Chapter 7 Flashcards
GQ 7 - What are the 2 exclusions that would turn otherwise regulated activities into unregulated activities?
1) Introducer exclusion - a firm introduces clients to an authorised firm without engaging in further regulated activities, such as advising or arranging deals. E.g. Mortgage Broker
2) Overseas Persons exclusion - E.g. A US-based investment bank executes a trade for a UK-based institutional client. The UK client initiates the transaction, and the US firm does not actively market its services in the UK. Since the trade is conducted without direct solicitation and often through an FCA-authorised broker, the overseas persons exclusion applies.
GQ 7 - What is an appointed representative and what is a principal?
An appointed representative (AR) / tied agent (if the principal is a MiFID firm) in the context of financial services is a firm or person who conducts regulated activities under the responsibility of a Financial Conduct Authority (FCA) authorized firm, known as the “principal”.
They have exempt status.
GQ 7 - What are exempt professional firms? Why are they exempt? What are the 5 designated professional bodies?
Professional firms that are a member of a designated professional body (DPB) do not need FCA authorisation for regulated activities which are incidental to their professional services.
For example, a solicitor would not need authorisation for assisting a policyholder to make a claim under a life policy, and an accountant would not need authorisation for advice on the taxation of an investment as these are incidental to their professional services.
DPBs include the three LAW societies, the four ACCOUNTANCY bodies, the Institute of ACTUARIES, the Royal Institution of Chartered SURVERYORS and the Council for Licensed CONVERYANCERS.
GQ 7 - What are authorised professional firms?
FCA authorisation would be needed if a firm of solicitors or accountants wanted to advise on life policies or arrange investments. They would then become directly authorised by the FCA as authorised professional firms (APFs).
*E-Book 7 - For which regulated activities do DPB member firms not require FCA authorisation?
Activities which are purely incidental to their professional services.
GQ 7 - What are examples firms/firm activities for these different types of authorisation:
- Retail intermediary
- Wholesale investment firm
- Insurance firms
- Consumer credit firms
- Other provider firms and deposit takers
Retail intermediary – financial adviser, home finance intermediary, insurance intermediary or connected travel insurance intermediary.
Wholesale investment firm – simple or complex securities and futures firm, adviser and arranger of wholesale funds, or investment management firm (including those firms who wish to establish and/or operate a collective investment scheme).
Insurance firms – insurance special purpose vehicles, Lloyd’s managing agents or insurers.
Consumer credit firms – lenders, brokers or consumer hire.
Other provider firms and deposit takers – bank, mutual, home finance provider, personal pension scheme provider, credit union, claims management company or electronic money issuer.
GQ 7 - What are the statutory time limit standards that the regulator has to make a decision to grant authorisation to a firm?
Earlier of 6 months of receiving a complete application, or 12 months of receiving an incomplete application.
GQ 7 - What notice the regulator enclose when granting authorisation? What is written there?
Scope of Permission Notice. This is the formal Part 4A permission and will set out when the permission starts, which regulated activities they have permission to carry out and any requirements or limitations included.
GQ 7 - Who should an authorised firms ensure are approved in the firm? What’s the exception?
Senior management functions (SMFs) (or controlled functions in non-SM&CR firms)
An individual can cover for a Senior Manager for up to twelve weeks over twelve months without approval where the absence is temporary or reasonably unforeseen.
E Book 7 - Natalia’s investment portfolio loses 50% of its value due to a stock market crash. Is she entitled to compensation from her adviser?
No, Natalia will only be entitled to compensation if the advice she received was in breach of the FSMA/FCA rules.
GQ 7 - What are the 2 main aims of Senior Managers and Certification Regime (SM&CR)
- Encourage a culture of staff at all levels taking personal responsibility for their actions; and
- Make sure firms and staff clearly understand and can demonstrate where responsibility lies.
GQ 7 - Who do the Senior Managers Regime, the Certification Regime and the Conduct Rules affect?
Senior Managers Regime - focuses on the most senior individuals who hold key roles or are responsible for whole areas of relevant firms.
Certification Regime - This applies to ‘material risk-takers’ (i.e. staff who are subject to the Remuneration Code) and other staff who pose a risk of significant harm to the firm or any of its customers (e.g. staff who give investment or mortgage advice or who administer benchmarks).
Conduct Rules - These are high-level rules (set out in COCON) that apply directly to nearly all staff (apart from ancillary staff, e.g. catering staff).
GQ 7 - How often do employees under the Certification Regime have to be tested for being ‘Fit and Proper?
Who’s responsibility is it to determine if an individual is ‘fit and proper’?
At least annually
The firm
GQ 7 - What are Limited scope firms, Core firms and Enhanced firms? Are they solo- or dual- regulated?
Solo
- Limited scope firms – smaller firms subject to fewer requirements than core firms. For example, sole traders and authorised professional firms such as accountants and solicitors.
- Core firms – firms that do not qualify as Limited Scope or Enhanced will be subject to the baseline regime, which is a pared-back version of the SM&CR for banks.
- Enhanced firms – the largest, most complex, or riskiest firms are subject to additional requirements above the baseline Core regime, more akin to the requirements for banks.
Examples are:
significant IFPRU firms;
large CASS firms;
asset managers with assets under management (AUM) of £50bn or more (calculated as a three-year rolling average);
firms with total intermediary regulated business revenue of £35m or more per annum (calculated as a three-year rolling average);
firms with annual revenue generated by regulated consumer credit lending of £100m or more (calculated as a three-year rolling average); and
mortgage lenders and administrators (that are not banks) with 10,000 or more regulated mortgages outstanding.
GQ 7 - What’s the difference between Senior Management Function (SMF) and Approved Persons?
SMF
Regulatory Regime- SM&CR
Approval Required - FCA/PRA
Level of Responsibility - Senior leadership roles with high personal accountability
Statement of Responsibilities? - Yes
Still in Use? - Yes, for most firms under SM&CR
Approved Persons
Regulatory Regime - Approved Persons Regime
Approval Required - FCA
Level of Responsibility - Includes customer-facing and compliance roles
Statement of Responsibilities? - No
Still in Use? - Only for Appointed Representatives and some exempt firms
GQ 7 - What is a Statement of Responsibility?
Each Senior Manager must have a Statement of Responsibilities (SoR), which must be pre-approved by the FCA (Pre-approval was not required for any SMF grandfathered into the regime) using a template SoR to set out:
- Any prescribed responsibilities allocated to the individual; plus
- Any other relevant responsibilities.
The SoR is meant to be concise, factual and self-contained.
The SoR must be updated and resubmitted whenever there is a ‘significant change’.
For enhanced firms, SoRs are complemented by the Responsibilities Map, which is designed to reflect the firm’s overall governance and management arrangements, and to ensure that there are no accountability gaps.
GQ 7 - What are Directory Persons?
Firms are required to report the names of individuals performing Certification Functions to the FCA. These are published in a central Directory which is part of the Financial Services Register. This includes details of:
- all directors and senior managers;
- all staff certified as fit and proper by their firm; and
- other important individuals who undertake business with clients and require a qualification to do so.
These are known as Directory Persons.
GQ 7 - Reporting breaches:
If a Senior Manager breaches the conduct rules, how many days after disciplinary action should the FCA be notified?
What about other (non-Senior Manager) roles?
7 days.
Other roles: the firm should report to the FCA every year on any breaches, regardless of whether there have been any.
GQ 7 - What’s the maximum number of days an Authorised Representative can hold client assets? When can they hold client money?
28 days
They can NEVER hold client money.
GQ 7 - Within how many days should a principal firm notify the FCA of an appointment of an authorised representative?
The principal firm must accept full responsibility in writing for the AR’s activities, and the FCA must be notified within 10 business days of the appointment.
GQ 7 - When can an authorised representative have multiple principals?
- Investment business ARs can only have one principal firm.
- Mortgage ARs can have different principals for different types of mortgages (e.g., one for standard mortgages and another for equity release).
- Insurance ARs can have multiple principals.
If an AR has multiple principals, they must all sign a multi-principal agreement.
One principal acts as the lead principal, handling all client complaints, even if another principal is liable for the advice.
GQ 7 - Within how many days does the FCA have to be made when a contract with an Authorised Representative has been terminated?
10 business days
GQ 7 - Who are still subject to the Approved Persons Regime?
