IMC Chapter 3 - 3.8 - Reporting Info to Clients/ Client Assets / Record Keeping

Question 1

When must a firm send the relevant trade confirmation to a retail client?

Answer 1

As soon as possible and no later than the next business day after execution (or, where the confirmation is received by the firm from a third party, no later than the next business day after receipt).

Question 2

List 5 things which count as essential information in relation to an executed order.

Answer 2

1) Maturity, delivery or expiry date of derivatives
2) For options, the last exercise date, expiry style and strike price
3) When closing out an option, essential details of the open contract closed out, and of the profit or loss arising for the client as a result of closing the contract out
4) Date of exercising an option, and whether exercise creates a purchase or sale for the client
5) The strike price of the option, and the total consideration due to or from the client (where applicable)

Question 3

What is the timing of periodic statements for retail clients?

Answer 3

• Every 6 months
• Or every 3 months if the client requests this

Question 4

What happens if a retail client elects to receive information about executed transactions on a transaction-by-transaction basis (and there are no transactions in derivatives during the period)?

Answer 4

• The periodic statement must be provided once every 12 months
• The firm must comply with the occasional reporting rules (confirmations) for each transaction executed

Question 5

What 2 things must the fund manager do to provide the unitholders with regular and relevant information about the progress of the authorised fund?

Answer 5

1. Prepare and send a short report to all unitholders half-yearly; and
2. Prepare, annually, and make a long report available to unitholders on request.

Question 6

List 10 things the short-report fund managers must send to unitholders on a half-yearly basis must contain.

Answer 6

1) The name of the scheme or sub-fund;
2) Its stated investment objectives and the strategy used to achieve this;
3) A brief assessment of the risk profile;
4) For a UCITS scheme, the most up-to-date synthetic risk and reward indicator and any changes to that figure during the period;
5) The name and address of the authorised fund manager;
6) A review of the investment activities and investment performance during the period;
7) A performance record to contextualise the results of the investment activities;
8) Sufficient information on where the portfolio is invested and how this has changed over the period;
9) Any other significant information on the activities of the scheme and the results of those activities; and
10) A statement that the latest long report is available on request.

Question 7

What is contained in the long report the fund manager sends annually to all unit holders?

Answer 7

• Full accounts and reports
• Depository
• Auditor

Question 8

Is the requirement for an authorised collective investment scheme to report to unitholders on a regular basis in the FCAs COBS?

Answer 8

NO! it’s contained in the collective investment schemes sourcebook (COLL).

Question 9

What are the main objectives of the rules relating to client assets?

Answer 9

Ensure that client assets are protected either in the case of an authorised firm becoming insolvent or from the misuse of client assets by a firm or its employees.

Question 10

What is the highest amount of client money held (or projected) by a small, medium and large CASS firm?

What is the highest amount of custody assets held (or projected) by a small, medium and large CASS firm?

Answer 10

• A large CASS firm holds or projects more than £1 billion of their client’s money. The highest amount of custody assets held (or projected) by a large CASS firm is more than £100 billion.
• A medium CASS firm holds or projects more than £1 million to £1 billion of their client’s money. The highest amount of custody assets held (or projected) by a large CASS firm is £10 million to £100 billion.
• A small CASS firm holds or projects less than £1 million of their client’s money. The highest amount of custody assets held (or projected) by a large CASS firm is less than £10 million.

Question 11

List who is responsible for the CASS operational oversight function in small, medium and large firms?

Answer 11

• Small = Director
• Large = Senior Manager

Question 12

Is the CASS operational oversight function a controlled function that must be approved by the regulator?

Answer 12

Yes

Question 13

List the rules surrounding which name to register or record a legal title to a financial instrument.

Answer 13

A firm must affect appropriate registration or recording of legal title to a financial instrument in the name of:

• The client (or the trustee firm). Unless the client is an authorised person acting on behalf of its client, in which case it may be registered in the name of the client of that authorised person.
• A nominee company which is controlled by:
– The firm
– An affiliated company
– A recognised investment exchange or a designated investment exchange
– A third party with whom financial instruments are deposited
• Any other third party if:
– Law outside the UK requires it and the firm has taken reasonable steps to determine that it is in the client’s best interests
– The firm has notified the client in writing
• The firm if:
– Law outside the UK requires it and the firm has taken reasonable steps to determine that it is in the client’s best interest
– The firm has notified the client if a professional client, or obtained prior written consent if a retail client

Question 14

List the 3 different sets of records a firm has in relation to safe custody business.

Answer 14

1) A record of the safe custody investments that it is accountable for, but does not hold in its possession
2) A record of safe custody investments that it does physically hold itself
3) A record of all the safe custody investments held on a client-by-client basis

Question 15

What must a firm do if it has not or cannot comply with the record requirements?

