconduct and public censure?
A statement of misconduct is imposed upon an approved person, whereas public censure is imposed upon an authorised person
Does appropriateness apply to eligible CPs?
No
Are recommendations in relation to small life policies from a friendly society excluded from the requirement to provide a suitability report?
Yes
Other exclusions are recommendations relating to:
A regulated CIS where the firm is acting as investment manager;
The client is habitually resident outside the EEA;
Increases to a regular premium in an existing contract; and
An additional single contribution to a product where a single contribution has already been paid.
Under UKLA disclosure and transparency rules, at which level parties must disclose shareholdings to a company where they acquire?
3%
Which of the following is not a threshold condition for a firm seeking Part 4A permission under the Financial Services and Markets Act 2000?
A Location of offices
B Effective supervision
C Market conduct
D Appropriate resources
Market conduct - this is a principle of business
What are the conduct rules that apply to SM&CR individuals?
You must act with integrity
You must act with due skill, care and diligence
You must be open and cooperative with the FCA and PRA and other regulators
You must pay due regard to the interests of customers and treat them fairly
You must observe proper standards of market conduct
To whom is the PRA directly accountable?
PRA is accountable to the court of the Bank of England.
What are the 12 Principles for Business?
Integrity
Skill care and diligence
Management and control
Financial Prudence
Market conduct
Customers interests
Communications with clients
Conflicts of interest
Relationships of trust
Client assets
Relations with regulators
Consumer duty
Are deposits considered specified investments?
Yes
What are the exclusions on specified investments?
Electronic money, money paid in advance, security deposits
OEIC, as is a collective investment scheme (SHARES ONLY) (CIS ARE SPECIFIED)
trade bulls, cheques and other bulls of exchange, gov securities
What are designated professional bodies?
Bodies that can grant permission outside of FCA
How long must records regarding the apportionment of senior management responsibilities be retained?
Six years from any change in senior management responsibilities
Where a firm becomes aware of a conflict of interest that may damage a particular client’s interests, which procedure must the firm follow?
Manage the conflict and continue to deal, if not manageable must disclose to client
Which body is responsible for the Freedom of Information Act 2000
The ICO is responsible for both the Data Protection Act 1998 and its extension for public bodies, the Freedom of Information Act 2000
When would a firm be allowed to trade on information that it disseminates to clients?
The firm would be permitted to deal on the information if granted approval by the firm’s compliance
Does information provided to clients before providing services need to be customised for each client?
No it can be standardised
Is managing your own portfolio a defence against a charge of carrying out a regulated activity?
Yes, Dealing for yourself where no service is offered to others is an excluded activity.
When does COBS apply?
The general application rule states that firms are subject to the COBS Sourcebook if they carry on designated investment business, long-term insurance business in relation to life policies and activities relating to the above. This definition includes both MiFID and non-MiFID business.
What is the record-keeping retention period in relation to a life policy, pension contract, personal pension scheme or stakeholder pension schemes?
At least 5 years
What is the main difference between compliance with rules and conduct risk regulation?
Compliance with rules is generally a backward-looking philosophy. The question tends to be ‘Did the firm comply?’ The conduct risk approach, on the other hand, has a more forward-looking emphasis. ‘Will the actions of the firm lead to poor outcomes for consumers or not?’
What must a firm do when in a financial promotion where they are not the producer?
Where the firm does not produce the product itself, it must give an impression of the producer
To whom is the FCA directly accountable?
Although the FCA is ultimately accountable to the UK government on how it carries out its functions, it does so via HM Treasury. The FCA has no shareholders.
What must a broker do if a retail client instructs a trade that is postponed for some reason?
A firm may promote or postpone a client order in certain situations. Those situations could include market conditions, like a trading halt. In these cases, the retail client must be notified
What must an inducement not be?
Can’t be something that the firm would normally expect to pay such as office rent
If there is a discrepancy in client money reconciliation when should the firm remediate this?
Immediately
What needs to be reported regarding SFTRS?
Securities financing transactions need to be reported at initiation and for lifecycle events
Can an institutional investor become an eligible counterparty?
According to the Conduct of Business Rules, an institutional investor that is not an authorised or regulated person cannot become an eligible counterparty. An example of this kind of investor would be a special purpose vehicle designed to create asset backed securities.
What is PRIN 12?
PRIN 12 of the Principles for Businesses, the ‘Consumer Duty’ principle, complements this by ensuring that firms act in the best interests of consumers
Who performs the regulatory check of a mail-shot sent by an appointed representative?
The compliance department of the appointing firm
The general non-real time financial promotion rules require each promotion to be signed off by compliance or another employee with sufficient knowledge to do so.
What kind of roles require certification from employees firm before they can conduct activities?
Certification function that can pose the risk of significant harm to the firm and its clients. Client advisers can do this.
Which types of directors are defined as senior manager functions in an FCA authorised firm?
Both executive and non-executive directors, and the Chairperson
Who appoints the Chairman of the FSCS?
The Chairman of the board of the FSCS is appointed by the FCA
The FSCS is operationally independent of the Regulator, although it must account directly to the Regulator for its actions
What kid of work is “wider diagnostic or remedy work where there is actual or potential harm across a number of firms”?
Thematic - FCA
What must the firm do when a specific instruction from a client would prevent a firm from following its order execution policy when carrying out the transaction?
Carry out the order as instructed
Can a firm delay an execution if it believes it is in the best interests of the client?
The rule states that a transaction should be executed as soon as is reasonably practicable. Transactions may be delayed if the firm has taken reasonable steps to ensure that the deal will not operate to the client’s disadvantage.
