Batch 3

What must an authorised firm establish regarding systems, controls, and staff concerns?

Reasonable care to establish appropriate systems and controls, and internal procedures for staff to raise concerns, e.g. whistleblowing arrangements

What are the FCA's 12 Principles for Businesses, briefly?

Integrity, skill/care/diligence, management and control, financial prudence, market conduct, customers' interests, communications, conflicts of interest, customer trust, client assets, relations with regulators, and Consumer Duty

Are the FCA's Principles legally binding, and does a breach automatically trigger discipline?

Yes, they're binding on all authorised firms and a breach can lead to sanctions, but discipline isn't automatic for every single breach

To which firms do the Principles for Businesses apply?

All authorised firms, regardless of the type of regulated business, though some Principles apply only to firms carrying on specified types of business

Which Principle covers conflicts of interest, and what number is it?

Principle 8 - manage conflicts fairly between firm and customers, and between customers

What's the exact wording trap for Principle 5, market conduct?

"Proper standards of market conduct" is correct, not "appropriate standards of behaviour"

Which concept is NOT one of the FCA's 12 Principles?

Fair dealing is not a Principle, don't confuse it with Principle 6, customers' interests

Which Principle was breached when a firm creates a misleading impression about a traded investment's value?

Market Conduct - firms must observe proper standards, and misleading impressions on value breach this Principle

What example distinguishes a breach of the Integrity Conduct Rule from other Conduct Rule breaches?

Deliberately misleading a client breaches Integrity. Failing to explain risks from lack of understanding breaches skill/care/diligence. Unknowingly trading on inside information breaches Market Conduct instead

From what point must certified staff comply with the Conduct Rules, and who is exempt?

Immediately on appointment - all relevant staff must comply, except purely ancillary staff like cleaners or catering

How many Conduct Rules must a senior manager follow, and how does this split?

Six individual Conduct Rules apply to all relevant staff, including Rule 6 Consumer Duty, plus four further Senior Manager Conduct Rules, ten in total for senior managers

Which FCA disciplinary powers apply only to firms, and which aren't available at all against individuals?

Withdrawal of Part 4A permission applies to firms only, not individuals. The FCA cannot disqualify or remove a company director directly

Where does the FCA now handle the issuance of statutory notices, following its 2021 reforms?

Largely moved from the Regulatory Decisions Committee to the FCA's Authorisations, Supervision, and Enforcement Divisions, for faster decisions

What are the main General Principles of the Takeover Code, the PTM Code?

Fair treatment of all shareholders, full and prompt disclosure, and giving shareholders sufficient time and information to make a reasoned judgment

Who is liable for an appointed representative's conduct?

The firm itself is responsible for its representatives' actions

Which activities/entities are exempt from the general prohibition?

Appointed reps, Lloyd's syndicate members, recognised exchanges, MTF operators, central banks, and certain professional firms under Part 20

Can a person be both authorised and exempt at the same time, or split activities between statuses?

No - a person cannot be both authorised and exempt simultaneously, nor conduct some activities as an authorised firm and others as an appointed representative

What is a valid defence against a charge of carrying on regulated activity without Part 4A permission?

Dealing purely for yourself, with no service offered to others, e.g. managing your own portfolio, is an excluded activity and a valid defence

What is the difference between an authorised person and an approved person?

Authorised means a firm or individual has permission to carry on regulated activities. Approved means an individual is approved to perform a Senior Management Function

What happens if a firm breaches FSMA s19, the general prohibition?

It's a criminal offence, and any resulting contracts are voidable at the option of the injured client, who may enforce or avoid the agreement

How does authorisation work for a firm that needs to become dual-regulated?

It makes a single application to the PRA as lead regulator. The PRA makes the final decision but can only authorise the firm once the FCA also consents

What must an authorisation application pack include?

Firm details, controllers, business plan, significant events disclosure, approved persons forms, and a signed declaration

Which activities are always specified vs excluded under the RAO, e.g. currency options or accountant advice?

Stakeholder pensions are always specified. Currency options and futures are specified, spot or forward deals aren't. Incidental accountant advice isn't specified, nor is unpaid trusteeship

Which items are 'specified investments' under the RAO, and which are excluded?

Shares in a public company are specified. Residential property, fine art, and a stake in a friend's private business are not specified investments

Is accepting deposits a specified investment or a specified activity under the RAO?

It's a specified activity, not a specified investment - deposits are the specified investment, accepting them is the activity

What activities are specifically included or excluded under regulated activity via the RAO for property and mortgages?

Included: home reversion plans, retail mortgage advice. Excluded: property purchase advice, unpaid trustees, information providers

How does COBS formally define 'client'?

A client is defined as a Retail Client, Professional Client, or Eligible Counterparty, the three core categorisations underpinning most conduct of business protections

How do COBS protections scale down from retail to professional to eligible counterparty?

Retail clients get full protections including agreements, suitability, appropriateness, disclosures, and statements. Professional clients get reduced protections. Eligible counterparties get minimal protection, with most rules disapplied

Which specific COBS rules don't apply when trading with an eligible counterparty?

Advising and selling rules don't apply. Client classification, client assets, and personal account dealing rules still apply, even to eligible counterparties

Does the client's best interests rule apply only to retail clients?

No - following MiFID II, it applies to all clients, not just retail. The FCA requires firms to act honestly, fairly and professionally in a client's best interests

Must general pre-service client disclosure be individually tailored, and does it apply to eligible counterparties?