Non-SM & CR firms and appointment representatives
GQ 7 - What’s the difference between an Authorised Person and an Approved Person?
Authorised Person → The business carrying out regulated activities (e.g., investment firm, mortgage broker). Could be a company, partnership or sole trader.
Approved Person → An individual approved to perform controlled functions within a firm.
GQ 7 - What are the standard period of record keeping for:
- Life Policies
- Pension transfers
- Free-standing additional voluntary contributions
- Pension contracts
- Pension opt-outs
- Most other cases
- Some non-MiFID firm circumstances
Indefinitely – for pension transfers, pension opt-outs and FSAVCs (free standing additional voluntary contributions).
Reason: These are long-term, high-impact financial decisions, so records must be kept permanently for future reference or regulatory review.
5 years – for life policies and pension contracts
6 years - financial promotions for such products.
5 years – in most other cases
3 years - non-MiFID firms in some circumstances. General insurance is non-MiFID so can be retained for 3 years
FYI:
A pension contract refers to a new agreement between an individual and a pension provider for saving towards retirement. It includes: Personal pensions (e.g., stakeholder pensions, SIPP – Self-Invested Personal Pensions). Occupational pensions (workplace schemes). Annuities (purchased at retirement to provide a guaranteed income).
Pension Transfers
When a person moves their pension savings from one provider or scheme to another. Often involves moving from a defined benefit (DB) scheme (final salary pension) to a defined contribution (DC) scheme (private pension). High regulatory risk, as customers might lose valuable guaranteed benefits.
Pension Opt-Outs
When an individual chooses not to join or leaves a workplace pension scheme. May result in loss of employer contributions and pension benefits.
FSAVCs (Free Standing Additional Voluntary Contributions) are extra pension contributions that an individual makes to a separate scheme, independent of their employer’s main occupational pension scheme.
GQ 7 - What is persistency and how is it calculated? What are the reporting requirements? Who does it apply to?
Persistency measures the percentage of an insurer’s policies that remain active without lapsing or being replaced. It reflects customer retention and the quality of advice given when selling policies.
Applies to regular and single premium life & pension contracts (excluding term assurance and policies cancelled early under cooling-off rules).
Persistency is calculated by comparing the number of policies still active at the end of a year versus those sold that year.
Product providers must report persistency data for the first four years of a policy to the FCA annually, categorised by sales channel and contract type.
The FCA publishes industry-wide persistency figures to monitor market trends and ensure good consumer outcomes.
GQ 7 - How often must a firm submit number of complaints statistics?
Twice per year.
Firms must report the number of complaints:
- closed by the firm within 3 days of receipt;
- closed after 3 days but within 8 weeks of receipt;
- closed more than 8 weeks after receipt;
- the total number closed; and
- the total number upheld.
GQ 7 - The training and competence (T&C) rules only apply to which type of business?
Retail business (both MiFID and non-MiFID)
(activities involving individual (retail) clients rather than professional or institutional clients. Retail clients are typically everyday consumers who may lack financial expertise and require greater regulatory protection.)
GQ 7 - Who do training and competence (T&C) rules apply to (3)?
1) those that provide advice, e.g. investment advisers, mortgage advisers and general insurance advisers;
2) those that supervise them; and
3) overseers – selected management roles in key administration functions such as claims and processing new business.
Senior managers and other staff are not subject to the T&C requirements, but they are subject to SM&CR and other requirements. If they are supervising those in roles covered by T&C then they will also be subject to the same requirements.
GQ 7 - How many hours per year should someone spend on continuous professional development (CPD)?
How many should it be if advising on pension transfers and opt-outs?
How many if selling insurance?
35 hours, at least 21 should be structured
Structured = defined learning outcome
If advising on pension transfers and opt-outs:
Requires an additional 15 hours, 9 of which should be structured. At least 5 hours must be given by an external independent provider.
If selling insurance, must complete at least 15 hours of CPD. This can be included within the 35 hours but must be on relevant subjects.
GQ 7 - What’s the time limit people entering the industry as an investment advisor have to completed Level 4 exams?
48 months (4 years)
*E book 7 - An employee of an FCA regulated firm advising retail clients should obtain ongoing training in which areas?
Changes in the market, products, legislation and regulation
E book 7 - What are the 3 stages of money laundering?
- Placement – Illicit cash is introduced into the financial system through bank deposits, building societies, life assurance policies, or investments like unit trusts. This converts dirty money into payments from legitimate institutions.
- Layering – Complex transactions disguise the money’s origins by moving funds through multiple accounts, insurance policies, and investments.
- Integration - he laundered money re-enters the economy as legal business earnings or investments. E.g. buy property, invest in businesses, or secure loan.
GQ 7 - In a regulated firm, who is in charge of disclosing Money Laundering suspicions? Who do they disclose it to?
The Money Laundering Reporting Officer (MLRO) is responsible for disclosing money laundering suspicions/knowledge to the National Crime Agency (NCA).
Staff who are not the MLRO should not report their suspicions/knowledge to the NCA directly.
Firm Staff -> MLRO -> NCA
GQ 7 - When can Simplified Due Diligence (SDD) take place?
If, taking into account its risk assessment, the business relationship or transaction presents a low degree of risk
GQ 7 - When must Enhanced Customer Due Diligence take place? (3)
1) If the customer is not present for a transaction
2) If the customer is a politically exposed person (PEP)
3) If the customer is from a high risk third country
GQ 7 - How often should an authorised firm undertake a review of anti-money laundering systems and processes? Who should report this?
Annually by obtaining a report from the MLRO.
GQ 7 - How long should firms keep client identity records and from when?
5 years after the end of the customer relationship or 5 years from when the transaction was completed.
Records can be kept as original documents, photocopies, or in computerised or electronic form. Records should also be kept of internal/external reports and decisions as part of the suspicious activity reporting.
GQ 7 - What does the Assets Recovery Agency (ARA) do? What is the ARA part of?
Part of the NCA
Confiscate from criminals the proceeds of their crimes (for example, by obtaining a court order empowering it to sell a defendant’s assets). If criminals used life policies or investment products to hide illegal earnings, ARA could freeze or confiscate those assets.
The ARA could calculate and demand tax on these illicit profits, even if they were obtained illegally.
GQ 7 - How do people obtain their personal data? How long does a firm have to respond?
Subject Access Request (SAR). Verbally or in writing.
Firms need to respond within 1 month or up to 3 months if the request is complex.
GQ 7 - How long does a firm have to respond to a request for rectification of data, objection and erasure of data? How can these requests be communicated?
1 month
Verbally or in writing.
GQ 7 - Who should organisations report data breaches to?
The Information Commissioner’s Office (ICO)
If the risk is high, data subjects much be alerted to the breach.
GQ 7 - For serious data breaches, what fines can the Information Commissioner’s Office (ICO) levy?
Fines of up to £17.5m or 4% of annual global turnover if higher
GQ 7 - When must a firm refer in writing to the availability of its complaints procedure?
At the point of sale or immediately after
GQ 7 - If a firm has reasonable grounds to be satisfied that another firm may be solely responsible for the complaint, within how many days do they have to refer the complaint to the other company?
The referral must be made in writing and will usually be within 5 business days of the date of complaint. The original firm will inform the complainant of this action in writing and will include the other firm’s contact details.
GQ 7 - How many business days does it take for a complaint to be described as ‘rapid resolution’? What should the firm send to the client in this scenario?
3 business days.
A complaint may be considered resolved if the complainant has indicated their acceptance of the response made by the firm, neither the response, nor the acceptance need be in writing.
E.g. A customer, Jane, notices an unauthorized charge on her bank account and calls her bank’s customer service to report the issue. The representative quickly investigates and finds that the charge was a mistake. The bank immediately reverses the charge and informs Jane of the resolution over the phone.
The firm is only required to send a summary resolution document. Which gives FOS details and summarises the complaint which is now resolved.
GQ 7 - How long does the client have to refer a complaint to the FOS?
6 months from the date of receiving the final response from the firm.
GQ 7 - Describe the good practice in handling complaints. (3 stages) What must a firm do if it’s not a rapid resolution complaint? After how long should the client receive a final response?
If not a rapid resolution case:
1) Acknowledgement of the complaint must be within a reasonable amount of time e.g. Within 5 working days (but not a hard set time), send a copy of the complaints procedure. Assign someone to handle the complaint. Provide contact details of the referral.
