IMC Unit 1 7-8

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  1. the general application rule is that COBS applies to an authorised firm in respect of the following acitivites when carried out by one of its appointed reps or UK establishments
    • 1. Accepting deposits
    • 2. Designated investment business
    • 3. long-term life insurance business
  2. many rules apply only when the firm is doing
    designated investment business
  3. The following COBS rules do not apply to such eligible counterparty business which is MiFID or equivalent third country (that is, NON-EEA) business
    • -conduct of businesss obligations, except agent as client and reliance on others rule
    • -communication with clients
    • -rules on information about the firm and its services
    • -client agreements
    • -appropriateness rules
    • -best execution, client order handling and use of dealing commission
    • -information about designated investments
    • -reporting information to clients
  4. EEA territorial scope
    to ensure compatibility with eurpoean law and to overide the application of COBS to the overseas establishments of EEA firms, including circumstances covered by mifid, the distance marketing directive or the elctronic commerce directive
  5. For UK MIFID Investment firms, COBS rules generally have the scope of
    business carried on from a UK Branch establishment
  6. Depending on the EEA country some rules will follow a
    home state basis
  7. CLient limit orders
    • COBS provisions do not apply to transactions between the operator of a MTF and its members, for MIFID or equivalent 3rd country business
    • -however these rules must be applied if the members are executingorders on behalf of clients
  8. the size and and financial awareness will determine the
    level of protection
  9. Firms are obliged to classify all clients who are underttaking designated investment business except
    they are providing only the special level of basic advice on a stakeholder product
  10. MiFID 3 categories
    • 1. eligible counterparties
    • 2. professional clients
    • 3. retails clients
  11. Per Se Professional clients
    • -entities that require authorisation of regulation
    • -for MIFID a large undertaking-20m EUR balance sheet, 40m EUR net turnover, 2m EUR own funds
    • -for NON MIFID large undertaking, share capital 5m GBP or 2 of the three following size tests 1. 12.5m E balance sheet total, 2. 25m E net turnover, 3 250 average number of emplyees in the year
    • -central banks, internation institutiuons and national and regional govt bodies
    • -institutional investors whose main activity is to invest in financial instruments
  12. Elective Professional client
    • a firm may treat a retail client as a professional client if
    • -qualitative test, assesses expertise, experience and knowledge
    • -quantitative test 2 of 3, 1. at least 10 significant transactions per qtr over last 4 qtrs, 2. clients portfolio exceeds 500K EUR, 3. at least 1 years professional finance work
  13. It is the responsibility of the professional client to keep
    the firm informed about changes
  14. Per se eligibile counterparties
    • investment firms
    • credit institutions
    • insurance companies
    • UCITS and their management companies
    • Pension funds and their management companies
    • other authorised financial institutions
    • certain own account derivatives dealers and local derivatives firms
    • national gots
    • central banks
    • supranatural organisations
  15. a firm may treat an undertaking as an elective eligible counterparty
    • -a per se professional client (unless by virtue of being an institutional investor)
    • -an elective professional client and requests the categorisation, but only in respect of the transactions and services for which it counts as a professional client
    • -if MIFID provides express confirmation
  16. a higher level of protection may be provided through re-categorisation
    • -on a general basis
    • -trade by trade
    • -in respect fo specified rules
    • -in respect of particular services, transactions, transaction types of product types
  17. firms must have written
    internal policies and procedures to categorize clients
  18. for retail clients the must enter into a
    basic agreement
  19. for institutional investors
    there is no requirement for an agreement although they may wish to have one
  20. a record of the client agreement must be kept for
    5 years
  21. a financial promotion is an
    invitation or inducement to engage in investment activity
  22. financial promotion rules within COBS apply to firms
    • -communicating wotj a c;oemt om relation to DIB
    • -communicating or approving a financial promoton
  23. financial promotion rules in COBS DO NOT apply to promotions
    of qualifying credit, home pruchase plans, home reversion schemes, non-investment insurance contracts, and certain unregulated collective investment schemes whose promotions firms may not communicate or approve
  24. COBS rules on communications also do not apply whn a firm communicates to
    an eligibile counterparty
  25. unauthorised financial promotion is punishable by
    2 years in jail and unlimited fine
  26. DMD
    Distance Marketing Directive has been enacted in the UK via Financial Services (Distance Marketing) REgulations 2004
  27. COBS Chapter 5
    DMD, distance communications
  28. A suitability report to retails clients for personal recommendations if the client
    makes investment decisions on there recommendation
  29. a suitability report is not required for
    • if the firm acts as investment manager and recommeneds a regulated collective investment scheme
    • if the client is habitually outside of the EEA and is not in the UK when acknowledging consent to the proposal form
    • for small life policies
    • for recs to increase regular premiums on an esiting contract
    • for recs to invest further single contributions to an existing package product
  30. suitability report myst at least
    • specifiy the clients demands and needs
    • explain the firms recommendation that the transaxtion is suitable, from info from client
    • explain any possible disadvantages pf the transaction
    • details of complexity of transaction
  31. for income withdrawals from short term annuities, the explanation of possible disadvantages should include
    risk factors
  32. Approrpiateness rules apply to
    dealing in derivatives or warrants for a retail client, when in response to a direct offer financial promoition
  33. to assess appropriateness the firm must
    ask the client to provide information on his knowledge and experience in the relevant investment field, to enable the assessment to be made
  34. Once appropriate assessment is done the firm will then
    • determine whether the client has the necessary experience and knowledge to understand the risks involved in the product/service
    • be entitled to assume that a professional client has such experience and knowledge, for prodcuts which are classified as professional
  35. if the firm decides that the product or service is not appropriate
    it must warn the client
  36. a firm does not need to assess the appropriateness
    • 1. for an execution only service in listed shares
    • 2. if it is recieving or transmitting an order in relation to which it has assessed suitability
    • 3. if it is able to rely on a recommendation made by an investment firm
    • 4. on each occasion, in new dealings with a client engaged in a course of dealings
