Financial services, regulation and ethics

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Regulatory obligations for firms

Threshold Conditions (COND)

The threshold conditions are the minimum conditions that firms must satisfy at all times if they are to retain their ‘Part 4A permission’, allowing them to conduct investment business in the UK.

The conditions are:

Location of offices: If the person concerned is a body corporate constituted under the law of any part of the UK, its head office and its registered office must be in the UK (‘person’ can mean company, partnership or individual)

Effective supervision : A person must be capable of being effectively supervised by the FCA, having regard to all circumstance. If the person concerned has close links with another person (‘the close link’), the FCA must be satisfied that those links are not likely to prevent the effective supervision of that person by the FCA. Where the close link is subject to laws or regulations of another territory that is not an EEA state, the foreign provision or any deficiency in their enforcement cannot prevent the FCA’s effective supervision of the person

Appropriate resources: The resources of the person concerned must, in the FCA’s opinion, be adequate for the regulated activities they carry out. The FCA may take into account the membership of any group to which the person belongs and the effect that membership may have on the provisions they make and which they and other group members make in respect of liabilities

Suitability: The person concerned must satisfy the FCA that they are a ‘fit and proper’ person in relation to all the circumstances, including their connection with any person, the nature of any regulated activity that they carry on or seek to carry on, and the need to ensure that their affairs are conducted soundly and prudently

Business model: A person’s strategy for doing business must be suitable for the regulated activities they seek to carry out. The matters determining whether this condition is satisfied include whether the model is compatible with the affairs being conducted in a sound and prudent manner, the interests of consumers and the integrity of the UK financial system. This condition was added in 2013

Further conditions apply to a person who has their head office outside of the EEA and appears to the FCA to be seeking to carry on a regulated activity relating to insurance business.

Principles for Businesses (PRIN)

The FCA Principles for Businesses are a general statement of fundamental obligations of all authorised firms in the regulatory system.

Senior Management Arrangements, Systems and Controls (SYSC)

The senior management of authorised businesses must have an adequate structure of systems and controls for the business. The partners, directors and senior managers need to understand their responsibilities, which should be formally documented.

Senior management arrangements (SYSC 2): Each firm should appoint individuals to be personally responsible for ‘senior management functions’ within the firm.  The records should show who is responsible for what function, although overall responsibility lies with the firm’s chief executive or equivalent person

Systems and controls (SYSC 3): A firm should have systems and controls ‘appropriate to its business’ - that is, according to its size and nature and the risks associated with it.  Systems must be reviewed regularly to ensure they continue to remain appropriate 

They should cover such areas as:

Reporting lines and how responsibilities are delegated

The compliance function

The assessment of the risks facing th...

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Remuneration code (SYSC 19A)

All FCA authorised banks, building societies and Capital Adequacy Directive (CAD) firms within the provisions of the remuneration code. Affected firms must establish, implement and maintain remuneration policies, procedures and practices that are consistent with and promote effective risk management.

The code includes twelve Remuneration Principles which, in summary, require firms to:

Have in place good governance structures regarding remuneration policy approval

Operate fair remuneration structures which take account of future risks and the quality of business undertaken, with bonus payments being based on long term performance

Avoid an over-reliance on performance related pay as opposed to standard salaries

Consider deferring a significant proportion of bonuses so that they are paid over a period of time and thus reducing the risk of high-risk practices

The twelve principles are:

Risk management and risk tolerance

Supporting business strategy, objectives, values and the long-term interests of the firm

Avoiding conflicts of interest

Governance

Control functions

Remuneration and capital

Exception government intervention

Profit-based measurement and risk adjustment

Pension policy

Personal investment strategies

Non-compliance with the remuneration code

Remuneration structures

Additional Risk Controls (SYSC 21)

This chapter mostly applies to banks and insurers included in the FTSE 100 index.

References (SYSC 22)

This chapter concerns the obligations that apply to firms concerning references for employees.

Senior Managers and Certification Regime (SYSC 23 - 27)

These chapters concern the rules of the Senior Managers and Certification Regime (SM&CR), including classification, allocation of prescribed responsibilities, responsibilities maps, handover procedures, overall and local responsibility, certification regime.

Financial Stability and Market Confidence (FINMAR)

This sourcebook contains provisions relating to financial stability, market confidence and short selling. The first part covers the FCA’s power for gathering financial stability information, requiring an individual to provide information or documentation. 

