Chapter 10: Conduct of Business and Client Money Protection

Question 1

When must a firm disclose charges to a retail client?

A. Before providing the service
B. Along with the first contract note
C. After completion of the first deal
D. At the discretion of the customer

Answer 1

A. A firm must notify RETAIL CLIENTS of the amount or basis of charges IN WRITING, BEFORE any work is done. The FCA is comfortable with professional clients agreeing the basis of charges in arrears of any dealings, but this arrangement is not appropriate for retail clients.

Question 2

In order to gain favourable terms for its clients, a firm aggregates several client orders with its own order. During execution, only part of the order is filled. How must the order be allocated?

A. In a pro rata fashion
B. On a first in, first out basis
C. Based on the relative size of order
D. In line with the allocation policy

Answer 2

D. The pro rata etc. might be part of the allocation policy.

Question 3

If the firm aggregates a client’s order with a transaction for its own account, which of the following is true?

A. The firm’s allocation, if the order is partially allocated, must take priority
B. The client’s allocation, if the order is partially allocated, must take priority
C. The allocation must be in proportion with the order size
D. A retail client’s allocation, if the order is partially allocated, must take priority over a professional client’s order

Answer 3

B. COBS states that the client must take priority on an aggregated order allocation. There is no stipulation s to whether the client needs to be a retail or professional client.

Question 4

In relation to non-MiFID business, firms need only follow suitability criteria when dealing for:

A. All clients
B. Eligible counterparties
C. Retail clients
D. Professional clients

Answer 4

C. Under the COBS, suitability applies for non-MiFID business only when making personal recommendations to retail clients and firms making occupational, stakeholder and personal pension schemes. If the question referred to MiFID business, the rule would apply to all customers.

Question 5

Rules on appropriateness require that a risk warning disclosure must be given to a retail client for which of the following products?

A. Warrants
B. Non-readily realisable securities
C. Government bonds
D. Penny shares

Answer 5

A. Retail clients must always be made aware of the risks associated with derivatives and warrants.

Question 6

The firm is holding money belonging to clients. When would it NOT need to comply with the client money rules? If the money is:

A. Coins held for the value of their metal
B. Held in a central bank
C. Interest paid by a Financial Conduct Authority authorised firm
D. Being held in a money market deposit account

Answer 6

A. A firm does not need to apply the client money rules to coins held for the value of their metal on behalf of clients.

Question 7

All key features documents must include information:

A. That the firm owns a MiFID passport
B. Explaining relevant cancellation procedures
C. Commenting on the applicability of stakeholder pensions rather than the product covered
D. Containing sufficient material such that a professional client is able to make an informed decision

Answer 7

B. Relevant cancellation procedures must be included.

Whether or not the firm owns a MiFID passport is irrelevant for the KFD. The stakeholder pension clauses are necessary only for personal pension schemes and the information must be sufficient for a retail client, not professional client, to understand and make an informed decision.

Question 8

Which of the following would NOT be automatically given retail client protection by an FCA member firm under client categorisation?

A. An independent person not authorised by the FCA
B. A trustee of a trust with assets of €5 million and funds of €1 million
C. A listed company with funds of €2 million and assets of €25 million
D. A body corporate with net turnover of €30 million and assets of €1 million

Answer 8

C. A listed company with funds of €2 million or more and assets of €20 million of more would be considered a professional client. All the others fail to meet the criteria required for professional categorisation and would be treated as retail clients.

Question 9

Martin gives an instruction to a stockbroking firm to sell a holding of shares at a limit price much higher than the firm is willing to buy. Assuming that there have been no specific instructions behind the order itself, which of the following best reflects what should happen to Martin’s order?

A. The firm will wait for the market to move to the limit price and then execute
B. The firm must execute immediately at the limit price, regardless of the firm’s quoted price
C. The firm will execute immediately at the price it is willing to trade
D. The firm, being unwilling to execute at the limit price, will place the order on a regulated market

Answer 9

D. This question looks at the limit orders rule. Limit orders must be executed immediately or made public. As the firm is unwilling to execute the trade, the must place the order on a regulated market such as the LSE. The comment about ‘assuming that there were no specific instructions’ is a reference to an exemption to this rule if the client has expressly stated that they do not want the orders to be made public: this exemption has not been triggered in this question.

