Record Keeping And Reporting Information Flashcards
What are the three main record-keeping requirements as part of the FCA rules?
- Client Categorisation Records:
A. Firms need to keep detailed records of how they categorize clients (e.g., as retail, professional, or eligible counterparties).
B. These records must be kept for the entire business relationship, especially for MiFID business, as well as life and pension contracts.
C. For other types of regulated business, records should be kept for at least three years. - Suitability Records:
A. Firms must maintain records related to the advice given to clients, specifically for MiFID business and life policies/pensions.
B. These records should be kept for five years from the date the advice was given.
C. For pension transfers or opt-outs, these records must be kept indefinitely. - Order and Portfolio Management Records:
A. Investment firms must keep detailed records of every client order received and all decisions made for portfolio management services.
B. These records should be kept for five years.
C. For pension transfers or opt-outs, the client categorization records must be kept indefinitely before processing.
What are the years for the different record keeping requirements listed previously?
- Client categorization records (3 years or longer).
- Suitability records (5 years or indefinite for pensions).
- Records of orders and portfolio decisions (5 years, indefinite for pension transfers).
Briefly explain the concept of “occasional reporting”
- This is when a firm carried out an order in the course of its designated investment business on behalf of client.
- The family needs to promptly provide the client, in a durable medium, with essential information concerning the execution of the order
What is the criteria for occasional reporting for retail clients?
- Order Execution Notice:
A. The firm must send the client a notice confirming the execution of their order.
B. This notice should include all relevant trade confirmation information that applies.
C. The notice should be sent as soon as possible, and no later than the first business day following the execution of the order.
D. If the confirmation is received by the firm from a third party (e.g., a broker), the firm must send the notice to the client no later than the first business day after receiving the confirmation from the third party.
- Order Status Information:
A. If the client requests information about the status of their order, the firm must supply this information promptly upon the client’s request.
The second main idea for occasional reporting is “Order Status Information”.
This when the client requests information about the status of their order, the firm must supply this information promptly upon the client’s request.
What does this essential information include?
- For Transactions in a Derivative:
A. Maturity, Delivery, or Expiry Date of the derivative.
B. For an Option:
I. Reference to the last exercise date.
II. Whether the option can be exercised before maturity.
III. The strike price of the option.
C. For Closing Out a Position:
I. All essential details about each contract involved in the open position and each contract used to close it.
II. The profit or loss to the client from closing out the position.
- For the Exercise of an Option:
A. Date of the exercise of the option, and either:
I. The time of exercise, or confirmation that the client will be notified of the time upon request.
B. Whether the exercise creates a sale or purchase in the underlying asset.
C. Strike price of the option and, if applicable, the total consideration from or to the client.
Periodic Reporting
When a firm manages investments on behalf of a client - with regards to periodic statements for retail clients, what are the rules around this?
PART 1
- Firms must provide statements every six months by default.
- However, there are exceptions:
A. Every three months if the client requests it.
B. Every twelve months if the client receives transaction-by-transaction updates and there are no trades in derivatives or other complex securities (like transferables, currencies, commodities, etc.).
Periodic Reporting
When a firm manages investments on behalf of a client - with regards to leveraged portfolio, what are the rules around this?
PART 2
- If a firm manages a leveraged portfolio (one using borrowed funds or derivatives), statements must be sent at least once a month.
- Clients must also be informed that they can request quarterly statements instead.
- If a firm manages investments or an account with uncovered open positions in contingent liability transactions, it must report when losses exceed a pre-agreed threshold.
A. The report must be sent:
I. By the end of the business day when the threshold is exceeded.
II. If the threshold is exceeded on a non-business day, the report must be sent by the end of the next business day.
Definitions:
- Uncovered Open Positions:
Client has investments that could lead to further financial obligations beyond their initial investment. - Contingent Liability Transactions:
Investments where the client could lose more money than they initially invested
3 Pre-Agreed Threshold:
Client and the firm agree in advance on a level of losses that, if exceeded, must be reported.