The second part sets out the rules and provides guidance in relation to short selling. Short selling regulations are intended to stop or limit short selling of financial instruments if the price falls significantly during one single day’s trading. The FCA will step in to prevent markets becoming disorderly if there are violent movements in price, there are unsubstantiated rumours or false information circulating, or if there are suspicions of improper trading.

These rules are relevant to any entity to whom EU short selling regulation applies, even if they are not regulated by the FCA, and are in place to promote the FCA’s objectives of ‘protecting consumers’ and ‘enhancing financial integrity’. 

Training and Competence (TC)

Training and competence requirements ensure that certain individuals achieve appropriate qualifications, demonstrate competence, and undertake continuous professional development (CPD).

The rules apply to those who give advice (investment advisers, mortgage advisers and general insurance advisers), and to their supervisors. They also apply to overseers (line managers in life assurance companies in departments that deal with new business and claims).

Explain what is meant by the ‘threshold conditions’.

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Capital adequacy

All firms regulated by the FCA must maintain sufficient resources to cover the risks that arise from the way they carry out their business.  Although all firms must meet a general rule requirement, there are additional requirements for different types of firms.

Large organisations (e.g. banks and insurance companies) are subject to rigorous monitoring of their financial resources, with many being subject to the Investment Firms Prudential Regime (IFPR) now that the UK has left the EU. The rules in the new MIFIDPRU handbook require firms to undertake detailed risk assessments and stress testing scenarios to establish the level of resources they need to maintain.  This does not currently apply to most IFA businesses, though they are still subject to a variety of financial tests tha...

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Cover a proportion of any guarantees provided to clients

MiFID firms, such as those with portfolio management permissions holding client money in excess of £1.2bn, have a minimum capital requirement of £75,000 plus 25% of fixed overheads.

Exempt MiFID firms, such as small investment firms, have a base capital requirement of £20,000, and a variable requirement of 5% of income.

MIPRU

MIPRU sets out the professional indemnity insurance and capital resource requirements for home finance providers and intermediaries and general insurance intermediaries.

IPRU-INV

Within this section are the professional indemnity insurance and capital resources requirements for investment firms. It is sub-divided into securities firms, investment management firms and personal investment firms.

What are firms subject to the Capital Requirements Directive (CRD) required to do?

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Regulatory rules for investment advice (COBS)

Most of the rules which affect the day-to-day operations are contained in the Conduct of Business Rules (COBS).

Purpose of the COBS rules (COBS 1)

The purpose is to provide detailed guidance on how staff and representatives of regulated businesses should deal with customers. It incorporates the MiFID requirements and introduces a principles-based regime for regulated firms.

The rules apply to all regulated life and pensions and investment businesses and the investment activities of banks and building societies. Many rules only apply to specific regulated activities, while others cover how regulated firms should carry out activities which are unregulated.

COBS obligations (COBS 2)

Inducements: Firms must take reasonable steps to ensure that they do not offer, give, solicit or accept an inducement or place business in any way likely to conflict with any duty owed to customers.

For packaged products (life and pension policies, OEICs and unit trusts), commission overrides are forbidden, and legacy commission can only be paid to the intermediary responsible for the sale (unless they have passed the right to the commission to a third party, another firm has given advice on investments to the same customer after the sale in question, or it relates to a direct offer advertisement to a customer of the firm). The rules seek to ban many indirect benefits and ‘under the table’ payments and services.

The goods and services guidelines cover four areas:

Selling: Product literature without intermediary's name can be supplied, product promotion to enhance customer service is permitted and intermediary seminars can be attended by provider staff for genuine business purposes

Gifts/extras: A provider can give specific advice on its products; IT hardware can be given as part of a software project only; gifts and hospitality of ‘reasonable value’ are permitted; providers can run seminars for intermediaries but cannot pay expenses and providers can pay 'reasonable fees’ to intermediaries who participate in market research

Communications: A provider can pay reasonable travelling expenses and accommodation costs of an intermediary visiting a UK office, a provider can supply pre-paid envelopes for communicating with it, plus a freephone link if these are available to intermediaries generally.

Training: Training facilities can be supplied (with or without charge) if the provider makes them generally available for intermediaries and the provider can pay or contribute to any reasonable travelling or accommodation expenses of the intermediary for this training

To satisfy the ‘client best interests’ rule, the provider of benefits will make the benefits generally available to intermediaries.  All records of benefits given to an intermediary must be kept for five years.

Regulatory rules for non-investment insurance advice (ICOBS)

Advising on general insurance products became regulated under the FCA on

14 January 2005, with all firms having to reapply to the FCA for authorisation. ‘General insurance’ includes motor, pet and home insurance, for example. The rules also cover some protection products, namely those with no investment element, such as pure life assurance, critical illness insurance, income protection insurance and private medical insurance.

