Chapter 6 Flashcards
- Which of the following are threshold conditions within the FCA handbook?
i) Location of offices
ii) Legal status
iii) Effective supervision
iv) Business model
A. iii and iv
B. i, iii and iv
C. i and ii
D. ii and iv
B - All regulated firms must satisfy the ‘threshold conditions’ in order to retain their part 4A permission (required to carry out regulated activities). These include location of offices, effective supervision and business model. The other two threshold conditions are
appropriate resources and suitability. Legal status is not a threshold condition.
- Within the FCA High Level Standards, regulated firms must comply with ‘Common Platform Requirements’. What does this refer to?
A. The systems and controls a firm should have that are appropriate to its business
B. The use of mainstream platform and proprietary systems
C. The use of FCA technology e.g. GABRIEL
D. The level and type of management information required
A - One of the FCA High level standards is ‘Systems and Controls’ (SYSC 3). SYSC 3 lists the systems and controls (appropriate to their business) which a firm should establish and maintain. Each of these is further detailed in the common platform requirements SYSC 4 to 10A
- Which of the following would you expect to find in the revised Remuneration Code within the FCA Handbook?
A. Reduce short-term bonuses and base bonuses on longer term performance
B. Reward risk-taking and outperformance to secure good quality staff
C. Ban overtime payments for staff who have a ‘material impact’
D. Avoid over-reliance on high salaries, instead promote performance related pay
A - The remuneration principles in the revised remuneration code, detailed in the FCA
handbook, require firms to reduce the amount of short-term bonuses and base bonuses on longer-term performance. The other answers are false. Firms should avoid an over reliance on performance related pay in place of higher salaries, ensuring remuneration packages do not encourage risk-taking and should be encouraged to defer a proportion of bonuses in favour of paid overtime.
- As a financial adviser, under which of the following would it NOT be a requirement to disclose your status?
A. E-mail
B. Fax
C. Text message
D. Letter
C - All authorised firms must disclose their regulatory status to clients. This must be included on all letters or electronic equivalents such as email and fax. Best practice encourages this on business cards and compliment slips also, but it is not required on text messages.
- What are the rules regarding a firm taking out insurance indemnity itself for FCA penalties or enforcement costs?
A. A firm cannot indemnify itself against any FCA penalties, costs or enforcement
action
B. A firm can only indemnify itself against a financial penalty imposed by the FCA
C. A firm cannot indemnify itself against an FCA penalty, but it can against the cost of defending enforcement action or costs it may be ordered to pay
D. A firm can only indemnify itself against any FCA costs it may be ordered to pay
C - A firm can take out an insurance policy to cover both the costs of defending enforcement actions and the costs it may be ordered to pay. It cannot take out a policy to cover itself against an FCA penalty, so the answer is c).
- How does the FCA determine the level of periodic fee to charge an authorised firm?
A. The periodic fees are based on the length of time the firm has been authorised
B. Periodic fees are a flat annual subscription
C. Periodic fees are based on the product areas a firm has permission to advise on and the income the firm receives under each product area
D. Periodic fees are based on the level of risk attributed to each firm
C -The periodic fee is the annual fee that is payable to the FCA by regulated firms. The periodic fee is not a flat fee or an annual subscription but based on amount and type of business.
Note: It is calculated as follows: Periodic Fee = The ‘tariff-base’ (based on the income the firm receives under each of its product areas) applied to the ‘fee-block tariff rate’ (based on the product areas for which a firm has permission to advise on).
- How are IFA businesses affected by the FCA’s Capital Adequacy rules?
A. Most IFA businesses are exempt from the “Capital Requirements Directive”, but
would be subject to a variety of financial tests
B. Most IFA firms are required to undertake detailed risk assessments and stress
testing scenarios
C. Most IFA businesses are completely unaffected by any capital adequacy testing
D. An IFA is merely required to document all assets and liabilities
A - The FCA’s capital adequacy rules, that apply to most regulated firms, are a variety of financial tests dependent on their size and type of business. Most adviser firms are
exempt from the Capital Requirements Directive, which requires detailed risk assessments and stress test scenarios.
- Under BIPRU, what is the name given to the rules designed to require those firms caught by them to ensure that their business model has sufficient amounts of
accessible capital built in?
A. Prudential
B. Liquidity
C. Credit
D. Default
B - It’s the liquidity rules that are designed to require firms caught by them to ensure that their business model has sufficient amounts of capital built in and that the firm will be able to continue to function if certain external stresses are applied.
- Who does COBS apply to?
A. Friendly societies and life insurers only
B. Banks and building societies, Friendly Societies and Insurers
C. Regulated life, pension, and investment businesses, as well as to bank and
building societies in relation to their investment activities
D. Home finance and general insurance firms
C - COBS is the FCA’s Conduct of Business Sourcebook which details the day-to-day
conduct rules that apply to regulated life, pension and investment businesses, including bank and building society’s investment business; hence, the answer is c).
- Under COBS 2, providers can run training for intermediaries but what is the position regarding paying expenses?
A. They cannot pay expenses
B. They can pay ‘reasonable’ expenses
C. They can pay up to £250 per annum
D. They can cover the cost of refreshments
B - Under COBS 2, a provider can run training for intermediaries (as long as it is open
generally to all intermediaries) and can pay ‘reasonable’ expenses such as
travel/accommodation.
- Under FCA rules, the cooling-off period for consumers entering into a sale and rent back scheme is:
A. 7 days
B. 14 days
C. 21 days
D. 30 days
B - The cooling-off period for consumers entering into a sale and rent-back scheme is 14 days.
- What is a ‘demand and needs’ statement?
A. Documentation used to allow the client to prioritise their requirements
B. The IFA’s requirements in terms of charges for product or time
C. A statement detailing the client’s needs with the reasons for recommendations
D. A list of requirements for new clients with the services the client can expect
C - A ‘demand and needs’ statement is a statement which details the identified needs of the client with the reasons for the recommendations. The adviser would have to provide details of their services and charges/fees in the initial disclosure rather than in the
demands and needs statement. Answer a) is not relevant to the question.
- The policy Jen has recently taken out does NOT have any cancellation rights. This suggests that she has taken out a:
A. 12-month ASU policy
B. renewal policy for buildings and contents insurance
C. term policy issued to an occupational pension scheme trustee
D. 2-week travel insurance policy
D - Cancellation notices are not required for short-term contracts (less than one month), this would include a 2-week travel insurance policy. Life policies for less than 6 months do not require a cancellation notice, but most other policies under ICOBS do (including building and contents insurance & ASU policies). Pure protection contracts, taken out by trustees of occupational pension schemes, do not.
- Who carries the compliance responsibility for an appointed representative?
A. The individual carries their own responsibility
B. The FCA
C. The firm’s principal
D. The introducer
C - The compliance responsibility for an appointed representative lies with the firm’s
principal
- Under the Mortgage Credit Directive (MCD), what is the name given to the product disclosure document?
A. Key Facts Document
B. Key Features Illustration
C. Key Investor Information Document
D. European Standardised Information Sheet
D - The MCD is the EU’s conduct rules for mortgage firms. The FCA have now implemented these rules and firms must now issue a European Standardised Information Sheet, which has replaced the Key Features Illustration. Hence, the answer is d).
