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CeMAP Unit 2 > Topic 20 Conduct of Business Requirements 1 > Flashcards

Topic 20 Conduct of Business Requirements 1 Flashcards

1
Q

Which sourcebook covers conduct rules for business firms?

A

Conduct of Business Sourcebook (COBS)

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2
Q

Which sourcebook covers rules for deposit takers, eg banks & building societies

A

Banking: Conduct of Business Sourcebook (BCOBS)

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3
Q

Which sourcebook covers rules relating to mortgages, home finance & equity release

A

Mortgages & Home Finance: Conduct of Business Sourcebook (MCOB)

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4
Q

Which sourcebook covers rules on provision of advice on general advice & protection policies

A

Insurance: Conduct of Business Sourcebook (ICOBS)

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5
Q

What are the 3 types of client set out in Conduct of Business Sourcebook (COBS)?

A
  1. Eligible Counterparties
  2. Professional Clients
  3. Retail Clients
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6
Q

What type of client would this be according to Conduct of Business Sourcebook (COBS)?

  • Applies to governments, central banks & finance Institutions
  • Buyer or seller or a product for resale
  • Deemed to have assumed level of knowledge & expertise
  • Less investor protection
A

Eligible Counterparties

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7
Q

What type of client would this be according to Conduct of Business Sourcebook (COBS)?

  • Require a higher level of service than eligible counterparties (require advice)
  • Large clients e.g (Institutional investors)
  • Can opt to be treated as professional clients
A

Professional Clients

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8
Q

What is the term for a professional clients who opts to be treated as such

A

Elective Professional Clients

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9
Q

What type of client would this be according to Conduct of Business Sourcebook (COBS)?

  • People in the street with limited understanding of financial services
  • Highest level of investor protection
A

Retail clients

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10
Q

What are the 2 categories of advisor?

A
  1. Independent
  2. Restricted
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11
Q

What must an independent Financial advisor or a firm must ensure?

A
  • Suitably diverse products to meet investor needs
  • Not linked to firm or entities link to firm (avoid impairing advice)
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12
Q

If a firm does not meet the standards for independent advice is considered to be what?

A

Restricted

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13
Q

An advice firm can call itself independent even if it offers advice on a certain area.

True or False

A

True

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14
Q

The FCA is defines a “Personal recommendation” as advice on?

A
  • Investment
  • Pensions
  • Home Finance
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15
Q

A firm is able to use panels but it must be what to avoid limiting a customers options?

A

Sufficiently broad to enable appropriate advice to be given

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16
Q

Why must firms who operate panels must be able to offer “Off Panel” advice?

A

Other providers may have products that suit clients better

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17
Q

What is a Panel?

A

Selection of providers who are trusted on their product range, charges & service level

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18
Q

Is an independent firm allowed to have specialist advisors?

A

Yes but it must offer advice that meets independence rules

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19
Q

What is restricted advice?

A

Any advice that is not independent and has a narrow range of products & services

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20
Q

What is Execution-only Business?

A

Where a customer feels equipped to make their own investment choices without taking advice. The firm just executed their wishes

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21
Q

What is Qualified Investment Advice?

A

Where a recommendation is given based on a full analysis of a customers needs & circumstances

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22
Q

What is Simplified Advice?

A

Streamlined/automated way of gathering personal & financial information on which advice is given

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23
Q

What are the below in relation to Execution-only business?

  • Customer is aware business is transacted on an Execution-only basis
  • They have not asked for or received advice
  • The decision to take out an investment is their own
  • The adviser takes no responsibility for the suitability of the advice
A

What the Financial Ombudsman Service (FOS) requires as “Clear & Credible” evidence that are happy to act on an Execution-only basis

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24
Q

What is a “Insistent customer” ?

A

Where a customer decides not to take the advice given and take their own course of action

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25
Q

In the case of a “insistent customers” what does the adviser need the client to do?

A

Sign to say they are acting against the advice

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26
Q

What is an Appropriateness Test?

A

A test to see whether a customer has the knowledge & Expertise to understand risks involved in a complex product

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27
Q

These are what?

  • Alternative Investment Funds
  • Spread betting contracts
  • Structured products
A

Example of complex products that require an Appropriateness test

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28
Q

How does Conduct of Business Sourcebook (COBS) define financial promotions?

A

“Invitation or Inducement to engage in investment activity”

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29
Q

Financial promotions can only be communicated if they have approved by an authorised person.

True or False

A

True

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30
Q

Non-written financial promotions including:

  • Personal visits
  • Telephone calls

Are examples of what?

A

Real-time financial promotions

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31
Q

Written financial promotions including:

  • Newspaper advertisements
  • Online advertisements

Are examples of what?

A

Non-real time financial promotions

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32
Q

The below must be clear, fair & not misleading by what type of client is it aimed at?

  • Accurate give benefit of products as well as risks
  • Understand by who it is aimed at
  • Not disguise or obscure terms or warnings
  • Contain the name of conduct regulator in case of direct offer advertisements
A

Retail clients

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33
Q

Which rule relating to financial products is this?