Answer 15

It must notify the FCA in writing without delay.

Question 16

How often must reconciliations of assets not held by the firm be performed?

Answer 16

As often as necessary, but at least monthly.

Question 17

How often must firms that physically hold custody assets undertake a physical asset reconciliation?

Answer 17

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

Question 18

How are physical custody assets reconciled?

Answer 18

These must be reconciled against a count of the safe custody investments in its possession. The counting of the investments held may be by either one of two methods:

1) By way of a total count, which means that the investments are counted and reconciled as at the same date
2) By way of the rolling stock method. This entails counting the investments over a period of time. This may only be used subject to the FCA’s approval

Question 19

What are the rules regarding discrepancies in assets held?

Answer 19

• Any discrepancies in assets held by the firm must be corrected immediately, and it may need to use its own assets/money to make it up.
• Any discrepancies in assets held by a third party must be corrected as soon as possible. The firm need not use its own assets/money in these cases.

Question 20

When do the client money rules apply?

Answer 20

When the firm is holding client money in relation to designated investment business.

Question 21

How should client money be separated from firm money?

Answer 21

Client money bank accounts.

Question 22

List the 4 types of approved banks which can hold client money bank accounts.

Answer 22

1) A central bank
2) A Banking Consolidation Directive (BCD) credit institution
3) A bank authorised in its respective country
4) A qualifying money market fund.

Question 23

What is a qualifying money market fund?

Answer 23

A qualifying money market fund is a CIS authorised under UCITS or their local competent authority.

Question 24

How do firms create trusts over client money bank accounts?

Answer 24

By an exchange of trust letters with the bank(s) holding client money.

Question 25

Why do firms create trusts over client money bank accounts?

Answer 25

To prevent liquidators from offsetting client assets against the debts of the firm in an insolvency situation.

Question 26

What are the rules surrounding the account client money should be sent to?

Answer 26

All client money must be received directly into a client bank account, and may not be received via the firm’s own accounts. Firms should ensure that clients and any third parties make transfers of any money that will be client money directly into the firm’s client bank accounts.

Question 27

What happens if a firm uses an alternative method to the one prescribed in the client money rules?

Answer 27

The client must first send a written confirmation to the FCA from the firm’s auditor that the firm has in place systems and controls which are adequate to enable it to use the method effectively. The appropriateness of this approach must be reviewed annually.

Question 28

How soon must the firm complete the reconciliation of client money to the date of which the reconciliation relates?

Answer 28

A firm must reconcile its records of client balances to bank statements from approved banks as often as is necessary. The firm must complete the reconciliation of client money within 10 business days of the date to which the reconciliation relates.

Question 29

How often should internal reconciliations occur and what method is used?

Answer 29

Internal reconciliations should occur each business day using a client-by-client method (available to all firms), or net negative add-back method, which is available to selected firms and assesses client money on an account-by-account basis.

Question 30

What happens when there is a discrepancy?

Answer 30

If a discrepancy exists, firms must identify the reason and correct the discrepancy as soon as possible. Unresolved shortfalls in client funds need to be met out of the firm’s resources until the discrepancy is resolved.

Question 31

What is the maximum time a firm can take to determine the total amount it holds for each client?

Answer 31

2 business days.

Question 32

What do the mandate rules require firms to do?

Answer 32

The mandate rules require firms to establish and maintain records and internal controls to prevent the misuse of mandates by those that have been given control over the client’s assets or liabilities.

Question 33

List 4 things the mandate rules require of the records and controls.

Answer 33

1) An up-to-date list of each mandate that the firm has obtained
2) A record of each transaction entered into under each mandate
3) Controls to avoid the misuse of the mandate, e.g.:
– Ensuring any conditions are not breached
– Ensuring instructions do not go beyond the mandate
4) Where the mandate requires the use of a physical document, e.g. a passbook, the firm must ensure the safekeeping of that document
 

Question 34

List the 4 types of businesses and their record-keeping requirements contained in the Conduct of Business Sourcebook (COBS).

Answer 34

1) For Pension transfers, opt-outs or FSVC the records must be kept indefinitely.
2) For Life policies or pension schemes the records must be kept for 5 years.
3) For MiFID or equivalent third country business the records must be kept for 5 years.
4) For any other case (e.g. other non-MiFID business) the records must be kept for 3 years.

Question 35

What is the exception to the 4

Question 36

What is the exception to the 4 recordkeeping rules listed in the Conduct of Business Sourcebook (COBS)?

Answer 36

The exception to this is where a financial promotion relates to pensions or life policies. For this document records must be kept for six years.

Question 37

In the Client Assets Sourcebook (CASS) how long are all record for CASS 6 and CASS 7 kept?

Answer 37

5 years