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Unit 1: Regulations > REGS BIBLE Chapter 4 > Flashcards

REGS BIBLE Chapter 4 Flashcards

1
Q

What type of client is a local authority/municipality classified as?

A

A RC

Can opt up to Elective PC if they meet certain requirements

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2
Q

Which PCs can never opt up to be an ECP?

A

Other institutional investors (SPVs)
Elective PCs

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3
Q

What are the 6 per se PCs?

A

Supranationals
Governments
CBs
Authorised/Regulated firms
Large undertakings
Other institutional investors

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4
Q

What are the MiFID requirements to be considered a Large Undertaking?

A

Balance sheet: 20m euros
Net turnover: 40m euros
Own funds: 2m euros

(must satisfy at least 2)

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5
Q

What are the non-MiFID requirements to be considered a Large Undertaking?

A
  • company, partnership or unincorporated association with called up share capital/net assets at least £5m
  • Trustee of an occupational pension scheme w at least 50 employees and £10m assets under management
  • Company meeting 2 of the following:
    Balance sheet 12.5m euros
    Net turnover 25m euros
    Avg number of employees 250
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6
Q

What tests are carried out for elective PCs?

A

Qualitative (for all business) - assess experience, expertise and knowledge

Quantitative (for MiFID business only) - must meet 2 of the following:

  • Avg trade frequency 10 per quarter over previous 4 quarters
  • Portfolio > 500k euros
  • works/worked in financial sector for 1 year or more in professional capacity
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7
Q

What is the procedure for opting up to elective PC?

A
  • written intent from client to be classified as PC
  • written warning to client explaining lost protection
  • written client consent to lost protection
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8
Q

What type of business does the ECP classification relate to?

A

ECP business:
- dealing on own account
- execution of orders on behalf of client
- transmission of orders

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9
Q

What are the per se ECPs?

A
  • authorised/regulated firm
  • Government, CB, Supranational
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10
Q

Who has responsibility for accuracy of information provided by a MiFID firm?

A

The MiFID firm providing the information

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11
Q

Who has responsibility for accuracy of information provided by a non-MiFID firm?

A

The firm receiving the information

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12
Q

What are the conditions of relying on information from non-MiFID firms?

A
  • information must be in writing
  • non-MiFID firm must be independent
  • non-MiFID firm must be competent
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13
Q

What section of FSMA 2000 relates to financial promotions?

A

S21

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14
Q

What is max penalty for breach of S21 FSMA 2000?

A

Max 2 years/unlimited fine

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15
Q

Which PRIN does S21 FSMA 2000 link with?

A

6
7
12

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16
Q

Who can communicate financial promotions under S21?

A
  • authorised persons
  • unauthorised persons (eg. appointed rep) if content approved by authorised person
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17
Q

What are the conditions for financial promotions produced by third parties?

A
  • confirm that an authorised firm has approved the promotion
  • only communicate the promotion to those it was intended
  • promotion has not ceased to be fair, clear and not misleading
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18
Q

What are the 5 exceptions to FCA COBS rules on communications?

A
  • exempt under Financial Promotions Order (FPO)
  • From outside the UK and cannot have effect within the UK
  • Subject to Takeover code or any similar code (eg. prospectus directives)
  • Personal quotes/illustrations
  • One-off promotions that are not cold calls
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19
Q

What are the 3 requirements for Prospectus rules on financial promotions?

A
  • must be identified as a promotion
  • must state where prospectus can be obtained
  • must be consistent w prospectus
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20
Q

What are the COBS rules when communicating financial promotions to RCs?

A
  • Name of firm included
  • Details accurate and fair
  • Comprehensible
  • Does not obscure important items, statements, warnings (focus on capital at risk products)
  • fair clear not misleading (amplifies PRIN 6 and 7)
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21
Q

Who do communications rules apply to?

A

All clients

However communications of financial promotions apply only to RCs

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22
Q

How long must a firm keep records on confirmation of trades for MiFID vs non-MiFID business?

A

MiFID - 5 years from dispatch
non-MiFID - 3 years from dispatch

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23
Q

What are the 6 COBS communication requirements on Past Performance?

A
  • must not be most prominent feature
  • cover at least 5 yrs (or life of investments) in complete 12month periods
  • reference periods and sources clearly shown
  • must state it is not an indicator of future performance
  • currency stated + warning of currency risk
  • disclose effect of fees and commissions if gross performance shown
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24
Q

What are the COBS communication requirements on Simulated Past Performance?

A
  • must be based on actual performance of similar investment/index
  • must comply with 6 rules on past performance
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25
Q

What are the 6 COBS communication requirements on Future Performance?

