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IMC UNIT 1 (Edition 21 - Dec 23) > C3 - Regulation of Financial Markets & Institutions (25-35 Qs with C4) > Flashcards

C3 - Regulation of Financial Markets & Institutions (25-35 Qs with C4) Flashcards

1
Q

How many principles of business are there?
A) 7
B) 10
C) 12
D) 15

A

C - 12

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2
Q

A firm that approves a financial promotion regarding an occupational pension scheme must retain adequate records for how long?
A) 3 years
B) 5 years
C) 6 years
D) indefinitely

A

C - 6 years

Records of financial promotions must be retained:
- INDEFINITELY for pension transfer, opt-out or FSAVC;
- FOR 6 YEARS for life policy, occupational pension scheme, SSAS, personal pension or stakeholder pension;
- FOR 5 YEARS for MiFID or equivalent third country business; and
- FOR 3 YEARS for other cases

NOT TO BE CONFUSED WITH RECORD KEEPING FOR CANCELLATIONS, which must be maintained:
- INDEFINITELY for pension transfer, opt-out or FSAVC;
- FOR 5 YEARS for life policy, pension contract, personal/stakeholder pension;
- FOR 3 YEARS for other cases

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3
Q

Under what circumstances can a firm use a client’s assets?
A) When a firm write to the client to explain why it is necessary
B) When a firm uses the assets for stock lending which benefits the client
C) When the client has given expressed prior consent to their use
D) On request from the Bank of England to provide market liquidity

A

C - When the client has given expressed prior consent to their use

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4
Q

What is the maximum penalty for a person found guilty of market abuse?
A) 5 years in prison and an unlimited fine
B) 7 years in prison and an unlimited fine
C) £150k fine
D) Unlimited fine

A

D - Unlimited Fine

Market Abuse is a civil offence, hence no prison sentence is applied

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5
Q

Which of the following statements regarding unwritten promotions is NOT true?
A) The purpose of the communication should be stated at the outset
B) A contact point need only be given if requested by the customer
C) The communication should be terminated at once if requested by the customer
D) The communication should be made at an appropriate time of day

A

B - A contact point need only be given if requested by the customer

A contact point must always be given if an appointment has been arranged.

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6
Q

Which of the following are TRUE regarding customer complaints?
1. The firm must refer all complaints to the FCA immediately
2. Firms must have effective internal complaints proceedures
3. Records of complaints must be kept for a minimum of three (3) years for non-MiFID businesses
4. Firms must inform clients of who else they can refer to

A) All of the above
B) 2 and 3
C) 1, 2 and 4
D) 2, 3 and 4

A

D - 2, 3 and 4

Complaints are reported to the FCA every 6 months, not immediately

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7
Q

Which one of the following is TRUE for all financial promotions relating to regulated investment activities?
A) They cannot relate to the sale of or provision of services for derivatives or warrants
B) They must state that the firm is regulated by the FCA
C) They must be fair, clear and not misleading
D) They must be approved by the FCA

A

C - They must be fair, clear and not misleading

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8
Q

Which of the following are recognised investment exchanges (RIE)?
1. London Stock Exchange
2. SWX
3. AQSE
4. ICMA

A) All of the above
B) 1 and 3
C) 1, 2 and 3
D) 1 only

A

B - 1 (LSE) and 3 (AQSE)

SWX = Swiss Exchange now called SIX
AQSE = Aquis Stock Exchange
ICMA = International Capital Market Association

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9
Q

The CMA is responsible for which of the following?
A) Deciding whether a proposed merger should go ahead
B) To regulate mergers and acquisitions
C) Advising the planel on takeovers and mergers (PTM) where to refer takeover to the BEIS Dept for Business, Energy and Industry Stratgy)
D) To design rules in relation to takeovers

A

A - Deciding whether a proposed merger should go ahead

The FCA regulates mergers and acqusitions

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10
Q

Which of the following are exempt from the need of authorisation?
1. LLoyds names
2. Appointed representatives
3. LSE
4. Members of LSE

A) 1 and 2
B) 1, 2 and 3
C) 1, 2 and 4
D) 2, 3 and 4

A

B 1 (LLoyds names), 2 (ARs) and 3 (LSE)

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11
Q

Which of the following is a principle for businesses?
A) Market Conduct
B) Best Execution
C) Prevention of Financial Crime
D) Relations with Customers

A

A - Market Conduct

Market Conduct is Principle 5 under Principles of Business (there’s 12 in total), Best Execution is in COBS (11.2), Preventation of Financial Crime is under SYSC (6.3) and Relations with Customers does not come under one heading (I believe)

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12
Q

The sponsoring employer of a defined benefit pension scheme has become insolvent and the pension scheme is unable to pay its liabilities.

Assuming the pension scheme has entered the Pension Protection Fund, what level of compensation in terms of percentage of benefits does the Fund provide to those who have NOT yet retired?
A) 50%
B) 75%
C) 90%
D) 100%

A

C - 90%

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13
Q

How is the Takeover Panel funded?
A) Government
B) Levy on city institutions
C) Levy on authorised persons
D) Levy on share transactions

A

D - Levy on Share Transactions

The Panel on Takeovers and Mergers, or more commonly The Takeover Panel, is the United Kingdom’s regulatory body charged with the administration of The Takeover Code. It was set up in 1968 and is located in London, England. Its role is to ensure that all shareholders are treated equally during takeover bids.

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14
Q

Client bank accounts can be held with any of the following, except?
A) A central bank
B) Any money market fund
C) A BCD credit institution
D) A bank authorised in a third country

BCD - Banking Consolidation Directive

A

B - Any money market fund

It must be a qualifying money market fund.

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15
Q

John is dealing in securities for a discretionary managed portfolio with frequency that is excessive

Which of the following rules does this breach?
A) Suitability
B) Front running
C) Churning
D) Customer understanding

A

C - Churning

Churning & Switch (Under COBS 9 - Suitability) A series of transactions that are each suitable when viewed in isolation may be unsuitable if the recommendation or the decisions to trade are made with a frequency that is not in the best interests of the client.

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16
Q
A
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17
Q

Which of the following is TRUE?
1. A firm must co-operate with the Ombudsman
2. There is no upper limit on the fine the Ombudsman can impose
3. If the complaintant accepts the Ombudsman’s decision, it is binding on the firm

A) All of the above
B) 1 and 2
C) 1 and 3
D) 2 and 3

A

C - 1 (firm must co-operate) and 3 (decision is binding)

The maximum fine the Ombudsman can impose is £375k

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18
Q

Which of the following would make a professional client eligible to be treated as a qualified investor?
A) They have worked in the financial sector in a professional position requiring knowledge of security investment for seven months and have a security portfolio worth €2.5 million
B) They have a security portfolio worth €1.25 million and have carried out thirty significant transactions on securities markets for each of the last ten quarters
C) They have total wealth exceeding of €25 million
D) They have carried out twenty transactions over £1,000 on securities markets for each of the last four quarters, and have worked in the financial sector in a professional position requiring knowledge of security investment for two years

A

D - They have carried out twenty transactions over £1,000 on securities markets for each of the last four quarters, and have worked in the financial sector in a professional position requiring knowledge of security investment for two years

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19
Q

Those employees working on the preparation of research are prohibited from engaging in the following activities, except?
A) Participation in investment banking activities such as corporate finance or underwriting
B) Acting as an investment advisor
C) Preparing marketing material
D) Pitching for new business at a roadshow for new issues

A

B - Acting as an investment advisor

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20
Q

Which is NOT an example of insider dealing?
A) Encouraging someone to deal on the strength of price sensitive information
B) Dealing oneself on the strength of price sensitive information
C) Passing price sensitive information
D) Disclosing prive sensitive information in proper course of the exercise of duties

A

D - Disclosing prive sensitive information in proper course of the exercise of duties

An example of proper performance of duties would be disclosures by a director to the company auditors or other professional advisers. The director would not expec the recipient(s) to deal.