2) Keep the client information: E.g. Within 4 weeks (but not a hard set time), EITHER: Send a summary of the complaint, investigation summary, details of the offer and its time limit, and the details of the FOS
OR send a holding notice.
3) Within 8 weeks: EITHER: send a final response (same as 4 weeks above)
OR: Explain when the firm will be able to resolve the complaint and the customer’s right to refer to the FOS within the next 6 months.
GQ 7 - How long should complaint records be held (MiFID and non-MiFID)? How often should the FCA receive complaints statistics and how is this provided?
MiFID: 5 years
Non-MiFID: 3 years
A firm must supply complaints statistics to the FCA twice a year. This is done through the RegData online reporting system.
E book 7 - Derek, a retail client of firm ABC regulated by the FCA, wishes to make a complaint about financial advice he has received from Richard, one of ABC’s advisers. To whom in the first instance should he complain?
He should complain in the first instance to firm ABC. If he is unable to gain satisfaction, then he may refer the matter to the FOS.
GQ 7 - Firms that receive how many complaints in what time period must publish their complaints handling statistics on their own website or make them publicly available in another accessible way?
500 complaints within 6 months.
Additionally, the Financial Conduct Authority (FCA) compiles and publishes a consolidated list of complaints data covering all affected firms twice a year on the FCA’s website.
GQ 7 - The complainant can refer their complaint to the FOS within the earliest of?:
- 6 months of the date on the firm’s letter advising the claimant of its final decision regarding the complaint;
- 6 years after the event complained about; or
- 3 years after the complainant knew, or should have known, that they had cause for complaint.
The FOS is able to consider complaints outside these time limits in exceptional circumstances, such as cases involving pension transfers and opt-outs. It can also review cases outside the time limits if the organisation agrees.
GQ 7 - How long does the FOS aim to answer the complaint?
3 months
E book and GQ 7 - What are the maximum monetary awards the FOS can require a firm to make to a complainant?
2 Scenarios:
a) Date complaint referred to the FOS on or after 1 April 2024 and date of act or omission occurred on or after 1 April 2024
b) Date complaint referred to the FOS on or after 1 April 2024 and date of act or omission occurred before 1 April 2024
a) £430k
b) £195k
The FOS may also decide that the firm should pay interest on top of any compensation due. This is calculated at a rate of 8% per year, unless the claim relates to a period before April 1993.
GQ 7 - What happens if the FOS decision is rejected by the complainant?
They are free to pursue the matter in court
GQ 7 - How is the FOS funded?
- A general levy paid by all firms
- A case fee payable by the firm to which the complaint relates.
GQ 7 - What’s the limits of compensation for deposits, investments, long term insurance, general insurance, home finance mediation (mortgages etc), pensions?
For deposits, what’s the targeted number of days for a payout?
- Deposits, investments, home finance mediation and SIPP (self invested personal pension) operator pensions: 100% of the first £85,000 per person per authorised firm (£170k for joint accounts)
-For deposits: certain temporary high balances of up to £1m or 6 months from date of deposit (in cases e.g. sale of a house or inheritance)
- Long-term insurance product providers (i.e. insurance companies themselves) and compulsory general insurance (i.e. must-have insurance e.g. motor insurance and employers’ liability): 100% of the claim no upper limit
-Long-term insurance intermediaries (e.g. an advisor who sold you insurance fails) and general insurance non-compulsory insurance (e.g. travel, home, life) - 90% of the claim with no upper limit
-Insured personal pension/pension provider and annuities: 100% of the claim
GQ 7 - How is the FSCS funded?
A levy on authorised firms.
GQ 7 - How is the The Pensions Ombudsman funded?
The Pensions Ombudsman is funded by grant-in-aid paid by the Department for Work and Pensions. The grant-in-aid is largely recovered from the general levy on pension schemes administered by the Pensions Regulator.
GQ 7 - What s the purpose of the Pension Protection Fund (PPF)?
The purpose of the PPF is to ensure that an employee of a company that has ceased trading will continue to receive pension payments for the funds held under a pension scheme, even though their employer has ceased trading.
The PPF is also responsible for the Fraud Compensation Fund – a fund that will provide compensation to occupational pension schemes that suffer a loss that can be attributable to dishonesty.
E book 7 - Firms that are subject to the Money Laundering Regulations must comply with certain requirements.
Julia, Kyle and Luke have some suggestions about what these requirements are. Select their pictures below to see what these are.
Julia: All firms must verify the identity of their customers.
Kyle: Firms must register with a supervisory authority, for example, for financial services providers this will be the FCA.
Luke: The firm must limit any financial transactions with new customers to a defined amount.
Having read their suggestions, select who you think is correct.
Select one or more answers, then select Submit to confirm.
a) Julia
b) Kyle
c) Luke
A & B
E book 7 - Under the Money Laundering Regulations, firms must take practical measures to check the identity and addresses of any new clients.
Which of these would you suggest are a sufficient means of verifying a new client’s identity?
Select one or more answers, then select Submit to confirm.
a) Current passport
b) Utility bill
c) Bank statement
d) Photocard provisional driving licence
a & d
If the government issued identity card doesn’t have a photo, a utility bill or bank statement can supplement this.
GQ 7 - What is the difference between data controllers and data processors?
Controllers - Say how and why personal data is processed. Must ensure their contracts with processors comply with the UK GDPR
Processors - Those who act on behalf of controllers. They are required to maintain records of personal data and processing activities.
*E book 7 - What do you think the main purpose of data protection regulation is?
Select one answer, then select Submit to confirm.
a) Prohibiting the storage of personal information on computers
b) Regulating the use of computers, automatic data processing equipment and relevant filing systems
c) Making the pirating of computer software illegal
d) Preventing firms selling private information about an individual
e) Making it illegal to hack in to an individual’s private data
b
The rules encourage personal information about people to be kept confidential and prohibit the unauthorised disclosure of personal records to third parties.
E book 7 - Suppose you arrive at work to find that you have the four situations below to resolve.
Do you think they should be classed as a ‘complaint’?
Select one or more answers, then select Submit to confirm.
a) A telephone message about a customer that alleged poor service by a colleague which, upon investigation, turns out to be untrue
b) A telephone message about a customer who is unhappy as they have not been given a refund in the required timescales
c) A letter that accuses an adviser of not sending out documentation within a stated period
d) A meeting in which a customer expresses unhappiness about the value of his investment, the details of which you are unsure until you investigate
a, b, c & d
GQ 7 - List the eligible complainants (7)
1) Consumers
2) Micro-enterprises with fewers than 10 employees and turnover/BS total no more than €2m (Micro-enterprise is an EU term hence the €)
3) Charities with an annual income of less than £6.5m
4) Trustees of a trust with net value less than £5m
5) Consumer buy-to-let consumers
6) Small businesses with an annual turnover of less than £6.5m and fewer than 50 employees, or a BS of less than £5m
7) guarantors
*E Book 7 - These colleagues think they know about handling complaints. Here are their thoughts. Decide who has their facts right.
Select one or more answers, then select Submit to confirm.
A) Sue says ‘A complaint must be acknowledged within five business days of receipt.’
B) Megan says ‘A final response or holding response must be sent within eight weeks.’
C) Carl says ‘An eligible complainant could be a very small company with nine employees and an annual turnover of €1.5m.’
B & C
Acknowledgment of the complaint must be within a ‘reasonable amount of time’. There is no time set for this to be achieved. It is for the firm to set the reasonable amount of time and state why it considers it reasonable.
If the customer does not agree with the final response, which must be sent within eight weeks, or the firm is unable to resolve the complaint within eight weeks, the complainant has the right to refer the matter to the Financial Ombudsman Service (FOS) within six months of receiving the firm’s final or other response. The customer must be informed of this right in the response itself.
*E book 7 - Earlier in this topic we referred to the Financial Ombudsman Service (FOS).
Choose whether the statements about this service are true.
Select one or more answers, then select Submit to confirm.
A) The panel of FOS ombudsmen are liable for their actions
B) Time limits apply to the making of a complaint to the FOS
C) FOS decisions are binding on both the complainant and respondent to the complaint
D) The maximum binding award that the FOS can make against a respondent to a complaint is generally £430,000
E) The FOS jurisdiction is restricted to activities carried on, in or from a UK establishment
B, D and E
Not A - The FOS consists of a chief ombudsman and a panel of ombudsmen. They are not liable for their actions unless there is bad faith, or a breach of the Human Rights Act 1998.