A
  • cannot be based on simulated past
  • assumptions must be reasonable
  • disclose effects of fees and commissions
  • warn that forecasts are not reliable indicators
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26
Q

Who does the COBS rules on Direct Offers pertain to?

A

RCs

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27
Q

What requirements does COBS lay out for Direct Offers?

A

Must contain sufficient information to allow client to make informed decision - providing information on:
- the firm and its services
- safekeeping of client investments and money
- costs and charges

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28
Q

what do non-MiFID businesses additionally have to provide when making direct offers?

A

Additional info to allow understanding of nature and risks of investment

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29
Q

who do the rules on past/simulated past/future performance pertain to?

A

RCs

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30
Q

What are the rules for unwritten promotions to RCs?

A

CITE

Identify (caller, employer, purpose of call)

End call - Ask whether RC wishes to continue and end call when asked

Contact point - provide client who has appointment w contact point in event of cancellation

Time - call at appropriate time of day

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31
Q

Who can conduct unwritten financial promotions?

A

Authorised persons only

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32
Q

under what conditions are cold calls permitted?

A
  • when made to existing client who envisages call
  • for a generally marketable packaged product (not high volatility fund)
  • services (relating to readily realisable securities excluding warrants)
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33
Q

What counts as packaged products?

A

CLIPS
- CIS (regulated)
- Life policy
- Investment trust savings scheme
- Personal pension
- Stakeholder pension

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34
Q

What clients must be provided with a ‘client agreement’ ?

A

RC and PC (so all customers)

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35
Q

under what circumstances may a firm provide a client agreement immediately after the customer is bound by the agreement?

A

when it was impossible to supply the agreement earlier as the agreement was concluded via distanced communications

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36
Q

Which business is excluded from client agreement rule?

A

insurance business where firm acts as principal

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37
Q

What information must be disclosed to all clients under COBS?

A
  • name and address of firm
  • method/language of communications
  • name and contact details of competent authority
  • whether firm is acting through appointed rep
  • nature, frequency and timing of performance reports
  • conflicts of interest policy (for common platform firms)
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38
Q

to whom does the Retail Distribution Review apply to ?

A

RCs

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39
Q

What does the RDR dictate?

A

Firms making personal recommendations relating to any retail investment product must be either independent or restricted

Advisers must inform client whether they are independent or restricted

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40
Q

what is the difference between an independent vs restricted adviser?

A

independent: owe duty of care and fiduciary duty to client

restricted: owe duty of care and fiduciary duty to firm

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41
Q

What comes under retail investment products according to the RDR?

A
  • Life policies (including investment bonds)
  • Units in regulated and unregulated CIS
  • Interest in an Investment trust savings scheme
  • stakeholder/group stakeholder pension
  • personal pension(including self invested)/group personal pension
  • share in investment trust
  • structured capital at risk products
  • any other product packaged in order to change features of the product
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42
Q

Are commissions from product provider permitted when advising?

A

No

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43
Q

What two options do consumers have to pay advisers?

A
  • pay upfront
  • deducted from investment over time
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44
Q

can remuneration be agreed via website?

A

Yes - via durable medium or website

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45
Q

When should adviser status and fees be disclosed?

A

Before providing a service or the client is bound by any agreement

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46
Q

What products are KIDs for?

A

PRIIPs (Packaged Retail and Insurance-based Investment products)

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47
Q

What 4 things come under PRIIPs?

A
  • Investment funds
  • Insurance-based investment products
  • retail structured securities
    structured term deposits
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48
Q

What does a KIID relate to?

A

UCITS schemes

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49
Q

What doe KFDs need to be provided for?

A

Any non-PRIIP packaged product (eg. personal pension plan)

50
Q

What is the cooling off period for life products/pensions?

A

30 calendar days

51
Q

What is the cooling off period for non- life product/pensions (eg. ISA) products?

A

14 calendar days

52
Q

Who do the product disclosure rules (KID , KIID, KFD) apply to?

A

RCs

53
Q

Who do the inducements rules apply to?

A

RC and PCs - all customers

54
Q

what are some examples of minor non-monetary benefits that are not prohibited under the COBS inducements rule?

A
  • information/documentation relating to a financial instrument/service (generic or personalised)
  • written material commissioned and paid for by a corporate issuer to promote new issuance by the company
  • participation in conferences, seminars and other training events
  • hospitality of de minimis value (eg. food drink)
55
Q

what are the 2 exceptions to the rule on inducements?

A
  • when fee is designed to enhance quality of service to customer
  • when fee does not impair firms duty to customer
56
Q

what is the COBS rule on inducements?