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21
Q

A deposit taking bank in the UK will be regulated by:
A) Neither the FCA nor the PRA
B) the PRA only
C) the FCA only
D) both the FCA and the PRA

A

D - both the FCA and the PRA

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22
Q

Simplified due diligence (SDD) may be applied to which of the following?
A) business with beneficiaries of solicitor’s accounts
B) where business is conducted on a non face-to-face basis
C) business with politically exposed person
D) in respect of correspondent banking relationships

A

A - business with beneficiaries of solicitor’s accounts

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23
Q

Which of the following are required of an RIE by the FCA?
1. Satisfactory recording of transactions
2. Business on the exchange is orderly
3. Clearing and settlements of transactions
4. Able and willing to promote high standards of integrity and fair dealing

A) All of the above
B) 1, 2 and 4
C) 1, 2 and 3
D) 2 and 4 only

A

B - 1 (satisfactory recording), 2 (orderly business) and 4 (promote high standards)

Clearing is done by the RCP

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24
Q

All of the following are TRUE with respect to non-written financial promotions except:
A) the employee must send a draft customer agreement immediately after the call
B) The call should take place at an appropriate time of day
C) The caller must not disguise the purpose of the call
D) The caller must terminate the call if the investor specifies he is not interested

A

A - the employee must send a draft customer agreement immediately after the call

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25
Q

The offence of failing to report money laundering may result in imprisonment for:
A) 14 years
B) 7 years
C) 5 years
D) 2 years

A

C - 5 years

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26
Q

How long does a firm have to keep records for the purposes of Money Laundering Regulations?
A) 1 year
B) 3 years
C) 5 years
D) 6 years

A

C - 5 years

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27
Q

How frequently should reconciliation of client assets take place?
A) Monthly
B) Six monthly
C) Annually
D) As often as necessary

A

D - as often as necessary

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28
Q

Which of these is NOT a requirement of suitability?
A) Knowledge and experience
B) Financial situation
C) Existing relationship with the firm
D) Investment Objectives

COBS 9

A

C - Existing relationship with the firm

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29
Q

Sue becomes suspicious of a ‘high number of sales’ by her client

Sue should report her fears to:
A) The client
B) The FCA
C) The police
D) The money laundering reporting officer (MLRO)

A

D - The MLRO

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30
Q

A UK fund manager is aware of insider information and deals

What defence could he use under the rules on insider dealing?
A) He had reasonable grounds to believe information was widely known
B) He dealt because other who were not privy to the information had already dealt
C) He only dealt to avoid a loss
D) Only traded for his clients’ accounts

A

A - He had reasonable grounds to believe information was widely known

Insider Dealing can be found in FCG 8 of the Fincancial Crime Guide of the FCA Handbook

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31
Q

What is the maximum fine that can be imposed on an authorised person?
A) Unlimited
B) £250k
C) £100k
D) £50k

A

A - Unlimited fine

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32
Q

On ICE Future Europe, what is the purpose of the variation margin?
A) Cover adverse movements expected over the next week
B) An initial deposit to cover the maximum likely daily loss on a futures contract
C) Cover adverse movements movements in value from the previous day
D) Cover adverse movements from the previous week

A

C - Cover adverse movements movements in value from the previous DAY

Variation margin can be a receipt or payment. It represents the profit or loss on an open derivative positions, which result from changes in underlying asset values from the previous day

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33
Q

Mr Reginald Rep is found guilty of tipping off a money launderer.

What is the maximum penalty?
A) 2 years and unlimited fine
B) 6 months and a fine of up to £5k
C) 5 years and unlimited fine
D) A fine of up to £5k

A

A - 2 years and unlimited fine

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34
Q

A firm has to ensure all of the following when handling client orders, except:
A) Retail clients are informed of any material difficulty promptly
B) Comparable orders are completed sequentially
C) All orders on behalf of clients are accurately recorded and allocated
D) Client must receive confirmations within 5 busiess days.

A

D - Clients must receive confirmations within 5 business days

Such must be received in 1 business day, not 5

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35
Q

Which of the following is a per se professional client?
A) Credit Institution
B) Individual with a personal net worth of £20m
C) Individual with a personal net worth of £4m
D) Individual with 5 years investment experience

A

A - Credit Institution

The other choices could be ‘elective under certain circumstances

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36
Q

Which of the following NOT true regarding the FCA’s powers to punish?
A) The FCA has the power to issue private warnings in respect of breaches of rules
B) The FCA can issue public statements and/or impose fines in respect of breaches of rules
C) The FCA can vary the permissions given to firms if it has serious concerns about the authorised persons
D) The FCA can prosecute breaches of FCA rules

A

D - For breaches of rules, the FCA bring disciplinary actions, not prosecutions

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37
Q

Membership of which of the following confers authorisation?
1. LSE
2. LCH
3. ICE Futures Europes
4. CREST

A) All of the above
B) 1 and 3
C) 1, 2 and 4
D) None of the above

A

D - None of the above

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38
Q

Which of these statements about appointed representatives is FALSE?
A) They exclusively represent one company
B) They typically market life insurance products and unit trusts
C) They would normally be authorised by FCA
D) They may give advice on a range of different investment products

A

C - They would normally be authorised by FCA

(Not sure if there is a typo in this Kaplan Q)

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39
Q

An individual with no previous investment experience approaches a firm for investment

The individual should initially be classed as a:
A) Retail client
B) Professional client
C) Eligible counterparty
D) Certified individual

A

A - Retail Client

A retail client is defined by the FCA as a client who is not a professional client or an eligible counterparty, so have the highest amount of protection.

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40
Q

Which of the following is TRUE of the client money regulation?
A) Client money cannot be held by a bank in the same group as the firm
B) Interest is always allocated to clients
C) As long as the firm is aware of the split between client and firm, one bank account can be used
D) Retail clients’ money must always be segregated

A

D - Retail clients’ money must always be segregated

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41
Q

Under the FCA’s disclosure and transparency rules (DTR), a person discharging managerial responsibility (PDMR) undertaking a personal transaction in the relevant listed company must notify:
A) the market within two (2) business days of the transaction
B) the market within four (4) business days of the transaction
C ) the listed company with two (2) business days of the transaction
D) the listed company within four (4) business days of the transaction

A

D - the listed company within four (4) business days of the transaction

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42
Q

How is the FCA financed?
A) Taxpayers money
B) By a levy on investment transactions
C) Soely by fines imposed
D) By fees from authorised persons

A

D - Fees from authorised persons

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43
Q

Roy, an IT consultant, is working for a firm and comes across some price-sensitive information. He is also a shareholder of this company and has already placed a sell order on their shares

Under which of the following circumstances is he not guilty of market abuse?
A) He leaves the sell order
B) He phones a friend and tells them to buy the shares on NASDAQ
C) He buys some more securities
D) He buys more securities havinf informed the firms’ compliance officer

A

A - He leaves the share order

NASDAQ = The Nasdaq Composite is a stock market index that includes almost all stocks listed on the Nasdaq stock exchange

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44
Q

Authorisation may be achieved under the FSMA 2000 by applying for permission to carry on one or more regulated activities

Applications may be made:
1. By an individual applying to the FCA or PRA
2. By a firm applying to the FCA or PRA
3. By an individual applying to the Treasury
4. By a firm applying to the Treasury

A) Any of the above
B) 2 only
C) 2 and 4
D) 1, 2 and 4

A

B - 2 (Firm to FCA/PRA) only

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45
Q

Which regulation requires UK persons entering into a derivatives contract to report and risk manage their derivatives position?
A) Markets in Financial Instruments Directive (MiFID)
B) UK European Markets Infrastructure Regulation (UK EMIR)
C) Undertakings for Collective Investment in Transferable Securities (UCITS)
D) Market Abuse Directive

A

B - UK European Markets Infrastructure Regulation (UK EMIR)

Under UK European Markets Infrastructure Regulation (UK EMIR) requirements, all counterparties must report any derivative contract concluded, modified or terminated. Find out more about reporting your firm obligations.

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46
Q

What is the status of the LCH.Clearnet?
A) RIE (recognised investment exchange)
B) DPB (designated professional bodies)
C) RCH (recognised clearing house)
D) PRA (prudential regulation authority)

A

C - LCH.Clearnet is a Recogised Clearing House

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47
Q

For which of the following could a claim be made on the Financial Services Compensation Scheme (FSCS)?
A) Insolvency of an authorised firm
B) Fraud by an authorised firm
C) Suspension of authorisation of an authorised firm
D) Negligence by an authorised firm

A

A - Insolvency of an authorised firm

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48
Q

A firm should take reasonable steps to ensure employees and officers act in conformity with:
1. The own regulatory obligations
2. Their employer’s regulatory obligation
3. The law on the insider dealing
4. The personal accounting dealing rules

A) 4 only
B) 1, 3 and 4
C) All of the above
D) 1 and 2

A

C - All of the above

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49
Q

When reviewing an employee’s ongoing competence in their role, which of the following is NOT taken into account?
A) Employee’s response to changes in regulation
B) Employee’s technical knowledge
C) Employee’s skill and expertise
D) Employee’s revenue generation

A

D - Employee’s revenue generation

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50
Q

Which of the following are statutory objectives of the FCA?
1. Promoting the safety and soundness of firms
2. Promoting efficiency and choice
3. Securing protection for consumers
4. Protecting the integrity of the UK financial system

A) All of the above
B) 1, 2 and 3
C) 2, 3 and 4
D) 2 and 3

A

C - 2 (efficiency/choice), 3 (protection for consumers), and 4 (integrity of UK financial system)

1 (Promoting the safety and soundness of firms) is an objective of PRA

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51
Q

What is the maximum prison sentence an individual may face if found guilty of insider dealing in a crown court hearing?
A) 6 months
B) 5 years
C) 10 years
D) 14 years

A

C - 10 years

6 months for a summary hearing and 10 years maximum sentence.

