Chapter 4 - FCA CoB and CA Sourcebooks Flashcards
A financial promotion issued to retail clients is only required to give a balanced impression of short-, medium- and long-term prospects if:
A quoted yield is included.
Firms should ensure that financial promotion communications which quote yields give a balanced impression of short-, medium- and long-term prospects for the investment.
Which of the following is a non-real-time communication?
Email.
Non-real-time communications are typically those where a record is made, such as emails, letters and websites.
In order for CASS auditors to effectively carry out their mandatory annual audit on firms holding client assets, information they require will normally include:
The role played by any third party administrators.
In order to carry out CASS audits effectively, the auditor will need to understand details of the firm’s business model, including the nature of the services it provides, what sort of transactions it does and how they are settled, any inter-group relationships and the role played by any third party administrator or custodian.
A financial adviser has recommended a cash deposit individual savings account (ISA), a life policy and a personal pension scheme to a client. For which of these must a key features document be produced?
ISA, life policy and pension.
Key features documents are required for each packaged product and for cash deposit ISAs. The Financial Conduct Authority’s (FCA’s) definition of packaged products includes life policies and personal pension schemes..
When a firm prepares its conflicts of interest policy, it is required to pay particular attention to:
Staff performing more than one role.
A written conflicts of interest policy should pay particular attention to circumstances where a person performs two or more roles in relation to, for example, investment research and advice, proprietary trading, portfolio management and corporate finance business.
A key features document must be provided when:
Selling packaged products to a retail client only.
A key features document (KFD) must be provided to retail clients when recommending packaged products.
A firm was required to assess the appropriateness of a client when dealing with a recent transaction. This was because the client:
Chose an execution-only service in a non-UCITS fund.
Firms are required to assess appropriateness if the service is execution-only, and relates to certain types of financial instrument.
The external auditor’s annual report on the systems and controls of a firm which holds client assets must be sent to the Financial Conduct Authority (FCA) within what MAXIMUM period after its completion?
Four months.
A firm which holds client assets and client money must have a report on its systems and controls produced by an external auditor at least annually and must send a copy of the report to the FCA within four months of its completion.
Which of the following can be classed as excluded communications for the purpose of the financial promotion rules?
Personal illustration forms.
The financial promotion rules are disapplied in certain cases, notably for excluded communications. These include personal quotes or illustration forms. The exemption for excluded communications does not generally apply in relation to Markets in Financial Instruments Directive (MiFID) business.
An authorised firm is providing execution-only services to retail clients in relation to warrants. However, the firm has doubts as to the appropriateness of the deal for a particular retail client. Which of the following best describes how the firm should proceed?
The firm must warn the client before proceeding.
Firms are required to ask the client for information about their knowledge and experience of warrants so that they can assess whether the warrant is appropriate. If a firm believes, based on the above assessment, that the product or service contemplated is not appropriate for the client, it must warn them of that fact.
Which general Conduct of Business rule states that communication must be appropriate to the level of knowledge of the customer?
Clear, fair and not misleading.
Firms must ensure that communications relating to designated investment business are clear, fair, and not misleading. The way in which this is achieved should be appropriate and proportionate and take account of the means of communication and what information the communication is intended to convey. So, for example, communications aimed at professional clients may not need to include all the same information as those aimed at retail clients.
Where a European Union (EU) regulated firm sets up a research payment account to comply with the inducement rules, this account must be:
Funded by a specific client charge.
An EU regulated firm may only receive research if it pays for it either directly from its own resources or from a research payment account controlled by the firm funded by a specific charge to its clients.
How do the CASS rules ensure that client money is safeguarded?
Client money must be segregated from other money held by the firm.
Within CASS, there is a requirement to segregate client money from any other money held by the firm. This ensures that, if the firm fails, money will not be used to pay the firm’s creditors.
The CASS rules are applied in which scenario?
Discretionary investment management.
The CASS rules are disapplied in certain circumstances such as money due to the firm, coins held for the value of their metal and money held for a DvP transaction. They do apply to assets held in a discretionary investment management account.
Client X is a per se professional client and Client Y is an elective professional client. For which of them, if either, is a firm allowed to assume they can bear investment risks consistent with their objectives?
Only Client X (Per Se Professional).
A firm is entitled to assume that a per se professional client is able to financially bear any related investment risks consistent with their investment objectives. A firm, however, is not permitted to make this assumption for elective professional clients.
A CASS auditor who discovers during an audit that a firm is permitted to hold client assets, but claims not to do so, must:
Produce a limited assurance client assets report.
The CASS auditor will need to consider the specifics of a firm’s regulatory permissions. The auditor will need to provide a limited assurance client assets report if it is permitted to hold client assets but claims that it does not do so, or if it does not have client asset permissions.
A firm which provides restricted advice on retail investment products must:
Explain in what way the advice is limited.