B - An eligible complainant must refer the matter to the FOS within the earliest of:
*six months after the firm’s final response;
*six years after the event complained about; or if later
*three years after the complainant knew, or should have known, that they had cause for complaint.
Not C - The FOS must notify its decision, with reasons, in writing to both parties. The complainant must accept or reject the decision within a specified time limit. If they accept the decision, it is binding on the respondent. If they reject the decision, they are free to pursue the matter in court. ‘No response’ is treated as a rejection by the complainant and the respondent is no longer bound by the decision.
D - Where appropriate, the FOS can add awards for distress or inconvenience, interest and costs. The maximum award that is binding on a firm is currently £430,000.
E - The FOS jurisdiction is compulsory for authorised firms and voluntary for firms not needing authorisation.
Compulsory jurisdiction takes in all regulated activities plus mortgages and unsecured lending, paying money by plastic card, ancillary banking services and consumer credit. It can also deal with complaints about NS&I.
- E book 7 - The conversation between Megan, Sue and Carl turns to how the FOS is mainly funded. Who has their facts right this time?
Select one answer, then select Submit to confirm.
a) Sue thinks it is funded by a levy on participating firms
b) Megan maintains it is funded by charging a case fee to handle disputes
c) Carl says it is funded by Government subsid
a
*E book 7 - Which of these claimants do you think will not be eligible for compensation under the FSCS?
Select one or more answers, then select Submit to confirm.
a) A large company
b) An overseas firm
c) A local authority
d) A trustee of a collective investment scheme
e) An alternative investment fund
a, b, c, d & e
None of these claimants would be eligible for compensation. The FSCS was set up mainly to assist private individuals, although smaller businesses are also covered.
The FSCS lists different categories of ineligible claimants, although it qualifies this by saying that:
- most persons and organisations of whatever size, are eligible in respect of long-term insurance (e.g. life assurance); and
- all persons and organisations are eligible in respect of compulsory insurance (e.g. motor insurance).
E book 7 - Jackie, David and Bilal are all eligible for compensation under the FSCS. Select which of the statements about the compensation they can receive are false.
Select one or more answers, then select Submit to confirm.
a) Jackie has £105,000 on deposit with her bank when it goes into liquidation. She will receive £85,000 from the FSCS
b) David has £92,500 invested in a unit trust. If the managing trustee company files for bankruptcy, David can claim £92,500 from the FSCS
c) Bilal has an employers’ liability insurance claim for injury to his back which has been agreed at £150,000, when the insurance company goes into liquidation. Bilal can claim £135,000 from the FSCS (90% of the claim with no maximum)
b & c
The limit of compensation for deposits is 100% of amounts up to a maximum of £85,000.
The limit of compensation for investments is 100% of the first £85,000.
The limit of compensation for claims against compulsory insurance policies, such as employers’ liability claims, is 100% of the claim, with no upper limit, so Bilal receives the full £150,000.
E book 7 - Choose whether these statements about the FSCS are true.
Select one or more answers, then select Submit to confirm.
a) The FSCS may make payment direct to a pension scheme rather than an individual where it’s necessary to avoid breaching tax law
b) The estate of a deceased person cannot claim against the FSCS
c) The FSCS can decide to reduce compensation
a & c
It is possible for a claimant to have a payment made to a pension scheme, as the claim may be in respect of a firm in default that has not made payments to a scheme on behalf of the claimant (and for which the claimant will have received some tax relief).
The FSCS can reduce compensation if:
- there is evidence of contributory negligence by the claimant;
- paying the full amount would provide a greater benefit than the claimant might reasonably have expected; and
- payment would provide greater benefit than that available on similar investments with other firms.
KC 7 - In its bi-annual report to the FCA about complaints, in addition to confirming the total number of complaints that were upheld, a firm must also include detail regarding the number of complaints closed:
Select one:
a.
within three days, within eight weeks and after eight weeks of receipt.
b.
within three days and within six weeks of receipt.
c.
within four weeks, within eight weeks and after eight weeks of receipt.
d.
within eight weeks of receipt.
a
KC 7 - Which of the following fall within prescribed FCA timescales for dealing with Jim’s complaint against Ingram Investments?
Select one or more:
a.
Jim is informed, at regular intervals, about progress in resolving his complaint.
b.
In the final response, Jim is advised that he has a right to refer the matter to the Financial Ombudsman Service within three months.
c.
Ingram believes that another firm is solely responsible, and referral is made eight days after the complaint is received.
d.
The complaint is resolved in seven weeks.
a & d
KC 7 - To be regarded as a ‘rapid resolution complaint’, the authorised firm must:
Select one or more:
a.
ask the client to confirm their written agreement to the firm’s offer.
b.
deal with the complaint within three business days.
c.
send the client a summary resolution communication.
d.
deal with the complaint within five business days.
e.
confirm the client’s right to refer the matter to the Financial Ombudsman Service.
b, c & e
KC 7 - UK GDPR requires all UK organisations to report certain types of data breach to both the individuals affected and the:
Select one:
a.
FCA.
b.
Information Commissioner’s Office.
c.
internet service provider.
d.
police.
b
KC 7 - Which of these complainants is UNABLE to take their complaint to the Financial Ombudsman Service?
Select one:
a.
Tread Tyres Ltd, with 60 employees and an annual turnover of £10m.
b.
Save Us Charity, with income of £6m.
c.
Harold, a guarantor on his son’s mortgage.
d.
Asha, the trustee of a trust with assets of £2.5m.
a
KC 7 - Within how many days must a ‘rapid resolution complaint’ be dealt with by the firm after receiving it?
Select one:
a.
Seven calendar days.
b.
Three business days.
c.
Five business days.
d.
Five calendar days.
b
KC 7 - Which type of products are subject to the FCA rules on persistency?
Select one:
a.
Regular and single premium life and pension contracts.
b.
Policies terminated within the cooling off period.
c.
Policies cancelled at outset.
d.
Term assurance.
a
Persistency measures the percentage of an insurer’s policies that remain active without lapsing or being replaced. It reflects customer retention and the quality of advice given when selling policies.
Applies to regular and single premium life & pension contracts (excluding term assurance and policies cancelled early under cooling-off rules).
Persistency is calculated by comparing the number of policies still active at the end of a year versus those sold that year.
Product providers must report persistency data for the first four years of a policy to the FCA annually, categorised by sales channel and contract type.
The FCA publishes industry-wide persistency figures to monitor market trends and ensure good consumer outcomes.
*KC 7 - Malik took out a personal pension through a financial adviser a few years ago. He now wishes to see a copy of his suitability letter and the promotional literature he received at that time. In this case:
Select one:
a.
records relating to the advice will have been retained for a minimum of five years, and the literature for six years.
b.
records relating to the advice will have been retained indefinitely, and the literature five years.
c.
the fact-find will have been retained indefinitely, the suitability letter for five years, and there are no rules relating to literature.
d.
all records relating to the sale of personal pensions, including literature, must have been retained for six years.
a
The standard periods of record-keeping under the COBS rules differ according to the type of firm and the nature of the records, however they can be summarised as follows:
- Indefinitely – for pension transfers, pension opt-outs and FSAVCs (free standing additional voluntary contributions).
- Five years – for life policies and pension contracts, although financial promotions for such products should be retained for six years.
- Five years – in most other cases, although non-MiFID firms are only subject to a three-year requirement in some circumstances.
*KC 7 - When would it be necessary for an authorised firm to apply for ‘reauthorisation’ by the FCA?
Select one or more:
a.
Two officials in an unincorporated association have retired and have been replaced.
b.
A business is being transferred from a partnership to a limited company.
c.
In a partnership of two, one of the partners has died and the remaining partner will continue as a sole trader.
d.
A business of a sole trader is becoming a limited company.
e.
A partnership of three is expanding and has recruited a further two partners.
f.
A partner in a firm of six has retired and has not been replaced.
b & d
If a firm is authorised and it is thinking of changing its legal status, e.g. from being a partnership to a limited company, the new legal entity must apply for authorisation. This is because the FSMA does not permit the authorisation to be transferred from one legal entity to another.