Periodic Reporting
When a firm manages investments on behalf of a client - with regards to record retention, what are the rules around this?
PART 3
- Firms must keep copies of periodic and occasional statements:
A. For MiFID or equivalent third country business → Retain for at least five years.
B. For non-MiFID or equivalent third country business → Retain for at least three years.
Reporting information about authorised funds to unit holders
To ensure that unit holders receive relevant information about the progress of an authorised fund - what should the authorised fund manager provide?
- Fund manager should provide a short report and a long report half yearly and annually.
- Send the short report to all unit holders.
Has concise summary of the fund’s performance and key details. - Make the long report available to unit holders on request.
Contains more detailed financial and operational information about the fund - Reports must be prepared every annual accounting period and half yearly accounting period
- Key investor information - contains essential characteristics of the UCITS scheme.
Provided to the investor so that they’re able to understand the nature and risks of the investment product that’s being offered to them and take investment decisions on an informed basis.
What information should the SHORT report for an authorised fund or, for a scheme that is an umbrella, its sub-fund contain for the relevant period?
- Name of the Scheme or Sub-Fund
- Investment Objectives, Policy, and Strategy –
Summary of the fund’s investment goals and approach taken to achieve them. - Risk Profile Assessment –
Brief evaluation of the risks associated with the fund’s investments. - Synthetic Risk and Reward Indicator (SRRI) for UCITS Schemes –
For a UCITS scheme - include the SRRI figure (disclosed in the Key Investor Information Document (KIID)) and any changes to that figure during the period. - Name and Address of the Authorised Fund Manager
- Investment Activities and Performance Review –
Summary of the fund’s activities and investment performance over the period. - Portfolio Information –
Enough details to help unit holders understand where the fund is invested at the end of the period and how the investment allocation has changed. - Other Significant Information –
Additional details that would help unit holders make informed judgements about the fund’s activities and performance. - Availability of the Long Report –
Statement confirming that the latest long report is available on request.
What information should the LONG report for an authorised fund or, for a scheme that is an umbrella, its sub-fund contain for the relevant period?
- Contains the accounts and reports prepared by the fund manager, the depository and the auditor.
- Provides a detailed and comprehensive overview of the fund’s financial performance, investment activities, and governance.
Value for money assessment for authorised fund managers
FCA published new rules that require authorised fund managers (AFMs) to assess the value for money for each of their funds.
What does the FCA require AFMs to do for each fund?
- Access the value for money of each fund.
- Take corrective action if it does not offer good value for money.
- Explain the assessment an annually in a public report.
The FCA has set out seven criteria as the minimum that firms must consider when assessing the value for money of each fund.
Name the seven criteria and briefly explain what each of them mean.
- Quality of Service
A. Assesses range and quality of services provided to investors.
B. Ensures investors receive fair and adequate services for their investment. - Fund Performance
A. Looks at the performance of the fund after all costs are deducted.
B. Performance is measured over an appropriate time period based on the fund’s objectives, policy, and strategy. - AFM Costs (Authorised Fund Manager Costs)
A. Evaluates the cost of providing each service covered by a charge.
B. If money is paid to external parties or related entities, the cost must be fair and justified. - Economies of Scale
A. Checks if the AFM passes on cost savings as the fund grows. (as the fund grows, managing it should become cheaper per investor)
B. Takes into account both direct and indirect costs of managing the fund. - Comparable Market Rates
A. Compares the fees charged with market rates for similar services.
B. Includes fees paid directly by the AFM or by third parties managing parts of the fund. - Comparable Services
A. Compares the AFM’s charges with what they charge for similar services to other clients (e.g., institutional investors).
B. Ensures fees are fair for funds with similar size and investment objectives. - Classes of Units
A. Investors should not be placed in higher-cost versions of the same fund when cheaper options with the same benefits are available
B. Ensures investors are in the most cost-effective unit class where appropriate.
