Craigs Cemap Flashcards
1
Q
Q1. Jon has notes which are accepted as legal tender. This is because they have:
A ) been issued by a high street bank.
B ) been issued by the Government.
C )the backing of the Government and the central bank.
D )the backing of the International Monetary Fund.
A
Q1 answer & justifications
A ) Banknotes are Issued by the Bank of England not high street banks.
B ) Banknotes are issued by the Bank of England not the Government.
C ) Correct. Legal tender has the backing of the Government and central bank.
D ) Legal tender has the backing of the Government and central bank, not the IMF.
2
Q
Q2. A building society has liabilities of £900m. How much, if anything, is the maximum it is permitted to raise on the wholesale markets?
A) Nil.
B) £225m.
C) £450m.
D) £900m.
A
Q2 answer & justifications
A) Building societies can raise funds on the wholesale markets up to 50% of the value of their liabilities.
B) Building societies can raise funds on the wholesale markets up to 50% of the value of their liabilities.
C) Correct. Building societies can raise funds on the wholesale markets up to 50% of the value of their liabilities.
D) Building societies can raise funds on the wholesale markets up to 50% of the value of their liabilities.
3
Q
Q3. The term ‘bancassurance’ describes the situation where:
A) a bank offers insurance services.
B) a bank owns an insurance company.
C) a bank owns an insurance company or an insurance company that owns a bank.
D) an insurance company owns a bank.
A
Q3 answer & justifications
A) A bancassurer is a bank that owns an insurance company or an insurance company that owns a bank.
B) A bancassurer is a bank that owns an insurance company or an insurance company that owns a bank.
C) Correct. A bancassurer is a bank that owns an insurance company or an insurance company that owns a bank.
D) A bancassurer is a bank that owns an insurance company or an insurance company that owns a bank.
4
Q
Q4. Under what circumstances, if any, can an EU member state opt out of a regulation laid down by the European Parliament and Council of Ministers?
A) None.
B) Only if a specific dispensation has been granted.
C) Only if an alternative approach has been agreed.
D) Only if the member has joined within the previous three years.
A
Q4 answer & justifications
A) A state can opt out if a specific dispensation has been granted.
B) Correct. A state can opt out if a specific dispensation has been granted.
C) An alternative approach is allowed under directives, but not under regulations.
D) No such time limit applies.
5
Q
Q5. Why are bank deposit accounts not generally considered to be the most suitable asset class for long-term investment?
A) Interest on deposit accounts is taxable.
B) Longer term deposits are often subject to notice of withdrawal.
C) Over longer timescales they have usually proved to offer lower returns than asset-backed investments.
D) They normally have a maximum investment term.
A
Q5 answer & justifications
A) Both deposit accounts and asset-backed investments are generally taxable. However, over the longer term., asset-backed investments tend to outperform bank deposit accounts.
B) Over the longer term, asset-backed investments tend to outperform bank deposit accounts.
C) Correct. Over the longer term, asset-backed investments tend to outperform bank deposit accounts.
D) Bank deposit accounts do not have a maximum investment term. However, over the longer term, asset-backed investments tend to outperform bank deposit accounts.
6
Q
Q6. Gilt-edged securities are considered to be safe investments, because they:
A) are backed by assets held by the Central Clearing Bank, which underwrites payment of interest and capital.
B) are British government securities and the government is unlikely to default on interest or capital repayments.
C) are regulated by the UK Financial Conduct Authority.
D) invest in physical assets, such as property and gold, that can be sold to realise redemption proceeds.
A
Q6 answer & justifications
A) Gilts are considered to be safe, as interest and capital repayments are guaranteed by the government.
B) Correct. Gilts are considered to be safe, as interest and capital repayments are guaranteed by the government.
C) Gilts are considered to be safe, as interest and capital repayments are guaranteed by the government.
D) Gilts are considered to be safe, as interest and capital repayments are guaranteed by the government.
7
Q
Q7. A new gilt issue has received wide publicity in the financial press, in which it has been referred to as ‘medium-dated’. However, the UK Debt Management Office has described it as ‘short-dated’. It will therefore be for which of the following terms?
A) Two years.
B) Four years.
C) Six years.
D) Eight years.
A
Q7 answer & justifications
A) A two year gilt is commonly referred to as ‘short-dated’ by both the financial press and the Debt Management Office.
