Topic 3 - Conduct Of Business Rules Flashcards
1
Q
What is COBS?
A
Conduct of Business Sourcebook
Part of the FCA Handbook.
2
Q
What is MCOB?
A
Mortgage and Home Finance Conduct of Business Sourcebook.
3
Q
What ICOB
A
Insurance Conduct of Business Sourcebook
4
Q
What is BCOBS?
A
The Banking Conduct of Business Sourcebook
5
Q
In what context Sourcebooks relevant?
A
Advice to clients and customers.
6
Q
When and why was the latest COBS introduced?
A
November 2007 it gave firms greater flexibility to decide how to achieve regulatory outcomes.
7
Q
How many chapters of COBs ?
A
22
8
Q
COBS 1 : Application
What does it do?
A
Explain the firm’s and activities COBs applies to.
9
Q
COBS 2 : Conduct of Business obligations
How must a firm act?
4 items
Info provided to clients must be?
3 items
A
A firm must act -
Honestly
Fairly
Professionally
With clients best interest in mind.
Information provided to clients must be -
Appropriate
Comprehensible
Must include costs, charges relevant investment strategies.
10
Q
COBS 3: Client Categorisation
A firm must notify a new client of its categorisation. List 3 likely categories.
A
Retail client
Professional client
Eligible counterparty (ie investment firms, pension funds, unit trusts, insurance firms)
11
Q
COBS 4 : Communications with clients. (Inc financial promotions)
Stipulates communications must be …
A
Fair
Clear
Not Misleading
Comprehensible to the average reader.
12
Q
What does COBS 4 say about cold calling?
A
Firms must not cold call unless there is an existing relationship.
13
Q
COBS 5 : Distance Communication
What does this cover?
2 items
A
The time allowed to consumers before they are bound by contracts conducted by phone.
Information on E-commerce activities must be easily, directly and permanently accessible.
14
Q
COBS 6: information about the firm, its services and remuneration.
This means…
A
Firms must disclose costs paid by the client and any commissions.
15
Q
COBS 7 : Insurance Mediation
What must a firm specify to a client taking out life insurance?
(2 items)
A
The demands and needs of that client.
If they have given advice must supply client with a suitability report.
16
Q
COBS 8 : Client Agreements
In respect of retail clients what must firms enter into?
A
Written agreement setting out rights and obligations of both parties.
17
Q
COBS 9: suitability (inc basic advice)
What does this deal with?
A
Personal recommendations must be suitable for the client.
Including gathering sufficient information and using pre-scripted questions.
Suitability reports must be provided.
18
Q
COBS 10: appropriateness
What does this apply to?
A
Non-advised Services - ie execution only deals
The firms must ask clients for info on knowledge and experience so it can determine whether the product or service is appropriate.
If the firm does not consider the product or service appropriate it must warn the client.
19
Q
COBS 11 : Dealing and managing
Explain what firms this affects
A
Those that execute, recieve or transmit orders on behalf of clients
OR
Manage client investment portfolios
20
Q
COBS 12 : Investment Research
What rules does this set out?
A
Rules for managing conflicts of interest relating to the production or distribution of investment research.
21
Q
COBS 13 : preparing product information.
When preparing a recommendation what must clients be supplied with?
A
Key Features Documents or Illustrations
22
Q
COBS 14: providing information to clients
This covers given in what two instances.
A
Info given to clients at a The conclusion of a sale
OR
Variation of an existing policy.
23
Q
COBS 15: Cancellation
What types of products are applicable?
What is the cancellation period?
A
Life
Pension
Cash deposit NISAs
Certain non-life contracts
Cancellation period is 14 or 30 days depending on product.
24
Q
COBS 16 : Reporting Info to clients
What does this cover?
A
The need to supply clients with reports on services and costs.
Including regular statements for investments.
25
COBS 17 : claims handling for LTCI
What is LTCI?
long-term care insurance.
26
What are COBS 18 to 20
COBS 18: Specialist Regimes
COBS 19: Pensions Supplementary Provision
COBS 20: with profits
27
COBS 21: permitted links for long-term insurance business
What does this relate to?
Policies where the benefits are reliant on the value of (or income from) property.
28
COBS 22: restrictions on the distribution of certain regulatory capital instruments.
Does exactly what it says on the tin.
29
MCOBS apply when?
Loans are taken out by individuals or trustees and subject to a charge on the borrower’s property
Property must be in UK
Residential
Immediate family must occupy at least 40 per cent (exception By to Let).