  • Comparisons with other products must be meaningful, presented in a fair way
  • MiFID firms have extra requirements to detail information source and assumptions made in comparison
A

Comparisons

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34
Q

Which rule relating to financial products is this?

  • Past performance must not be prominent part of promotion
  • Must be clear it is a past performance & not reliable measure of future results
  • Past performance data must be based on last 5 years or (since investment began not less than 1 year
A

Past Performance

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35
Q

Which rule relating to financial products is this?

  • Unsolicited phone calls/visits must be made at an appropriate time of day
  • Caller must check that the receiptant is happy to proceed with the call
  • The caller must give a contact point to any client with whom they arrange a call
A

Unsolicited Promotions (cold calls)

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36
Q

Unsolicited promotions are only permitted to certain investments packaged products (such as life assurance policies & Unit Trusts

True or False

A

True

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37
Q
  • Higher volatile funds (use gearing) & linked life policies
  • Mortgage contracts

Are all what in relation to unsolicited promotions?

A

Not permitted for unsolicited promotions

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38
Q

Adverts for financial services like from the below must all what?

  • Print
  • Broadcast media
A

Meets standards set out in the Advertising Standards Authority (ASA)

39
Q

All adverts should be what according to the Advertising Standards Authority (ASA)

A
  • Legal
  • Honest
  • Decent
  • Truthful
40
Q

Why did advisor charges replace commission payments on products?

A

Advice could be skewed towards products with higher commission rates

41
Q

Charges for advisors must be?

A
  • Fair & based on service provided
  • Charges must be explained as part of the initial discussion to a customer
  • Continuing charges can only be made where customer agrees & service is provided
42
Q

How are advisor charges calculated?

A
  • Hourly rate
  • Percentage of amount invested
43
Q

Advisor charges based on hours must also what?

A

Give an indication on how many hours it is likely to take

44
Q

Does the customer need to provide a reason to why they wish to cancel their service?

A

No they don’t need to provide a reason

45
Q

Commission can be charged on Income Protection & Term Assurance

True or False

A

True

46
Q

At the beginning of liaising with a client what type of information being given is this?

  • Name, address & contact details of the firm
A

Contact Information

47
Q

At the beginning of liaising with a client what type of information being given is this?

Methods of communication between firm & client

A

Communication

48
Q

At the beginning of liaising with a client what type of information being given is this?

Statement of fact that the firm is regulated & the regulator is known

A

Authorisation

49
Q

At the beginning of liaising with a client what type of information being given is this?

Whether advice being provided is restricted or independent and the difference must be explained

A

Advice type

50
Q

At the beginning of liaising with a client what type of information being given is this?

  • Method & frequency of investment evaluation
  • Types of investment
  • Delegation of discretion management
A

Investment Management

51
Q

At the beginning of liaising with a client what type of information being given is this?

Client money or Investments held by a third party on behalf of the client. The form must provide consequences of third party’s insolvency to the client

A

Client Money or Investments

52
Q

At the beginning of liaising with a client what type of information being given is this?

May be a list of advisory services offered with charges index for calculating each service

A

Charging structure/method

53
Q

At the beginning of liaising with a client what type of information being given is this?

Total charge payable by client in cash terms

A

Charges Payable

54
Q

At the beginning of liaising with a client what type of information being given is this?

Must make available to client details of complaints procedures & explain protection offered by the Financial Ombudsman Service (FOS) & Financial Services Compensation Scheme (FSCS)

A

Detail of complaints procedures including FOS & FSCS

55
Q

If a firm carries out direct investment business (packed investments excluded) is written client agreement required?

A

Yes it is

56
Q

What is Designated Investment Business?

A

Dealing in investment assets directly on behalf of a client without gaining clients authority without client agreement

57
Q

When will an advisor make a personal recommendation?

A

When they have all the personal & financial circumstances from the customer to make a recommendation

58
Q

What does an advisor need to consider when assessing the suitability of products for a customer?

A
  • Meets current & future needs
  • Is affordable both initially on an ongoing basis
  • Consistent with customers risk profile
  • Flexible to take account of future changes
59
Q

When making a recommendation to a client the below are examples of what the client would need to know?

  • Whether the capital will be returned in full
  • Extent of which income levels could vary regarding an investment return
  • Factors with may affect returns from pension income
  • Factors that may affect claims on a protection product
  • Whether or not life cover is suitable for the term without increases in premiums
A

Risks involved in products

60
Q

What is a Suitability Report?

A

Product or service that is most suitable for a client based on the information provided by a client

61
Q

What does a suitable report need to contain for a client?

A
  • Their personal & financial circumstances
  • Their needs & priorities (identified through factfind)
  • Customer attitude to risk
62
Q

What else should a suitability report contain?

A
  • Disadvantages of the transaction for a customer
  • Any “Lock in” periods during which time an investment can’t be encashed
  • Clear, concise & written in plain English
63
Q

Regarding Suitability Reports the below are all what?

