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Regulation


This section has been prepared as an overview of FSA regulation for securitised derivatives. In addition you can view details of the London Stock Exchange's regulatory requirements via the downloads. The table below should be used as a general guide only which highlights some of the key points relating to covered warrants.

If you are unsure about how the regulations apply to you, please contact your usual supervisory contact at the FSA.

Potential action required

If you do not have permission to advise or trade in derivatives you will need to apply to the FSA for a variation to your permissions before participating in the covered warrants market.

Risk warning, relevant for all brokers

A risk warning must be given to clients, prior to any dealing or advice being given, providing an explanation of all the key risks. Note: A company warrant risk warning is not sufficient.

A one way risk warning may be acceptable, but only if the firm can demonstrate that the client has received the risk warning before an initial purchase and had a proper opportunity to consider its terms. Electronic signatures may be appropriate.

The risk warning between broker and client may cover the initial execution and all subsequent transactions in instruments with a similar risk profile.

Client suitability

Execution only
A broker can market services in, and the availability of, securitised derivatives to any client.

Suitability checks are not required, unless the marketing takes the form of a direct offer of financial promotion (i.e. one that allows the client to enter into an investment agreement).

Advisory
A broker can market services in, and the availability of, securitised derivatives to any client.

Suitability checks are required.

Authorisation

Execution only
If a firm does not have permission to trade in derivatives then it will need to seek a variation to its existing permission.

Advisory
If a firm does not have permission to advise in derivatives then it will need to seek a variation to its existing permission.

Training and competence

Execution only
There are no specific training and competence requirements for the execution of a transaction, but firms should be aware of their general duty to ensure that those carrying out a particular activity are competent to do

Advisory
Training and competence checks will be made by FSA. Amongst other things, this will require brokers to have staff, which have passed relevant derivatives exams, or securities and derivatives exam.

Downloads
Consultation notice (pdffile pdf - 108 KB)



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