A

A firm must not pay to or accept from a person other than the customer any fee, commission, or non-monetary benefit

57
Q

when is inducement disclosure required for non-MiFID business?

A
  • only in the case of personal recommendations for packaged products (not necessary in case of minor non-monetary benefits)
58
Q

under what 2 cases can a firm use paid-for research?

A
  1. if it pays for it directly from its own resources
  2. If it is paid for from a separate research payment account controlled by firm (funded by clients)
59
Q

What are the requirements if a firm used a research payment account?

A
  • must only be funded by a specific research charge agreed w and charged to customers
  • account must be separate from firm’s own accounts
  • firm must disclose budget and charges BEFORE providing services
  • must disclose annual information on total costs each customer has incurred for third party research
60
Q

When does the FCA COBS Provision of Research rule not apply?

A

For alternative investment funds and CIS that invest mainly in non-MiFID investments (eg. commercial property)

61
Q

How long must pension contracts, stakeholder pensions and life assurance records be kept?

A
  • for 5 years as they are long-term non-MiFID business
62
Q

How long must records of occupational pension schemes be kept?

A

Indefinitely

63
Q

How long must telephone communications regarding execution be kept?

A

5 years from creation of records

64
Q

What are the 2 main CASS rules that ensure adequate protection for client money and assets?

A

CASS 6 - Custody rules
CASS 7 - Client money rules

65
Q

To which types of business do CASS 6 and 7 apply ?

A

CASS 6 - Custody rules apply to both MiFID and Non-MiFID business

CASS 7 - Client Money rules apply to MiFID business only however opt-in is available for non-MiFID

66
Q

What does the suitability rule dictate?

A

All firms must obtain sufficient information to give suitable advice to RCs (all business) and PCs (MiFID business)

67
Q

Who does the Suitability rule apply to ?

A

All customers: RC and PC

68
Q

What 2 types of services is the suitability rule applicable to?

A

Discretionary services

Advisory services

69
Q

What do churning and switching relate to respectively?

A

excessive trading to generate commissions for firm

churning - freely transferrable investments

switching - packaged products

70
Q

What are the firms 3 objectives according to the suitability rule (and to whom do they apply)?

A
  • meet customers investment objectives (RC and PC)
  • ensure customer is able to bear financial risk (elective PC and RC)
  • ensure customer has necessary knowledge and experience to understand those risks (RC)
71
Q

How do firm’s find relevant personal and financial information when assessing suitability of investments for cutomers?

A

via a ‘Fact Find’

72
Q

When can a firm make no recommendations/decisions to deal for a client (according to suitability rule)?

A
  • when fact find turns up insufficient information
73
Q

What is a firm required to do in case of insistent clients?

A
  • communicate that it does not recommend transaction and will not be in line w firms personal rec
  • reasons why it is not in line w personal rec
  • risks of transaction
  • reasons why firm did not recommend
74
Q

To whom must a suitability report provided to?

A

RCs

75
Q

What 3 things must a suitability report contain?

A
  • specify clients demands and needs
  • explain why firm believes recommended transaction meets those needs
  • explain any possible disadvantages
76
Q

In what form must a suitability report be provided?

A

Durable medium

77
Q

When can the timing of a suitability report be delayed?

A
  • agreement is concluded at distance
  • client agrees to delay
78
Q

what are some exceptions to suitability report?

A
  • personal rec in relation to regulated CIS
  • client habitually resident outside EEA and not present in UK at time of acknowledging consent
  • small life policies sold by friendly societies (premium no more than £50 pa)
  • If recommendation is to increase regular premiums to an existing contract
  • if investing further premiums to an existing packaged product into which
    contributions have already been paid
79
Q

When must the suitability report be provided in case of personal/stakeholder pension scheme?

A

No later than 14th day after contract is concluded (before right to cancel expires)

80
Q

To whom does the appropriateness rule apply and when?

A

For MiFID business - all customers: RC and PC

For direct offers - RC only

81
Q

What does the appropriateness rule dictate?

A

Before executing firm must assess whether client:
- is able to bear financial risk
- has knowledge and experience to understand those risks (RC only)

82
Q

When should firms issue warnings according to the appropriateness rule?

A
  • when firm believes investment/service not appropriate
  • when customer has not provided sufficient info for firm to come to conclusion
83
Q

When is assessing appropriateness not necessary?

A

For execution only business involving non-complex financial instruments

84
Q

What 3 things are classified as non-complex financial instruments?

A
  • shares/bonds
  • money market instruments
  • units in UCITS scheme
85
Q

To whom does the COBS Conflicts of Interest rule apply and which PRIN does it link to?