  • Life Policies
  • Pension Policies
  • Unit Trusts
  • Investment Trusts (Acquired through Trust savings schemes)
  • OEIC’s
  • Pension Transfers & Opt-outs
A

Products that require suitability reports

64
Q

Regarding Suitability Reports the below are all what?

  • Life Policies
  • Pension Policies
  • Unit Trusts
  • Investment Trusts (Acquired through Trust savings schemes)
  • OEIC’s
  • Pension Transfers & Opt-outs
A

Products that require suitability reports

65
Q

When a sale is completed via Telephone selling when must a suitability report be completed?

A

Immediately after the conclusion of the life policy

66
Q

For a stakeholder or personal pension when must a suitability report be provided?

A

14th day after the contract is completed

67
Q

For other suitability reports when must they be completed?

A

As soon as possible after the transaction is concluded

68
Q

What is Product Disclosure?

A

Advisors who advise on packed products must provide clients with key features of the product before a sale is completed

69
Q

All the below are what?

  • Description of the product’s aims
  • Description of how a product works
  • Key terms of the contract
  • Consequences of failing to maintain the commitment or investment
  • Arrangements for handling complaints about the product
  • Compensation for the FSCS
  • Details about the right to cancel
A

What is in a Key Features document

70
Q

Who do Key Information Documents (KID) get issued to?

A

Customer who are buying Personal Retail & Insurance-based Investment Products (PRIIP) Packaged Products

71
Q

What are Personal Retail & Insurance-based Investment Products (PRIIP)?

A

Products that are liable to risk & fluctuations

72
Q

What information is put on Personal Retail & Insurance-based Investment Products (PRIIP) Key Information Documents (KID)?

A
  • Nature & features of product
  • Costs & risks of product
  • Relevent performance information
73
Q
  • Derivatives
  • Non-UCITS retail schemes (Unit Trusts, OEIC’s
  • Insurance-based Investments (Unit Linked & with profits Endowments
  • Investment Trusts
  • Structured products & structured products

All require what?

A

Key Information Documents (KID)

74
Q
  • Pension Products
  • Deposits with no investment risk
  • Gilts, shares & bonds (directly held)
  • General Insurance & protection-based insurance products with no surrender value

All what?

A

Don’t require Key Information Documents (KID)

75
Q

The below is what in relation to Personal Retail & Insurance-based Investment Products (PRIIP) to EU regulation?

  • Consistency between the information that different providers make to their customers
  • Information provided covers certain areas
  • Information is presented in an easy to understand manner
  • Easier for investors to make comparisons between products
A

Aims of how transparency & comparability of investment products is measured

76
Q

The Key Information Documents (KID) must be no longer than?

A

3 pages of A4 paper

77
Q

The below is what in relation to a Personal Retail & Insurance-based Investment Products (PRIIP)?

  • Product name
  • Name of provider
  • Main features
  • Any possible risks
  • Any potential investment returns
  • Costs & charges
  • Details of complaints procedure
A

What Personal Retail & Insurance-based Investment Products (PRIIP) should contain

78
Q

What is a Key Inventor Information Document (KIID)?

A

A document that is submitted to an Investor for collective investment

79
Q

What are these in relation to collective investment for an investor?

  • Objectives & Investment Policy
  • Risk & Reward Profile
  • Charges
  • Past Performance
  • Practical Information
A

What is contained in a Key Inventor Information Document (KIID)

80
Q

How does a Synthetic Risk & Reward Indicator (SRRI) help an investor?

A

Allows them to assess the past performances of collective investments

81
Q

The UK Retail Disclosure Framework for Consumer Composite Investments (CCI) will do what?

A

Replace Personal Retail & Insurance-based Investment Products (PRIIP)

82
Q

What is a Cooling Off period?

A

A limited time where a client can withdraw from a contract without penalty

83
Q

The cooling off period for life policies & pension policies (insurance policies) with pure protection is how long?

A

30 days

84
Q

The cooling off period for investments or deposits is?

A

14 days

85
Q

The cooling off period for binding mortgage offers is?

A

7 days

86
Q

If a customer decides to cancel after a product is made they may be liable to what?

A

Advisor charges that may be due

87
Q

Where can the rules relating to record keeping be found?

A

Conduct of Business Sourcebook (COBS)

88
Q

True or False

A firm can determine it’s own charging structure

A

True

89
Q

The charges for investment business would normally be found where?

A

Client Agreement Letter

90
Q

If a client invests in a lump sum in a Unit Linked Investment are they entitled to a full refund?

A

No only the amount of the fallen investment

91
Q

If a major bank requires advice on to a higher level on a particular area what type of client are they?

Eligible Counterparties or Professional Clients?

A

Professional Clients

92
Q

Under the FCA’S categorisation rules adviser must offer the highest level of Investor protection to retail clients who have less knowledge of investments.

True or False

A

True

93
Q

Where would the essential rights & obligations applying to designated investment business be found?

A

Client Agreement Document

94
Q

When a life product is completed for a client a suitability report must be completed when?

A

Before the start of the contract

CeMAP Unit 2 (11 decks)

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