Topic 20 (Conduct of business requirements I) Flashcards
What is the Conduct of Business Sourcebook COBS?
Conducts rules for investment firms, banks and building societies
What is the Mortgage and home finance sourcebook MCOB?
Rules governing the protection of advice relating to mortgages and home finance including equity release
What is the Insurance conduct of business sourcebook ICOBs?
Rules governing the provision of advice on general insurance and protection products
What are the 3 types of client?
- Eligible counter-parties - Includes government central banks and financial institutions. Due to the assumed level of knowledge, clients in this category receive the lowest level of investor protection
- Professional clients - Includes all the bodies that would otherwise be eligible counter-parties, except for the fact they require a higher level of service
- Retail clients - Provides the highest level of investor protection and comprises customers who do not fall into the other 2 categories (most customers fall into this category)
What are the 2 different categories of advisor?
- Independent advisors
2. Restricted advisors
What is independent advice?
Advice on a certain area based on comprehensive and fair analysis of the relevant market and provided unbiased, unrestricted advice
What are panels?
Don’t prohibit/restrict a firm wishing to be independent, should be reviewed/updated regularly and it must be broad to make personal recommendations
What are specialists?
Advisors who specialise in certain areas and they must meet the independence rule in every recommendation
What is restricted advice?
A personal recommendation to a retail client in relation to a retail investment product which isn’t independent or basic advice
what is basic advice?
Providing advice on stakeholder products
What is execution only business?
A transaction executed by a firm upon the specific instruction of a client where the firm does not give advice on investments relating to the merits of the transaction and in relation the rules on the assessment of appropriates don’t apply
What is qualified investment advice?
Where an advisor makes a recommendation based on a full analysis of customers need and circumstances
What is simplified advice?
Where a streamlined or automated process is used to gather the personal and financial information on which advice is given
What is an insistent customer?
Where an advisor provides advice to a client but the client wishes to carry out a transaction that contravenes the advice given
What was introduced for non-advised sales?
MiFID introduced an appropriates test
What is a financial promotion?
An invitation or inducement to engage in investment activity
What are the 2 different types of financial promotion?
- Real-time financial promotion (non-written) = personal visits and telephone conversations
- Non real-time financial promotions (written) = Newspapers, advertisements and internet
What are the features of unsolicited promotions (cold calls)
- permitted to certain investments
- not permitted for high volatility funds
- not permitted for mortgage contracts
- can’t be made in unsociable hours
- must check the recipient is happy with the call
- caller must give a contact point
What are the two codes for ASA (Advertising standards authority)?
- Broadcast advertising
2. Non-broadcast advertising, sales, promotions and direct marketing
What are the 4 requirements that all advertisements must be?
- Legal
- Decent
- Honest
- Truthful
What are the rules relating to advisor charges?
Advisors have discretion to determine their charging structures but they must pay due regard to the best interest of the client
Before business is discussed, what must the advisor do?
Disclose certain information about themselves and the services they provide
What is SCDD? (Services and costs disclosure document)
Provides a format for required disclosure information
- The SCDD isn’t obligatory and firms can develop their own disclosure material provided it meets FCA requirements
When is a written client agreement required?
If a firm is carrying on designated investment business
What is designated investment business?
When a firm deals in investment assets directly on behalf of the client
What factors should an advisor consider when making a recommendation?
- Meets current and likely future needs
- Is affordable
- Is consistent with the customers risk profile
- Is flexible
What is Attitude to risk?
The extent to which a customer can cope with the lack of guarantees in respect of capital values and their feelings on fluctuating returns/income levels
What is Tolerance of risk?
The extent to which a customers finances could cope with a loss of capital or income
What is a suitability report?
- Explains the clients finance, attitude to risk and priorities
- Should be clear, concise and written in english
What are suitability reports not required for?
Mortgage advice
What is the purpose of product disclosure?
To enable the client to make an informed decision about wether to proceed
What are key information documents (KID)?
Must be provided if a customer is buying a packaged retail and insurance based investment product (PRIIP)
What is PRIIP?
An investment where the amount repayable to the retail investor is subject to risk and fluctuation as a result of exposure to reference values or the performance of assets
What is the cooling off period?
When a client buys a regulated packaged or insurance product, they have the right to change their mind and withdraw from the contract within a specified period
What is the cooling off period for life/pension policies and contracts of insurance?
30 days
What is the cooling off period for investments, deposits and other insurances`/
14 days
what is the cooling off period for binding mortgage offers?
7 days
