Chapter 5 Flashcards
- Of the following, which are FCA operational objectives?
i) Protect consumers
ii) Reduce financial crime
iii) Promote competition
iv) Protect financial markets
A. i and ii
B. i, iii and iv
C. i ii and iii
D. i, ii and iv
B - The FCA has three operational objectives: To protect customers, to protect financial markets and to promote competition hence the answer is b) i, iii & iv.
- If a person applies to the regulator for direct authorisation, this is called applying for:
A. part 3 permission
B. part 4A permission
C. part 6A permission
D. part 2 permission
B - If a person or firm wishes to carry out regulated activities, they must apply to the relevant regulator for a part 4A permission for authorisation.
- Under the FCA’s three-pillar supervision model, the majority of firms are classified as: A. Fixed portfolio firms
B. Flexible portfolio firms
C. Category 1 firms
D. Category 4 firms
B - Under its supervisory regulation, the FCA categorises firms as either ‘flexible portfolio firms’ or ‘fixed portfolio firms’. Flexible portfolio firms make up the majority of the firms in the industry and are supervised on a market-based approach. Fixed portfolio firms tend to be larger firms who have a significant impact on the financial system. Here, a more proactive approach to supervision is required. The category 1 to 4 system of categorisation no longer applies and has been replaced by the above.
- The FCA has a power of intervention which includes banning products. It will only be allowed to use this power in relation to which of the following?
A. High net worth clients
B. Corporate clients
C. Retail customers
D. Institutional customers
C - The Financial Services Act 2012 gave the FCA powers of early intervention, which includes banning products. This intervention only applies to retail customers. Other examples of interventions include withdrawal of promotional material that is considered misleading, publicising enforcement actions and gathering market intelligence.
- How is the capital adequacy of an authorised firm assessed?
A. Risk identification and management processes
B. Monitoring the value of assets
C. Monitoring the firm’s liabilities
D. Monitoring the proportion of liquid assets over capital
A - A capital adequacy test assesses if a company has enough capital, as required by its regulator. This is tested via a risk identification and management process. The capital adequacy test is not just about monitoring capital and assets, although this will be part of the process.
- Which of the following can the FCA impose if an insurance company’s financial
strength falls below the minimum standard?
A. They would stop them accepting new business
B. They could amend their capital adequacy tests
C. They could request they re-perform their capital adequacy test
D. They could guarantee the life office’s financial strength
A - If a company’s financial strength fell below the regulatory standard, the FCA could stop them accepting new business.
- If the FCA has suspicions about a firm, can an enforcement officer enter premises and remove original documents from a firm without permission?
A. Only if the enforcement officer has a warrant to enter premises and take
documents by force if necessary
B. The enforcement officer can only take copies of any documents
C. The enforcement officer needs a warrant to take documents and would require permission from the firm
D. The enforcement officer can access documents at the firm’s office but cannot
take them away
A - If the FCA has suspicions about a firm, they can obtain a warrant, which would then allow them to enter premises and take evidence (not just copies), by force if necessary. They would not require a firm’s permission in this instance.
