Section 2

Question 1

COBS and FCA statutory objectives

Answer 1

COBS enables the FCA to discharge its OPERATIONAL OBJECTIVE of securing adequate protection for consumers when dealing with regulated firms.

Question 2

Client categorisation

Answer 2

Eligible counterparties (per se or elective) .
Professional clients (authorised/regulated firms, central banks, governments, supranational, large undertakings, other institutional investors).
Retail clients (^ moves to professional client as elective). E.g. local authorities, can be reclassified as elective professional clients when requirements are met but can never opt up to eligible counterparty status.

Question 3

Per se professional clients

Answer 3

Authorised or regulated firms.
Governments, central banks, supranationals.
Other institutional investors.
Large undertakings.

Question 4

Large undertaking (MiFID)

Answer 4

Must satisfy at least 2 of: balance sheet €20m, net turnover €40m, and own funds €2m.

Question 5

Large undertaking (non-MiFID)

Answer 5

A company, partnership, or unincorporated association with called up share capital or net assets of at least £5m.
A trustee of an occupational pension scheme with at least 50 members and £10m assets under management.
A company meeting 2 of: balance sheet total €12.5m, net turnover €25m, and average no. of employees 250.

Question 6

Authorised or regulated firms

Answer 6

Credit institutions, investment firms, insurance companies, authorised CIS or pension funds, commodity (and derivatives) dealers, locals, institutional investors.

Question 7

Elective professional clients - retail client opts up to professional client REQUIREMENTS

Answer 7

Qualitative test (all business).
and
Quantitative test (MiFID business only).
Meet 2 of: average trade freq. ten per quarter over previous four quarters, portfolio > €500k, has worked professionally in the financial sector for > 1 year.
Procedure: written intent from client to be classified as professional, written warning of lost protection to client, written consent from client.

Question 8

Eligible counterparty business

Answer 8

Dealing on own account.
Execution of orders on behalf of client.
Transmission of orders.

Question 9

Per se eligible counterparties

Answer 9

Investment firms, credit institutions, insurance companies, UCITS schemes, pension funds, authorised / regulated EEA financial institutions, certain own account commodity or commodity derivative dealers, national governments, central banks, supranationals.

Question 10

Acting as agent

Answer 10

Where the person with whom the firm is dealing (A) is acting as an agent of another person (B) then A should be regarded as the client apart from when: there is a written agreement between the firm and agent to treat B as the client, or the purpose of the agency is to avoid duties owed to B.

Question 11

Reliance on others

Answer 11

MiFID - firm may rely on information and recommendations.
non-MiFID - may rely on information if: information is in writing, non-MiFID firm is independent, and the non-MiFID firm is competent.