This page is designed as a guide to the overview of Financial Conduct Authority (FCA) regulation for securitised derivatives. However, the information below only highlights some of the key points relating to covered warrants. If you are unsure about how the regulations apply to you, please get in touch with your usual supervisory contact at the FCA.
If you do not have permission to advise or trade in derivatives you will need to apply to the FCA for a variation to your permissions before participating in the covered warrants market.
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 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.
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.
Advisory: a broker can market services in, and the availability of, securitised derivatives to any client.
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 variation to its existing permission.
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 so.
Advisory: training and competence checks will be made by the FCA. Among other things, this will require brokers to have staff who have passed relevant derivatives exams, or securities and derivatives exams.