Question 10

All of the following are true of elective professional clients under the Conduct of Business rules (COBS) EXCEPT:

A. They may have been employed in the financial sector for a significant period of time
B. They have sufficient experience to make their own investment decisions
C. They have carried out an average frequency of five transactions of significant size over the last year
D. They have a financial instrument portfolio of more than 500,000 euros

Answer 10

C. The quantitative test says ten transactions per quarter over the previous four quarters.

The option ‘they have sufficient experience to make their own investment decisions’ is an overall position that the firm has to decide using the quantitative criteria.

Question 11

There is firm money in the client money account and the firm becomes insolvent. Which of the following is true of the client money?

A. The firm’s money will be taken by the liquidator and the clients will receive the client money
B. The clients will secure a pro-rata share of the firm’s assets
C. The liquidator will be able to claim all the money in the client money account and the clients will become general creditors of the firm
D. The firm will secure a pro-rata share of the client’s assets

Answer 11

C. When the firm places its own money in the client money account, this creates a pollution of trust and the whole client money balance is no longer segregated from the client money.

Question 12

When assessing a company under client categorisation rules, what is the size of the own funds requirement for it to be considered a per se professional client for MiFID business?

A. 1,000,000 GBP
B. 2,000,000 GBP
C. 2,000,000 EUR
D. 1,000,000 EUR

Answer 12

C. The quantitative requirements for a company’s own funds are specified in euros.

Question 13

The FCA rules on dealing ahead of publication would NOT apply when the firm intends to issue a written recommendation or piece of research or analysis to:

A. A retail client
B. Other departments within the firm
C. Professional clients
D. Eligible counterparties

Answer 13

B. The rule protects all clients, but does not apply when the research is come for the firm itself.

Question 14

When is best execution owed to a client? When the client is:

A. Classified as a retail client
B. Classified as an eligible counterparty
C. Not classified as an eligible counterparty
D. Not classified as a retail client

Answer 14

C. The best answer here is that the client is NOT an eligible counterparts. Although the retail client is owed best execution, professional clients are also covered.

Question 15

When providing which of the following activities must a retail client be assessed for appropriate levels of knowledge by the firm?

A. An execution only share transaction
B. Executing a deal on an equity warrant
C. Recommending a foreign exchange spot transaction
D. Arranging a transaction on a corporate bond

Answer 15

B. Appropriateness needs to be assessed and risks need to be highlighted for non-advised services in complex products. Non-advised services include execution only and arranging. Complex products include derivatives and warrants.

Question 16

When carrying out client orders, a firm needs to satisfy which of the following conditions?

A. It must inform professional clients about any material problems relevant to the execution of the order
B. Comparable orders must be carried out in sequential order irrespective of market conditions
C. Allocation of orders must be performed promptly
D. Eligible counterparties, professional clients and retail clients must all be informed of any material difficulties involved in the execution of their order

Answer 16

C. Retail clients must be informed at once about material problems relevant to execution. Comparable orders are carried out in sequential order but this is dependent on market conditions.

Question 17

If the information presented by a firm contains an indication of simulated past performance, then which of the following is appropriate?

A. The simulated past performance must relate to a derivatives index that can react quickly to any movement in the underlying asset
B. The actual past performance of the investment should be ignored in order to avoid misleading the client
C. Simulated past performance is based on actual past performance of investments the same as the investments being simulated
D. A statement that the simulated past performance is a reliable indicator of the future performance of the instrument

Answer 17

C. When firms give figures based on simulated past performance because the product or service does not have a track record, a firm must ensure the simulated past performance figures:

• relate to an investment or financial index (not necessarily a derivatives index)
• are based on actual past performance of one or more investments and/or indices which are the same as, or underlie, the investments being simulated
• meet the rules set out in relation to past performance
• contain a prominent warning that they related to simulated past performance and that past performance is not a reliable indicator for future performance.

