Chapter 10 Flashcards
- What does Principles Based Regulation mean?
A. Instead of rules to cover every situation, general terms are issued to outline the types of behaviours expected
B. The principal of each authorised firm carries the ultimate responsibility for FCA
authorisation
C. The FCA issues regulations to those responsible for senior management and
controlled functions and it is their responsibility to cascade down the firm
D. Only the main areas of compliance are supported by regulation
A - Principles Based Regulation uses principles to drive types of behaviours rather than
having rules for every situation. The FCA’s Principles for Businesses apply to all regulated firms and apply throughout their business. Statements b), c) and d) are false.
- Which of the following is NOT regarded as a key cultural driver?
A. Controls
B. Recruitment and T&C
C. Decision making and challenge
D. Ethnic diversity
D - The FCA sets out the key cultural drivers for businesses that will have a positive impact on management, staff and ultimately consumers. These include controls, recruitment and training and compliance, and decision-making and challenge. The other FCA key drivers are strategy, leadership and reward but not ethnic diversity.
- How does ‘leadership’ differ from ‘strategy’ as a key driver for a company?
A. Leadership can only be derived from senior management, strategy can be filtered down and delivered by virtually any member of staff
B. Leadership is the purpose of the business and strategy relates to how this is achieved
C. Leadership sets the tone of the business, drives staff behaviours and quality of
decisions, strategy sets priorities and management focus
D. Leadership is an inherent skill, whereas strategy can be learned
C - Leadership sets the tone of the business and drives staff behaviours, whilst strategy drives the direction of the business, sets its priorities and management focus.
- How many additional conduct rules apply to an individual holding a senior
management function, compared to someone only subject to the individual conduct rules?
A. An additional four rules
B. Same number of rules apply to both
C. An additional three rules
D. One extra additional rule
A - There are five individual conduct rules: integrity, skill, care and diligence, open and
cooperative with the regulators, treat customers fairly and market conduct. Those
performing senior manager functions must abide by a further four rules. These relate to control, meeting regulatory requirements, delegation and keeping the regulator
informed.
- Under the Conduct Rules (COCON), what must a firm do once they have taken formal disciplinary action against a person for breaching a conduct rule?
A. Inform the Financial Conduct Authority
B. Commence civil or criminal proceedings as appropriate
C. Suspend the individual for 24 months
D. Confirm the regulatory fine as per the FCA’s rules
A - Firms must notify the FCA when they have taken formal disciplinary action against a person for breaching a conduct rule.
- Which of the following is NOT one of the FCA’s Principles for Businesses?
A. Integrity
B. Honesty
C. Customers’ interests
D. Clients’ assets
B - Honesty is not an FCA Principle for Business. There are 11 FCA Principals for Businesses. ‘Integrity’, ‘skill, care and diligence’, ‘management and control’, ‘financial prudence’, ’market conduct’, customers interests’, ‘communications with clients’, ‘conflicts of
interest’, ‘customers: relationships of trusts’, ‘clients’ assets’ and ‘relationship with
regulators’.
- Under principle 10 of the FCA Principles for Businesses, what is a firm’s responsibility for clients’ assets?
A. To consider against client liabilities in determining net worth
B. To consider existing assets in assessing a client’s attitude to risk
C. To accurately identify and document within the client fact find
D. To arrange adequate protection when it is responsible for them
D - Principle 10 of the FCA Principle for Business covers client’s assets. If a firm has
responsibility for a client’s assets, it must ensure they are adequately protected. Principle 10 refers to holding clients’ assets rather than gathering information and understanding them for the purposes of fact finding or making recommendations (as referred to in answers a), b) and c).
