CMFAS RES5 Securities Dealing & Market Conduct question: written recommendation urging

CMFAS RES5Securities Dealing & Market Conduct

A licensed financial adviser circulates a written recommendation urging clients to buy shares in a company in which it holds a substantial stake, but the circular says nothing about that holding. Under s45 FAA this is a breach because the FA must:

A never recommend any product in which it or any associated person holds an interest of any size
B state in the circular, as legibly as the rest, any interest it or an associated or connected person has
C obtain MAS's prior approval before sending any written recommendation on a product it holds
D disclose the holding only if a client specifically asks, and then within 14 days in writing

Show the answer and explanation

Answer: B. state in the circular, as legibly as the rest, any interest it or an associated or connected person has

Section 45(1) FAA requires that where a licensed FA sends a circular or written communication recommending specified products, it must include — in type no less legible than the remainder — a concise statement of the nature of any interest it or a person associated/connected with it has in the acquisition or disposal of those products at the date of the circular. Non-disclosure, not the holding itself, is the breach.

Common mistake

Holding an interest is not prohibited — failing to disclose it prominently in the written recommendation is.

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