Chapter 6 Flashcards
- Which of the following is true of the FCA handbook?
A. Regulated firms can decide which rules they will apply
B. The rules are entirely binding on regulated firms
C. The rules are for guidance only on how regulated firms should operate
D. The handbook covers complaints handling and compensation only
B - The FCA handbook sets out the rules and regulations for regulated firms. The rules are entirely binding on all regulated firms. The handbook does cover complaints handling and compensation but not that alone.
- Why is the FCA concerned with a person’s ‘close links’ under the threshold conditions within the FCA handbook?
A. To establish if the person has any connection or bias
B. To ensure they will not prevent the FCA’s effective supervision of the person
C. To understand any professional connections the firm has
D. To ensure the person/firm has adequate support systems in place
B - All regulated firms must satisfy the ‘threshold conditions’ in order to retain their part 4A permission (required to carry out regulated activities). One of these conditions is effective supervision. If a person is deemed to have ‘close links’ with another person, they need to ensure this will not prevent the FCA’s effective supervision of that person.
- If an employee reports that a colleague is failing to comply with the law, what must the employer do?
A. Publicly acknowledge the informer’s (the whistleblower’s) actions
B. Set up a meeting between the two employees and a HR representative
C. Protect the informer (whistleblower)
D. Ensure all staff are aware of what has happened and who reported it
C - One of the FCA’s high level standards is ‘Senior Management arrangements Systems and Controls’ (SYSC). SYSC 18 refers to ‘Whistle Blowing’ and states that employers must protect employees who ‘blow the whistle’ and therefore the answer is c).
- What is the prescribed wording needed for an appointed representative to disclose their status?
A. Authorised and regulated by the Financial Conduct Authority
B. Authorised and regulated by the FCA
C. (Name of AR) is an appointed representative of (firm) which is authorised and
regulated by the Financial Conduct Authority
D. (Name of AR) is an appointed representative of (firm) which is regulated by the
FCA
C - All authorised firms must disclose their statutory status to clients on letters or electronic equivalent. The status must identify its regulator, so an appointed representative would state ‘(name of AR) is an appointed representative of (name firm), which is authorised and regulated by the Financial Conduct Authority’. Financial Conduct Authority must not be shortened to FCA.
The longest answer will be correct
- How is the Financial Conduct Authority funded?
A. Through taxes distributed by the Government
B. Through levies on the financial services industry
C. Through fines and penalties imposed when an authorised firm breaches rules
D. Through charges applied to large firms e.g. banks and building societies
B - The FCA operates independently of the UK Government and is funded through a range of levies on the financial services industry. It does not receive any funding from the Government or the public or through fines or penalties. Whilst large firms would pay a levy, this is not the sole source of funding, as the levies apply to all firms throughout the industry.
- Apart from the periodic, application and special project fees, what other fees are due from authorised firms?
A. Financial Ombudsman Service, Financial Services Compensation Scheme and Money and Pensions Service fees
B. Financial Ombudsman Service and Financial Services Compensation Scheme fees
C. A tariff and block rate fee calculated at the end of each financial year
D. A flat charge of £250 due at the end of each financial year
A - Authorised firms are subject to application fees, periodic (annual fees) and special project fees from the FCA. They are also subject to fees from the Financial Ombudsman Service (FOS), Financial Services Compensation Scheme and Money and Pensions Service fees.
The answer with the most amount of information is correct
- Regulated larger firms must maintain resources to cover risks and must carry out risk assessment and stress testing scenarios as required by the:
A. Fixed overheads Directive
B. Financial resources Directive
C. Capital Adequacy Directive
D. Capital Requirements Directive
D - The Capital Requirements Directive applies to larger regulated firms. The directive
requires a firm to carry out detailed risk assessments and stress test scenarios to ensure they hold enough resources to cover risks.
- Rachel’s firm’s professional indemnity insurance requirements are set out in MIPRU? This means that she must work for a:
A. bank
B. investment business
C. building society
D. home finance firm
D - The MIPRU sourcebook relates to Mortgage and Home finance firms. It sets out the rules about professional indemnity insurance (and capital requirements); hence, the answer is d). GENPRU is the sourcebook for banks, building societies and investment firms.
- Which EU led requirements were incorporated into COBS?
A. Conduct of Business
B. MIFID
C. Principle based requirements
D. Banking conduct of business
B - The answer is Markets in Financial Instruments Directive (MiFiD). MiFiD is EU-led
regulations designed to increase competition and investor protection and bring
harmonisation across the EU states. COBS are the updated (as of 1st Nov 2007) FCA’s
conduct of business requirements for investment firms, which incorporated the MiFiD
requirements.
- If a provider gives any benefits or inducements to an intermediary how long must they keep records for?
A. 7 years
B. 6 years
C. 5 years
D. 3 years
C - In the FCA’s COBS, it states records must be kept for 5 years if a provider gives any
benefits or inducements to an intermediary.
- How does the Insurance Conduct of Business Sourcebook (ICOBS) categorise
insurance products?
A. According to commission basis, i.e. nil, upfront or trail
B. Term assurance, whole of life and income replacement
C. Life and critical illness, general insurance and income protection
D. General insurance, pure protection and payment protection insurance
D - The FCA’s Insurance Conduct of Business Sourcebook (ICOBS) sets out the day-to-day rules for the selling and marketing of the products it covers. It has different rules for different product types and categorises its insurance products as either general
insurance, pure protection or payment protection insurance. Term assurance, critical illness, and income protection all come under the pure protection category but are not categories themselves. Whole of life may also fall into this category; however, depending on the type of whole of life product, it may be covered under COBS rather than ICOBS i.e. if the policy pays out the surrender value of the fund (as it will not be deemed a pure protection product). Commission basis is not relevant to how the products are
categorised.
- Under ICOBS rules, who is responsible for ensuring an intermediary is authorised to deal with an insurer?
A. The responsibility lies solely with the intermediary
B. An insurer must ensure that any intermediary it deals with is authorised
C. An intermediary would not be able to contact an insurer unless they were
authorised
D. It is solely the FCA’s responsibility to ensure all intermediaries are authorised
B - Under ICOBS rules, it is the responsibility of the insurer to ensure any intermediaries they deal with are authorised.
- Which of the following products comes under the ICOBS product category of pure
protection?
i) Term assurance
ii) Buildings and contents insurance
iii) Critical Illness cover
iv) Payment protection insurance
A. i and ii only
B. i only
C. i and iii only
D. i and iv only
C - Terms assurance and critical illness are pure protection products under the ICOBS
product categorisation. Buildings and contents insurance come under the category of general insurance and payment protection insurance has its own category
- If a firm passes mortgage leads to an authorised person for a fee, does that firm require FCA authorisation?
A. No authorisation is required as the introducer is not advising the client
B. Yes, if they receive payment for leads, they must have FCA authorisation
C. Yes, the principle at the introducing firm must hold FCA authorisation
D. No, as long as the introducer is paid for leads no authorisation is required
A - Authorisation is only required for those advising the client; no authorisation is needed as an introducer.
- Which of the following mortgage contracts are regulated?
i) Where the borrower is a company
ii) Where 40% of the property will be used by the borrower
iii) Where the loan is secured by a legal second charge mortgage
iv) Where the loan is secured by a legal first mortgage
A. i and iii only
B. ii and iii only
C. ii, iii and iv only
D. iv only
C - Mortgage contracts that are regulated are where the lender provides credit to an
individual or trustees on a first, second or subsequent mortgage on UK land, where 40% or more of the property will be used by the borrower as their home. Commercial buy-to let mortgages and mortgages for a company are not regulated.
Not regulated for companies who purchase property.