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52
Q

When a firm communicates with retail clients, it should ensure that information:
1. Includes the name of the firm
2. Gives a balanced impressions when quoting yields
3. Names the FCA as regulator
4. Details any disciplinary action against the firm in the last 12 months

A) 1 and 2
B) 2 and 3
C) 1, 2 and 3
D) All of the above

A

C - 1 (firm name), 2 (balance impression), and 3 (FCA as regulator)

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53
Q

How long must a takeover offer remain open?
A) 21 Days
B) 60 Days
C) Until a 30% holding is reached
D) Until a greater than 50% holding is reached

A

A - 21 Days

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54
Q

A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.

Which Principle for business is the above statement?
A) 4 Financial Prudence
B) 9 Customers: relationships of trust
C) 12 Cusumer Duty
D) 5 Market conduct

A

B - 9 Customers: relationships of trust

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55
Q

Which of the following is true of an EU directive?
A) It is implemented by being transposed into national laws
B) It automatically becomes national law
C) It is not legally binding
D) Directives do not require member states to amend their law

A

A - It is implemented by being transposed into national laws

EU Directives must be adopted by each member state, each state must amend their local laws in order to comply with a directive.

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56
Q

Which of these does NOT form part of the assessment of suitability for client receiving a discretionary or investment advisory service?
A) Investment objectives
B) Likely future assets
C) Current liabilities
D) Previous investments made

COBS 9

A

B - Likely future assets

Firms cannot assume assets will be forthcoming when making their assessment of affordability today i.e. it must be based on their financial situation now. Their previous investments help when assessing their knowledge.

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57
Q

All of the following are RIEs except:
A) LSE
B) ICE Futures Europe
C) LME
D) NYSE

A

D - NYSE (New York Stock Exchange)

*ICE Futures Europe provides trading for London’s softs markets, including futures and options contracts on cocoa, Robusta coffee, white sugar, and feed wheat.

LME = London Metal Exchange*

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58
Q

Firms that process personal data must be registered with which of these?
A) The Controller of Data
B) The FCA
C) The Information Commissioner
D) The Central Data Registry

A

C - The Information Commisioner

The Information Commissior’s Office (ICO) oversees Data Protection Act 2018.

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59
Q

All of the following are requirements for a company to be a High Growth Segment (HGS) company EXCEPT:
A) A minimum fee float of 10% at initial public offerings (IPO)
B) Being incorporated in the European Economic Area (EEA)
C) Having historic revenue of 20% on a compound annual growth rate basis over 3 years
D) Being a non-commercial company, issuing only equity shares

A

D - Being a non-commercial company, issuing only equity shares

What does High Growth Segment or HGS mean? A segment of the Main Market which is aimed at high growth, revenue generating businesses incorporated in the UK or an EEA state. The HGS is a UK regulated market but does not form part of the FCA’s Official List. The rules applying to issuers on, or applying to, the High Growth Segment are set out in the High Growth Segment Rulebook which forms part of the London Stock Exchange’s Admission and Disclosure Standards.

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60
Q

Which of the following are TRUE in respect of own account dealing by employees of an authorised firm?
1. Permission must be given in advance by the firm
2. Any transaction not undertaken through their employer must be notified to the employer
3. An employee must not cause a conflict of duty with the firm’s customers
4. The employee should not encourage another to enter into a precluded transaction

A) 1, 2 and 3
B) 1, 2 and 4
C) 2, 3 and 4
D) All of the above

A

D - All of the above

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61
Q

Which of the following are found in the FCA Handbook?
1. Dispute Resolution
2. Conduct of Business Rules
3. Enforcement Guide
4. Decision Procedure and Penalties

A) 2 and 3
B) All of the above
C) 2 only
D) 2 and 4

A

B - All of them are found in the FCA Handbook

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62
Q

Which of the following is NOT a principle of business?
A) Integrity
B) Relations with regulators
C) Listing of stocks
D) Consumer Duty

A

C - Listing of stocks

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63
Q

PIDA 1998 allows employees to make protected disclosures, how is that better described?
A) Freedome to see their own personal files
B) Tell friends about the firms activities so they can trade their shares
C) Be able to trade in the firms shares at anytime
D) Whistleblowing

A

D - Whistleblowing

PIDA = Public Interest Disclosure Act 1998, The Public Interest Disclosure Act 1998 is an Act of the Parliament of the United Kingdom that protects whistleblowers from detrimental treatment by their employer.

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64
Q

In relation to takeovers, which one of the following statements is TRUE?
A) An offer must remain open for at least 21 days
B) An offer can be made to selected shareholders
C) Purchases in the open market during the offer period are prohibited
D) Partial offers are never permitted

A

A - Offers must remain open for at least 21 days

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65
Q

Under CJA 93 Part V, which of the following has committed a criminal offence if they purchase shares?
1. An auditor who has confidential information resulting from his audit activities
2. A solicitor that is no longer retained by the company but still has confidential information on the company’s results
3. A friend of a director in possession of price sensitive information supplied by the director
4. A non-executive director of the company who resigned six months ago and expects the company to announce improved results

A) 1, 2 and 3
B) All of the above
C) 1, 3 and 4
D) 4 only

A

A - 1 (auditor), 2 (solicitor) and 3 (friend)

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66
Q

Which best describes the fiduciary duty?
A) It occurs when one party had given money to another and expects them to invest it wisely
B) It occurs when one party has an obligation to act in the best interest of another party
C) It occurs when one party is charging fairly for its services
D) It occurs when one party is moving money on behalf of another party and is obliged to generate an income from holding the money

A

B -It occurs when one party has an obligation to act in the best interest of another party

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67
Q

Which of the following would be regarded as carrying on regulated activities under the FSMA 2000?
1. Managing a stakeholder pension
2. Arranging deals in property
3. Keeping custody of clients’ investments
4. Arranging deals in investments

A) 2 and 3
B) 3 and 4
C) 1, 3 and 4
D) All of them

A

C - 1, 3 and 4

Property deals are not regulated activities

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68
Q

What is the maximum fine the FCA can impose on an authorised firm?
A) Unlimited
B) £500k
C) £250k
D) £100k

A

A - Unlimited fine

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69
Q

When must a firm provide a retail client with a suitability report?
A) When a firm manages assets in a regulated CIS (collective investment scheme)
B) When an investor opens a cash ISA account
C) When an investor asks to invest in a savings scheme investment trust
D) When an investor requests services relating to the premium bonds

A

C - When an investor asks to invest in a savings scheme investment trust

Suitability reports are needed for recommendations to deal in regulated collective investment schemes (CIS) (unless the firm is acting as investment manager to the client), investment trusts (whether held in an ISA or not) and pensions.

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70
Q

What does UCITS stand for?
A) Underlings for Collective Institutions in Transferable Securities
B) Undertakings for Collective Investments in Transferrable Securities
C) Undertakings for Collective Investments in Tradable Securities
D) United Collective Investments in Transferrable Securities Document

A

B - UCITS = Undertakings for Collective Investments in Transferrable Securities

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71
Q

A firm providing investment advice to retail clients can use dealing commission to purchase:
A) Connectivity services
B) Provision of original research
C) Order and execution management systems
D) Nothing as this would be classed as an inducement

A

D - Nothing as this would be classed as an inducement

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72
Q

What is the maximum jail sentence for a summary conviction for the offence of insider dealing?
A) 7 years
B) 5 years
C) 2 years
D) 6 months

A

D - 6 months

Criminal Justice Act 1993 - Summary offences (or conviction) are tried in Magistrates Courts where the maximum custodial sentence is 6 months. Conviction on indictment is up to 10 years.