B) A four year gilt is commonly referred to as ‘short-dated’ by both the financial press and the Debt Management Office.
C) Correct. The financial press refers to medium-dated as 5 to 15 years but the Debt management office refers to 0-7 years as ‘short-dated’.
D) An eight year gilt is commonly referred to by both the financial press and the Debt Management Office as ‘medium-dated’.
8
Q
Q8. If a company distributes 25% of its profits in the form of dividends to shareholders, what is the dividend cover?
A) 4.
B) 8.
C) 10.
D) 25.
A
Q8 answer & justifications
A) Correct. The dividend cover indicates the number of times that dividends could have been paid from profits. If a company distributes 25% of profits, the dividend cover is 4.
B) The dividend cover indicates the number of times that dividends could have been paid from profits. If a company distributes 25% of profits, the dividend cover is 4.
C) The dividend cover indicates the number of times that dividends could have been paid from profits. If a company distributes 25% of profits, the dividend cover is 4.
D) The dividend cover indicates the number of times that dividends could have been paid from profits. If a company distributes 25% of profits, the dividend cover is 4.
9
Q
Q9. A public limited company wishes to raise additional finance by issuing more shares. It is taking which of the following actions?
A) Delaying dividend payments.
B) Guaranteeing that no existing shareholder will be adversely affected.
C) Making a rights issue.
D) Making at least 25% more shares available.
A
Q9 answer & justifications
A) Dividend payments need not be delayed.
B) If existing shareholders do not take up their rights, their holding will be diluted.
C) Correct. Further shares must first be offered to existing shareholders via a rights issue.
D) There are no specific criteria laid down for the number of new shares to be offered.
10
Q
Q10. Historically, why were most buy-to-let mortgages charged at a higher rate of interest than most owner-occupied mortgages?
A) The legal costs of setting up the mortgage were higher.
B) The lender usually had to raise mortgage funds by issuing fixed-term loan stock on the commercial money market.
C) They had to be registered with the Land Registry.
D) They were assessed on commercial loan terms.
A
Q10 answer & justifications
A) Buy-to-let mortgages were treated as commercial loans and were therefore charged higher interest.
B) Buy-to-let mortgages were treated as commercial loans and were therefore charged higher interest.
C) Buy-to-let mortgages were treated as commercial loans and were therefore charged higher interest.
D) Correct. Buy-to-let mortgages were treated as commercial loans and were therefore charged higher interest.
11
Q
Q11. Why could UK equities be considered an inappropriate source of income for non-taxpayers?
A) Dividends are normally paid annually.
B) Income from equities is subject to capital gains tax.
C) Stamp duty reserve tax is payable on all dividends paid.
D) Tax credit on dividends paid cannot be reclaimed.
A
Q11 answer & justifications
A) Dividends are normally paid half-yearly.
B) Dividends are not subject to capital gains tax.
C) Stamp duty reserve tax is payable on purchase of shares, not on dividends.
D) Correct. Non-taxpayers cannot reclaim the 10% tax credit on dividends.
12
Q
Q12. A key difference between a debenture and a loan stock issued by a company is that a debenture:
A) can be converted to ordinary shares in the company.
B) holder has the right to vote at the company’s annual general meeting.
C) is secured on the assets of the company.
D) pays a fixed rate of interest.
A
Q12 answer & justifications
A) Debentures are usually secured on company assets whereas loan stocks are unsecured.
B) Debentures are usually secured on company assets whereas loan stocks are unsecured.
C) Correct. Debentures are secured on company assets whereas loan stocks are unsecured.
D) Debentures are usually secured on company assets whereas loan stocks are unsecured.
13
Q
Q13. Richard intends to invest in a money-market deposit account. This is most likely to suggest that he:
A) has a large amount to invest temporarily.
B) is increasing his risk profile.
C) is over age 65.
D) wishes to invest in a tax-efficient manner.
A
Q13 answer & justifications
A) Correct. Money-market deposit accounts are considered suitable for large amounts of cash to be held short-term pending other plans.
B) The intention to invest some funds in a particular way need not reflect a definitive risk profile. An increase in risk profile would normally mean that an investor would be avoiding deposits.
C) There is no direct correlation between age and a requirement to specifically invest in money markets.
D) No particular tax advantages attach to money market investments.
