REGS BIBLE Chapter 4 Flashcards
(122 cards)
1
Q
What type of client is a local authority/municipality classified as?
A
A RC
Can opt up to Elective PC if they meet certain requirements
2
Q
Which PCs can never opt up to be an ECP?
A
Other institutional investors (SPVs)
Elective PCs
3
Q
What are the 6 per se PCs?
A
Supranationals
Governments
CBs
Authorised/Regulated firms
Large undertakings
Other institutional investors
4
Q
What are the MiFID requirements to be considered a Large Undertaking?
A
Balance sheet: 20m euros
Net turnover: 40m euros
Own funds: 2m euros
(must satisfy at least 2)
5
Q
What are the non-MiFID requirements to be considered a Large Undertaking?
A
- company, partnership or unincorporated association with called up share capital/net assets at least £5m
- Trustee of an occupational pension scheme w at least 50 employees and £10m assets under management
- Company meeting 2 of the following:
Balance sheet 12.5m euros
Net turnover 25m euros
Avg number of employees 250
6
Q
What tests are carried out for elective PCs?
A
Qualitative (for all business) - assess experience, expertise and knowledge
Quantitative (for MiFID business only) - must meet 2 of the following:
- Avg trade frequency 10 per quarter over previous 4 quarters
- Portfolio > 500k euros
- works/worked in financial sector for 1 year or more in professional capacity
7
Q
What is the procedure for opting up to elective PC?
A
- written intent from client to be classified as PC
- written warning to client explaining lost protection
- written client consent to lost protection
8
Q
What type of business does the ECP classification relate to?
A
ECP business:
- dealing on own account
- execution of orders on behalf of client
- transmission of orders
9
Q
What are the per se ECPs?
A
- authorised/regulated firm
- Government, CB, Supranational
10
Q
Who has responsibility for accuracy of information provided by a MiFID firm?
A
The MiFID firm providing the information
11
Q
Who has responsibility for accuracy of information provided by a non-MiFID firm?
A
The firm receiving the information
12
Q
What are the conditions of relying on information from non-MiFID firms?
A
- information must be in writing
- non-MiFID firm must be independent
- non-MiFID firm must be competent
13
Q
What section of FSMA 2000 relates to financial promotions?
A
S21
14
Q
What is max penalty for breach of S21 FSMA 2000?
A
Max 2 years/unlimited fine
15
Q
Which PRIN does S21 FSMA 2000 link with?
A
6
7
12
16
Q
Who can communicate financial promotions under S21?
A
- authorised persons
- unauthorised persons (eg. appointed rep) if content approved by authorised person
17
Q
What are the conditions for financial promotions produced by third parties?
A
- confirm that an authorised firm has approved the promotion
- only communicate the promotion to those it was intended
- promotion has not ceased to be fair, clear and not misleading
18
Q
What are the 5 exceptions to FCA COBS rules on communications?
A
- exempt under Financial Promotions Order (FPO)
- From outside the UK and cannot have effect within the UK
- Subject to Takeover code or any similar code (eg. prospectus directives)
- Personal quotes/illustrations
- One-off promotions that are not cold calls
19
Q
What are the 3 requirements for Prospectus rules on financial promotions?
A
- must be identified as a promotion
- must state where prospectus can be obtained
- must be consistent w prospectus
20
Q
What are the COBS rules when communicating financial promotions to RCs?
A
- Name of firm included
- Details accurate and fair
- Comprehensible
- Does not obscure important items, statements, warnings (focus on capital at risk products)
- fair clear not misleading (amplifies PRIN 6 and 7)
21
Q
Who do communications rules apply to?
A
All clients
However communications of financial promotions apply only to RCs
22
Q
How long must a firm keep records on confirmation of trades for MiFID vs non-MiFID business?
A
MiFID - 5 years from dispatch
non-MiFID - 3 years from dispatch
23
Q
What are the 6 COBS communication requirements on Past Performance?
A
- must not be most prominent feature
- cover at least 5 yrs (or life of investments) in complete 12month periods
- reference periods and sources clearly shown
- must state it is not an indicator of future performance
- currency stated + warning of currency risk
- disclose effect of fees and commissions if gross performance shown
24
Q
What are the COBS communication requirements on Simulated Past Performance?
