Chapter 11 Flashcards
- Does the FCA currently hold a principle specifically relating to ethics?
A. No, but all FCA rules relate to the over-arching principles of ethics
B. Yes, it is one of the FCA’s 11 Principles for Businesses
C. Yes, the FCA has a code of ethics for investment advisers
D. No, as ethics relate to a certain culture and usually contentious subjects
A - The FCA’s Principles do not directly refer to ethics however all FCA rules relate to the overarching principle of ethics. There are 11 FCA Principles of Business. ‘Integrity’, ‘Skill, care and
diligence’, ‘Management & control’, ‘Financial prudence’, ’Market conduct’, ‘Customers’ interests’, Communications with clients’, ‘Conflicts of interest’, ‘Customers: relationships of trusts’, ‘Clients’ assets’ and ‘Relationship with regulators.’ Answer c) is incorrect, the FCA does not have a code of ethics specifically for investment advisers, all firms should have their own code of ethics. Answer d) is incorrect.
- Which of the following elements would you NOT expect to see within a firm’s
framework for embedding an ethical culture into the firm?
A. No commitment to a professional ethical body
B. Ethics code or values statement
C. Methods of measuring and evaluating ethics
D. Process and structures to embed ethics
A - You would not expect a company to have no commitment to a professional ethical body, as linking up with other organisations to raise ethical standards is an important element of the ethical framework. Within a firm’s ethical framework, you would expect to see answer b): Commitment –
the firms high level codes and values statement, answer d): Operational – Ethical processes and answer c): Oversight – measuring and evaluating it ethics. You would also expect to see ethical values in a company’s leadership.
- Which of the following processes is responsible for setting the overall approach to how a firm is structured and managed?
A. Human resources
B. Risk management
C. Governance
D. Compliance
C - Ethics is embedded within a company by using different processes, including the
governance of a firm, i.e. how it is structured and managed. The other answers are part of
embedding ethics but do not relate to the question asked. Other key processes include risk management (risk to the business), compliance (is the firm conforming to its internal and external
regulations and requirements?) and internal audit (an independent check on compliance, risk
management and governance). A human resources department plays a part in the operational element of ethics within a company by integrating ethics into job descriptions, rewards, promotions and discipline.
- Which of the following can give a particular insight into a firm’s attention to ethical issues?
A. The number of new starters
B. Persistency ratios
C. The number of days’ holiday it allows
D. The balance sheet
B - Management Information (MI) is one of the best ways of assessing ethical outcomes. Persistency ratios are an indirect measure of ethics within a firm. The other answers would not necessarily provide insight into a firm’s attention to ethical issues.
- Data on policy cancellations or policy lapses is often called:
A. cancellation rate
B. duration rate
C. duration of products
D. persistency of products
D - Data on policy cancellations is often called persistency of product.
- Why would file reviews be a useful Management Information (MI) tool in evaluating a firm’s
ethics?
A. To understand what a firm’s client bank typically consists of which allows for a
more effective marketing strategy
B. To assess the overall standard of paperwork produced before, during and after
advice to identify any trends that are of concern
C. Files are tangible objects and so analysing data is more straightforward
D. Files can be analysed as part of the new business submission process so not
adding additional pressure to the firm’s administration staff
B - File reviews are a good way of checking how well paperwork (or indeed computer
records) have been completed at each stage of the advice process. Trends, such as
missing anti-money laundering checks or signature discrepancies may be identified, giving
an indication that the firm is not as ethical as it should be.