Not a, c, e or f because:
HM Treasury amended s.32 of the FSMA in 2007 to help partnerships and unincorporated associations considering applying for authorisation following a change in their membership. In particular, it means that the remaining partner of a two-person partnership can continue carrying on regulated activities through that firm’s existing authorisation in the event of the death or resignation of the other partner. In the case of larger partnerships, where there is either an increase or decrease in the number of partners, continuity of authorisation will be maintained providing that the partners are succeeding to the business of the firm.
KC 7 - An IFA is looking to recruit a paraplanner and is uncertain whether this role is a certification function under the Senior Managers and Certification Regime. You tell him that:
Select one:
a.
it depends on whether the paraplanner has the relevant paraplanning qualifications.
b.
it will apply if the paraplanner deals directly with clients and undertakes due diligence.
c.
the paraplanner role is not a certified function.
d.
the paraplanning role is a certification function if they work for one adviser only.
b
*KC 7 - Diane had her appointed representative contract terminated by Gamma Life on Monday 5 January. The FCA must be notified of her termination no later than:
Select one:
a.
Wednesday 7 January.
b.
Thursday 8 January.
c.
Monday 12 January.
d.
Monday 19 January.
d
If the contract is terminated by the principal it will advise the AR in writing that the contract has been terminated, and that it will no longer be permitted to undertake regulated business unless alternative arrangements are to be made. The FCA must be notified within ten business days of the termination of an AR’s contract.
KC 7 - Under the Financial Ombudsman Service rules, which clients are eligible complainants?
Select one or more:
a.
Sam’s Seafood Restaurant, which employs 52 staff and has a balance sheet surplus of £5.1m.
b.
Max, a keen amateur investor.
c.
Kellaway Housing Ltd, which has 54 employees and an annual turnover of £6.6m.
d.
The Payton Partnership, which employs 19 people and has turnover of £4m per annum.
e.
The Brandon Trust, which has a net asset value of £2.7m.
b, d & e
KC 7 - Following an action in July 2024 and subsequent complaint, the Financial Services Ombudsman made an award of £145,000. Excluding costs and interest, what additional amount could it have awarded, if it had decided to award the maximum binding monetary amount to cover any financial loss?
Select one:
a.
£50,000.
b.
£25,000.
c.
£285,000.
d.
£270,000.
c
Maximum is £430k
*KC 7 - The key aims of the Senior Managers and Certification Regime [SM&CR] are to:
Select one or more:
a.
make the firm responsible for authorising all of those who undertake senior management functions.
b.
ensure that all those who undertake significant harm functions are pre-approved by the regulators.
c.
make the firm responsible for authorising those who undertake significant harm functions.
d.
give the FCA wider powers to take enforcement action.
e.
provide greater clarity of responsibility.
c, d & e
The key aims of the SM&CR are as follows:
- Encourage greater clarity of responsibilities.
- Improved corporate governance demonstrating clearer accountability for decision making.
- Ensure that responsibility is clear and that firms don’t rely on collective board responsibility.
- Identify who really runs the firm (i.e. senior management) removing or at least limiting parent company involvement in a regulated firm.
- Give the FCA a sound framework against which to take enforcement action against individuals when serious issues occur.
- Place the responsibility of ‘authorising’ those who undertake significant harm functions, such as an investment adviser, on the firm rather than the FCA (this is known as certification).
KC 7 - During the process of applying to the FCA for authorisation to carry out a regulated activity, a firm must:
Select one or more:
a.
refrain from carrying out any type of business, regulated or not, pending the regulator’s decision.
b.
wait up to twelve months for a decision from the FCA if its application was incomplete.
c.
ensure that the persons running the firm are fit and proper.
d.
become a limited company if it makes its application as a sole trader or partnership.
e.
make it clear to the regulator which activities it wishes to be included in its Part 4A permission.
b & e
KC 7 - Under what circumstances, if any, can an appointed representative hold client money?
Select one:
a.
It is subject to the same client money regime as the principal authorised firm.
b.
It is not permitted to hold client money under any circumstances.
c.
It can only hold client money with the prior consent of the principal authorised firm.
d.
It is only permitted to hold client money overnight.
b
KC 7 - Patty’s firm is required to re-assess on an annual basis that she is fit and proper to conduct her role and to issue her with a certificate to confirm this. This means that Patty is a[n]:
Select one:
a.
customer-facing adviser.
b.
holder of a controlled function.
c.
approved person.
d.
certified person.
d
*KC 7 - Under the Senior Managers and Certification Regime [SM&CR], a firm can be classified as:
Select one:
a.
approved.
b.
core.
c.
restricted.
d.
authorised.
b
SM&CR is applied to solo-regulated firms in a proportionate manner by dividing firms into three categories:
1) Limited scope firms
2) Core firms
3) Enhanced firms
(SM&CR applies to dual and solo regulated firms)
KC 7 - SureSearch Ltd has breached a data protection principle. This is most likely to be because it:
Select one:
a.
separated consent to process personal data from its general terms and conditions.
b.
failed to refresh existing consents in preparation for the General Data Protection Regulations.
c.
had a lawful basis to process personal data but failed to obtain consent.
d.
relied on pre-ticked boxes to verify consent to process personal data.
d
Lawful processing
The processing of personal data is unlawful unless one of the legal bases set out in the legislation applies. This means that organisations need to identify a legal basis for the processing.
Consent:
Consent must be freely given, specific, informed, and an unambiguous indication of the individual’s wishes. It must be quite distinct from other terms and conditions; it must be given for an identified purpose; and there must be some form of positive opt-in. It cannot be inferred from silence, pre-ticked boxes or inactivity. Organisations need to make it as simple for people to withdraw consent as it was to give it. It is advisable to find an alternative legal basis where possible.
KC 7 - Sean is currently a teacher but is considering a career change to become a retail investment adviser. To do so with his Level 4 qualification:
Select one or more:
a.
he will have 30 months within which to achieve full competence.
b.
he will normally have 48 months within which to pass this.
c.
he will have to take similar exams every five years.
d.
he must pass the exam by the third attempt.
e.
there are no FCA restrictions on the number of attempts at taking this exam.
b & e
KC 7 - A charity has made a complaint to a bank about an inappropriate product recommendation that resulted in a financial loss. In following the FCA complaints-handling requirements, the bank will have:
Select one or more:
a.
informed the Financial Ombudsman Service of the charity’s complaint as soon as it was received.
b.
notified the charity of its right to refer the matter to the Financial Ombudsman Service in its final response letter.
c.
kept the charity informed of progress and the measures being taken to resolve the situation.
d.
acknowledged the complaint when it was first received.
e.
provided a final response to the charity’s complaint after ten weeks of investigations.
b, c & d
KC 7 - An FCA authorised firm is most likely to appeal to the Upper Tribunal [Tax and Chancery Chamber] because the:
Select one:
a.
FCA has refused its application for authorisation.
b.
firm wishes to conduct retail investment business from a non-UK registered office.
c.
firm disagrees with an award made against it by the Financial Ombudsman Service.
d.
FCA has threatened to withdraw its permissions for the non-payment of FCA fees.
a
*KC 7 - The Pensions Ombudsman can consider complaints relating to:
Select one or more:
a.
the administration of occupational pension schemes.
b.
the sale of stakeholder pension schemes and personal pensions.
c.
the investment performance of a defined contribution occupational pension scheme.
d.
advice to transfer out of an occupational pension scheme.
e.
the decisions of the Pension Protection Fund.
a & e
When someone has tried to resolve a problem with their pension and is not satisfied with the outcome, they can ask The Pensions Ombudsman to help.
This is an independent organisation set up by law to investigate complaints about pension administration. It can also consider complaints about the actions and decisions of the Pension Protection Fund.
*KC 7 - UK GDPR sets out the main responsibilities for organisations. It states that all personal data should be:
Select one or more:
a.
processed lawfully, fairly and in a transparent manner for individuals.
b.
deleted immediately after it has been used for the purpose it was acquired.
c.
held for no longer than is necessary and in any event no longer than six years.
d.
accurate and where necessary kept up to date.
e.
processed in a manner that ensures appropriate security of the personal data.
a, d & e
1) Lawfulness, fairness and transparency.
There must be a lawful basis for processing personal data. Any unlawfulness, whether it is a breach of the data protection legislation or not, will be a breach of this principle.
Data should be processed fairly which means it should be processed in ways that people would reasonably expect.