A
- must be based on actual performance of similar investment/index
- must comply with 6 rules on past performance
25
What are the 6 COBS communication requirements on Future Performance?
- cannot be based on simulated past
- assumptions must be reasonable
- disclose effects of fees and commissions
- warn that forecasts are not reliable indicators
26
Who does the COBS rules on Direct Offers pertain to?
RCs
27
What requirements does COBS lay out for Direct Offers?
Must contain sufficient information to allow client to make informed decision - providing information on:
- the firm and its services
- safekeeping of client investments and money
- costs and charges
28
what do non-MiFID businesses additionally have to provide when making direct offers?
Additional info to allow understanding of nature and risks of investment
29
who do the rules on past/simulated past/future performance pertain to?
RCs
30
What are the rules for unwritten promotions to RCs?
CITE
Identify (caller, employer, purpose of call)
End call - Ask whether RC wishes to continue and end call when asked
Contact point - provide client who has appointment w contact point in event of cancellation
Time - call at appropriate time of day
31
Who can conduct unwritten financial promotions?
Authorised persons only
32
under what conditions are cold calls permitted?
- when made to existing client who envisages call
- for a generally marketable packaged product (not high volatility fund)
- services (relating to readily realisable securities excluding warrants)
33
What counts as packaged products?
CLIPS
- CIS (regulated)
- Life policy
- Investment trust savings scheme
- Personal pension
- Stakeholder pension
34
What clients must be provided with a 'client agreement' ?
RC and PC (so all customers)
35
under what circumstances may a firm provide a client agreement immediately after the customer is bound by the agreement?
when it was impossible to supply the agreement earlier as the agreement was concluded via distanced communications
36
Which business is excluded from client agreement rule?
insurance business where firm acts as principal
37
What information must be disclosed to all clients under COBS?
- name and address of firm
- method/language of communications
- name and contact details of competent authority
- whether firm is acting through appointed rep
- nature, frequency and timing of performance reports
- conflicts of interest policy (for common platform firms)
38
to whom does the Retail Distribution Review apply to ?
RCs
39
What does the RDR dictate?
Firms making personal recommendations relating to any retail investment product must be either independent or restricted
Advisers must inform client whether they are independent or restricted
40
what is the difference between an independent vs restricted adviser?
independent: owe duty of care and fiduciary duty to client
restricted: owe duty of care and fiduciary duty to firm
41
What comes under retail investment products according to the RDR?
- Life policies (including investment bonds)
- Units in regulated and unregulated CIS
- Interest in an Investment trust savings scheme
- stakeholder/group stakeholder pension
- personal pension(including self invested)/group personal pension
- share in investment trust
- structured capital at risk products
- any other product packaged in order to change features of the product
42
Are commissions from product provider permitted when advising?
No
43
What two options do consumers have to pay advisers?
- pay upfront
- deducted from investment over time
44
can remuneration be agreed via website?
Yes - via durable medium or website
45
When should adviser status and fees be disclosed?
Before providing a service or the client is bound by any agreement
46
What products are KIDs for?
PRIIPs (Packaged Retail and Insurance-based Investment products)
47
What 4 things come under PRIIPs?
- Investment funds
- Insurance-based investment products
- retail structured securities
structured term deposits
48
What does a KIID relate to?
UCITS schemes
49
What doe KFDs need to be provided for?
Any non-PRIIP packaged product (eg. personal pension plan)
50
What is the cooling off period for life products/pensions?
30 calendar days
51
What is the cooling off period for non- life product/pensions (eg. ISA) products?
14 calendar days
52
Who do the product disclosure rules (KID , KIID, KFD) apply to?
RCs
53
Who do the inducements rules apply to?
RC and PCs - all customers
54
what are some examples of minor non-monetary benefits that are not prohibited under the COBS inducements rule?
- information/documentation relating to a financial instrument/service (generic or personalised)
- written material commissioned and paid for by a corporate issuer to promote new issuance by the company
- participation in conferences, seminars and other training events
- hospitality of de minimis value (eg. food drink)
55
what are the 2 exceptions to the rule on inducements?