Question 18

If a client can be considered a professional client, then the firm may assume that they have sufficient knowledge of which risks?

A. All designated investments offered by an authorised firm
B. Options on non-complex underlying assets
C. Designated investments for which they are classed as professional
D. Generally marketable packaged products

Answer 18

C. Professional client status can be for particular investment services or transactions so this would be the best answer.

There is no requirement that all designated investments are understood and the status does not specifically refer to options or packaged products (generally marketable or not).

Question 19

If, during the reconciliation process, discrepancies are noticed, which of the following must the firm do?

A. Make up for the shortfall itself
B. Notify the FCA by the end of the next business day
C. Inform the client that they should seek compensation through the courts
D adjust the periodic statement so that it looks like a loss in the value of the investments

Answer 19

A. If the reconciliation shows a discrepancy, the firm must make good any shortfall for which it is responsible. If another person is responsible, the firm should take reasonable steps to resolve the position with that person.

Question 20

Cancellation rights for retails clients should be:

A. Contained within the client agreement
B. Given orally or in writing
C. Given once a year on the anniversary
D. Given in writing only

Answer 20

D. The right to cancel is contained within the key facts document or within the promotion for a distance contract. It must be in writing.

Question 21

Best execution is required for:
A. Retail clients only
B. Professional clients only
C. Retail clients, professional clients and counterparties
D. Retail clients and professional clients

Answer 21

D. Best execution applies to retail clients and professional clients, but not eligible counterparties.

Question 22

To whom do the client money rules apply?

A. All clients
B. All customers
C. Retail clients only
D. Professional clients only

Answer 22

A. The Client Money Rules are part of the Client Asset Rules and they apply to all clients.

Question 23

Client money rules apply to which of the following under client asset rules?

A. Coins if it has been agreed that the intrinsic value of the coin is held by the firm
B. If the money is charged to a client-authorised agent
C. The money is used for the firm to make client payments when necessary
D. The money is held as a deposit in a Banking Consolidation Directive (BCD) credit institution

Answer 23

C. The money is used for the firm to make client payments when necessary.

A,, the others are exemptions to the client asset rules.

Question 24

How do the FCA regulations apply to an appointed representative of a firm?

A. Directly
B. Indirectly
C. Not at all
D. Only regarding the financial promotion rules

Answer 24

B. The FCA cannot impose the COBs on appointed representatives directly, but obliges the firm whom they represent (their principal) to ensure that they behave appropriately.

Question 25

If a firm is aware that Bob is acting as an agent for Bill, then Bill will be the firm’s client if:

A. Bob and the firm have agreed in writing to treat Bill as the client
B. Bill and the firm have agreed in writing to treat Bill as the client
C. Bill and Bob have agreed in writing that Bill will be treated as the client
D. Only if all three agreed in writing

Answer 25

A. This is given in COBS. It would also be the case if Bob were not a firm or oversees financial institution and the main purpose were to avoid the firm’s responsibilities to Bill.

Question 26

In which of the following situations would the firm need to apply the client money rules? If the money:

A. Is paid by the client as part of a transaction due for settlement within one business day
B. Paid by the client is due to the firm for the firm’s own account
C. Is interest paid on any holdings of client money
D. Has been paid to the client of authorised representative of the client

Answer 26

C. If the money is interest paid on any holdings of client money then the firm would need to apply the client money rules.

Within a delivery versus payment, if the money is due within three business days it is not necessary to count the money as client money. Once it is paid to a client then the money ceases to be client money. Although there is no obligation to pay interest on client money, if interest is paid, it needs to be treated as client money.

Question 27

Firm A is found in breach of the FCA conduct of Business rules, but Firm B is disciplined by the FCA for the breach. How can this be so?

A. Firm A is a subsidiary of Firm B
B. Firm B is a subsidiary of Firm A
C. Firm B is the appointed representative of Firm A
D. Firm A is the appointed representative of Firm B

Answer 27

D. Appointed representatives are only indirectly bound by the FCA conduct of Business rules. The authorised firm takes the responsibility for the actions of the appointed representative.

