Section 3 Flashcards
S21 FSMA 2000
Must not communicate a financial promotion unless: it is an authorised person or the content has been approved by an authorised person (who takes responsibility).
Breaches: max penalty of 2 years and / or an unlimited fine.
A firm that communicates a financial promotion produced by a third party would never be in breach of the rules if:
It has established that an authorised firm has approved the promotion, it communicates the promotion only to those that it was intended for, and the promotion has not ceased to be fair, clear, not misleading.
Exceptions
FCA communication rules do not cover communications:
exempt under the financial promotions order (FPO),
from outside the UK, and cannot have an effect within the UK,
subject to takeover code or any similar code,
personal quotes or illustrations,
one-off promotions that are not cold calls.
When communicating a promotion that relates to an offer on securities, the communication must:
Be identified as a promotion.
State where the prospectus can be obtained.
Must be consistent with the prospectus.
Aim of Prospectus Directive
To harmonise the rules on prospectuses throughout the EU when the securities are to be admitted to a regulated market.
What the Prospectus Directive does:
Prescribed contents are set out for the prospectus, the process of approval by a competent authority and allows passporting of prospectuses.
When communicating with retail clients, firms must ensure that:
Communications are fair, clear, and not misleading.
Past performance:
Must not be the most prominent feature.
Cover at least five years (or life of investment) in complete 12-month periods.
Reference periods and sources must be clearly shown.
State this is not an indicator of future performance.
If relevant, currency stated and warning of currency risk provided.
Disclose effect of fees and commissions if gross performance shown.
Simulated past:
Must be based on actual performance of a similar investment / index.
Comply with the above rules.
Future performance:
Must not be based on simulated past performance
Assumptions must be reasonable
Disclose effect of fees and commissions
Warn that forecasts are not reliable indicators
A financial promotion that contains a method of response for the client to invest in a product:
Links with the Distance Marketing Directive
Must contain sufficient information to enable a person to make an informed assessment. Information must be provided about: the firm and its services, safekeeping of client investments and money, costs and charges. Alongside additional appropriate information to allow an understanding of the nature and risks of the investment (for non-MiFID business only).
All unwritten promotions must:
Be fair, clear, not misleading.
Must identify: the caller, their employer, the purpose of the call.
Ask whether the client wishes to continue with the call, and terminate it if requested to do so.
Provide client who has an appointment with contact point in the event of a cancellation.
Communicate at an appropriate time of day.
Permitted cold calls:
An existing client who envisages a call.
All retail clients where the promotion relates to:
Generally marketable packaged product.
Services relating to readily realisable securities other than warrants.
What is a high volatility fund?
Regulated collective investment scheme which invests in warrants or derivatives or borrows over the long term causing the movements in the price of units to be significantly amplified.
Examples of packaged products
Life policy, regulated CIS, investment trust savings scheme, stakeholder pension, personal pension.