30
In addition to mortgages what loans does MCOBS cover?
Home improvement loans
Debt consolidation loans
Equity release schemes
Consumer Buy to Let mortgages
31
MCOB rules cover what four Banking activities?
Lending
Admin
Advice
Arranging loans.
32
What firms require authorisation under MCOBs
Banks
Building Societies
Specialist Lenders
Mortgage intermediaries
33
Tell me about
Advised Sales
Execution only sales
Non-advised sales
Advised - mortgage sales including rate / contract changes. Vast majority. Advisor must ensure recommended product is suitable for customers.
Execution only - only allowed in limited circumstances ie borrower is a HNWI or mortgage professional
Non-advised - where a customer picks from a range of options are no longer allowed except for basic contract variations.
34
Mortgages
What must an assessment of suitability include?
4 items
Which mortgage best suits client’s needs and circumstances.
Initial and ongoing affordability of the scheme for the client
Impact assessment of any possible increase in interest rates on variable-rate mortgages.
What happens if the mortgage runs past clients retirement age.
35
With whom does the responsibility for confirming affordability sit?
The lender, even if the client has been introduced by a third party.
36
What are the three stages for assessing suitability of a mortgage?
1 Assess whether it is a suitable product for a client.
2. Assess what type of mortgage is suitable.
3. Selecting the best provider and mortgage to meet the clients needs.
37
What do the rules for interest only mortgages now state a borrower must have?
A credible means of repayment.
38
MCOB 2 Conduct of business standards - general
Says communications to clients must be ...
Clear, fair not misleading.
39
MCOB 2A
Is about MCD lenders. Who?
What does it say about staff remuneration?
Mortgage Credit Directive
Remuneration packages must not create a conflict of interest.
40
MCOB 3 : Financial promotions
What is the distinction between real time and non-real time promotions?
Real time - by personal visit or telephone call
Non-real time - by letter, email, advert
41
MCOB 3 : Financial promotions
What regulations cover real-time promotions?
(2 items)
Unsolicited real-time promotions are not permitted.
Customer’s must not be contacted during unsocial hours.
42
MCOB 3 : Financial promotions
What regulations cover non-real time promotions?
(5 items)
Must include name and contact details of the firm.
Be clear, fair and not misleading.
Comparisons must be with products that meet the same need.
Say “Your home may be repossessed if you do not keep up repayments on your mortgage”
Records must be retained for one year after last use.
43
MCOB 3a
What is covered?
Communications with consumers in relation to home finance transactions etc
44
MCOB4 :advising and selling standards
What must be disclosed at the outset?
Initial disclosures include:
Is advice based on the whole market, limited number of lenders or a single lender.
The way the firm gets paid must be made clear.
Details of FCA regulation and FSCS.
45
MCOB 4a
Adds MCD selling standards to MCOB 4
What is added?
Mortgage Credit Intermediaries must provide firm’s name and geographic location, name and registration number of the arranger.
Details of complaint process and whether they have FOS access
46
MCOB 5: pre-application disclosure
What must be provided at the point a personal recommendation is made and before an application is submitted to a lender?
Mortgage illustration.
47
MCOB 5: pre-application disclosure
What must the Mortgage illustration include?
Annual percentage rate of charge
Amount of monthly instalment
Amount by which monthly instalment would increase for each 1 % rise in interest rates
Variations from the prescribed format are not permitted.
48
MCOB 5A:
This section expands on the Mortgage illustration by stipulating what info is supplied?
Clear information about the product’s features and price.
49
MCOB 6: Disclosure at the offer stage.
If a mortgage offer is made the lender must provide a detailed offer document.
Unless circumstances have changed what is it based on?
Information given in the Mortgage illustration.
It must also state -
How long the offer is valid
No right of withdrawal after mortgage completed
50
MCOB 7 : Disclosure at start of contact and after sale
What must be confirmed after the first mortgage payment is made?
4 items
Details of -
```
Amounts
Dates
Methods of payments
Any related products like insurance
What the customer should do if they fall into arrears.
```
51
MCOB 7 : Disclosure at start of contact and after sale
What must also be confirmed after the first mortgage payment is made in respect of interest-only mortgages)
The responsibility of the borrower to ensure that a repayment vehicle is in place.
52
MCOB 7 : Disclosure at start of contact and after sale
What must be issued annually?
3 items.
Statement showing-
Amount owed.
Remaining term
Reminder to check performance of any repayment vehicle.
53
MCOB 7 : Disclosure at start of contact and after sale
If a change is made to monthly payment what must the client be advised?