A

All clients

PRIN 8

86
Q

To whom must firms provide a copy of their conflicts policy?

A

RCs and potential RCs

87
Q

In what format must a firm’s conflict policy be?

A

in writing

88
Q

What is the last resort according to COBS Conflict of Interest rule?

A

Disclose in durable medium any conflicts

89
Q

What three things must a firm implement under COBS Conflict of Interest rule?

A
  • conflicts policy
  • organisational arrangements (eg, chinese wall)
  • disclosure in durable medium any conflicts of interest
90
Q

Are chinese walls mandatory?

A

No - but if used must be monitored and effective

91
Q

To whom does the COBS rule on investment research apply?

A

All clients

92
Q

What 3 things must a firm publishing research to clients/public ensure under COBS?

A
  • does not receive inducement from those w material interest
  • not to promise issuers favourable coverage
  • issuers covered not permitted to review drafts
93
Q

What does ‘dealing ahead’/’front-running’ refer to?

A

dealing on investment research before clients have had reasonable time to react

94
Q

When are firms allowed to deal for their own account ahead of clients having time to react to research?

A
  • when acting as a market maker dealing in normal course of business
  • for unsolicited client orders (unsolicited by firm, at request of client)
95
Q

How often is the Order execution policy reviewed?

A

Annually - customers must be notified of any material changes

96
Q

What are the 4 best execution criteria?

A
  • customer categorisation
  • type of order
  • type of financial instrument
  • characteristics of execution venues
97
Q

what are the execution factors?

A
  • price, costs, speed, likelihood of execution (and settlement/any other consideration)
98
Q

What does price (w regards to best execution) take into account for RCs?

A

Price of financial instrument
costs related to execution (execution and settlement fees)

99
Q

What are the exceptions to time stamp order of orders and who must be notified in the case of an exception?

A

exceptions:
- in interests of customer
- material difficulty

Must notify RC

100
Q

When might a firm not allocate to customers first?

A

When firm has reasonable grounds to show customer’s order materially benefitted from aggregation - then may allocate proportionally

101
Q

When may Limit orders not executed immediately not be made public?

A
  • when customer has expressly instructed otherwise
  • limit order is greater than normal market size
102
Q

how often are transaction confirmations provided?

A

On a trade-by-trade basis

103
Q

What are the requirements for transaction confirmations?

A
  • must be provided promptly (no later than next business day)
  • must be provided in durable form
104
Q

What are the exceptions to the transaction confirmations rule for MiFID and non-MiFID business?

A

MiFID - None
non-MiFID - if requested by client

105
Q

To whom do transaction confirmations need to be sent?

A

All clients

106
Q

What is another name for transaction confirmations?

A

Occasional reports

107
Q

To whom do the COBS periodic rules apply to?

A

All clients

108
Q

What is the general rule for timing of periodic statements?

A

Prepared every 3 months but can be provided annually upon clients request

109
Q

What is the periodic statement rule for derivatives?

A

Must be prepared every month

110
Q

When must portfolio managers issue a depreciation notice?

A

Where a clients portfolio falls 10% or more since last valuation

111
Q

When must a RC specifically be notified of changes in their portfolio and what is the time frame?

A

If a clients derivative position moves against the client beyond a pre-specified limit

must be informed by end of day on which breach occurred

112
Q

What counts as an approved bank?

A
  • CB
  • BCD (Banking consolidation directive) credit institution
  • bank authorised by a third country
  • qualifying money market fund
113
Q

What are the three ways through which adequate protection is ensured for client assets?

A
  • segregation
  • reconciliation
  • record keeping
114
Q

How often must records of client asset balances be reconciled?

A

As often as necessary

115
Q

When must shortfalls in client asset balances be corrected?

A

As soon as possible = close of business on day of reconciliation

116
Q

Which firms are excluded from CASS?

A
  • ICVC and UCITS schemes
  • BCD credit institutions
117
Q

Which types of money are excluded from CASS?

A
  • coins held for value of metal
  • money held for delivery vs payment (DvP)
  • money due and payable to firm
118
Q

How often is CASS audit performed and by when must it be submitted to the FCA?

A

Annually

Within 4 months

119
Q

What is a TTCA?

A

Title transfer collateral agreement

  • where clients assets are placed into control of firm (eg. used as collateral for a loan)
  • client must have proper right of use clause in place
120
Q

How long must records of directors’ responsibilities be kept?

A

6 years

121
Q

How long must records of ideni=tification under MLR be kept?

A

5 years

122
Q

How long must records held in data form under the DPA be kept?

A

Not longer than necessary

Unit 1: Regulations (6 decks)

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