Organisations must be clear, open and honest with individuals about the personal data they are processing and why and how they are doing it. This may be achieved with the publication of a privacy notice.
2) Purpose limitation. Data should not be processed for reasons other than those for which the information was obtained in the first place. For example, personal information provided when a person registers with an online retailer should not be provided to third parties without the person’s consent.
3) Data minimisation. Organisations must use the minimum amount of data required to fulfil their purposes. They must process no more information than they need. For example, is a date of birth really necessary?
4) Accuracy. Data should be accurate and kept up to date. This includes granular detail such as addresses.
5) Storage limitation. Information must be kept no longer than is necessary to achieve its purpose. For example, is there a justification for keeping an entire file for six years? Can some sections of it be destroyed before then?
6) Integrity and confidentiality. Organisations must ensure that they have appropriate security measures in place to protect the data they hold.
7) Accountability. Organisations must take responsibility for what they do with personal data and how they comply with the other principles. They should keep records to demonstrate compliance. Providing accessible information to individuals about the use of their personal information is a key element of compliance; most organisations do this via a Privacy Notice, which can usually be found on their website.
KC 7 - Insurance companies manage and reduce the financial risks to their businesses by:
Select one:
a.
maintaining adequate levels of solvency and reinsurance arrangements.
b.
maintaining adequate levels of capital adequacy and by ensuring senior managers meet ‘fit and properness’ requirements.
c.
ensuring senior managers meet ‘fit and proper’ requirements and by submitting business plans to the regulator every six months.
d.
submitting business plans to the regulator every six months and arranging reinsurance.
a
Authorised firms must have systems in place to manage the risks they are subject to. These vary according to the type of business but include capital adequacy rules. Firms have to keep abreast of all relevant changes to the business environment and do their best to reduce and/or control the risks these present. For insurance companies, this includes maintaining an adequate solvency margin and reinsurance arrangements (control environment). It should be understood, however, that some things are beyond any firm’s control (e.g. tax law changes) and it is not possible for a business to guarantee it will always survive no matter what occurs.
KC 7 - Veronica made a verbal complaint to her mortgage adviser on 1 October. Having heard nothing, she put her grievances in writing on 18 October. She received an acknowledgement on 29 October and a final response on 13 January. This tells us that:
Select one or more:
a.
the complaint has been dealt with correctly as the initial complaint was verbal and so falls outside the FCA requirements.
b.
she should have been advised of her right to refer the matter to the Financial Ombudsman Service by 22 December.
c.
the final response letter was not sent within the prescribed time limits.
d.
the complaint has not been dealt with correctly as the complaint was not acknowledged promptly.
c & d
*KC 7 - Measures & Co apply for FCA authorisation. How long does the FCA have to make a decision under the statutory time limit standards, assuming that the application is complete?
Select one:
a.
Three months.
b.
Six months.
c.
One month.
d.
Twelve months.
b
The regulator will make a decision under the statutory time limit standards which are within the earlier of six months of receiving a complete application, or twelve months of receiving an incomplete application.
KC 7 - How do the client asset rules apply to an appointed representative?
Select one:
a.
It is permitted to hold its clients’ assets for a maximum period of 7 days, but can only hold client money for 48 hours.
b.
It is permitted to hold its clients’ assets and money for a maximum period of 7 days.
c.
It is permitted to hold its clients’ assets indefinitely, but can only hold client money overnight.
d.
It is permitted to hold its clients’ assets for a maximum period of 28 days, but it is not permitted to hold client money under any circumstances.
d
KC 7 - Raj is the managing director of Heritage Wealth Ltd, a small financial planning firm, which employs two further advisers, Mitch and Doyle. In this situation:
Select one or more:
a.
Raj is a senior management function.
b.
Raj is the authorised person.
c.
Heritage Wealth Ltd is the authorised person.
d.
Raj is the authorised person and Mitch and Doyle are senior management functions.
e.
Raj, Mitch and Doyle all hold senior management functions.
a & c
KC 7 - Who is responsible at a firm for ensuring compliance with data protection regulations?
Select one:
a.
The data processor.
b.
The data administrator.
c.
The data controller.
d.
The data subject.
c
KC 7 - Beryl has an investment bond with an insurance company worth £140,000, and savings in a building society of £110,000 held jointly with her husband. If neither institution was able to meet its liabilities, what would Beryl receive under the Financial Services Compensation Scheme?
Select one or more:
a.
£140,000 from the investment bond.
b.
£85,000 from the investment bond.
c.
£110,000 of savings.
d.
£85,000 of savings.
e.
£55,000 of savings.
a & e
An investment bond falls under Long-term insurance because it is typically structured as a life insurance policy with an investment element.
If the provider (insurance company) fails → 100% of the claim with no upper limit.
If an intermediary (financial adviser) fails → 90% of the claim (in some cases, 100%).
KC 7 - Why might a charity be INELIGIBLE to refer a complaint to the Financial Ombudsman Service [FOS]?
Select one or more:
a.
It has an annual income in excess of £6.5m.
b.
It has 45 employees.
c.
It waited more than six months after receiving the final response letter before referring to the FOS.
d.
The recipients of its charitable donations are not based in the UK.
a & c
KC 7 - Stealth Life, a new insurance company, has applied to both the PRA and the FCA for authorisation. It would be correct to say that:
Select one:
a.
of the two regulators, the FCA will lead and manage the administration of Stealth Life’s application.
b.
the PRA will determine whether Stealth Life meets the Threshold Conditions.
c.
a decision will be made within six weeks of receiving a complete application from Stealth Life.
d.
Stealth Life’s authorisation is subject to a probationary period.
b
*KC 7 - Ellis & Co applied for FCA authorisation but had to wait almost a year before receiving the FCA’s decision. What is most likely to be the reason for this?
Select one:
a.
This firm had previously applied for FCA authorisation and had been declined.
b.
This was the firm’s first application to the FCA for authorisation.
c.
The firm’s application to the FCA for authorisation was incomplete.
d.
The firm has previously been authorised by the FCA and then ceased trading.
c
The regulator will make a decision under the statutory time limit standards which are within the earlier of six months of receiving a complete application, or twelve months of receiving an incomplete application.
KC 7 - Which roles are certification functions within the Senior Managers and Certification Regime?
Select one or more:
a.
Catering staff.
b.
Investment managers.
c.
Administrator.
d.
Non-executive director.
e.
Mortgage advisers.
b & e
KC 7 - How long must an authorised firm keep records of a defined benefits transfer to a personal pension?
Select one:
a.
Five years.
b.
Ten years.
c.
Six years.
d.
Indefinitely.
d
The standard periods of record-keeping under the COBS rules differ according to the type of firm and the nature of the records, however they can be summarised as follows:
- Indefinitely – for pension transfers, pension opt-outs and FSAVCs (free standing additional voluntary contributions).
- Five years – for life policies and pension contracts, although financial promotions for such products should be retained for six years.
- Five years – in most other cases, although non-MiFID firms are only subject to a three-year requirement in some circumstances.
KC 7 - Petra is employed by Premier Bank Ltd as a mortgage adviser. Under the Senior Managers and Certification Regime [SM&CR], who approves Petra to undertake her role?
Select one:
a.
Petra does not require approval to undertake her role.
b.
Premier Bank Ltd.
c.
The PRA.
d.
The FCA.
b
Certified persons need to have a fit & proper test from their employer.
KC 7 - The FCA’s conduct rules apply to:
Select one:
a.
those in senior management roles and those who give advice.
b.
all employees at authorised firms.
c.
those who give advice or deal directly with clients.
d.
all employees at authorised firms, except ancillary staff.
d
KC 7 - What is the maximum term of imprisonment applicable for carrying out a regulated activity without authorisation or exemption?
Select one:
a.
Three years.
b.
One year.
c.
Five years.
d.
Two years.
d
*KRO 7 - Which of these individuals, performing their various roles within an authorised firm governed by the Senior Managers & Certification Regime, would require to be initially approved by the Financial Conduct Authority as being ‘fit and proper’ for that role?
Multiple-response
a) Adnan, a financial adviser who often deals with pension transfers
b) Camille, who is responsible for the safety of client monies held with the firm
c) Chrissie, who is the Head of Compliance within the firm
d) Malachi, who is the firm’s Money Laundering Reporting Officer
c & d
BY THE FCA! So Senior Management!