Question 28

When a firm communicate initially with a retail client, COBS requires it to provide ‘appropriate information’, which includes all of the following except:

A. The firm’s name and address
B. A statement that it is FCA authorised or regulated
C. The name and status of the person they can contact
D. Who to refer complaints to if they cannot be resolved by the firm

Answer 28

D. Reference to any complaints resolution body is not necessary.

Question 29

The requirements for record keeping in respect of a firm conducting MiFID business is:

A. Six years
B. Five years
C. Three years
D. Indefinitely

Answer 29

B. MiFID a explicitly stated that firms must keep records for a period of five years. Records should be kept for the duration of the relationship with the client and up to five years after the relationship ceases.

Non-MiFID business requires records to be kept for a period of three years.

Question 30

If an independent financial adviser (IFA) passes on the business of a client to a life assurance company, which of the following would be true?

A. The life assurance company can rely on the information about the client provided by the IFA
B. The life assurance company is responsible for assessing the suitability of clients referred to them by an IFA
C. The IFA must assess suitability and the life assurance company must assess appropriateness
D. The life assurance company would only assess suitability for execution only trades

Answer 30

A. Under the rule ‘agent as client’ the insurance company will treat the IFA as client, and therefore rely on the IFA to assess suitability or appropriateness. The fact that this question focuses on a life assurance company is irrelevant. It could easily refer to any firm conducting designated investment business.

Question 31

In relation to providing investments, the rule on inducements in the Conduct of Business rules, which ONE of the following is TRUE?

A. It applies only to retail clients
B. The rules do not apply where the client (or someone adding on the client’s behalf) is paying the inducement to the firm
C. The rules apply where the inducement qualifies as a ‘minor non-monetary benefit’
D. The inducement is acceptable provided that there is prior disclosure to the client and the client agrees to it

Answer 31

B. The inducement rules apply to professional and retail clients.
The rules are disapplied where the inducement qualifies as a ‘minor non-monetary benefit’.
Prior disclosure of the inducement is required under the rules, but a client agreement to the payment of the inducement is not.

Question 32

An investor opens a non-exempt cash ISA with an authorised bank to benefit from the tax advantages offered. What is the minimum cancellation period the bank must offer?

A. 5 business days
B. 10 business days
C. 7 calendar days
D. 14 calendar days

Answer 32

D. The cancellation period for cancellable contracts is generally 14 days. However, for life policies and some pension it is 30 days.

Question 33

When carrying out client orders the firm must ensure:

A. That professional clients must be informed of any material difficulties in executing the order
B. The order of execution is based on an ad-hoc policy
C. The order must be recorded within one business day
D. Comparable orders must be carried out sequentially except in specific conditions

Answer 33

D. Retail clients must be informed of problems. The execution policy must not be generated ‘on the fly’. Orders must be promptly and accurately recorded - there is no specific timeframe given.

Question 34

According to the Conduct of Business Rules, when an appointed representative communicates a financial promotion, who ultimately bears responsibility for that communication?

A. The appointed representative communicating the promotion
B. The authorised firm that approves the promotion
C. The product provider if different from the approving authorised firm
D. The person who confirms compliance of the financial promotions

Answer 34

B. Responsibility for the communication remains with the authorised firm, even if communicated by an appointed representative.

Question 35

Which of the following actions is/are within the scope of the COBS rules?
Action 1: Treating a client as an eligible counterparty for the purpose of investment advice
Action 2: Communicating a financial promotion on home finance activities to a retail client
Action 3: Acquiring consent to the order execution policy before executing a trade for a professional client
Action 4: Providing a retail client with more detailed information about the firm and its services than a professional client

A. Actions 2 and 3 only
B. Actions 1, 3 and 4
C. Actions 1, 2 and 4
D. Actions 3 and 4 only

Answer 35

D. Eligible counterparties are ONLY used for eligible counterparty business: dealing for your own account, dealing for clients and arranging deals. You cannot categorise a client as eligible counterparty for advice.