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73
Q

Which of the following is NOT one of the principles for business:
A) Communications with Clients
B) Financial Prudence
C) Conflicts of Interest
D) Fair Dealing Practicies

A

D - Fair Dealing Practices

Comms with Clients is Principle 7, Financial Prudence is 4, and Conflicts of Interest is 8.

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74
Q

When a case is referred to the Financial Ombudsman Service, what is the maximum award under the compulsory jurisdiction?
A) £50k
B) £75k
C) £375k
D) £415k

A

D - £415k

Previously was £375k

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75
Q

Which of the following types of dealings is/are covered by the insider dealing provisions of the Criminal Justice Act 1993?
1. Dealings in ICE Futures Europe (IFE) traded options
2. Underwriting of a share issue by a professional intermediary
3. A placing of new shares by a professional intermediary

A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) All of the above

A

D - All of the above

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76
Q

The FCA has refused to grant a firm a requested amendment to its permissions

To whom can the firm appeal?
A) The Treasury
B) A properly constituted court
C) The Financial Services Compensation Scheme
D) The Upper Tribunal

A

D - The Upper Tribunal

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77
Q

Under which circumstances is a firm that is holding client money able to hold this money in the firm’s own bank account?
A) Where it holds the money for a period of less than two weeks
B) Where it can demonstrate it earns a better rate of interest
C) Where the account is held with one of the UK clearing banks
D) Where the firm can demonstrate compliance with the alternative approach

A

D - Where the firm can demonstrate compliance with the alternative approach

Appropriate for firms operating in a multi-product/multicurrency environments where adopting the normal approach would be unduly burdensome and would not achieve the client protection objective. Under the alternative approach, client money is received into and paid out of a firm’s own bank accounts; consequently, the firm should have systems/controls in place that are capable of monitoring the client money flows, so that the firm can comply with the obligations to perform reconciliations of records/accounts.

78
Q

To which body must a dual-regulated firm apply to vary its Part 4A permission?
A) The Bank of England
B) The Financial Conduct Authority
C) HM Treasury
D) The Prudential Regulation Authority

A

D - The Prudential Regulation Authority

79
Q

Which of the following is NOT a defence against insider dealing?
A) The source of the inside information is not known
B) An individual passed on information but did not expect the recipient to deal
C) There was no intention to make a profit or avoid a loss
D) A market maker has inside information in he normal course of business

A

A - Unknown source of info is not an acceptable defence in insider dealing

80
Q

When can reference to past performance NOT be made?
A) When it is relevant to the performance of the investment
B) When it is complete and fair
C) When it does NOT show complete 12 months of performance
D) When the source of the information is stated to be the firm itself

A

C - When it does NOT show complete 12 months of performance

81
Q

Which regulatory body is responsible for the protection of members of work-based pension schemes?
A) The FCA
B) HM Treasury
C) The Pensions Regulator
D) The Financial Ombudsman

A

C - The Pensions Regulator

82
Q

RIE status is granted by which of the following?
A) FCA
B) UK Listing Authority
C) LSE
D) Treasury

A

A - FCA grants authority for RIE status

83
Q

A professional client can be treated as a “qualified investor” if they have:

A) A security portfolio of €750k and have worked in the for seven months in a professional capacity in the financial sector requiring knowledge of security investment

B) Carried out 35 security market transactions over €10k in the last year and a security portfolio of €1.2m

C) Carried out an average of 15 security market transactions over €1k for the last four (4) quarters and worked for 13 months in a professional capacity in the financial sector requiring knowledge of security investment

D) A security portfolio of €15.2m

A

C - Carried out an average of 15 security market transactions over €1k for the last four (4) quarters and worked for 13 months in a professional capacity in the financial sector requiring knowledge of security investment

They pass the MiFID QUANTITATIVE test by meeting 2 of the below criteria (when you only need 2):
1. Carried out transactions in significant size on the relevant market at an average of 10/quarter over the previous 4 quarters
2. Have a financial instrument portfolio (defined as having cash deposits and financial instruments) that exceeds €500k
3. Worked in the industry for over a year

84
Q

Where a firm conducts an own account trade prior to the release of a research recommendation, which conduct of business rule may have been broken?
A) Best execution
B) Best advice
C) Churning
D) Investment research

A

D - Investment Research

85
Q

Which ONE of the following statements about a firm’s internal complaints procedure is FALSE?
A) The complaints procedure must be in writing
B) It must cover how compaints will investigated
C) Complaints must be dealt with by someone involved in the subject matter of the complaint
D) Staff need to be made award of the procedure

A

C - Complaints must be dealt with by someone involved in the subject matter of the complaint

It is important the complaints are dealt with by someone impartial and not involved in the same area

86
Q

How often should a firm carry out external reconciliation of client assets and client money accounts?
A) At least annually and close to the date of the firm’s reconciliation
B) At least once a month and close to the date of the firm’s reconciliation
C) At least weekly and close to the date of the firm’s reconciliation
D) As frequently as is necessary and close to the date of the firm’s reconciliation

A

D - As frequently as is necessary and close to the date of the firm’s reconciliation

87
Q

How many principles of business are there?
A) 10
B) 12
C) 15
D) 20

A

B) 12

88
Q

Non-complex products are excluded from appropriateness assessment
Which of the following would be deemed to be non-complex?
A) Shares in a private equity firm
B) A future
C) A CFD (Contract for Difference)
D) Shares in an emerging market OEIC

COBS 10

A

D - Shares in an emerging market OEIC (Open-ended investment company)

OEICs publish a single price each day, making it easier for investors to understand the cost of investing; they have a mechanism called ‘swing pricing’ to protect existing investors when there’s an imbalance between buyers and sellers.

89
Q

All of the following are exempt except:
A) A Lloyds syndicate member
B) Bank of England
C) Publisher of a tip sheet
D) RIE

A

C - Publisher of a tip sheet

The question asks about exempt persons, not out of scope activities

90
Q

Which of the following is NOT a MiFID core service or activity?
A) Advising on an investment
B) Discretionary management
C) Dealing as a principal
D) Providing safe guarding services

A

D - Providing safe guarding services

91
Q

How long after the publication of a research recommendation must a firm not deal for itself?
A) Until the customers have had a ‘reasonable’ time to react
B) The day on which it is published
C) The day following that one which it is published
D) There is not restriction after it has been published

A

A - Until the customers have had a ‘reasonable’ time to react

92
Q

All of the following are TRUE of RIEs except:
A) They require authorisation from the FCA
B) They provide a market place
C) They regulate the conduct of market participants towards via trading rules
D) They are recognised by the FCA

A

A - They require authorisation from the FCA

FCA grants them recognised status but does not authorise.

93
Q

Who is considered to be the regulator of the wholesale money markets?

A) Bank of England
B) LSE
C) BEIS
D) FCA

A

D - FCA

BEIS - Department for Business, Energy & Industrial Strategy

94
Q

Passing on price sensitive information is what type of offence under CJA 93?
A) Only civil
B) Only criminal
C) Criminal and civil
D) Disciplinary

A

B - Breach of CJA 93 is a criminal offence

95
Q

Which is the following is TRUE regarding cold calls?
A) Financial promotions rules on cold calls cover only communications made by telephone
B) A cold call is one which does not take place in response to an express request from the recipient
C) A firm must never make a cold call
D) A cold call to a client with whom there is no existing relationship regarding a high volatility fund should only be via a personal visit

A

B - Which is the following is TRUE regarding cold calls?

The rules cover personal visits, telephone conversations or other interactive dialogue. There are circumstances under which cold calls may be made, but high volatility funds should not be the subject of a cold call to a new client.

96
Q

Which of the following are specified investments under FSMA 2000?
1. Commodities
2. Certificates of deposits
3. Warrants
4. Gilts

A) 2, 3 and 4
B) 1, 2 and 3
C) 1 and 3
D) All of them

A

A - 2 (Certificates of deposits), 3 (Warrants) and 4 (Gilts)

97
Q

When a case is referred to the Financial Ombudsman Service, what is the maximum award under compulsory jurisdiction?
A) £50k
B) £150k
C) £375k
D) £415k

A

D - £415k is the maximum award

£415k for complaints referred after 1 April 2023, prior to this it was £375k

98
Q

A large undertaking with assets valued at £20m and with own funds of £5m approaches a firm for investment advice. Under which one of the following categories would this client normally be classed?
A) A retail client
B) A professional client
C) An eligible counterparty
D) An exempted person

A

B - A professional client

A large undertaking meeting TWO of the following size requirements on a company basis would be classed as per se professional client:
- balance sheet total of €20m;
- network turnover of €40m; and
- own funds of €2m.
The client in this question satisfies the 1st and 3rd requirements.