Three items.
The new amount
Revised interest rate
Date of change
54
MCOB 8 and 9 Equity Release.
What are equity releases?
Products aimed at older clients to raise money using the equity in their property.
Special rules apply to equity release in relation to advising and selling standards.
55
MCOB 10: APRC
What is the APRC?
Annual Percentage Rate of Charge.
MCOB10 describes how this is calculated to let customers compare rates across providers.
56
MCOB 11: Responsible lending
What must lenders put in place?
What must lenders be able to demonstrate?
A responsible lending policy.
That they have taken into consideration a customer’s ability to pay when making an offer.
57
MCOB 12 Charges
What isn’t permitted?
Excessive charges.
58
MCOB 12 Charges
How should early repayment fees and arrears charges be calculated?
Early repayment fees must be a reasonable approximation of cost
Arrears charges must be a reasonable approximation of the cost of additional administration due to a borrower being in arrears
59
MCOB 13 arrears and repossessions
How should firms deal with customers in mortgage arrears or mortgage shortfall debts.
Explain what this means in practice.
Fairly.
Try to reach agreement on how to repay the arrears.
Take into account the borrowers circumstances
Liaise with third party sources of advice.
Not putting unreasonable pressure on customers in arrears.
Only repossess when all reasonable measures have failed.
60
MCOB 13 arrears and repossessions
Customers in arrears should be given what information within 15 working days of becoming aware of arrears.
FCA information sheet on what to do when in arrears
Details of the missed payments
The total arrears including charges incurred
The outstanding debt
Any further charges if the arrears aren’t cleared.
61
ICOBS was introduced following what?
The EU Directive on Insurance Mediation
Implemented in January 2005
The regulation of insurance providers and intermediaries.
62
Firms and individuals working in what areas are covered by ICOBS?
5 areas of business
3 roles within a business
```
General insurance
Protection
Critical illness
Long-term care
Permanent health insurance
```
Those who -
Sell
Administer
Advise
63
ICOBS 1: application of the rules
The activities regulated by these rules include:
4 activities of insurance firms.
Insurance Mediation
Effecting and carrying out contracts of insurance
Underwriting capacity of a Lloyd’s syndicate
Communicating or approving a financial promotion
64
ICOBS 2: General rules
Name two categories of client (second split into two types)
Policyholders (those who can make a claim)
Customers (those who take out insurance)
- consumers (people acting outside their profession)
- commercial customers (all non consumers)
65
ICOBS 2: General rules
What is covered?
4 rules
Communications must be clear, fair, not misleading)
Inducements (avoiding conflicts of interest)
Record keeping
Exclusion of liability (a firm must not seek to exclude or restrict liability unless it is reasonable to do so).
66
ICOBS 3 Distance Communications
EU Distance Marketing Directive includes 5 provisions-
A firm must provide a consumer with Distance marketing information before the conclusion of a Distance consumer contract.
Identity of firm, purpose of the call, made clear at start of telephone call
Contractual obligations must be communicated in writing during pre-contractual phase
T and Cs communicated before the conclusion of a Distance contract
Consumer to get T and Cs on request.
67
ICOBS 3 Distance Communications
E-commerce activities- what must a firm make easily, directly, and permanently accessible
4 items
Name
Address
Details of the firm
PRA/FCA register number
68
ICOBS 3 Distance Communications
Prices advertised must be?
2 items
Clear and unambiguous
Indicate whether relevant taxes are included.
69
ICOBS 4 info about firm, it’s services and remuneration
What info must be supplied to a customer
5 items
Name and address
That it is on PRA/FCA register
Whether it has 10% or more of an insurance undertaking
Whether a reinsurer has more than 10%
Complaints process and FOS details
70
ICOBS 4 info about firm, it’s services and remuneration
Prior to the conclusion of a contract an insurance Mediation firm must tell the consumer what information about how they arrived at their recommendation?
It gives advice after a fair analysis of the market
Or
Under contractual obligation to only do business with a limited number of insurers
Or
Neither
71
ICOBS 4 info about firm, it’s services and remuneration
A firm must provide details of...
Fees other than premiums
An intermediary’s commission
72
What are IDD and CIDDs?
Initial Disclosure Document
Combined Initial Disclosure Document
73
ICOBS 5 identifying client needs and advising.
What should a firm ensure a n resection of client needs?
6 items
That the customer will be able to claim on the policy.
Customers should be informed if parts of the cover don’t apply.
The firm must explain the customer’s requirement to disclose all material facts.