The other two are certified persons
*KRO 7 - Under the FCA’s Consumer Duty rules, firms must adhere to the overarching cross-cutting rules. These include meaning an authorised firm must
Multiple-response
a) act in good faith towards retail customers
b) avoid causing foreseeable harm to retail customers
c) prove the price and value of all solutions for retail customers
d) provide the best solution for retail customers in all circumstances
e) enable and support retail customers to pursue their financial objectives
a, b & e
c is covered in the consumer duty rules under the ‘four outcomes’ rather than cross-cutting rules
d is desirable but impossible to evidence a best solution has been provided in all situations.
*KRO 7 - Under the Financial Conduct Authority (FCA) rules for record keeping, which of the following documents must be retained for five years?
Multiple-response
a) Life policy contracts
b) Personal Pension contracts
c) Life & Pension related financial promotions
d) General insurance contracts
a & b
c is false because promotions are retained for 6 years
d are non-MiFID related, so need to be retained for 3 years.
*KRO 7 - Following the completion of a fact find on a new client, Siobhan, a financial adviser has recorded the following data as part of the process. Which would be regarded as a ‘special category of personal data’? The fact that Siobhan
Multiple-response
a) is a member of the National Union of Teachers (NUT)
b) receives total income in excess of the additional rate Income Tax band
c) is a Consumer Buy-to-let property owner
d) has a black, Caribbean background
e) is a member of the UK Labour political party
a, d & e
Special category data is racial or ethnic origin / political opinions / religious beliefs / trade-union membership / health or sex life
GQ 7 - What are the 9 Sensitive personal data categories?
race or ethnic origin;
political opinions;
religious or philosophical beliefs;
trade union membership;
genetic data;
biometrics (where used for ID purposes);
health information;
information about sex life; and
sexual orientation.
*KRO 7 - A number of clients have escalated their complaints to the Financial Ombudsman Service (FOS). Which of those listed would be categorised as eligible complainants?
Multiple-response
a) ‘Help-the-Examined’, a registered charity with an annual income of £5.2m
b) Dion, a professional buy-to-let investor with properties valued in excess of £2m
c) KnowRO Limited, which has 35 employees and an annual turnover of £2.5m
d) The trustees of the York Family Trust, which has net assets valued at £5.8m
a & c
1) Consumers
2) Micro-enterprises with fewers than 10 employees and turnover/BS total no more than €2m (Micro-enterprise is an EU term hence the €)
3) Charities with an annual income of less than £6.5m
4) Trustees of a trust with net value less than £5m
5) Consumer buy-to-let consumers
6) Small businesses with an annual turnover of less than £6.5m and fewer than 50 employees, or a BS of less than £5m
7) guarantors
*KRO 7 - Gaurav received a reply to a complaint he made to his financial advisers (the respondent) and received a reply after a week that rejected his complaint. Exactly three months later, Gaurav escalated the complaint to the Financial Ombudsman Service (FOS). It is true to say that
Multiple-response
a) the respondent can categorise the complaint as one resolved as a ‘rapid resolution’
b) Gaurav had more time under the statutory rules to escalate the issue to the FOS
c) the decision made by the FOS could be binding on the respondent only
d) as the respondent replied so quickly, they did not have to refer Gaurav to the FOS
b & c
The respondent is the company that the complaint is made about
*KRO 7 - Which of the following individuals within a Senior Manager & Certification Regime (SM&CR) firm undertake a required function role?
Multiple-response
a) Callum, a financial adviser with a multi-tied product range
b) Sophia, a Money-Laundering Reporting Officer (MLRO)
c) Muhammed, the compliance oversight for the firm
d) Jayne, the head of IT
b & c
GQ 7 - What are 4 examples of Governing roles in Core firms? What are 2 examples of required roles?
Governing:
- Chief Executive
- Executive
- Non-Executive Chair
- Partners
Required:
- Compliance Oversight
- Money Laundering Reporting Officer
*KRO 7 - Concerning the Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS), consumers should be aware that
Multiple-response
a) the FSCS does not cover funds deposited in a bank registered in Jersey
b) the FSCS is funded by levies on the financial services industry
c) the respondent firm is charged a case fee by the FOS on every complaint made against them
d) the FOS award compensation to those whose bank has failed where they had more than £85,000 deposited
a & b
Jersey is not part of the UK so is not covered by the FSCS (there’s a separate Jersey Depositor Comp Scheme)
c is false because the the FOS doesn’t charge repsondents on their first 3 cases each financial year.
KRO 7 - Novak has been an investment adviser for over five years and is keen on being able to give advice concerning pension transfers. He should be aware that
Multiple-response
a) he will need to pass specific qualifications to be able to advise on pension transfers
b) details of any training he receives on pension transfers must be kept indefinitely
c) he must complete three pension transfers over a 12 month period in order to achieve competence
d) his experience as an investment adviser allows Novak to commence working on pension transfers immediately, as long as his recommendations are retrospectively checked
a & b
*KRO 7 - Equity Finance Ltd are keen to understand their regulatory obligations in respect of handling complaints. They are required to ensure that
Multiple-response
a) all complaints are responded to in full within 8 weeks
b) forwarding a copy of all complaints in respect of regulated activities to the Financial Ombudsmen Service (FOS)
c) all complaints that they receive, in whatever format are acknowledged promptly and allocated to a competent complaint handler
d) records of all complaints received are maintained and data shared with the FCA within set timescales
c & d
not a, 8-weeks resolve period is an aim, not a requirement:
8 weeks after receiving the complaint, the respondent must have sent a final response, enclosing a copy of a FOS leaflet and informing the complainant they have the right to refer on to the FOS is dissatisfied within 6 months
OR is not able to send a final response, explain why they are not in the position to respond sully and inform them of their right to refer their complaint to the FOS.
KRO 7 - Which member of staff in a ‘core’ firm, as categorised under the Senior Managers and Certification Regime (SM&CR), would be carrying out a senior management function?
Multiple-response
a) The Chief Executive
b) The Money Laundering Reporting Officer
c) The head of the compliance department
d) the highest business-producing investment adviser
e) the customer complaints department manager
a, b & c
KRO 7 - Errol and Janice are restricted advisers, but Errol operates under a ‘whole of market’ remit whereas Janice is ‘multi-tied’. Fiona is an independent financial adviser. This means that
Multiple-response
a) Errol and Fiona offer the same range of products and providers to clients
b) Janice may be tied to different providers for different products
c) for any authorised product area, Janice will offer the same choice of providers as Errol
d) Janice must have obtained the same minimum level of qualifications as Fiona
b & d
A is false because: A restricted whole of market advisor is restricted by the product types they offer, a restriction not imposed on an independent financial advisor
B is true because a multi-tie option allows Janice to be tied to different providers for different product types
C is False because for product areas he offers, Errol will have the whole of the market to choose from, but Janice will be restricted to a number of providers.
D is true because regardless of whether they are restricted or independent, advisers need to obtain the same minimum qualifications to ensure they provide suitable advice.
KRO 7 - Kaley e-mailed a complaint to her ISA provider on 1 May. It was received immediately, and was acknowledged on 2 May. The provider subsequently sent a holding response on 4 June, and a final response on 15 June at which point it rejected Kaley’s complaint. From this information alone it can be deduced that
Multiple-response
a) the E-Commerce Directive rules were broken by the delay in the acknowledgement
b) the provider responded within all necessary time limits
c) the holding response would have included details of Kaley’s rights to refer to the Financial Ombudsman Service (FOS)
d) Kaley has the right to refer the matter to the Financial Ombudsman Service by 15 December
b & d
c is false because the holding response only needs to refer to the FOS if the respondent (firm) misses the 8 week time limit.
*KRO 7 - All of these financial advisers have obtained their base Level 4 qualifications allowing them to advise on standard investment products. According to the Training & Competence (T&C) rules, which of these advisers would require additional appropriate qualifications in order to advice on the activities highlighted?
Multiple-response
a) Dominic, who deals in discretionary fund management
b) Edith, who specialises in the equity release market
c) Lilith, who advises on long term care solutions
d) Paityn, who advises on pension switches involving personal pension plans
a, b & c
d is false because a pension switch is not a pension transfer (which would need additional training).
A pension transfer involves moving pension benefits, including safeguarded benefits, from one scheme to another, potentially to a different provider or type of pension. Conversely, a pension switch involves moving non-safeguarded benefits from one scheme to another of the same type, like switching between two personal pension schemes.