99
Q

Which of the the following is an ancillary service under MiFID?
A) Services relating to underwriting
B) Execution of orders for clients
C) Managing portfolios of investments in financial instruments
D) Operating a multilateral trading facility

A

A - Services relating to underwriting

100
Q

In which block of the FCA handbook would you find the COBS sourcebook?
A) Listing, prospectus and disclosure
B) Prudential standards
C) Regulatory processes
D) Business standards

A

D - Business Stanards

COBS standing for Conduct of Business with 22 sections, including COBS 3 Client Categorisation and COBS 12 Investment Research.

101
Q

LCH.Clearnet is:
A) A department of the Bank of England
B) The regulator of the money markets
C) The settlement Services Department of the LSE
D) An exempt person

A

D - LCH.Clearnet is an exempt person

102
Q

A mandatory offer is required when the following share stake is reached?
A) 10%
B) 20%
C) 30%
D) 50%

A

C - 30%

103
Q

If a firm of accountants wished to solely pursue investment business which of the following routes to authorisation would be acceptable?
1. Apply for authorisation to a DPB
2. Apply for authorisation to the FCA
3. Apply for authorisation to the BEIS

A) 2 only
B) 1 and 2
C) 2 and 3
D) All of the above

A

A - Only 2 (FCA)

104
Q

In order for a retail client to be reclassed as a professional client they are required to meet certain criteria

Which of the following is CORRECT about requirement for the frequency of their dealing?
A) Transactions in significant size at an average of 5 per quarter
B) Transactions in significant size at an average of 10 per quarter
C) Transactions in excess of €500k
D) Have signed an agreement to transact at least 10 times per quarter

A

B - Transactions in significant size at an average of 10 per quarter

105
Q

Which of the following are TRUE regarding market abuse?
1. It applies to qualifying invetsment traded on the prescribed markets
2. The FCA can impose penalities
3. It covers distortion of the market
4. It covers encouraging another to engage in market abuse

A) 1, 3 and 4
B) 2 and 3
C) 1 and 4
D) All of the above

A

D - All of the above

106
Q

In a financial promotion which quotes a yield figure, which of the following is TRUE?
A) The quote should give a balanced impression of the short- and long-term prospects
B) The quote should focus on the short-term prospects
C) The quote should focus on the long-term prospects
D) No yields should be quoted in financial promotions

A

A - The quote should give a balanced impression of the short- and long-term prospects

107
Q

The body of the Bank of England responsible for protecting and enhancing financial stability is the:
A) Financial Conduct Authority
B) Financial Policy Committee
C) Monetary Policy Committee
D) Financial Services Compensation Scheme

A

B - Financial Policy Committee

The Financial Policy Committee (FPC) leads our work on financial stability. It identifies and monitors risks that threaten the resilience of the UK financial system as a whole. It also has power to take action to counter those risks. An example of such a risk is unsustainable levels of debt and credit growth.

The FPC was created in 2011. In contrast to the Prudential Regulation Authority (PRA) – which looks at the safety and soundness of individual institutions – the FPC works to make sure the UK financial system AS A WHOLE is safe and sound.

The FPC also has a secondary objective to support the economic policy of the Government.

108
Q

When assessing whether a financial instrument is appropriate for a client, which of the following instruments would be exempt from the appropriateness test?
A) A non complex financial instrument
B) A complex financial instrument
C) A derivative
D) An option

A

A - Non-complex financial instrument

Non-complex financial instruments are exempt from the appropriateness test. Derivatives (including options) cannot be classed as non-complex.

109
Q

Which of the following will require Part 4a authorisation if carrying out regulated activity in the UK?
A) An appointed representative of an authorised person
B) A broker
C) A member of Lloyd’s
D) An accountant

A

B - Broker

FSMA, the Payment Services Regulations 2017 and the Electronic Money Regulations 2011 provide for certain exemptions from FCA authorisation for:

1. Agents of payment institutions and electronic money institutions.
2. Firms offering payments by instalments.
3. Appointed representatives of firms that are already authorised.
4. Recognised investment exchanges and clearing houses.
5. Professional firms, such as solicitors, accountants or actuaries.
6. Those businesses listed in an FSMA exemption order for certain regulated activities. For example, local authorities are exempt in respect of accepting deposits, and the Band of England and IMF are exempt for most activities except for carrying out contracts of insurance.

110
Q

A periodic statement for a retail client must be provided once every six months, except under which circumstance?
A) The firm has written to say it will only provide them once a year
B) The client has elected to receive them once every 3 months
C) The firm has written to say it will only dipatch upon request
D) The client has elected to receive them upon request

A

B - The client has elected to receive them every 3 months

111
Q

When a financial promotion aimed at retail clients uses an indication of past performance, which of the following is NOT a requirement?
A) Prominent warning that past performance is not a reliable indicator of future results
B) The source of the information is clearly stated
C) The information shows complete 12 month periods
D) Performance information must cover at lease a three (3) year period (or the product life if less)

A

D - Performance information must cover at lease a three (3) year period (or the product life if less)

Ideally five (5) years of past performace should be used

112
Q

In the sentence “If …(1)…after the complaint has been received, it has not been settled to the satisfaction of the customer, the customer must be advised of his/her right to refer the matter to the …(2)…

Which of the following options correctly represent (1) and (2)?
A) (1) 4 weeks; (2) Financial Ombudsman Service
B) (1) 4 weeks; (2) FCA
C) (1) 8 weeks; (2) Financial Ombudsman Service
D) (1) 8 weeks; (2) FCA

A

C - 8 weeks and FOS

113
Q

Which of the following is deemed to be a non-complex product when assessing appropriateness?
A) CFD (Contract for Difference)
B) Option on an FTSE 100 equity
C) FTSE future
D) Investment trust

A

D - Investment Trust

114
Q

Which of the following is likely following is likely to result in public censure?
A) Market abuse
B) Concerns over the authorisation procedures
C) Creation of Chinese Walls
D) Application for a listing

A

A - Market Abuse

As this may have senstive information which cannot be released

115
Q

Which of the following is NOT a behaviour covered by the market abuse regime?
A) Breaching FCA rules
B) Misuse of information
C) Providing a false impression
D) Distorting the market

A

A - Breaching FCA rules is not covered by the market abuse regime

116
Q

If a complaint has not be resolved within eight (8) weeks, which of the following must be given to the complaintant?
A) A leaflet about the Financial Ombudsman Service
B) A leaflet about the FCA
C) A leaflet about the Mortgages Code
D) A leaflet about he Cosumer Credit Council

A

A - Leaflet about the Financial Ombudsman Service

When a complaoint has not be settled within eight weeks of receipt, the firm must give the client an explanatory leaflet about the FOS. The firm must also let the client know that hehas the riight to complain to the FOS.

117
Q

Which of the following statements is an excluded communication for the purposes of the rule on fair, clear and not misleading communications?
A) Financial promotions by broker/dealers
B) Promotions communicated only to members of the designated professional bodies
C) Promotions communicated only to investment professionals or eligible counterparties
D) Financial promotions by fund manager

A

C - Promotions communicated only to investment professionals or eligible counterparties

118
Q

How long does a firm have to retain suitability review records in relation to an occupational pension scheme opt-out?
A) 1 year
B) 3 years
C) Indefinitely
D) 7 years

A

C - indefinitely

119
Q

Churning rules applies to which types of client?
A) Retail clients only
B) Professional and retail clients
C) Professional clients only
D) All clients

A

D - All Clients

Churning & Switch (Under COBS 9 - Suitability) A series of transactions that are each suitable when viewed in isolation may be unsuitable if the recommendation or the decisions to trade are made with a frequency that is not in the best interests of the client.

120
Q

How long do firms have to retain records of advertisements for products that are not pensions or life assurance products and are non-MiFID business?
A) Indefinitely
B) 6 years
C) 3 years
D) 1 year

A

C - 3 years

121
Q

A firm is considering marketing a new unit trust and the general services provided by a firm, which of the following is EXEMPT from the financial promotions rules?
A) A website offer to a private client in which they can register interest in the unit trust of a firm
B) A mail shot giving information about the performance of the unit trust
C) A newspaper article giving general information about the firm’s success in recent years
D) Door to door selling conducted with the aim of singing up potential clients

A

C - A newspaper article giving general information about the firm’s success in recent years

Financial PR not inviting investment business is out of scope of the financial promotions rules.