- when fee is designed to enhance quality of service to customer
- when fee does not impair firms duty to customer
56
what is the COBS rule on inducements?
A firm must not pay to or accept from a person other than the customer any fee, commission, or non-monetary benefit
57
when is inducement disclosure required for non-MiFID business?
- only in the case of personal recommendations for packaged products (not necessary in case of minor non-monetary benefits)
58
under what 2 cases can a firm use paid-for research?
1. if it pays for it directly from its own resources
2. If it is paid for from a separate research payment account controlled by firm (funded by clients)
59
What are the requirements if a firm used a research payment account?
- must only be funded by a specific research charge agreed w and charged to customers
- account must be separate from firm's own accounts
- firm must disclose budget and charges BEFORE providing services
- must disclose annual information on total costs each customer has incurred for third party research
60
When does the FCA COBS Provision of Research rule not apply?
For alternative investment funds and CIS that invest mainly in non-MiFID investments (eg. commercial property)
61
How long must pension contracts, stakeholder pensions and life assurance records be kept?
- for 5 years as they are long-term non-MiFID business
62
How long must records of occupational pension schemes be kept?
Indefinitely
63
How long must telephone communications regarding execution be kept?
5 years from creation of records
64
What are the 2 main CASS rules that ensure adequate protection for client money and assets?
CASS 6 - Custody rules
CASS 7 - Client money rules
65
To which types of business do CASS 6 and 7 apply ?
CASS 6 - Custody rules apply to both MiFID and Non-MiFID business
CASS 7 - Client Money rules apply to MiFID business only however opt-in is available for non-MiFID
66
What does the suitability rule dictate?
All firms must obtain sufficient information to give suitable advice to RCs (all business) and PCs (MiFID business)
67
Who does the Suitability rule apply to ?
All customers: RC and PC
68
What 2 types of services is the suitability rule applicable to?
Discretionary services
Advisory services
69
What do churning and switching relate to respectively?
excessive trading to generate commissions for firm
churning - freely transferrable investments
switching - packaged products
70
What are the firms 3 objectives according to the suitability rule (and to whom do they apply)?
- meet customers investment objectives (RC and PC)
- ensure customer is able to bear financial risk (elective PC and RC)
- ensure customer has necessary knowledge and experience to understand those risks (RC)
71
How do firm's find relevant personal and financial information when assessing suitability of investments for cutomers?
via a 'Fact Find'
72
When can a firm make no recommendations/decisions to deal for a client (according to suitability rule)?
- when fact find turns up insufficient information
73
What is a firm required to do in case of insistent clients?
- communicate that it does not recommend transaction and will not be in line w firms personal rec
- reasons why it is not in line w personal rec
- risks of transaction
- reasons why firm did not recommend
74
To whom must a suitability report provided to?
RCs
75
What 3 things must a suitability report contain?
- specify clients demands and needs
- explain why firm believes recommended transaction meets those needs
- explain any possible disadvantages
76
In what form must a suitability report be provided?
Durable medium
77
When can the timing of a suitability report be delayed?
- agreement is concluded at distance
- client agrees to delay
78
what are some exceptions to suitability report?
- personal rec in relation to regulated CIS
- client habitually resident outside EEA and not present in UK at time of acknowledging consent
- small life policies sold by friendly societies (premium no more than £50 pa)
- If recommendation is to increase regular premiums to an existing contract
- if investing further premiums to an existing packaged product into which
contributions have already been paid
79
When must the suitability report be provided in case of personal/stakeholder pension scheme?
No later than 14th day after contract is concluded (before right to cancel expires)
80
To whom does the appropriateness rule apply and when?
For MiFID business - all customers: RC and PC
For direct offers - RC only
81
What does the appropriateness rule dictate?
Before executing firm must assess whether client:
- is able to bear financial risk
- has knowledge and experience to understand those risks (RC only)
82
When should firms issue warnings according to the appropriateness rule?
- when firm believes investment/service not appropriate
- when customer has not provided sufficient info for firm to come to conclusion
83
When is assessing appropriateness not necessary?
For execution only business involving non-complex financial instruments
84
What 3 things are classified as non-complex financial instruments?