General standards

The Insurance: Conduct of Business Sourcebook (ICOBS) brought into force on 6 January 2008 reflects the more principles-based focus and risk-based approach the FCA is trying to establish. It replaced many of the old rules of the General Insurance Standards Council (GISC) with high-level guidance, with different rules for different product types.

The ICOBS handbook introduces three product categories:

General insurance products

Pure protection (term assurance, income protection, critical illness)

Payment protection insurance (PPI).

All categories are subject to one set of rules, but there are additional rules for pure protection and PPI policies as they are deemed to be more complex and thus to require a more complex sales process.

The handbook is divided into nine chapters:

ICOBS 1 – Application

ICOBS 2 – General matters

ICOBS 3 – Distance communications

ICOBS 4 – Information about the firm, its services and remuneration

ICOBS 5 – Identifying client needs and advising

ICOBS 6 – Product information

ICOBS 6A – Product specific rules

ICOBS 7 – Cancellation

ICOBS 8 – Claims handling

Under ICOBS, insurers and intermediaries require authorisation to carry out regulated activities and insurers must ensure that the intermediaries they deal with are authorised. The rules separate consumers and commercial customers and vary according to whether the sale is made with or without advice. They apply to new business and the nor...

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Banning the sale of products containing toxic combinations of characteristics that put borrowers at risk

Banning arrears charges when a borrower is already repaying and ensuring firms do not profit from those in arrears

Requiring all mortgage lenders to be personally accountable to the regulator and calling for the regulator’s scope to be extended to buy-to-let arrangements and all lending secured on a home

These changes came into force on 26 April 2014.

The new rules apply to new borrowers and existing borrowers, but lenders are required to ensure that existing borrowers are not ‘trapped’ by the new requirements. They can apply transitional provisions where a borrower already had a mortgage before the new rules came in and now wants to move or remortgage. This effectively relaxes some elements of the affordability assessment, provided that the existing borrower is not borrowing further funds.

Mortgage Credit Directive (MCD)

The Mortgage Credit Directive (MCD) was implemented on 21 March 2016, resulting in amendments being made to MCOB rules.

One of the main changes introduced by the MCD is that first and second charges are treated equally in respect of regulation, so from 21 March 2016, second charge lending came under MCOB instead of the Consumer Credit sourcebook. To undertake second charge mortgage business, lenders, administrators and brokers must be authorised and hold the correct permissions from the FCA – previously there were no qualification requirements to advise on or arrange second charge mortgages.

Other changes brought about by the MCD are:

The regulation by the FCA of firms carrying out consumer buy-to-let (CBTL) activity, as defined in the Government’s legislative framework

The requirement to provide a binding mortgage offer and seven-day (minimum) reflection period

The requirement to give an adequate explanation of a product’s essential features, which must include:

- Pre-contract information

- Essential features of the product

- Potential impact on the consumer (including the consequence of default)

The manner and extent of the explanation can vary depending on the circumstances of the sale. Firms need to establish how an adequate explanation is provided by them for both advised and execution-only sales.

Firms are expected to issue a European Standardised Information Sheet (ESIS). This is a mandatory product disclosure document that replaced the key facts illustration (KFI).

Firms that are paid commission must tell consumers that they have the right to ask for information on the commission paid by different lenders, and firms must ensure they are able to respond adequately to such a request.

Mortgage advisers’ renumeration cannot be linked to sales

Second charge mortgage business - The FCA rules do not require firms to broaden their scope of service to include second charges as well as first, but those firms that do offer both need to take these different products into account when giving advice. If an existing mortgage-holder wishes to borrow more, firms must make the customer aware that other forms of borrowing are available that may also meet their needs. For example, if a customer is considering a second charge mortgage, firms must make the customer aware that it might be possible to obtain a further advance. However, firms are not required to provide advice on the suitability of alternatives if they are not within their scope of service.

The FCA rules for second charge mortgages, including regulated loans taken out before 21 March 2016, are tailored to the risks that occur with secured lending. For instance, the vast majority of sales require advice, with lenders expected to carry out detailed affordability assessments, as well as dealing with customers who experience payment difficulty in a way that considers their individual circumstances.

Advice must be given if there is interactive dialogue between the firm and the customer during the sale (or if debt consolidation, equity release, right to buy or sale and rent back is the main purpose of the loan). Firms must recommend a product (or products) deemed as suitable for the customer based on an assessment of their needs and circumstances. If there is no suitable product, firms cannot recommend the product that is ‘least worst’. However, firms do not have to recommend a single most suitable product.