In its written disclosure to clients, a firm that provides restricted advice must explain the nature of the restriction.
A financial promotion for an overseas firm should explain:
The extent to which the UK compensation scheme may apply.
Firms are not permitted to communicate or approve financial promotions for overseas firms unless the promotion explains whether and to what extent to which the UK compensation scheme arrangements will be available..
A direct offer promotion must contain a statement which indicates that:
A prospectus has been published and is available.
A direct offer promotion must contain a statement that a prospectus has been published and is available in accordance with the prospectus directive.
A client wants to buy shares. Which one of the following best describes the way that the firm should execute the order?
Buy the shares in a way that gets the best possible result for the client.
Firms are required to establish an order execution policy to enable them to obtain the best possible results for their clients. This must include, for each class of financial instrument in which the firm deals, information about the different execution venues where the firm executes its client orders, and the factors that will affect the choice of venue used.
When a stakeholder pension is arranged to which cancellation rules apply, at what LATEST point must a suitability report be issued?
14 days after concluding the contract.
For a stakeholder pension, if the cancellation rules apply, a suitability report must be provided within 14 days of concluding the contract..
What is the principal purpose of a CASS resolution pack?
To enable the timely return of client assets to the firm’s clients in the event of insolvency.
The purpose of a CASS resolution pack is the ensure that a firm maintains, and is able to retrieve, information as soon as practicable and in any event within 48 hours which would, in the event of its insolvency, assist an insolvency practitioner in the timely return of client assets to the firm’s clients..
The COBS rules on dealing and managing apply generally to all authorised firms, with the exception of rules relating to:
Personal account dealing.
The rules on dealing and managing apply generally to authorised firms aside from those on personal account dealing.
A key condition which must be met for a benefit to be designated as minor non-monetary under the inducements rules is that it:
Can enhance the quality of service provided.
A minor non-monetary benefit is one which is capable of enhancing the quality of service provided to the client..
Cold calling may be made to retail clients for which one of the following products?
OEIC ISAs
Cold calls can be made to retail clients where there is an existing relationship and the client would envisage receiving such a call; the call relates to a generally marketable packaged product which is neither a higher volatility fund nor a life policy linked to such a fund; or it relates to a ‘controlled activity’ relating to a limited range of investments, including deposits and readily realisable investments other than warrants or generally marketable non-geared packaged products.
Which of the following activities is partially exempt from COBS?
Carrying on eligible counterparty business.
Designated investment businesses are subject to COBS. A range of COBS rules are disapplied, in certain cases, for firms carrying on eligible counterparty business.
Firm X relies on client information provided to it by Firm Y. If both are Markets in Financial Instruments Directive (MiFID) firms, which of them will have regulatory responsibility for the accuracy of this information?
Only Firm Y.
Where one MiFID firm relies on another for information about a client, the third-party firm retains responsibility for the completeness and accuracy of this information.
The provision of information relating to electronic business is considered by the FCA to be via a durable medium if it:
Enables the recipient to store the information.
Where the rules refer to information being transmitted or provided in a ‘durable medium’, this means: paper; or any instrument which lets the recipient store the information so that they can access it for future reference, for an appropriate time and on an unchanged basis. It includes storage on a PC but excludes internet sites, unless they meet the requirement for storage and retrieval.
When transacting investment business, cancellation rights must be provided to which class(es) of customer?
Retail only.
Cancellation rights must be provided to retail customers when they transact investment business with a firm.
The rules on financial promotions apply to firms communicating or approving a financial promotion other than:
A promotion for a non-investment insurance contract.
The rules apply to firms communicating with clients regarding their designated investment business and communicating or approving a financial promotion other than - for qualifying credit, a home purchase plan or a home reversion plan, a promotion for a non-investment insurance contract, or the promotion of an unregulated CIS which it is not permitted to approve.
Prior to providing services to professional clients, firms carrying on Markets in Financial Instruments Directive (MiFID) business must normally provide them with information on the firm’s policy relating to:
Conflicts of interest.
Firms must provide retail clients, professional clients and eligible counterparties with general information, if relevant, including information about the firm’s conflict of interest policy.
What is the main purpose of a key investor information document (KIID)?
To enable investors to make well-informed investment decisions.
A client agreement that covers pension transfer business should be retained for how long?
Indefinitely.
Client agreements for pension transfer, pension opt-outs or free-standing additional voluntary contributions must be retained indefinitely. The rationale behind the rule is that it could be many years before any problems with the advice come to light given the long-term nature of pension products.
Where a firm holds client investments for an eligible counterparty, disclosure must be made of any:
Liens.
Firms holding client money or investments for retail clients, professional clients and eligible counterparties subject to the MiFID custody/client money rules must provide information, as appropriate, if the money or investments are subject to any security interest, lien or right of set-off, full details of this fact and the terms of it.