- shares/bonds
- money market instruments
- units in UCITS scheme
85
To whom does the COBS Conflicts of Interest rule apply and which PRIN does it link to?
All clients
PRIN 8
86
To whom must firms provide a copy of their conflicts policy?
RCs and potential RCs
87
In what format must a firm's conflict policy be?
in writing
88
What is the last resort according to COBS Conflict of Interest rule?
Disclose in durable medium any conflicts
89
What three things must a firm implement under COBS Conflict of Interest rule?
- conflicts policy
- organisational arrangements (eg, chinese wall)
- disclosure in durable medium any conflicts of interest
90
Are chinese walls mandatory?
No - but if used must be monitored and effective
91
To whom does the COBS rule on investment research apply?
All clients
92
What 3 things must a firm publishing research to clients/public ensure under COBS?
- does not receive inducement from those w material interest
- not to promise issuers favourable coverage
- issuers covered not permitted to review drafts
93
What does 'dealing ahead'/'front-running' refer to?
dealing on investment research before clients have had reasonable time to react
94
When are firms allowed to deal for their own account ahead of clients having time to react to research?
- when acting as a market maker dealing in normal course of business
- for unsolicited client orders (unsolicited by firm, at request of client)
95
How often is the Order execution policy reviewed?
Annually - customers must be notified of any material changes
96
What are the 4 best execution criteria?
- customer categorisation
- type of order
- type of financial instrument
- characteristics of execution venues
97
what are the execution factors?
- price, costs, speed, likelihood of execution (and settlement/any other consideration)
98
What does price (w regards to best execution) take into account for RCs?
Price of financial instrument
costs related to execution (execution and settlement fees)
99
What are the exceptions to time stamp order of orders and who must be notified in the case of an exception?
exceptions:
- in interests of customer
- material difficulty
Must notify RC
100
When might a firm not allocate to customers first?
When firm has reasonable grounds to show customer's order materially benefitted from aggregation - then may allocate proportionally
101
When may Limit orders not executed immediately not be made public?
- when customer has expressly instructed otherwise
- limit order is greater than normal market size
102
how often are transaction confirmations provided?
On a trade-by-trade basis
103
What are the requirements for transaction confirmations?
- must be provided promptly (no later than next business day)
- must be provided in durable form
104
What are the exceptions to the transaction confirmations rule for MiFID and non-MiFID business?
MiFID - None
non-MiFID - if requested by client
105
To whom do transaction confirmations need to be sent?
All clients
106
What is another name for transaction confirmations?
Occasional reports
107
To whom do the COBS periodic rules apply to?
All clients
108
What is the general rule for timing of periodic statements?
Prepared every 3 months but can be provided annually upon clients request
109
What is the periodic statement rule for derivatives?
Must be prepared every month
110
When must portfolio managers issue a depreciation notice?
Where a clients portfolio falls 10% or more since last valuation
111
When must a RC specifically be notified of changes in their portfolio and what is the time frame?
If a clients derivative position moves against the client beyond a pre-specified limit
must be informed by end of day on which breach occurred
112
What counts as an approved bank?
- CB
- BCD (Banking consolidation directive) credit institution
- bank authorised by a third country
- qualifying money market fund
113
What are the three ways through which adequate protection is ensured for client assets?
- segregation
- reconciliation
- record keeping
114
How often must records of client asset balances be reconciled?
As often as necessary
115
When must shortfalls in client asset balances be corrected?
As soon as possible = close of business on day of reconciliation
116
Which firms are excluded from CASS?
- ICVC and UCITS schemes
- BCD credit institutions
117
Which types of money are excluded from CASS?
- coins held for value of metal
- money held for delivery vs payment (DvP)
- money due and payable to firm
118
How often is CASS audit performed and by when must it be submitted to the FCA?
Annually
Within 4 months
119
What is a TTCA?
Title transfer collateral agreement
- where clients assets are placed into control of firm (eg. used as collateral for a loan)
- client must have proper right of use clause in place
120
How long must records of directors' responsibilities be kept?
6 years
121
How long must records of ideni=tification under MLR be kept?
5 years
122
How long must records held in data form under the DPA be kept?
Not longer than necessary