  In choosing the most appropriate product, firms must consider whether it is appropriate for a customer to:

Have stability of mortgage payments

Take out a mortgage with a specific term

Make early repayments

  Establishing and demonstrating affordability is the responsibility of the lender, even though advisers/intermediaries will consider and discuss a lender’s eligibility criteria with their client.

Qualifications - The FCA requires mortgage advisers to obtain a relevant Level 3 qualification.

Explain which types of mortgage contracts are regulated by the FCA.

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Decision procedure and penalties (DEPP)

The FCA can be reactive or proactive in its approach.

Enforcement : The FCA has teams of enforcement officers who can investigate problems or suspicions about firms. They can:

Make visits to premises with or without giving notice

Demand access to documents and other records and take away copies

Obtain warrants to enter premises and take documents by force if necessary

Disciplinary action : The FCA can take several types of disciplinary actions against firms and individuals including:

Making public announcements

Levying fines

Setting conditions on future business

Obtaining a court injunction

Ordering compensation to customers

Withdrawing authorisation

Prohibiting individual...

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Disciplining firms and approved persons

Varying a firm’s permission to conduct certain regulated activities

Matters relating to market abuse

Withdrawing individual approval

Making prohibition orders banning individuals from employment relating to specific or all regulated activities

The Upper Tribunal is part of HM Courts & Tribunals Service, an executive agency of the Ministry of Justice. Following an appeal, it can uphold the FCA’s decision or overrule it.  An aggrieved individual can appeal against the decision to the Court of Appeal but only on a matter of law.

What information must be provided to an individual who is subject to an investigation by the FCA’s enforcement officers?

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(DISP) Dispute resolution: Complaints

This includes procedures a firm must have in place to handle complaints made by its customers, and the rules that apply to firms subject to the Financial Ombudsman Scheme (FOS).

CONRED

This part of the handbook relates to consumer redress, requiring firms to investigate whether it has f...

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Who can complain to the Complaints Commissioner about the actions or inactions of the FCA?

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The Specialist Sourcebooks contained within section 6 of the Handbook contain the requirements for individual business sectors. These are the requirements for:

Collective Investment Schemes (COLL)

Credit Unions (CREDS)

Consumer Credit (CONC)

Investment Funds (requirements for those covered by AIFMD (FUND)

Professional Firms (PROF)

Regulated Covered Bonds (RCB)

Recognised Investment Exchanges and Recognised Clearing Houses (REC)

Listing, Prospectus and Disclosure

Contains the United Kingdom Listing rules. These are in:

Listing Rules (LR)

Prospectus Rules (PR)

Disclosure Rules and Transparency Rules (DTR), the UK listing disclosure rules

Product Disclosure (DISC) (additional rules following the FCA’s amendments to the PRIIPs rules)

Handbook Guides

This sectio...

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‘The MiFID 2 Onshoring Guide’ (M2G) – Contains two guides that deal with post-Brexit onshoring of MiFID II – one dealing with trading venues and data-reporting service providers, and one dealing with senior management arrangements and systems and controls obligations

Unfair Contract and Consumer Notices Regulatory Guide (UNFCOG)

Collective Investment Scheme Information Guide (COLLG)

What information is provided by the sourcebooks contained in section 6 of the FCA handbook?

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Consumer Credit Act 1974

The Consumer Credit Act 1974 regulates the provision of any form of credit or advice on repaying debt provided by individuals or corporate bodies and applies to both the actual lenders and intermediaries. Firms who may find themselves advising a client to repay their mortgage out of, say, an inheritance, is covered by the Consumer Credit Acts and need a credit license. The 1974 Act related mainly to credit agreements not exceeding £25,000.

Certain bodies could apply for exemption against the Act if they dealt in loans secured on land, and building societies are specifically exempt.

Since 1 April 2014, it is the FCA who will issue licences to those applying for authority to give credit or advice on loans.  Carrying on credit business without a licence is a criminal offence.  The FCA can revoke licences where it is dissatisfied with the lisencee’s conduct.

Some of the main provisions of the Consumer Credit Act are:

The true Annual Percentage Rate (APR) must be quoted on advertisements and quotations

Customers must receive one copy of the loan agreement for their records

The contents of the loan agreement are regulated

There must be a cooling off period giving consumers ...

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A term deemed to be unfair under the new Act is not binding, although consumers can choose to rely on it if they wish, and the new rules cover not just policy schedules, but also renewal notices and promotions.