122
Q

A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

The above statement is which of the below principles of business?
A) 3 Management and control
B) 4 Financial prudence
C) 6 Customers’ interes
D) Relations with regulators

A

A - 3 - Mangement and control

123
Q

What is the status of CREST under the Financial Services and Markets Act (FSMA) 2000?
A) ROIE
B) DPB
C) RCH
D) RIE

A

C - RCH

CREST is a recognised clearing house.

ROIE = recognised overseas investment exchange.
DPB = designated professional bodies
RIE = recognised investment exchange

124
Q

Which TWO of the following are FALSE of the Money Laundering Regulations?
1. Failure to report a suspicion is a criminal offence
2. Firms must appoint a Money Laundering Reporting Officer (MLRO)
3. Not reporting when “reasonable grounds” to suspect money laundering exists is not an offence
4. The regulations only apply to drugs laundering operations

A) 1 and 2
B) 1 and 3
C) 3 and 4
D) 2 and 4

A

C - 3 and 4

The requirement (under the Proceeds of Crime Act 2002) to report when “reasonable grounds” exist places an objective test of suspicion on the financial services industry.

125
Q

An offeror in a mandatory bid situation has made the following recent purchases in the target company’s shares:
- 14 months ago: 99p
- 11 months ago: 95p
- 2 months ago: 92p

If the market price of the shares was 91p per share when the offeror was required to make the mandatory bid, what price can the offeror bid for the shares?
A) 99p
B) 95p
C) 92p
D) 91p

A

B - 95p

The offeror must match the best price the offeror has bid in the past 12 months.

126
Q

Which of the following is classed as an ancillary service under MiFID?
A) Managing portfolios of investments
B) Investment advice
C) Safekeeping of financial instruments for clients
D) The operation of multilateral trading facilities

A

C - Safekeeping of financial instruments for clients

127
Q

Which of the following statements is NOT true of the Financial Ombudsman Service?
A) It will only be used when other routes towards agreement have been unsuccessful
B) It can only be approached in the first instance by the complaintant
C) A decision by the FOS is binding on a firm under compulsory jurisdiction
D) A firm can refuse to abide by FOS decisions when under compulsory jurisdiction

A

D - A firm can refuse to abide by a FOS decision when under compulsory jurisdiction

If the complaintant accepts the FOS deicision, it is binding on the authorised firm.

128
Q

In the event of the liquidation of an authorised firm, which of the following is TRUE regarding the use of client money to satisfy the demands of those with claims on the firm?
A) Client money ranks equally with the firm’s money when satisfying creditors
B) Client money can only be used to satisfy creditors’ demands when the firm has exhausted all other available assets
C) Client money that is segregated can never be used to satisfy creditors’ demands
D) Client money ranks ahead of the firm’s money in the event of a liquidation

A

C - Client money that is segregated can never be used to satisfy creditors’ demands

129
Q

A firm must not cold call customers regarding generally marketable packaged products which are:
A) Highly volatility funds
B) Life policy linked to UK equities funds
C) Bond funds
D) Life policy linked to bond funds

A

A - Highly volatility funds

130
Q

In which block of the FCA handbook would you find the TC sourcebook?
A) High Level Standards
B) Specialist Sourcebook
C) Business Standards
D) Listing, Prospectus and Disclosure

A

A - High Level Stanards

TC referring to Training and Competence, with 4 sections; TC1Application and Purpose, TC2 Competence, TC3 Record Keeping and TC4 Specified Modified Requirements.

131
Q

Dealing in which of the following do NOT require authorisation under FSMA 2000?
1. Shares in unquoted companies
2. Commodities
3. Property
4. Traded options

A) 1 and 4
B) 2 and 3
C) 2 and 4
D) 4 only

A

B - 2 (Commodities) and 3 (Porperty)

132
Q

Which of the following is NOT a principle for business (PRIN)?
A) A firm must arrange adequate protection for clients’ assets when it is responsible for them
B) A firm must act to deliver good outcomes for retail customers
C) A firm must act honestly, fairly and professionally in accordance with the best interests of its client
D) A firm must conduct its business with due skill, care and diligence

A

C - A firm must act honestly, fairly and professionally in accordance with the best interests of its client

This is comes under Conduct of Business obligiations (COBS 2.1)

133
Q

Which of these statements about the offence of insider dealing is TRUE?
A) An offence can only be committed where there is a transaction in investments (as defined)
B) A decision not to deal on the basis of inside information is not an offence
C) Persons prosecuted for insider dealing may only be imprisoned for 5 years
D) The offence is contained within the Securities (Insider Dealing) Act 1985

A

B - A decision not to deal on the basis of inside information is NOT an offence

The offence is contained with CJA 93 and maximum prison sentence is 10 years

134
Q

A breach of principles for businesses by authorised firms:
A) will automaticallt disqualify the firm
B) will automatically lead to a fine
C) will automatically lease to disciplinary action
D) may be taken into account for the purposes of discipline and intervention

A

D - may be taken into account for the purposes of discipline and intervention

FCA/RDC (Regulatory Decisions Committee) disclipine is not automatic

135
Q

How long should records of the cancellation of a unit trust be kept (for non-MiFID business)?
A) 1 year
B) 3 years
C) 6 years
D) indefinitely

A

B - 3 years

136
Q

Which of the following statements is TRUE regarding the aggregation of orders?
A) Two client orders can never be aggregated
B) A transaction for own account and a client order can never be aggregated
C) Two client orders may be aggregated if it is disclosed to both clients that aggregation may work to their disadvantage
D) Two client orders may be aggregated and no specific disclosure is necessary

A

C - Two client orders may be aggregated if it is disclosed to both clients that aggregation may work to their disadvantage

137
Q

Which of the following are NOT covered by the insider dealing legislation?
A) Options
B) Warrants
C) Gilts
D) Commodities

A

D - Commodities

Criminal Justice Act 1993 (CJA 93) scope for insider dealing is shares, bonds and their derivatives.

138
Q

The US regulator with authority over security-based swaps is:
A) The Commodity Futures Trading Commission
B) The European Securities and Markets Authority
C) The Depositary Trust& Clearing Corporation
D) The Securities and Exchange Commission

A

D - The Securities and Exchange Commission

The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market manipulation.

139
Q

When is it allowable for an unauthorised person to communicate a financial promotion?
A) After the unauthorised person has fulfilled the compliance requirements under the relevant COBS rules
B) At any time during the course of normal market hours
C) At any time once the producer of the promotion has withdrawn the product
D) After the content of the promotion has been approved by an authorised person

A

D - After the content of the promotion has been approved by an authorised person

140
Q

Which of the following in relation to monitoring by the FCA is FALSE?
A) They may enter the business premises of FCA firms
B) They may require the attendance of any director, partner or employee
C) They may require printouts of computer data
D) They must give advance notice of their requirements

A

D - FCA does NOT have to give advance notice of their requirements

141
Q

If a predator company holds 35% of the equity of a target company, they must make an offer at:
A) The market price to the remaining shareholders
B) Any price to the remaining shareholders
C) The average price over the previous 3 months to the shareholders
D) The highest price paid in the previous 12 months to all the remaining shareholders

A

D - Highest price they paid in the last 12 months

142
Q

Who has the power to stop a merger on public interest grounds?
A) PTM
B) CMA
C) BEIS
D) BoE

A

C - BEIS

The secretary of state for the Department of Business, Energy and Industry Strategy (BEIS) may Veto the decision of the Competition and Markets Authority (CMA)

CMA is the principal competition regulator in the UK. It is a non-ministerial government department in the UK, responsible for strengthening business competition and preventing and reducing anti-competitive activities.

143
Q

Which of the following factors would LEAST likely allow a company to be exempt from the need to publish a prospectus when issuing securities?
A) The company is offering securities to 100 persons
B) The shares represent 8% of the number of shares of a class already admitted for trading on the same exchange
C) The minimum consideration per investor is €70k
D) The total consideration of the offering over a period of 12 months is €4m

A

C - The minimum consideration per investor is €70k

144
Q

The record keeping requirement under MiFID is:
A) Six (6) years
B) Five (5) years
C) Three (3) years
D) Indefinitely

A

B - Five (5) years

The directive states that firms must keep records for a period of five years.