The COBS do not cover financial promotions for home finance activities. For sake of completeness, they also do not apply to financial promotions relating to qualifying credit, non-investment insurance contract or an unregulated collective investment scheme.

Gaining consent from both professional and retail clients to the order execution policy before the trades commence is necessary under COBS.

When sending out information to clients before providing services, a retail client will always receive more.

Question 36

The financial promotion rules when communicating designated investment business covers which methods of communication?

A. A wide range of communications
B. All forms of communications
C. Printed advertising, radio and television broadcasts, personal visits, telephone calls, e-mail and the internet
D. Written and non-written communications excluding direct offers

Answer 36

A. The rules on communicating with clients apply to a wide range of communications on designated investment business and to all promotions other than those in respect of home purchase plans and those for non-investment insurance contracts, e.g. home insurance.

Question 37

A firm that manages a client’s investments must ensure that which of the following occurs?

A. The portfolio must be benchmarked against the FTSE All Shares Index
B. They benchmark portfolio performance at least monthly
C. They specify any index against which performance will be compared
D. They outline only the types of designated investments in the portfolio

Answer 37

C. They specify any index against which performance will be compared.

The timing of performance benchmarking is not specified in COBS and the firm should also include an outline of any designated investments that may be included in the portfolio, not just those in which it is currently invested.

Question 38

A key features document (KFD) must be provided when:

A. Selling non-Packaged Retail Investment and Insurance Products (non-PRIIPs) to a retail client
B. Selling any packaged product to any client
C. Selling non-PRIIP packaged products to a professional client
D. Selling any product to a retail client

Answer 38

A. A firm must send a KFD to a retail client for non-PRIIP packaged products. PRIIPs investors receive a Key Information Document (KID) and Undertaking for Collective Investment in Transferable Securities (UCITS) fund investors receive Key Investor Information Document (KIIDs). These documents must be held in a durable medium.

Question 39

The firm need not inform a retail client of the nature and risks of which of the following regulated activities:

A. Managing designated investments
B. Arranging a warrant deal
C. Making a recommendation on a designated investment
D. Entering a funeral plan arrangement

Answer 39

D. The first three indicated designated investment business (DIB) and require a notice. Funeral plans are not considered designated investments and are not covered by the COBS.

Question 40

A firm has searched through its client list, looking for those that have been inactive for some time. They plan to cold call these clients. If these clients are retail clients which of the following products are permitted to be sold on the cold call?

A. A generally marketable low volatility packaged product
B. A life policy linked to high volatility funds
C. A firm cannot sell any product on a cold call to a retail client
D. Shares in an inverse leveraged exchange traded fund

Answer 40

A. The others are prohibited either due to the increased risk through volatility or gearing, or the derivative aspects of the products. When it comes to shares, they must be readily realisable. It is also worth noting that it is only the services relating to these shares that can be sold on the cold call, not the shares themselves

Question 41

Which of the following statements is true with respect to cancellation rights on the sale to a retail client of a packaged product?

A. None required
B. Cancellation rights should be offered
C. Cancellation and withdrawal rights of 21 days are compulsory
D. Cancellation rights may be offered for a minimum period specified by the firm

Answer 41

B. This is the best answer. Depending upon the type of product, cancellation periods can vary between 14 and 30 calendar days.

Question 42

Which one of the following is NOT defined as a client of a firm?

A. A client of an appointed representative of the firm
B. A person acting through an agent
C. A person to whom a financial promotion is communicated by the firm
D. A potential client

Answer 42

B. The agent is considered to be the client of the firm unless agreed otherwise.

Question 43

In respect of COBS which of the following does NOT qualify as a ‘durable medium’?

A. Paper
B. CD-ROMs
C. Email
D. Internet websites

Answer 43

D. Internet websites do NOT qualify as a durable medium.

Examples of a ‘durable medium’ are:
- paper
- floppy disks
- CD-ROMS
- DVDs
- hard drive of a recipient’s computer such as email

Question 44

What rule is breached if a retail client is not sent a warning of the risks involved in derivatives?