  37. CLIPS
    • Collective Investment schemes
    • Life policies
    • Investment trust savings schemes
    • Personal pensions
    • Stakeholder pensions
  38. What are packaged products?
  39. The firms discolsure shoudl indicate whether it expects the scope to be
    • -the whole of the market or market sector
    • -limited to several product providers
    • -limited to a single product provider
  40. Scope
    relates to the prodcut providers whose products it sells
  41. Range
    related to which propducts from those providers it sells
  42. panels of product providers
    firms may use these panels to cover the whole of the market and if so should review these regularly
  43. a firm must produce a key features document for each packaged product
    • -same quality as sales and marketing material
    • -display firms brand
    • -include keyfacts logo
    • -include disclaimer
  44. Required headings in a key features document
    • 1. title-key features of the product
    • 2. heading-its aims
    • 3. heading-Your investment/committment
    • 4. Heading-Risks
    • 5. Heading-Q&A
  45. key document must include
    • enough info to make an informed decision
    • explain arrangements for handling complaints
    • explain compensation available from the FSCS if the firm cannot meet its liabilities
    • cancellation/withdrawal rights
    • for CTFs-explain that stakeholder, cash deposit and share CTFs are available, and for which type the firm is offering
    • for personal pension schemes, explain clearly and prominently that stakeholder pension schemes are available
  46. Cancellation periods for Life and pensions contracts
    30 DAYS
  47. Cancellation for cash deposit ISAs
    14 days
  48. Cancellation for Non-life pensions contracts (advised but not at a distance)
    14 calendar days
  49. Non life pensions contracts (at a distance)
    14 calendar days
  50. cancellation period begins
    either from the day the contract is concluded or from the day when the consumer recieves the contract terms
  51. CASS
    CLients assets section of the handbook rules for custody and client
  52. pollution of a trust
    if a firm leaves some of its own money in a client money account, this will be reffered to as pollution of a trust and if the firm fails, the liquidiator will be able to seize all the money held in the client account for the general creditors of the firm
  53. client money discrepency
    any shortfall must be paid into the client bank account by the end of the day the reconsilliation is performed
  54. Section 139 (1) FSMA 2000 provides for creation of a fiduciary relationship or
    a statutory trust between the client and the firm
  55. BCD
    • Banking consolidation directive credit institution
    • -client money rules do not apply in respect to deposits
  56. do client money rules apply to coins?
    no, if the client and firm agreed for the firm to hold the coins for the intrinsic value of the metial in the coin
  57. DVP transactions
    delivery v payment for commerical transactions need not be treated as client money
  58. ceases to be client money when
    • paid to the client or his authorised rep
    • paid into a bank acount of the client
    • paid to the firm itself
    • paid to a third party
  59. if passing cost to customer relating to research
    • -is capable of adding value,m providing new insights
    • -represent original thought
    • -has intellectual rigor
    • -meaningful conclusions
  60. Churning
    relates to overtrading generally
  61. switching
    relates to overtrading within and between packaged goods
  62. 11 principles for businesses
    • 1. integrity
    • 2. skill care and diligence
    • 3. management and control
    • 4. financial prudence
    • 5. market conduct
    • 6. customers interests
    • 7. communication with clients
    • 8. conflicts of interest
    • 9. customers:relationships of trust
    • 10. clients assets
    • 11.relations with regulators
  63. client
    includes everyone from smallest retail customer through to the largest investment firm
  64. customer
    is more restricted term that includes professional and retail clients but excludes eligible counterparties
  65. Principles 6,8,9 and parts of 7 apply only to
  66. principles 1,2,6 and 9 may be disapplied to the following as the firm will not be subject to the extent that it is contrary to the EU single market directives
    • -eligible counterparty business
    • -transactions on a regulated market or MTF
  67. breaches of the principles make the firm liable to
    enforcement or disciplinary sanctions
  68. S150 FSMA 2000 creates a right of action in
    damages for a private person who suffers loss as a result of breaking certain rules by an authorised firm
  69. can a private person sue over a broken principle?
  70. TCF
    treating customers fairly by adopting the princples based approach
  71. 7 statements of principle
    • 1. integrity
    • 2. skill care and diligence
    • 3. proper standard of market conduct
    • 4. deal with the regulator in an open way
    • 5. Proper organisation of business
    • 6. skill care and diligence in management
    • 7. comply with regulatory requirements
Card Set
IMC Unit 1 7-8
The Regulatory Advice Framework
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