145
Q

In which of the following situations is a firm permitted to deal ahead of a research publication?
1. The firm is a market maker in that security
2. The order is unsolicited and execution-only
3. The deal is off-exchange

A) 1 only
B) 1 and 2
C) All of the above
D) None of the above

A

B - 1 (marker maker) and 2 (unsolicited order)

146
Q

The principles for businesses apply to:
A) All authorised firms
B) All authorised firms subject to MiFID
C) All authorised firms with retail clients
D) All authorised firms and certified persons

A

A - All authorised firms

147
Q

After what length of time must a firm advise the FCA of complaints lodged by customers, which have not been dealt with to the customer’s satisfaction?
A) Quarterly
B) 8 Weeks
C) Every 6 months
D) No time limit

A

C - Every 6 months

148
Q

Which of the following are defences against insider dealing?
1. A market maker acting in the normal course of business
2. Deal not done to make profit or avoid a loss
3. Stabilisation in accordance with the FCA rules
4. The individual believed that the information had be widely disclosed

A) 1 and 4
B) 1, 2 and 3
C) 1, 2 and 4
D) All of the above

A

D - All of the above

Permitted Stabilisation is covered in Market Conduct (MAR 2) of the FCA Handbook

149
Q

The FCA can prosecute which of the following offences?
1. Unauthorised regulated activities
2. Misleading the FCA
3. Contravening a prohibition order
4. Failing to co-operate with FCA investigators

A) All of the Above
B) 1, 2 and 3
C) 1 and 2
D) 1 and 4

A

A - All of them

150
Q

Which legislation covers money laundering?
A) Proceeds of Crime Act
B) Companies Act
C) Financial Services and Markets Act
D) Insider Dealing Act

A

A - Proceeds of Crime Act 2002

151
Q

Confirmation of customer transactions should be:
A) By telephone the same day
B) In a durable medium and when a periodic statement is sent
C) In a durable medium and no later than the next business day
D) In a durable medium and within 5 days of the affecting the transaction

A

C - In a durable medium and no later than the next business day

152
Q

What is the maximum payout for a compensation claim against an investment firm declared in default in relation to protected investment business?
A) £50k
B) £85k
C) £1m
D) Unlimited

A

B - £85k

If you hold money with a UK-authorised bank, building society or credit union that fails, Financial Services Compensation Scheme (FSCS) will automatically compensate you. up to £85,000 per eligible person, per bank, building society or credit union. up to £170,000 for joint accounts. For those with bigger savings, in the unlikely event a bank or building society went bust, the golden rule is not to put more than £85,000 in any one financial institution. Spread your savings around a number of accounts.

153
Q

When a financial promotion aimed at retail clients uses comparisons with other products, the comparisons should be:
1. Meaningful
2. Balanced
3. Sourced

A) 1 only
B) 1 and 2
C) 1 and 3
D) All of the above

A

D - All of the above

154
Q

What does MiFID stand for?
A) Markets in Financial Instruments Directive
B) Markets in Financial Investments Directive
C) Markets in Financial Derivatives
D) Markets in Industry Directive

A

A - Markets in Financial Instruments Directive

MiFID is the European law that allows EEA securities firms to udnertake cross-border investment business.

155
Q

What does a FSMA Part 4a Permission grant?

A

Permission to carry out regulated activities

156
Q

Which of the following remedies are available to the FCA?
1. Issue public statements
2. Issue private statements
3. Cancel Part 4a Permissions
4. Impose financial penalties

A) 2 and 4
B) 1, 2 and 3
C) 1 and 3
D) All of them

A

D - All of them

157
Q

Which of these would NOT be defined as a cold call?
A) A telephone call not initiated by the recipient
B) A personal visit which has not been requested by the recipient
C) A web chat not initiated by the client
D) A telephone call made in response to a return tear off slip

A

D - A telephone call made in response to a return tear off slip

158
Q

In relation to MiFID business, the FCA requires that a client agreement be entered into with which of the following?
A) Professional clients
B) Retail clients
C) Professional and retail clients
D) All customers

A

C - Professional and retail clients

Client agreements are always required for Retail Clients on all designated business and are also required for Professional clients in relation to MiFID business

159
Q

What does the principles of business say about how a firm must communicate information to clients?
A) It must be in a way which is clear, fair and not misleading
B) It must be appropriate, adequate and in writing
C) It must be in a way that is clear, concise and complete
D) Any non-written communication must be followed up with a clear and conscise written version within 48 hours

A

A - It must be in a way which is clear, fair and not misleading

Principle 7 says in full: A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

160
Q

The Competitions and Markets Authority (CMA) has duty to investigate all mergers where the target company has a UK turnover exceeding:
A) £30m
B) £50m
C) £70m
D) £100m

A

D - £100m

161
Q

Should a firm mislead a client about the likely performance of an investment, which principle for businesses have they breached?
A) Integrity
B) Due skill, care and diligence
C) Organisation effectivieness
D) Relevent requirements and standards

A

A - Integrity

162
Q

Which of the following is MOST accurate regarding Standard 1B of the CFA Standards of Professional Conduct: Priority of Transactions?

A) Investment transactions where a member is the beneficial owner have priority over transactions for clients

B) Investment transactions for clients have priority over transactions where a member or employers are the beneficial owner

C) Investment transactions for clients AND employers have priority over transactions where a member is the beneficial owner

D) Investment transactions for employers have priority over transactions where a member or their client is the beneficial owner

A

C - investment transactions for clients AND employers have priority over transactions where a member is the beneficial owner

163
Q

Under the City Code, a mandatory bid for all the shares is required in which of the following circumstances:
1. A 15% stake is reached
2. A 30% stake is reached
3. A stake in excess of 1% is purchased , when the existing holding is 20%
4. A stake of 10% is purchased within 7 days from more than one shareholder

A) 1 or 3
B) 2 or 4
C) 2 only
D) 2, 3 or 4

A

C - Only 2 (30% stake is reached)

164
Q

Which one of the following statements about an EU directive is NOT correct?
A) An EU state can choose whether to implement a directive
B) A directive must be implemented by a particular date
C) A directive can be implemented by primary legislation
D) The aim of the directive is harmonisation of laws across EU member states

A

A - An EU state can choose whether to implement a directive

165
Q

Which body recognises clearing houses?
A) LSE
B) Bank of England
C) Treasury
D) FCA

A

B - Bank of England recognises and regulates clearing houses

166
Q

Which of the following is the best definition of a direct offer promotion?
A) It contains an advertisement for the firm and an offer for the person to respond in a specified manner
B) It contains a confirmation by the firm that they have entered into an agreement with the person responding and specifies the manner of the response
C) It contains an offer by the firm to enter into an agreement with the person responding and specifies the manner of response
D) It contains an offer by the firm to contact the person directly if they respond in a specified manner

A

C - It contains an offer by the firm to enter into an agreement with the person responding and specifies the manner of response

A financial promotion, being the communication of an invitation or inducement to engage in investment activity made in the course of business, that contains:
(a) an offer by the firm or another person to enter into a controlled agreement with any person who responds to the communication; or
(b) an invitation to any person who responds to the communication to make an offer to the firm or another person to enter into a controlled agreement;

and which specifies the manner of response or includes a form by which any response may be made.

167
Q

Which one of the following is NOT true of insider dealing?
A) Relates to abuse of unpublished price-sensitive information
B) Gilts are excluded from the law on insider trading
C) The FCA has the power to prosecute offences
D) An exemption exists if it can be shown that the transaction was not understaken with the purpose of making a profit or avoiding a loss by using the information

A

B - Gilts are excluded from the law of insider trading

168
Q

An undertaking with funds of £50m and assets valued at £12m approaches and investment firm for investment advice.

The client would normally be classed as a:
A) Retail Client
B) Professional Client
C) Eligible counterparty
D) Expert client

A

B - Professional Client

This client (customer) has satisfied the large undertaking test for a per se professional client, being as (under COBS 3.5):

in relation to MiFID or equivalent third country business a large undertaking meeting TWO of the following size requirements on a company basis:
(a) balance sheet total of €20m;
(b) net turnover of €40m;
(c) own funds of EUR €2m;

169
Q

In respect of money laundering, which of the following are required of a company?
1. Identification procedures
2. Staff training
3. Internal controls, policies and procedures

A) All of the above
B) 2 and 3
C) 3 only
D) 1 and 2

A

A - All of the above

170
Q

Which of the following is NOT true regarding GDPR?
A) Breaches must be notified to the ICO within 48 hours
B) Information must be fairly and lawfully processed
C) Information must be accurate and up to date
D) Fines for breaches can be up to €20m or 4% of annual turnover (whichever greater)

A

A - Breaches must be notified to the ICO within 48 hours

The timeframe is 72 hours, not 48.

