Chapter 5

Question 1

34. Which of the following is one of the operational objectives of the Financial Conduct Authority?
    A. Proportionality
    B. Transparency
    C. Protect consumers
    D. Openness and disclosure

Answer 1

C - The FCA has three operational directives: to protect customers, to protect financial markets and to promote effective competition; hence, the answer is c).

Question 2

35. Damian, a city trader, has been found guilty of market abuse. What is the maximum criminal penalty for this offence?
    A. A fine limited to £10 million
    B. 5 years’ imprisonment
    C. An unlimited fine and 5 years’ imprisonment
    D. An unlimited fine or 7 years’ imprisonment

Answer 2

D - If Damian is found guilty of market abuse as a criminal offence, he could get a maximum penalty
of seven years’ imprisonment or an unlimited fine.

Question 3

37. A firm categorised by the FCA as a ‘flexible portfolio’ firm will be subject to which of the FCA’s three supervision strategies?
    A. Proactive firm/group supervision only
    B. Event driven reactive supervision only
    C. Event driven reactive supervision and thematic issue or product supervision
    D. Proactive firm/group supervision and thematic issue or product supervision

Answer 3

C - Under its supervisory approach to regulation, the FCA categorises firms as ‘flexible
portfolio firms’ - these are supervised through event-driven reactive supervision and thematic issue or product supervision - so the answer is c) - or ‘fixed portfolio firms’ - these are generally larger firms, with more influence on the industry, who require
additional, more proactive, supervision.

Question 4

38. Financial stability, which is a key ingredient for a healthy and successful economy, is an objective for which of the following?
    A. The Bank of England
    B. The FCA
    C. HM Treasury
    D. All of the above

Answer 4

D - All three organisations share an objective of financial stability. One of the Bank of
England’s two core purposes is financial stability (the other is monetary stability). The Bank’s role for financial stability is set out in a Memorandum of Understanding between the Bank, the FCA and the Treasury, who also share an objective on financial stability. The FCA and Bank of England (through the PRA) also have a statutory objective to ‘contribute to protecting and enhancing the stability of the financial systems in the UK ‘. HM Treasury also chairs the UK Standing committee on financial stability.

Question 5

39. One important measure for a life office is its free asset ratio (FAR). What is the definition of the FAR?
    A. The surplus assets of a life office over the value of its liabilities expressed as a percentage of total assets
    B. The investment growth on a life office’s capital expressed as a percentage of total assets
    C. The surplus assets of a bank that are in excess of liabilities expressed as a percentage
    D. The assets a firm holds which are not linked to any liabilities

Answer 5

A - The free asset ratio is one measure of a life office’s financial strength. It measures the surplus assets over liabilities and is expressed as a percentage of total assets.

Question 6

What are the FCA’s three operational objectives?

Answer 6

Protect consumers, Protect financial markets, Promote competition

Question 7

Who is the FCA answerable to?

Answer 7

The Treasury

Question 8

Which body deals with appeals against decisions made by the Regulatory decisions committee (RDC)?

Answer 8

The upper tribunal (Tax and chancery chamber)