14
Q
Q14. An investment trust is best described as:
A) a company which invests in shares of other companies.
B) a trust which invests solely in commercial property.
C) a trust which is owned by its members.
D) an open-ended investment company which invests in shares of other companies.
A
Q14 answer & justifications
A) Correct. An investment trust is a company whose sole purpose is to invest in other companies.
B) An investment trust is a company whose sole purpose is to invest in other companies.
C) An investment trust is a company whose sole purpose is to invest in other companies.
D) An investment trust is a company whose sole purpose is to invest in other companies.
15
Q
Q15. David has been particularly attracted to investment trusts because of their ability to benefit from gearing. This indicates that David believes that the market will:
A) favour income stocks.
B) fall.
C) remain stable.
D) rise.
A
Q15 answer & justifications
A) The ability of an investment trust to borrow (gearing) is considered favourable in a rising market.
B) The ability of an Investment Trust to borrow (gearing) is considered favourable in a rising market.
C) The ability of an Investment Trust to borrow (gearing) is considered favourable in a rising market.
D) Correct. The ability of an Investment Trust to borrow (gearing) is considered favourable in a rising market.
16
Q
Q16. On a with-profits policy, what is a reversionary bonus?
A) A payment made on maturity, reflecting the investment performance over the term of the policy.
B) A payment that is declared regularly and, once attached to the policy, cannot be removed.
C) A payment that is pre-set at an anticipated bonus rate, but is reduced if investment performance is less than anticipated.
D) An irregular payment, made at the discretion of the insurance company from orphan funds.
A
Q16 answer & justifications
A) A reversionary bonus is declared regularly, not just on maturity.
B) Correct. A reversionary bonus is declared regularly. Once attached, it cannot be removed.
C) A reversionary bonus is not pre-set; it is dependent on investment performance.
D) A reversionary bonus is declared regularly.
17
Q
Q17. A key difference between a warrant and a call option is that a warrant:
A) can usually be traded by investors on the open market, whereas options are not tradable.
B) has an exit charge if the investor chooses not to exercise their right to buy.
C) is generally issued by companies to give the warrant holder the right to purchase that company’s ordinary shares.
D) places the legal obligation on the investor to purchase at a fixed price on the specified date.
A
Q17 answer & justifications
A) Both warrants and options can be traded.
B) There is no exit charge with warrants and options. If an investor does not purchase the shares, the right will simply lapse.
C) Correct. Unlike options, warrants are issued by a company and relate to the company’s shares.
D) A warrant is a right, not an obligation, to purchase shares.
18
Q
Q18. Four years ago, when aged 27, Clive started a stakeholder pension plan for the minimum term, which he intended to use to repay the capital under his interest-only mortgage, This minimum term of the mortgage will be:
A) 23 years.
B) 25 years.
C) 28 years.
D) 38 years.
A
Q18 answer & justifications
A) The normal minimum pension is 55. Clive’s mortgage term will be for a minimum of 28 years.
B) The normal minimum pension is 55. Clive’s mortgage term will be for a minimum of 28 years.
C) Correct. The normal minimum pension is 55. Clive’s mortgage term will be for a minimum of 28 years.
D) The normal minimum pension is 55. Clive’s mortgage term will be for a minimum of 28 years.
19
Q
Q19. What is the main advantage of a capped interest rate option when taking out a mortgage?
A) If interest rates go up, the mortgage interest rate will be limited to a pre-set ceiling.
B) Interest rates are linked to the Bank of England’s base rate.
C) The amount payable is fixed for the duration of the capped rate.
D) There is a genuine discount off the normal variable mortgage interest rate.
A
Q19 answer & justifications
A) Correct. The interest rate will have an upper fixed limit.
B) The interest rate will have an upper fixed limit. Even if the Bank of England’s base rate is higher than this figure, the interest rate will not rise above the limit.
C) The interest rate will have an upper fixed limit. Below this limit, interest will be variable, not fixed.
D) The interest rate will have an upper fixed limit. There will not be a discount to the variable rate.
20
Q
Q20. Sue earns £30.000 per annum and does not currently have any pension arrangements. Ignoring carry-forward of previous unused allowances, what is the maximum tax relieved pension contribution she could make in the current tax year?
A) £2,880.
B) £3,600.
C) £30,000.
D) £40,000.
A
Q20 answer & justifications
A) This is the £3,600 figure netted down.