The FCA intend to take action against a firm for a breach of a rule. Which notice will inform the firm of the action proposed?
Warning notice
Is market abuse a criminal offense?
Market abuse is dealt with by the Market Abuse Regulation. Market abuse does not require the person to have intended to abuse the market. Insider dealing is a criminal offence, however market abuse is a civil offence.
How do market abuse and insider dealing differ?
Insider is criminal, market is civil
Both can use MNPI
The purpose of the Public Interest Disclosure Act 1998 in terms of whistleblowing is:
To invalidate clauses in employment contracts that preclude protected disclosures
The act was designed to protect employees from retaliation if they inform regulators of their concerns.
What should firms ensure that a supervisor have before supervising?
Firms should ensure the supervisor has attained an appropriate qualification in this situation. It is a mandatory requirement for supervisors who oversee those individuals who advise on retail investment products and who have not yet been assessed as competent.
Who should employees report suspicious transactions to?
Employees should report suspicious transactions to their Money Laundering Reporting Officer (MLRO). This may not be the same as their compliance officer. The MLRO then reports to NCA.
How often must a MLRO report to senior management?
Once a year
Who are eligible complainants for the FOS?(3)
private individuals
micro enterprises (<2m EUR, <10 employees)
charities with <6.5m £ in income
How long does the FCA have to respond to a party making a mass detriment reference?
90 days
Is not expecting to make a profit a defense for insider dealing?
Where no advantage was expected is a general defence. This includes not expecting to make a profit.
With regards to money laundering, the FCA will check whether a firm is in breach of the rules on systems and controls with reference to the firm’s adherence to:
JMLSG guidance
What kind of instruments are within the scope of the Criminal Justice Act 1993 (Insider Dealing)?
All MiFID instruments
What is included in a PRIIP KID?
The sections are as follows:
- What is this product?
- What are the risks and what could I get in return?
- What happens if [name of the PRIIP manufacturer] is unable to pay out
- What are the costs?
- How long should I hold it and can I take money out early?
- How can I complain?
- Other relevant information.
Although a client provides a firm with specific instructions, the firm executes the trade in accordance with their own trade execution policy. What must the firm do?
Report itself to the FCA, as it is potentially in breach of regulations
If a client gives specific instruction, the firm is obliged to act on them, and in doing so is deemed to have achieved ‘best execution’.
Are management fees an acceptable inducement?
Yes, allowable services are those that would be directly relevant to customers.
Would The head of research at a fund management firm with a portfolio worth €700,000 be considered an elective pro client?
The quantitative criteria for being an elective professional client are: Average trade frequency of ten transactions per quarter over previous four quarters. Portfolio > €500,000. Works or worked in the financial sector for at least one year in a professional capacity.
Does intention need to be proved on market abuse?
Market abuse is ‘effects’ based legislation and therefore intention does not need to be proved.
It is a civil offence and therefore does not carry a jail sentence.
It applies to all persons, i.e. individuals and institutions whether they are located in the UK or overseas.
Can an firm appeal a supervisory and further decision notice?
Yes
What are supervisory notices?
Supervisory notices are supportive and only warning and decision notices lead to discipline.
Can a decision notice suggest actions that differ from the warning notices?
A decision notice, issued after the firm has referred the warning notice to the RDC, may contain different information to that suggested in the warning notice due to the new information provided by the firm in the referral.
For reliance on information what are the requirements?
Information must be in writing
The information provider must be independent of the subject matter
The third party is competent to provide the information
Does not need to be UK based
Do front-running rules apply to all clients?
Yes, inc ECPs
A firm discovers that it can execute a trade more favourably than the specific client instruction it has received. According to the specific client instructions rules, how should the firm proceed?
Execute according to the client’s instructions
The firm will be deemed to have provided the best possible result,
Where do insider dealing regs apply?
The legislation applies to dealings on: a UK, EEA or Gibraltar regulated market MTF or OTF; NASDAQ; SIX or NYSE; or by or via a professional intermediary.
What must a firm do to initiate an unwritten promotion outside its premises?
Give the client a contact point if an appointment is arranged.
What is the difference between excessive activity in shares vs packaged products in client port
Shares - churning
Products - switching
Which gives the FCA the power to prosecute insider dealing offences?
Financial Services and Markets Act 2000
The offence is contained within the CJA 1993, however the ability of the FCA to prosecute comes from ss 401-402 FSMA 2000.
What is Layering?
Layering involves moving the money around in order to make it difficult for the authorities to link the placed funds with the ultimate beneficiary of the money. This may involve excessive trading in currencies, shares or other investments. It can also mean moving the money from country to country.
In relation to rules governing regulated and unregulated activities, Part 9A of the Financial Services and Markets Act 2000 empowers the FCA to do what?
Create rules that are legally binding on authorised firms concerning regulated activity and also activity that is not regulated
Is an individual who was a professional client at the time of the transaction eligible for complaint under FOS?
No
The following meet the requirements for an eligible complainant:
- A consumer
- An enterprise with fewer than ten employees and turnover or annual balance sheet not exceeding €2 million (a micro enterprise) at the time the complaint is raised
- Charities with an annual income of less than £6.5m at the time the complaint is raised; or
- A trustee of a trust with a net asset value of less than £5m at the time the complaint is raised
Where a dual-regulated firm applies for Part 4A permission, which of the following threshold conditions is the sole responsibility of the Financial Conduct Authority?
Appropriate non-financial resources
How long must responsibilities records be held for?
6 years