The role of the FCA

By agreement with the CMA, the FCA is responsible for considering, within the terms of the regulations, the fairness of standard terms in financial contracts issued by FCA authorised firms or appointed representatives of firms that undertake any regulated activity. This includes:

Mortgages

General insurance

Bank, building society and credit union savings accounts

Life assurance

Pensions

Investments

Long-term savings

If the FCA feels that the CMA is better placed to deal with the issue, it will pass the case to them to decide whether action is required and if so what it should be.

Which body is the principal enforcer of the Consumer Rights Act 2015?

Answer: The Competition and Markets Authority (CMA) the principal enforcer of the Consumer Rights Act 2015

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Estimated study time 12 hours

The body of rules under which the FCA operates

This chapter considers:

Key sections of the FCA Handbook

Regulatory re...

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Some subject matter reflects that:

The FCA prudentially regulates many small firms

The PRA carries out some conduct of business regulation

Sets out a firm's main regulatory obligations

Is the collective term for the FCA's sourcebooks and handbooks

Contains rules made under the Financial Services and Markets Act 2000 (FSMA)

Contains legally binding rules

Legal instruments:

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Fixed overhead requirement

Initial disclosure document

Part 4A permission

Periodic fee

Principles for Approved Persons

Remuneration principles

Senior Management Arrangements, Systems and Controls (SYSC)

Special project fees

Specialist Sourcebooks

Standard terms

All firms

Senior management

Approved persons

PRIN – Principles for Businesses

General statement of a firm's main regulatory obligations

SYSC – Senior Management Arrangements, Systems and Controls

Rules and guidance on allocation of senior management responsibilities <...

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GEN – General Provisions

Underlying legal framework for FCA regulation

Requirements relating to statutory status disclosure

FEES – Fees Manual

Funding provisions for:

Financial Conduct Authority (FCA)

Financial Ombudsman Service (FOS)

Financial Services Compensation Scheme (FSCS)

Money and Pensions Service (MaPS)

COND 2.2 – Location of offices

If the firm is a UK corporate body:

Head office must be in the UK

Registered office must be in the UK

For FCA...

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A firm's business model must be suitable for its regulated activities.

The FCA considers whether:

The business model supports sound and prudent management

Consumers' interests are protected

The integrity of the UK financial system is maintained

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An adequate structure of systems and controls

Partners, directors and senior managers must:

Understand their responsibilities

Have responsibilities formally documented

Senior management arrangements (SYSC 2)

Firms should:

Appoint individuals to be personally responsible for senior management functions

Maintain records showing responsibility for each function

Overall responsibility rests with:

The chief executive or equivalent

Systems and controls (SYSC 3)

Systems and controls must be:

Appropriate to the firm's business

Appropriate to its size

Appropriate to its risks

Regularly reviewed

Systems and controls should cover:

Reporting lines and delegation of responsibilities

Compliance function

Risk assessment

Management information

Honesty and competence of staff

Monitoring systems and controls

Business and remuneration strategy

Business continuity

Record keeping

These requirements are supplemented by the Common Platform Requirements .

Common Platform Requirements

SYSC 4 – General organisational requirements

Firms must have:

Robust gove...

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SYSC 24 – Allocation of prescribed responsibilities

SYSC 25 – Management responsibilities maps, handover procedures and material

SYSC 26 – Overall and local responsibility

SYSC 27 – Certification regime

SYSC 28 – Insurance distribution

Covers:

Knowledge requirements

Ability requirements

Good repute requirements

Record-keeping requirements

Applies to:

Non-investment insurance

Long-term care insurance

Following removal of the mandatory 15-hour CPD requirement in 2025, firms must ensure staff:

Have appropriate knowledge

Have the ability to perform their role

Continue CPD to maintain competence

Training may include:

Knowledge of terms and conditions

Relevant laws and regulations

Complaints and claims handling

Assessing customer needs

Business ethics and standards

Financial competence

Firms must:

Maintain up-to-date CPD records

Appoint a suitable person to oversee CPD

SYSC 28A – Regulated funeral plan activities

Covers:

Good repute requirements

Record-keeping requirements

Those dealing in or advising on regulated funeral plans

Financial stability

Market confidence

Short selling

FINMAR 2 <...

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Violent price movements

Unusual or improper trading

Unsubstantiated rumours or false information

Those...

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COCON:

Sets rules of conduct for employee...