GQ 7 - What’s the difference between pension transfers and pension switches?
A pension transfer involves moving pension benefits, including safeguarded benefits, from one scheme to another, potentially to a different provider or type of pension. E.g. Transferring from a workplace pension to a personal pension
Conversely, a pension switch involves moving non-safeguarded benefits from one scheme to another of the same type, like switching between two personal pension schemes. E.g. Switching from a standard pension fund to a self-invested personal pension (SIPP) with the same provider
GQ 7 - For which products do advisors need higher level qualifications? (4)
- Pension Transfers (NOT switches)
- Discretionary investment management
- Equity release schemes
- Long term care (including advice on Immediate Need Annuities)
*KRO 7 - Which of the following individuals would be exempted from the requirement to be authorised by the Financial Conduct Authority when dealing in regulated products?
Multiple-response
a) An accountant explaining the tax benefits of a personal pension plan to their client
b) An appointed representative of an authorised firm advising a client on a collective investment
c) An employee of a local authority advising on the best deposit account for authority funds
d) A solicitor advising on a whole of life protection policy to meet a potential Inheritance Tax liability
a, b & c
a is true because they are acting within their expected remit, as advising on tax benefits of products is incidental to their professional services
b is true because an appointed representative is exempt as the authorised firm (‘principal’) has accepted the responsibility for the AR’s activities.
c is true because employees from local authorities and other government bodies are exempt from the need to be authorised
GQ 7 - Who are exempt from needing to be authorised by the FCA? (5)
- Appointed representatives because the authorised firm (‘principal’) has accepted the responsibility for the AR’s activities.
- Designated professional body (DPB) so long as it’s incidental to their professional services (e.g. explaining things)
- Bank of England
- Local Authorities
- various government bodies
*KRO 6 - Tony and Mary both had funds deposited with Bank X, which has recently gone insolvent.
Tony - £60k - 3 year savings
Joint - £130k - Instant Access
Mary - £80k - Structured deposit
Based on their accounts held with the bank, the compensation due to each from the Financial Services Compensation Scheme (FSCS) would be:
a) £65,000 for Mary and £85,000 for Tony
b) £80,000 for Mary and £85,000 for Tony
c) £85,000 for both
d) £145,000 for Mary and £125,000 for Tony
c
Joint accounts are split equally between account holders.
So, each person is considered to have £65,000 from the joint account.
Structured deposits are eligible for FSCS unlike many structured products
Total Deposits per Person
Tony: £60,000 (individual) + £65,000 (joint) = £125,000
Mary: £80,000 (individual) + £65,000 (joint) = £145,000
The FSCS covers up to £85,000 per person.
Tony’s compensation:
Total deposits: £125,000
FSCS limit: £85,000
Compensation: £85,000
Mary’s compensation:
Total deposits: £145,000
FSCS limit: £85,000
Compensation: £85,000
KRO 6 - Enhanced due diligence may be required by an authorised financial firm from an individual categorised as a Politically Exposed Person
a) only
b) and their families only
c) their families and close associates
d) their families and any business associates
c
*KRO 6 - The final response to an eligible complainant was made 13 weeks after the complaint was received. The complainant would first have been informed of their right to refer their complaint to the Financial Ombudsman Service
a) when the complaint was originally acknowledged by the respondent firm
b) when a holding response was sent by the respondent firm four weeks after receiving the complaint
c) five weeks before the final response was sent
d) at the time the final response was sent
c
Under DISP riles, an eligible complainant must be informed of their right to take their complaint to the FOS 8 weeks after the complaint was received by the respondent firm (even if it hasn’t been resolved)
*KRO 6 - An adviser with no additional equity release or discretionary management qualifications can still advise on
i) a remortgage for a 57 year old borrower
ii) a share portfolio consisting entirely of Open Ended Investment Company funds
iii) a share portfolio consisting of a mix of unit trust funds and directly purchased equities
iv) a home reversion plan for a 68 year old homeowner
a) i) only
b) i) and ii) only
c) ii) and iii) only
d) i) and iv) only
b
Some areas of financial advice require additional, specialist qualifications, including:
- Equity release and
- discretionary management
Home reversion plans (and lifetime mortgages) are equity release
Directly invested single shares/bonds is discretionary management
KRO 6 - Graham has made a standard subject access request (SAR) to a financial institution in an attempt to establish what information they hold about him. This is the first such request he has made. Under the Data Protection Act 2018, the firm should respond
a) without delay and not charge Graham a fee
b) without delay and charge Graham £10
c) within 90 days and not charge Graham a fee
d) within 90 days and charge Graham £10
a
Without delay, but within 1 month of receipt and without charge (in most circumstances)
Where a request is manifestly unfounded or excessive, data controllers may charge a ‘reasonable fee’ for administrative costs in complying.
*KRO 6 - Ashraf and Meena both had funds deposited with banks which have recently gone insolvent. Based on their accounts held, the compensation due to each from the Financial Services Compensation Scheme (FSCS) would be
Ashraf - £40k - Single Account A - Bank Y
Ashraf - £50k - Single Account B - Bank Y
Meena - £100k - Joint Acct - Bank Y
Meena - £60k - Single Acct - Bank Z
a) £85,000 for both
b) £85,000 for Ashraf and £110,000 for Meena
c) £90,000 for Ashraf and £110,000 for Meena
d) £90,000 for Ashraf and £145,000 for Meena
b
£85k per person, per firm
Joint accounts are halved (we don’t know the other person that Meena has a joint account with)
Ashraf has all funds in 1 firm, so he has max £85k comp
Meena receives £60k from Bank Z and £50k from her share of the joint account in Bank Y. So she gets £110k.
KRO 6 -A report needs to be produced by a firm’s Money Laundering Reporting Officer (MLRO)
a) at least annually, reporting on the operation and effectiveness of the firm’s anti-money laundering procedures
b) at least every six months, reporting on the operation and effectiveness of the firm’s anti-money laundering procedures
c) at least annually, detailing all the specific investigations into money laundering allegations made within the firm in the preceding period
d) at least every six months, detailing all the specific investigations into money laundering allegations made within the firm in the preceding period
a
*KRO 6 - A UK-based data controller, with a global annual turnover of £50,000,000 has been found to have breached standards set out in the General Data Protection Regulations. This breach could result in a maximum fine being imposed of
a) £1,000,000
b) £2,000,000
c) £8,500,000
d) £17,000,000
d
Max fines associated with GDPR breaches would be the £17,000,000
or 4% of global turnover (£2m in this case)
GQ 6 - What are the max fines associated with GDPR breaches?
The greater of:
£17,000,000
or
4% of global turnover
*KRO 6 - Janet, the complainant, lodged a complaint against an authorised firm in June 2024. She was awarded £455,000 compensation, plus costs totaling £10,000, by the Financial Ombudsman Service (FOS). The minimum amount that the respondent firm is bound to pay Janet is
a) £430,000
b) £440,000
c) £455,000
d) £465,000
b
Following FOS adjudications (FOS rules in favour of a complainant) , a respondent is has to pay:
- up to £430k compensation only
- plus the complainant’s cost and interest (£10k in this case)
The respondent firm can choose to pay a higher amount that may have been awarded, at their discretion.
KRO 6 - An authorised financial firm is able to apply a simplified due diligence in relation to a specific transaction if it
a) categorises the client as a professional client
b) is an execution-only transaction
c) determines the client to represent a low risk
d) is dealing with a registered charity
c
E.g. a pubic authority in the UK, who regularly disclose key information
A lower risk transaction may be a cash ISA.
*KRO 6 - Janice had £200,000 held in a deposit account with a small UK-based bank that has gone insolvent. Under the judgment of the Financial Services Compensation Scheme (FSCS) all of her deposited money is protected. This is likely to be because
a) the bank had been operating for less than 12 months
b) Janice deposited the vast majority of the funds within the previous 6 months
c) Janice deposited the funds in to three separate branches of the bank
d) the bank has authorisation under a global Financial Stability Board scheme to protect higher sums than a respective nation’s maximum
b
The FSCS can protect up to £1m of an individual’s deposit for up to 6 months. Known as the ‘temporary high balance’ protection, and the 6 months starts from the date the temporary high balance is deposited.
The protection is for certain life events, including: real estate transactions / insurance benefits / compensation claims / divorce resolutions / inheritances