B) This is the maximum if earning £3,600 or less.
C) Correct. She can contribute 100% of her earnings.
D) This is the 15/16 annual allowance for pension contributions for people earning £40,000 and above.
21
Q
Q21. A mortgage protection policy is a type of:
A) convertible term assurance.
B) decreasing term assurance.
C) increasing term assurance.
D) level term assurance.
A
Q21 answer & justifications
A) A mortgage protection policy reduces the amount of cover it provides over time. It is therefore a type of decreasing term assurance.
B) Correct. A mortgage protection policy reduces the amount of cover it provides over time. It is therefore a type of decreasing term assurance.
C) A mortgage protection policy reduces the amount of cover it provides over time. It is therefore a type of decreasing term assurance.
D) A mortgage protection policy reduces the amount of cover it provides over time. It is therefore a type of decreasing term assurance.
22
Q
Q22. Investment risk can most commonly be spread by using which of the following?
A) Clustering.
B) Diversification.
C) Dynamisation.
D) Gearing.
A
Q22 answer & justifications
A) Diversification reduces risk by spreading the investment across a range of companies/sectors.
B) Correct. Diversification reduces risk by spreading the investment across a range of companies/sectors.
C) Diversification reduces risk by spreading the investment across a range of companies/sectors.
D) Diversification reduces risk by spreading the investment across a range of companies/sectors.
23
Q
Q23. What is the correct name for a mortgage scheme that typically allows overpayments, underpayments and payment holidays?
A) Cap and collar.
B) Fixed.
C) Flexible.
D) Variable.
A
Q23 answer & justifications
A) A cap and collar rate would not typically allow these features.
B) A fixed rate itself will not permit these features.
C) Correct. Flexible products permit overpayments, underpayments and payment holidays within pre-set limits.
D) A variable rate is unlikely to offer underpayments and payment holidays as ‘standard.’
24
Q
Q24. In relation to stakeholder and personal pensions, the open market right enables the planholder to:
A) have more than one personal pension plan, with different providers, in order to get the best returns.
B) move their pension fund between providers in order to get the best investment return before retirement.
C) move the accumulated fund at retirement to the pension provider offering the most suitable benefits.
D) take their pension with one provider, but arrange dependants’ benefits with another.
A
Q24 answer & justifications
A) It allows an individual to move the fund at retirement in order to purchase the best available annuity/access the most advantageous benefit structure.
B) It allows an individual to move the fund at retirement in order to purchase the best available annuity/access the most advantageous benefit structure.
C) Correct. It allows an individual to move the fund at retirement in order to purchase the best available annuity/access the most advantageous benefit structure.
D) It allows an individual to move the fund at retirement in order to purchase the best available annuity/access the most advantageous benefit structure.
25
Q25. Dave has an onshore investment bond issued by a life office, invested in their managed fund. At what rate is the provider's underlying fund deemed to be taxed?
A) 18%.
B) 20%.
C) 32.5%.
D) 40%.
Q25 answer & justifications
A) Life offices' underlying funds are currently deemed to be taxed at 20%.
**B) Correct. Life offices' underlying funds are currently deemed to be taxed at 20%.**
C) Life offices' underlying funds are currently deemed to be taxed at 20%.
D) Life offices' underlying funds are currently deemed to be taxed at 20%.
26
Q26. Brian is reviewing a range of investment products before selecting the most appropriate solution for his client, Claire. Which factor is he least likely to take into account when selecting an appropriate solution?
A) Claire's desire to access her investments in five years to purchase a time share in Portugal.
B) Claire's existing portfolio of investment products.
C) The fact that she has recently moved into a higher-rate tax bracket.
D) The possibility of Claire getting married in the future and having children.
Q26 answer & justifications
A) When deciding on investments, accessibility, existing holdings and tax position are all factors that need to be considered.
B) When deciding on investments, accessibility, existing holdings and tax position are all factors that need to be considered.
C) When deciding on investments, accessibility, existing holdings and tax position are all factors that need to be considered.
**D) Correct. When deciding on investments, accessibility, existing holdings and tax position are all factors that need to be considered. Unknown future changes in circumstances cannot be considered.**
27
Q27. What is the advantage of explaining the benefits when making a product presentation to a client?
A) It enables the adviser to focus on the sale rather than the client queries.