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Remain fit and proper for their function

The underlying legal framework to FCA regulation

Requirements for statutory status disclosure

Referring to approval by the FCA

A firm, its staff or anyone acting on its behalf must not:

Expressly or implicitly claim that the firm's affairs have FCA approval unless required by FCA rules

Emergencies

A firm will not be treated as breaching an FCA rule where:

An emergency makes compliance impracticable

The emergency could not have been avoided by taking all reasona...

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Financial information statements

Insurance against financial penalties

Firms must not:

Take out or claim under insurance covering FCA financial penalties imposed under FSMA

Firms may:

Insure against the costs of defending FCA enforcement action

Insure against costs ordered to be paid to the FCA

Charging consumers for telephone calls

A firm operating a telephone line relating to an existing contract must not:

Charge consumers more than the basic rate for the call

Is an independent, non-governmental body

Is funded by levies on the financial services industry

Fee blocks

Fee blocks:

Group firms carrying out similar regulated activities

Reflect similar risks to the FCA's objectives

A firm may:

Fall into one or more fee blocks depending on the scope of its permission

The FCA is funded through:

Application fees

Periodic fees

Special project fees

Application fees

Applicati...

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Insurance company reorganisations

Large mergers

Demutualisations

Payment of fees

The FCA Board:

Sets periodic fee rates in May

Sets application fee rates in March

Firms should expect:

Periodic fee invoices in June or July

The FCA:

Updates the Consolidated Policy Statement on FCA fee-raising arrangements each June

Firms may:

Pay annual fees by instalments through the FCA's arrangement with Premium Credit Ltd

The prudential requirements for firms

A firm's financial framework

MIFIDPRU – Prudential Sourcebook for Investment Fi...

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Friendly Societies

Insurers

GENPRU

GENPRU:

Has largely been removed from use

Still contains capital requirements for cross-sector groups

Maintain sufficient financial resources to cover the risks arising from their business activities

Different firms are subject to different financial requirements.

PRA-regulated firms

Large insurers and banks are prudentially regulated by the PRA

Subject to rigorous financial monitoring

Investment Firms Prudential Regime (IFPR)

Most larger firms:

Are subject to the IFPR

Follow the MIFIDPRU Handbook

Must undertake detailed risk assessments

Must carry out stress testing

Must determine appropriate financial resources

Some small intermediary firms:

Are exempt from these ...

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Capital tiers

Capital is divided into three tiers based on:

Loss absorbency

Permanence

Tier 1 capital:

Highest quality capital

Includes equity share capital

Tier 3 capital:

Lower quality capital

Includes short-term subordinated debt

As permanence and loss absorbency decrease:

Regulatory quality of capital decreases

When calculating capital resources, firms must:

Make specified regulatory deductions where capital is unavailable or asset values are uncertain

Restrictions apply to:

The amount of lower-tier capital that may count towards regulatory capital

Investm...

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Profess...

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Detailed requirements governing firms' day-to-day business conduct

COBS – Conduct of Business

Covers:

Conduct of business requirements for investment firms

ICOBS – Insurance: Conduct of Business

Applies where firms carry out:

Insurance mediation activities

Covers:

Requirements for dealing with customers

MCOB – Mortgages and Home Finance: Conduct of Business

Applie...

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COBS 5 – Distance communications

COBS 6 – Information about the firm, its services and remuneration

COBS 8 – Client agreements

COBS 9/9A – Suitability of advice and Know Your Customer (KYC) rules

COBS 9B – Targeted support

COBS 11 – Dealing and managing

COBS 13 – Product information disclosure

COBS 15 – Cancellation

COBS 16/16A – Reporting and record-keeping

Contain most FCA rules affecting the day-to-day work of investment advisers

Provide detailed guidance on how staff and representativ...

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Pure protection life insurance

Separate Conduct of Business sourcebooks apply to:

Home finance business

General insurance business

A firm must:

Take reasonable steps to ensure it does not offer, give, solicit or accept an inducement likely to create a material conflict with duties owed to customers

For investment and insurance-based investment products:

Personal recommendations may only be remunerated through adviser charges

Commission is still permitted for:

Pure protection insurance contracts

Legacy commission

Legacy commission may...