No - it may use a standardised format, and yes, this broader disclosure requirement still applies even to eligible counterparties, unlike the retail-only Information About the Firm rule

Which client category falls outside best execution protection?

Eligible counterparties - best execution applies to everyone else

How are local authorities categorised as clients?

Local authorities are classified as retail clients and can never be treated as eligible counterparties

What makes a client status "elective" rather than automatic?

The firm must actively assess set criteria, clients can't simply opt up

What are the categories of per se professional client, beyond large undertakings?

Regulated financial institutions, large companies meeting 2 of 3 size tests, governments and central banks, and other institutional investors

How does the non-MiFID professional client size test differ from the MiFID 'large undertaking' test?

Non-MiFID: meet 2 of 3, balance sheet over €12.5m, turnover over €25m, staff over 250. MiFID: meet 2 of 3, €20m balance sheet, €40m turnover, €2m own funds

Can an institutional investor become an eligible counterparty on request?

No - it must meet specific eligible counterparty criteria, unlike some elective upgrades

Which rules apply when a firm mixes MiFID and non-MiFID business?

MiFID rules apply throughout, unless the two business types are kept fully separate

What information does a firm need for a pure execution-only retail client, versus for suitability?

Execution-only needs only the client's name and contact details. Suitability needs knowledge, experience, risk capacity, and investment objectives too

What must a firm do after selling a personal pension to a retail client, and by when?

Provide cancellation rights at the point of sale, then send a suitability report within 14 calendar days confirming why the pension is suitable

What must firms do differently when promoting to retail versus professional clients?

Retail promotions need fuller risk warnings and balanced disclosures. Professional client promotions require less prescriptive detail, reflecting their assumed expertise

When must firms provide prescribed disclosure information, and what are the specific timing rules for personal pensions?

General rule: disclosure must be given "in good time" before the client is bound by an agreement. For personal pensions specifically: cancellation rights given at point of sale, then a suitability report follows within 14 calendar days

When must a suitability report be sent, and does this vary by product?

Life policies: before the contract concludes, unless oral advice or immediate cover, then immediately after. Personal or stakeholder pensions: within 14 days. All other packaged products: as soon as possible after execution

Does a client's overseas residence remove the requirement for a suitability report?

No - a suitability report is still required regardless of where the client resides, following the normal timing rules for that product type

When does appropriateness apply vs suitability, and when does neither apply?

Suitability applies for advice or discretionary management. Appropriateness applies to non-advised, execution-only deals in complex products. Execution-only in non-complex products needs neither

Which instruments are exempt from an appropriateness assessment?

Listed shares, money market instruments, bonds or other securitised debt, UCITS funds, and other non-complex non-derivatives

When can a firm use "basic advice rules" instead of standard suitability?

Only for personal recommendations on stakeholder products specifically

Which situations are excluded from the requirement to provide a suitability report?

Small life policies via a friendly society, CIS where the firm is investment manager, clients habitually resident outside the EEA, and top-ups to existing contracts

What factors must a firm weigh to achieve best execution?

Price, costs, speed, likelihood of execution and settlement, size, nature of the order, and other relevant considerations

What makes an OTC venue acceptable for best execution, since not all qualify?

It must meet the firm's own criteria for price, cost, and reliability of execution

Does order record-keeping start at execution or earlier?

It starts at order initiation, the client's original instruction to trade

What happens if a client instruction conflicts with the firm's execution policy?

The firm must follow the client's instruction, this is not a best execution breach

What must a firm do with an unexecuted client limit order, and what are the exceptions?

Make it public to aid execution, unless the client instructs otherwise or the order is larger than normal market size

What must firms ensure when handling comparable client orders?

Prompt, fair, sequential execution unless impracticable or client interests require otherwise

What must a firm disclose before aggregating a client order with its own or others?

That aggregation may work to the client's disadvantage, typically disclosed via the client agreement, not via separate consent

When is personal account dealing disapplied under discretionary management?

Where there's no prior communication between the manager and the relevant person about the deal

What is the difference between 'churning' and 'switching'?

Churning is excessive dealing on a discretionary portfolio to generate fees. Switching is selling one investment and replacing it with another

What is NOT a purpose of the FCA's Disclosure and Transparency Rules?

Defining closed periods for directors' share dealing - that's set by the Model Code, not the DTRs

When are an investor's shares combined with a company's own for disclosure?

When the investor holds more than 1/3 of that company's shares

What are the FCA's major shareholding notification thresholds?

Notifiable at 3%, crossing up or down, then every further 1% change, with disclosure due within two business days

What is a 'closed period', how long is it, and when can it be lifted?

30 calendar days before interim or annual results, publicly disclosed. May be lifted for severe financial difficulty or employee share schemes with no change in beneficial ownership

What body is the UK's supervisory authority for takeovers?

The Panel on Takeovers and Mergers, the PTM, which administers the Takeover Code, also known as the City Code

If a broker holds inside information about a takeover and receives an unsolicited execution-only sell order in that stock, what should they do?

Execute the order as normal, an unsolicited, execution-only client instruction can be carried out even while holding relevant inside information

What is an S793 letter, who is it sent to, and what can it ask?

A CA2006 request for a shareholder's beneficial ownership details, usually sent to nominee companies, covering up to 3 years of past holdings

What penalty applies for ignoring an S793 letter?

The company can apply to the court to have the relevant shares frozen

At what shareholding threshold must fund managers report notifiable interest changes to a company?

5% - fund managers are exempt from reporting below that threshold

Under US rules, within what maximum period must a 5%+ beneficial interest be notified to the SEC and issuer?

10 days following acquisitio