The firm must specify their understanding of a client’s needs as part of their advice
Needs clearly communicated in writing.
Firm must ensure the suitability of its advice.
74
ICOBS 6 Product information
What must information given to a customer be?
Appropriate so that they can make an informed choice about the arrangements proposed.
75
ICOBS 6 Product information
After the inception of the policy what should be issued?
3 items
Evidence of cover
The price of the policy separate from other elements of the package.
Whether the policy is compulsory.
76
ICOBS 6 Product information
Who’s responsibility is it to provide information at inception if a policy?
Intermediary but insurer must provide intermediary with adequate information to complete this.
77
ICOBS 6 Product information
What information must be disclosed precontract?
2 items
Complaints process
Right to cancel
78
ICOBS 6 Product information
Before a “pure protection” contract is concluded a firm must provide what information to the customer...
9 items
Name of the insurance undertaking
Address of head office
Definition of each benefit and option
Contract term
How to terminate contract
Payment method
Duration of premiums
Tax arrangements
Complaint process
79
ICOBS 6a
Deals with a GAP product.
Guaranteed Asset Protect
It is used in car finance schemes
80
ICOBS 7 cancellation
When does the client have the right to cancel without giving a reason?
3 items
30 days for insurance that includes pure protection
14 days other contracts of insurance
Firms are free to offer more favourable cooling off periods.
81
ICOBS 7 cancellation
When does the right to cancel not apply?
5 items
Travel policies of less than one month
Policies that are completed
Pure protection less than 6 months (except distance contracts)
Pure protection policies via pension schemes or employers.
General insurance sold by an unauthorised person
82
ICOBS 7 cancellation
On receipt of cancellation notice an insurer must ...
2 items
Terminate the contract
Return the premiums
83
ICOBS 8 : Claims handling
How must claims be handled?
4 items
Promptly
Fairly
Policyholder must provide reasonable guidance to help the policyholder make a claim.
The firm cannot unreasonably reject a claim.
84
ICOBS 8 claims handling
Rejection of a claim is considered unreasonable if ...
3 items
For non-disclosure of a material fact that the policyholder could not reasonably have expected to have to disclose
Non-negligent misrepresentation of a material fact.
Breach of a condition of the contract unconnected to the claim.
85
When did BCOBS and PSR come into effect
1 November 2009
86
What is TCF now called?
Fair Treatment of Customers
87
BCOBS 1 Application
What activity does BCOBS apply to?
Accepting deposits from banking customers of an institution based in the UK
88
BCOBS 2 : Communications with Banking customers and financial promotions.
What does this chapter require of a firm?
The information needs of banking customers.
Communications must be clear, fair and not misleading
89
BCOBS 2A optional additional products
This relates when?
Products linked to current or savings accounts for which a fee is payable.
90
BCOBS 3 Distance comms and e-commerce
Contains many of the provisions of the Distance Marketing Directive. Who does this apply to?
Firms carrying out distance marketing from uk to clients in EEA.
91
BCOBS 4 Information to be communicated to banking customers and statements.
Title says it all
92
BCOBS 5 post sale requirements
a firm must provide a service to retail clients that is what?
Prompt
Efficient
Fair to a banking customer
Including customers in financial difficulties.
93
BCOBS 6 cancellation
What does this chapter set out?
When a customer has the right to cancel
When there are no rights.
94
What does PSRs stand for?
Payment Services Regulations
95
PSRs what accounts are covered?
Accounts on which payments can be made. Ie not Fixed Deposits.
96
What period does the PSRs apply?
From info provided before a transaction
Until
Payment is made
AND
All remedial actions arising from the payment are completed
97
PSRs affect what firms
Those providing payment services including ...
Banks
Building Societies
E-money issuers
Money remitters
Non bank payment card issuers
Non-bank merchant acquirers
98
Describe the PSR
payment systems regulator
Competition focused regulator for payment services
Launched 2015
Subsidiary of FCA
99
What is the purpose of the PSR?
Make payments work well for those who use them.
100
What are the objectives of the PSR?
Promote competition and innovation
Make systems work in the interests of end user strategy
101
What does PSR oversee?
All domestic payment systems designated by HM Treasury.
102
What 2 general powers does PSR have?
- Authority over system rules
| - Authority to give directions
103
What 3 specific powers does PSR have?
Can gain access to a payment system
May Vary agreements relating to payment systems
May order owners of payment systems to sell them.
104
What 2 enforcement powers does PSR have?
Publish details of compliance failure
Impose financial penalties