A. Customer understanding
B. Suitability
C. Know your client
D. Best execution

Answer 44

B. The rule on suitability requires reasonable steps to be taken to ensure that a retail client understands the basis of any risk’ including those involved when dealing in derivatives. This would also apply under the appropriateness rule.

Question 45

All are true in respect of churning and switching EXCEPT:

A. The objective is to earn commission income
B. Neither are generally considered in the interests of the client
C. The rules on churning and switching apply to retail clients only for advisory services and any client for discretionary services
D. Dealing may only take place if it would not be regarded as too frequent in the circumstances and is justified from the customer’s point of view

Answer 45

C. Churning and switching are considered against the interests of the client. The FCA provides the, as a guidance to the suitability rules, rather than rules themselves. They cover advisory and discretionary services for both retail and professional clients.

Question 46

A retail client adviser meets a new client for the first time. When would the firm NOT be required to describe the firm’s scope of recommendations?

A. When the firm is using an approved person
B. When offering basic advice based on a script
C. When offering a recommendation in readily realisable investments
D. When it is a whole of market provider

Answer 46

B. The basic advice requirement means that the investor will be asked a set of pre-scripted questions to judge suitability for stakeholder products.

Question 47

A firm must take reasonable steps to establish a person’s categorisation?

A. Before conducting MiFID business
B. Within 30 days of conducting MiFID business
C. During the conduct of MiFID business
D. After conducting MiFID business

Answer 47

A. It is necessary to assess and inform the new client of their status prior to the conduct of MiFID business in a durable medium.

Question 48

A firm has already sold an unregulated collective investment scheme to a retail client. Which of the following can now be marketed via an unsolicited telephone call?

A. UK equities only
B. Regulated collective investment schemes only
C. National savings bank products only
D. A hedge fund similar to that already sold

Answer 48

D. So long as the client is an established client relationship with the firm and the relationship envisages receiving cold calls, then this is covered under COBS 4.8.2.

Question 49

If a client is unwilling to provide sufficient information for a firm to assess suitability in respect of a personal recommendation, which of the following is TRUE?

A. The firm can act for a professional client on a non-advised execution only basis as long as the client provides instruction for the trades
B. The firm must report the client to the FCA
C. The firm can make an appropriate recommendation to a client or take a decision to trade for him provided the client has been provided with a warning and has accepted it
D. The firm can make an appropriate personal recommendation for an eligible counterparty

Answer 49

A. If the firm does NOT obtain sufficient information, it must not make a personal recommendation to the client or take a decision to trade for him.

Although the rules do not apply to eligible counterparties, it would not be possible for w firm to make w personal recommendation as it does not have sufficient information.

The firm can still act for a professional client on an execution only basis.

Question 50

A firm discovers that an elective professional client’s portfolio has reduced in size to less than €150,000 and the number of trades has been reduced to an average of four per quarter over the last 12 months. What actions should the firm take?

A. None. The individual is a professional client and can be dealt with as such
B. Reclassify the individual as a retail client and notify the client of the action
C. Discuss the rationale for the change in behaviour and hold off reclassification for one quarter
D. Suggest the client increases their trading frequency or asks to be reclassified

Answer 50

B. The FCA states that the firm must take appropriate action if the client no longer meets the tests set down for opting up. The firm must, however, notify the client of this change in categorisation.

Question 51

A firm provides personal recommendations to a retail client. After ensuring suitability, in which of the following situations would the firm need to provide the client with a suitability report?

A. When a firm manages investments in a regulated CIS
B. When an investor opens a cash deposit ISA account
C. When an investor asks to invest in an ISA wrapped investment trust
D. When an investor requests services relating to premium bonds

Answer 51

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

Question 52

A website is a permissible method of communication with clients if which of the following criteria are met?

A. The firm has instructed the clients that this is the only method of communication
B. To ensure data protection the information must only be available for a limited period
C. The client has been notified in writing of the relevant website address
D. Providing the information in that medium is appropriate to the investment, service and client

Answer 52

D. This comes from the website conditions. It should be noted that the client has to give specific consent - rather than be informed - to have information provided via a website. Hard copies just always be made available on request.
The information has to be accessible continuously for such a period of time that the client might need to inspect it.
The client must be notified electronically rather than in writing of the website address.