171
Q

Which of the following is MOST likely to be classed as a high net worth investor?
A) An investor with annual income of £60k and net investable assets of £110k
B) An investor with annual income of £90k and net investable assets of £200k
C) An investor with annual income of £50k and net investable assets of £280k
D) An investor with annual income of £95k and net investable assets of £210k

A

C - An investor with annual income of £50k and net investable assets of £280k

Annual income needs to be at least £100k or net investable assets at least £250k

(Net assets do NOT include: your home (primary residence), your pension (or any pension withdrawals) or any rightsunder qualifying contracts of insurance.)

172
Q

Which of the following are TRUE in respect of the Money Laundering Regulations?
1. The maximum sentence for a person assisting a money launderer is 14 years in jail and an unlimited fine
2. Failure to report suspicions is a criminal offence
3. All firms should have procedures in place to identify any potential money laundering activity
4. Records must be kept for a period of 5 years

A) 1 and 2
B) 1, 2 and 3
C) 1 and 4
D) All of the above

A

D - All of the above

173
Q

Specific types of person, carrying out regulated activities, do not need authorisation. These are known as exempt persons

Which of the following is an exempt person?
1. A depository of an open-ended investment company
2. An investment advisor
3. A recognised clearing house
4. A funeral plan provider

A) 1 and 2
B) 3 only
C) 1 and 3
D) 1, 2 and 4

A

B - 3 (RCH) only

RCHs are classified as exempt persons. This also applies to RIEs. A depositary of an open-ended investment company and a funeral plan provider are both carrying out regulated activities. They have to be authorised, they are not exempt persons.

174
Q

Which of the following is NOT a per se eligible counterparty under MiFID, when conducting eligible counterparty business?
A) Investment firm
B) Insurance company
C) Individual with 10 years investment experience
D) Central bank

A

C - Individual with 10 years investment experience

Individuals can never be eligible counterparties

175
Q

Which of the following are the threshold conditions for gaining authorisation under a FSMA Part 4a permission?
1. Legal Status
2. Certified Staff
3. Group Structure not Inhibiting Supervision
4. Fitness and Propriety

A) 1 and 3
B) 1, 2 and 3
C) 1, 3 and 4
d) All of the above

A

C - 1 (Legal Status), 3 (group structure) and 4 (fitness and propriety)

In order to gain Part 4a Permission (Permission to carry on regulated activities) an applicant must satisfy certain threshold conditions. This includes legal status, group structure, fitness and propriety.

176
Q

Which of the following is TRUE when assessing client needs?
A) Per se professional clients can be assumed to have the knowledge and experience required to assess products in respect of which they have been classified as professional
B) Retail clients can be assumed to have the knowledge and experience required to assess products in respect of which they have been classified as retail
C) Per se professional clients can be assumed to have the knowledge and experience required to act upon discretionary portfolio management advice offered
D) Per se retail clients can be assessed to have the knowledge and experience required to assess products in respect of which they have been classified as retail.

A

A - Per se professional clients can be assumed to have the knowledge and experience required to assess products in respect of which they have been classified as professional

Knowledge cannot be assumed for retail clients, or when providing discretionary portfolio management services to any client.

177
Q

Passporting applies to which of the following?
A) An American bank operating in London
B) An EU representative operating in Paris
C) A firm from an EEA member state trading across the border in the EEA
D) SEAQ International Trading in New York

A

C - A firm from an EEA member state trading across the border in the EEA

Passporting applies where a firm from another European Economic Area state (EEA) is autorised in its home state, but is able to carry on investment business in the UK.

(for Edition 21 of IMC - UK may be included as a EEA country even though it has now left the EU)

178
Q

At which stages of the money laundering process are authorised firms generally most vunerable?
A) Placement and Layering
B) Layering and integration
C) Placement and integration
D) Placement only

A

B - Layering and Integration

As a general rule, authorised firms are most vunerable during the layering and integration stages of money laundering. Note: An exception is for banks and building societies, which are most vunerable at the placement stage.

  1. Placement: Illicit funds first enter the financial system
  2. Layering: Complex transactions to obscure source of funds
  3. Integration: Laundered money reintroduced to the legitimate economy.
179
Q

What below statement is true about the principles of business for conflict of interests:
A) A firm must not allow any conflicts of interest arise between the firm and and a customer, but conflicts between two clients is acceptable
B) All conflicts must be registered with the FCA
C) A firm must ensure no conflicts between two clients, but conflicts between the firm and customer is acceptable
D) A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.

A

D - A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.

Principle 8

180
Q

Which of the following in relation to personal account transactions are TRUE?
1. The rules do not apply to transactions in life policies
2. An employer should agree to the personal account notice in writing
3. An employee must have the firm’s permission to deal in investments that the firm deals in
4. The rules do not apply to units or shares in collective undertakings

A) 1 and 2
B) 1, 2 and 3
C) 3 and 4
D) All of the above

A

D - All of the above

181
Q

Which of these roles is MOST likely to be carried out by a government?
A) payment and settlement services
B) portfolio management
C) regulating firms
D) settlement services

A

C - regulating firms

182
Q

Cold calls to retail clients are allowed where the products being sold are:
1. Units in a security fund
2. Life policies
3. Gilts
4. Listed debentures

A) 1 only
B) 1 and 4
C) 1, 2 and 4
D) All of the above

A

D) All of the above

Debentures are a type of bond or other debt instrument that is unsecured by collateral

183
Q

Which of the following are functions of the FCA?
1. Supervising firms and individuals
2. Authorising regulated acitvites
3. Prosecuting insider dealing offences
4. Writing core rules for the conduct of business

A) 1 only
B) 1 and 2
C) 2 and 3
D) All of them

A

D - All of them

184
Q

Compliance with prudential rules for MiFID firms is imposed by:
A) The home state
B) Each individual firm
C) Those firms operating outside the EEA
D) The host state

A

A - The home state

Firms are regulated by the home state for prudential rules.

185
Q

In relation to the definition of a per se professional client, a business is ‘large’ if it meets or exceeds which of the following?
A) Own funds €2m and balance sheet €20m
B) Balance sheet €20m and net turnover €50m
C) Net turnover €40m and own funds €20m
D) Own funds €40m and no requirement for balance sheet or net turnover

A

A - Own funds €2m and balance sheet €20m

186
Q

The Panel on Takeovers and Mergers levy is payable on the trade of over £10k of which type of securities (of a company incorporated in the UK and admitted for trading on a UK regulated market)?
A) Covered warrants
B) Debentures
C) American depositary receipts (ADR)
D) Preference shares

A

C - American depositary receipts

The other options, as well as permanent interest-bearing securities, contracts for differences & total return swaps, spread bets and option contracts are not levied against.

187
Q

Which of the following is NOT a defence against a charge of insider dealing?
A) The individual passed on the insider information, but did not expect the recipient to deal
B) Dealing was done to avoid a loss
C) Stabilisation was being undertaken following FCA rules
D) Dealing was by a market maker in the ordinary course of his business

A

B - Dealing was done to avoid a loss

188
Q

Which of the following are TRUE of commodities with retail clients?
1. They must contain the name of the promoting firm
2. They must not emphasise benefits without giving fair prominence to risks
3. They must not disguise or diminish important items, statements and warnings
4. They must include a statement indicating that past performance will not necessarily be repeated

A) All of the above
B) 1, 2 and 3
C) 1 and 3
D) 2, 3 and 4

A

B - 1 (name of promoting firm), 2 (benefits/risks) and 3 (not diminish warnings)

189
Q

To whom is the FCA accountable?
A) The BoE
B) The Treasury
C) Parliament
D) A properly constituted court

A

B - The Treasury

The FCA is independent byt reports annually to the Treasury

190
Q

Advisers need to complete a minimum of 35 hours of CPD each year for retail investment activities, of which 21 hours should be structured

Which of the following would NOT be considered structure training for CPD?
A) Seminar
B) Workshop
C) Reading a journal article
D) Online training course

A

C - Reading a journal article

IMC UNIT 1 (Edition 21 - Dec 23) (7 decks)

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