The FCA Conduct of Businesses and Client Asset Sourcebooks Flashcards
MiFID instruments
Shares
Bonds
Derivatives
Non-MiFID designated investments
- Package products
- Retail investment products
Insurance business
Life assurance with an investment element regulated as designated investment business
General Application of COBS
The conduct of business rules apply directly to firms conducting designated investment business or conducting insurance business from an establishment maintained by them in the UK
The COBS therefore apply indirectly to appointed representatives
Fair treatment
All firms must ensure that they act honestly, fairly and professionally - Clients’ best interests rule
When a firm is permitted to communicate via a website
- There must be evidence that it is an appropriate method of communication
- The client has specifically consented to this method
- The client is notified of the website address electronically
- The information is kept up to date
- The information must be continuously accessible for as long as the client requires it
Recording voice or electronic comms
Good quality recording should be made and kept for five years when relating to:
-Receiving client orders
-Executing client orders
-Arranging for a client order to be executed
In qualifying investments admitted to trading on a prescribed market (e.g. securities)
Includes communications via fax, email, instant messaging, and mobile phones
Applies to communications with any client or eligible counterparty
Per se professional clients
Authorised/regulated firm
Government, Central Bank, Supranational
Other institutional investors e.g. special purpose vehicles
MiFID Meet 2/3 of - Balance sheet > €20m, Net turnover > €40, Own funds €2m
Per se professional Balance sheet
€20m
Per se professional Net turnover
€40m
Per se professional Own funds
€2m
Elective professional clients
Where retail client opts up to professional client
Qualitative test
Applies to all business
Firm to assess expertise, experience and knowledge to provide reasonable assurance about capability and understanding
Quantitative test
Relates to MiFID business only Meet 2/3 conditions. Average trade frequency ten per quarter over previous four quarters. Portfolio > €500k, works or worked in financial sector for > one year in professional capacity
Quantitative test trade frequency
10 per quarter for previous 4 quarters
Quantitative test portfolio
> €500K
Quantitative test experience
Worked in financial sector > 1 year
Elective professional client -Procedure
Written intent from client to be classified as professional
Written warning to client explaining lost protection
Written client consent to lost protection
Eligible counter parties
An eligible counterparty can be per se eligible counterparty or an elective counterparty
The classification only relates to eligible counterparty business; dealing on own account and/or executing orders on behalf of clients
Per se eligible counterparties
Certain per se professional clients conducting eligible counterparty business
-Authorised/regulated firm
Government, Central Bank, Supranational
Elective eligible counterparties
Available to any undertaking that is a per se professional client (except an individual investor)
Procedure
-Obtain client confirmation to be treated as an eligible counterparty
Acting as agent
Where the person with whom the firm is dealing is acting as an agent of another person then the rep should be regarded as the client
Exceptions:
-There is a written agreement between the firm and the agent to treat B as the client
-The purpose of the agency is to avoid duties owed to B
Firms often need to rely on info provided by other organisations
If the information is from a MiFID firm - a firm may rely on the info and recommendations
-If the information is from a non-MiFID firm: a firm may rely on info if:
1. The info is in writing
2 The non-MiFID firm is independent
3.The non-MiFID firm is competent
Financial promotion
Invitation or inducement to engage in investment activity communicated in the course of business
S21 FSMA 2000
Must not communicate a financial promotion unless:
- It is an authorised person
- The content has been approved by an authorised person
Approval of Financial Promotion
Before a firm approves a financial promotion it must confirm that it complies with the relevant regulations
A firm that communicates financial promotion produced by a 3rd party would Never be in breach of the rules if
-It has established that an authorised firm has approved the promotion
-It communicates the promotion only to those it was intended
-The promotion has not ceased to be fair, clear and not misleading
Approval of Financial Promotion (exceptions)
Exempt under the financial promotions order (FPO)
From outside the UK, and cannot have an effect within the UK
Subject to Takeover Code or any similar code
Personal quotes or illustrations
One-off promotions that are not cold calls
Communication with clients
Fair, clear and not misleading
Firms must ensure that financial promotions are clearly identifiable as such
Some exceptions when promotion made solely to a professional client or eligible counterparty
When communicating with retail clients firms must ensure
-Name of the firm is included
-Details are accurate and fair
Promotion is comprehensible
Promotion does not obscure important items, statements or warnings
Should be fair, clear and not misleading