Question 53

Which ONE of the following is LEAST likely to cause a conflict of interest?

A. Encouraging customer A to sell so B can buy
B. Recommending customer sells shares which an analyst rates highly
C. Customer instructs firm to buy shares when the firm holds a position
D. Advising both sides in a takeover situation

Answer 53

C. The question shows three situations where conflicts of interest could arise and one situation where it is unlikely.

‘Customer instructs firm to buy shares when the firm holds a position’ is least likely to give rise to a conflict of interest. The customer is instructing the firm to buy shares (I.e. execution only order). Remember, the question is not saying that the other situations will give rise to conflicts of interest in all cases, but that we should identify them as potential conflicts.

Question 54

The application of the conduct of business rules (COBs) apply when doing designated investment business to:

A. All firms; no exceptions
B. All firms with some exceptions
C. Only apply when arranging pensions
D. Not all firms are bound to the rules when doing designated business

Answer 54

B. All firms with some exceptions.

Some COBs rules can be modified or disapplied for specific reasons; for example, based on the firm’s activities.

Question 55

A client agreement document sent to a retail or professional client is:

A. A document that needs to be sent to retail clients only
B. A notification that needs to be sent to retail and professional clients
C. A notification that needs to be sent to all clients who must sign and return it
D. A notification that needs to be sent to retail client who must sign and return it

Answer 55

B. A client agreement document is sent to a retail or professional client and does NOT need to be signed.

Question 56

Which one of the following is not defined as the client of a firm?

A. A client of an appointed representative of the firm
B. A person acting through an agent
C. A person to whom a financial promotion is communicated by the firm
D. A potential client

Answer 56

B. The agent is considered to be the client of the firm unless agreed otherwise.

Question 57

A firm provides services in many products. In which of the following situations would it need to prepare a key features document (KFD)?

A. The client has previous received a KFD on the same product
B. The service relates to a unit with a simplified prospectus scheme
C. The client requires advice in a readily realisable share
D. The client wishes to open a cash deposit ISA

Answer 57

D. The KFD is required for cash-deposit ISAs, cash-deposit JISAs and packaged products. If the client has a copy of the KFD which has already been prepared, there is no need for another to be sent out. The simplified prospectus can be seen as a substitute for the KFD in certain circumstances.

Question 58

Client money rules apply to which of the following under client asset rules?

A. Coins if it has been agreed that the intrinsic value of the coin is held by the firm
B. If the money is discharged to a client-authorised agent
C. The money is used for the firm to make client payments when necessary
D. The money is held as a deposit in a BCD (Banking Consolidation Directive) credit institution

Answer 58

C. The money is used for the firm to make client payments when necessary.

All the others are exemptions to the client asset rules.

Question 59

According to COBS, a firm must take reasonable steps to manage any conflicts of interest with respect to independent research in which of the following cases?

A. Market making in good faith
B. Executing an unsolicited client order
C. Where there has been a reasonable opportunity for clients to act upon the research
D. The firm is making a recommendation to a client

Answer 59

D. All the others are reasons why the firm might be interacting with the market irrespective of research.

Question 60

When entering into a distance marketing contract for a life policy, how much time must a retail client be given to cancel the contract if they wish to do so?

A. 14 calendar days
B. 14 business days
C. 30 calendar days
D. 30 business days

Answer 60

C. Cancellation is usually 14 calendar days, but for life policies and pensions it is 30 calendar days.

Question 61

Failure to comply with the FCA’s rule on fair, clear and not misleading communications would also constitute a breach of which of the following laws?

A. Criminal Justice Act 1993
B. Bribery Act 2010
C. Companies Act 2006
D. Financial Services Act 2012

Answer 61

D. Failure to comply with the FCA’s rule on fair, clear and not misleading communications would also constitute a breach of FSA 2012 s89-91 Misleading Statements and Impressions.