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Financial advisory
RES5Financial Advisory Services✓Under SFR(LCB) regs 33 and 45, when a CMS licence holder lends a retail customer's specified products to a borrower, the licence holder must: (a) Obtain collateral of at least 100% of the market value of the products lent. (b) Mark the products lent, and any collateral that is itself a specified product, to market every business day. (c) Document the lending in a prior written agreement, including treatment of dividends and voting rights. (d) Explain the risks to the customer and obtain the customer's written consent before lending.
Regulation 33(2) of the SFR(LCB) bars a CMS licence holder from lending a customer's specified products unless it has explained the risks and obtained the customer's written consent (the risk explanation is not required for accredited, expert or institutional investors). Regulation 45 then requires collateral worth at least 100% of the market value of the products lent throughout the loan, and a prior written agreement covering capacities, title transfer, dividends, voting and corporate actions, return, termination and governing law, with the products lent and any collateral that is a specified product marked to market every business day. Reg 45 itself has no risk-explanation duty when the licence holder borrows from a customer, though the RES 1B study guide (3.11.4) also tells licence holders to explain the risks and get the customer's written understanding before borrowing.
Risk explanation and written consent come from reg 33 (lending a customer's products); collateral, mark-to-market and the written agreement come from reg 45.
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