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Pay or contribute to reasonable travel and accommodation costs for that training

Providers may:

Supply goods and services to intermediaries free of charge or for a fee in accordance with these guidelines

To satisfy the client best interest rule:

Benefits should, where realistic, be made generally available to all intermediaries

Firms must:

Keep records of benefits provided to intermediaries for at least five years

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ICOBS:

Reflects the FCA's principles-based and risk-based approach

Replaces many detailed rules with high-level guidance

Applies different rules to different product categories

ICOBS product categories

General insurance products

Pure protection products (term assurance, income protection and critical illness cover)

Payment protection insurance (PPI)

ICOBS chapters

ICOBS 1 – Application

ICOBS 2 – General matters

ICOBS 3 – Distance communications

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In relation to claims:

An intermediary acting for both client and insurer must disclose this and manage conflicts of interest

An intermediary acting for the client must act with due skill, care and diligence

Clients must receive guidance on claims procedures

Insurers must handle claims fairly and promptly

Reasons for rejecting a claim must be clearly explained

Insurers must not unreasonably reject claims

Unless there is evidence of fraud, insurers must not reject a retail customer's claim for non-disclosure of a material fact the customer could not reasonably have been expected to know

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Lenders

Administrators

Arrangers

Advisers

Regulatory status

Direct authorisation

Firm or individual is fully responsible for complying with MCOB and other FCA requirements

Appointed representative

Compliance responsibility rests with the principal (e.g. lender, network or intermediary)

Introducer status

Only passes leads to an authorised person

Does not advise clients

Does not require FCA authorisation

Mortgage intermediary services

An intermediary may deal with:

T...

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Example of a breach:

Presenting the illustration, mortgage offer and mortgage deed together and asking the customer to sign immediately when there is no need to do so

Other MCOB rules

MCOB also covers:

Qualifying credit promotions

Real-time and non-real-time credit promotions

Advising and selling standards

Disclosure requirements

Suitability

Calculation of Annual Percentage Rate (APR)

Responsible lending, charges, arrears and repossessions

Ensure customers' interests are protected to a reasonable standard under home purchase plans, home reversion plans and regulated sale and rent back (SRB) agreements

The level of protection depends on:

The nature and structure of the arrangement

The jurisdiction in which the property is situated

If reasonable protection cannot be achieved:

The firm should not enter into, arrange or administer the plan

Home reversion plans

Home reversion plans:

Are a type of equity release sch...

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Prohibits promotional terms such as "fast sale", "mortgage rescue" and "cash quickly"

Requires firms to provide additional information to support informed decisions

Requires an independent valuation where the valuer owes a duty of care to the consumer

SRB schemes:

Are high-risk

Should generally be considered only as a last resort

May be less suitable than alternative arrangements carrying lower risk

Was the largest reform of mortgage regulation since statutory regulation began in 2004

Aimed to create a fairer and more stable lending environment

Sought to reduce negative equity and mortgage defaults

The FCA's Responsible Lending Review:

Published its findings on 16 May 2016

Reviewed mortgage lending decisio...

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Mortgage advice

Most mortgage transactions:

Must be advised

Firms must not:

Encourage borrowers to opt out of receiving advice

Execution-only sales:

Remain permitted in limited circumstances

Are not permitted where advice is compulsory, including for vulnerable borrowers, particularly those seeking mortgage borrowing for debt consolidation

Introduced an EU framework of conduct rules for mortgage firms

Applies equally to first and second charge mortgages

Moved second charge mortgages from the consumer credit regime into the mortgage regime

For second charge mortgage business:

Lenders, administrators and brokers must be authorised with the appropriate permissions

The FCA registers and supervises firms carrying out consumer buy-to-let (CBTL) activity

MCD requirements

Firms must: Shortened demo course. See details at foot of page.

Debt consolidation is the main purpose of the loan

Where advice is given, firms must:

Recommend suitable product(s) based on the customer's needs and circumstances

Not recommend the "least worst" product where no suitable product exists

Not necessarily recommend a single most suitable product

Qualifications

Mortgage sellers and advisers must:

Hold an appropriate Level 3 qualification

Restrict co-mingling of a firm's assets and clients'...

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Ensures vital CMA information is readily accessible to the appointed Insolvency Practitioner

Apply to firms that receive or hold money from or on behalf of clients

Do not apply to life offices

Do not apply to friendly societies

Do not apply to banks

Client money includes:

Cash

Cheques payable to an intermediary

Unless otherwise permitted, firms must:

Ho...

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Ensure investment payments are made directly to the product provider

Not operate client money accounts

Firms with client money permissions:

Have additional responsibilities under the SM&CR

Allocate responsibility for safeguarding client assets to a suitably skilled senior manager

Disseminating false or misle...

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Require behaviour amounting to market abuse

Product intervention rules:

Are made under FSMA

Apply to specific products, product types, product features or marketing practices

May be introduced without consultation

May remain in forc...

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Since 2023, product distributors must also:

Consider the requirements of ESG 4 when distributing products with sustainability labels

Sets ou...

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Policy Statement PS23/16

Sets out rules and guidance on the disclosure of climate-related financial information

Is consistent with...

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Under the Sustainability Disclosure Requirements (SDR), firms may apply to use the following sustainability labels for investment funds:

Sustainability Focus

Sustainability Improvers

Sustainability Impact

Sustainability Mixed Goa...

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This product is based overseas and is not subject to UK sustainable investment labelling and disclosure requirements

Explicit objective – Have a clear, specific and measurable sustainability objective aligned with the chosen label

70% rule – Invest at least 70% of the gross value of assets in line with the sustainability objective...

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Managers must:

Have a stewardship strategy explaining how stewardship activities will achieve sustainability objectives

Where stewardship plays a significant role, firms should:

Develop relevant key performance indicators (KPIs) to measure expected sustainability outcomes

Criteria:

Sustainability objective is to invest in environmentally and/or socially sustainable assets

Sustainability is determined using a robust, evidence-based standard

Sustainability Improvers

Criteria:

Sustain...

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Managers must also:

Identify how much of the fund's assets will be allocated to each sustainability objective

Ensure each allocation meets the relevant label requirements

The anti-greenwashing rule applies to:

All firms

Communications with clients

Financial promotions

Firms regardless of whether they undertake sustainability business

References to the sustainability characterist...

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Managers using sustainability labels may use the relevant terms in fund names

The term "impact" may only be used in a fund name by products using the Sustainability Impact label

May use the permi...

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An explanation of why the fund does not use a sustainability label

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Consumer-facing disclosures must:

Be no more than two A4 pages

Clearly state the product's sustainability objective as its "sustainability goal" Shortened demo course. See details at foot of page.

The manager's approach to stewardship

The key performance indicators (KPIs) or metrics used to assess whether the product is meeting its sustainability objectives

Pre-contra...

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Managers of sustainability funds must:

Produce an annual sustainability report whether or not...

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How the fund's assets are making progress towards measurable, positive environmental and/or social outcomes

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Covers the conduct of interviews

React to events

Act proactively by taking the initiative

Enforcement

The FCA can:

Investigate actual or suspected misconduct by firms

Take appropriate enforcement action

Distributors must:

Ensure retail clients receive access to consumer-facing disclosures for sustainability products

Disciplinary action

The FCA may take disciplinary action against firms and individuals, including:

Making public announcements

Imposing fines

Setting conditions on future business

Obtaining court injunct...

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Enter into or offer to enter into a regulated investment

Refrain from entering into a regulated investment

Exercise rights under a regulated investment

Refrain from exercising rights under a regulated investment

Liability of company officers

Where a company commits an offence, a company officer is also liable if the offence:

Was committed with the officer's consent

Was committed with the officer's connivance

Was attributable to the officer's neglect

Under the FSMA 2000, the FCA must notify a person who is the subject of an investigation

The notice must state:

The reason ...

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The investigation may relate to market circumstances rather than a specific individual or individuals

Was formerly known as the Financial Services and Markets Tribunal

Was established under s.132 of the FSMA

Is the appeal...

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Uphold the FCA's decision

Overrule the FCA's decision

A further appeal:

May be made to the Court of Appeal

Is permitted only on a point of law

Handling complaints

Dealing with compensation

DISP – Dispute Resolution: Complaints

This manual:

Sets out ...

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COMP – Compensation

This manual:

Covers the Financial Services Compensation Scheme (FSCS)

Provides compensation where the responsible firm is unable to pay a valid claim

Under the FSMA, the FCA must have arrangements for investigating complaints made against it.

Complaints may be made by anyone directly affected by the FCA's actions or inaction, including:

Regulated firms

Individual employees of firms

Listed companies

...

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The complaints regime requires that:

Regulators deal with complaints within four weeks where possible

If this is not possible, a timetable must be agreed with the complainant

The FCA centrally processes complaints, including those relating to the PRA or the Bank of England

This section covers:

Specialist Sourcebooks

Listing, Prospectus and Disclosure Rules

Handbook Guides

Regulatory Guid...

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This section covers:

Specialist Sourcebooks

Listing, Prospectus and Disclosure Rules

Handbook Guides

Regulatory Guides

Access to Cash Services (ATCS) – Rules and guidance to ensure reasonable provision of cash access services in the UK

Coll...

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European Market Infrastructure Regulation Rules (EMIRR) – Rules applying to trade repositories registered under EU law