B) It enables the client to better understand how this product will meet his or her needs.
C) It ensures that all point-of-sale FCA regulatory requirements are met.
D) It ensures that the client understands the cancellation rights offered by the product.
Q27 answer & justifications
A) The adviser should explain product features and how these benefit the client.
**B) Correct. The adviser should explain product features and how these benefit the client.**
C) The adviser should explain product features and how these benefit the client.
D) The adviser should explain product features and how these benefit the client.
28
Q28. Which of the following financial needs usually becomes the priority on becoming a parent?
A) Investment.
B) Pensions.
C) Protection.
D) Savings.
Q28 answer & justifications
A) Protection for dependants against the eventuality of death or illness of an income provider is normally a priority for new parents.
B) Protection for dependants against the eventuality of death or illness of an income provider is normally a priority for new parents.
**C) Correct. Protection for dependants against the eventuality of death or illness of an income provider is normally a priority for new parents.**
D) Protection for dependants against the eventuality of death or illness of an income provider is normally a priority for new parents.
29
Q29. Of the information below, gathered in respect of Alice, which item represents a 'hard' fact?
A) Her investment portfolio performance has been below her expectations.
B) Her savings account balance has fallen to £5,000.
C) She hopes to retire by the age of 60.
D) She wishes to be financially secure when she retires.
Q29 answer & justifications
A) How a client feels about current arrangements is a soft fact.
**B) Correct. The balance of a bank account is a hard fact.**
C) A client objective is a soft fact.
D) A client objective is a soft fact.
30
Q30. Martin has set up a trust fund for the benefit of his three grandchildren and has appointed two trustees with discretion to exercise their powers. In these circumstances, which of the following is correct?
A) Both trustees must agree, before exercising their discretionary powers.
B) Martin Is known as the testator of the trust and the grandchildren as the beneficiaries.
C) The Trustee Act 2000 requires the grandchildren to obtain advice when reviewing investments.
D) The trustees have no legal interest in the trust property.
Q30 answer & justifications
**A) Correct. The agreement of all trustees is required.**
B) Martin is the settlor of the trust. The term testator applies to wills.
C) It is the trustees who are required to obtain investment advice.
D) The trustees take legal ownership of the property.
31
Q31. Having been named as an executor under a will, Stella now has the legal authority to act, because:
A) letters of administration have been granted.
B) probate has been granted.
C) the testator has signed the will.
D) the witnesses have signed the will.
Q31 answer & justifications
A) Letters of administration relate to administrators who are appointed where someone dies intestate.
**B) Correct. The grant of probate gives the executors named in a will the legal authority to act.**
C) The executors are appointed in the will but grant of probate creates legal authority to act.
D) The executors are appointed in the will but grant of probate creates legal authority to act.
32
Q32. Any loss made by a partnership is usually:
A) deducted from future dividends.
B) the responsibility of the partners.
C) the responsibility of the shareholders.
D) written off.
Q32 answer & justifications
A) Although some partnerships are limited liability, most do not have a separate legal entity and partners are responsible for losses. There are no shareholder dividends.
**B) Correct. Although some partnerships are limited liability, most do not have a separate legal entity and partners are responsible for losses.**
C) Although some partnerships are limited liability, most do not have a separate legal entity and partners are responsible for losses. There are no shareholders.
D) Although some partnerships are limited liability, most do not have a separate legal entity and partners are responsible for losses. The losses will not be written off.
33
Q33. Under the law of agency, a recent act by an agent has been subject to ratification. This implies that the agent has:
A) asked his principal to deal directly with a client.
B) exceeded his authority.
C) received money or money's worth from a client.
D) submitted a written contract.
Q33 answer & justifications
A) Ratification takes place where, if an agent exceeds his authority, the principal can, if he chooses, agree after the event to what the agent has done.
**B) Correct. Ratification takes place where, ifan agent exceeds his authority, the principal can, if he chooses, agree after the event to what the agent has done.**
C) Ratification takes place where, if an agent exceeds his authority, the principal can, if he chooses, agree after the event to what the agent has done.
D) Ratification takes place where, if an agent exceeds his authority, the principal can, if he chooses, agree after the event to what the agent has done.
34
Q34. Walter and Winnie own their house on a joint tenancy basis. If Walter dies:
A) his share of the property will pass automatically to Winnie.
B) his share will pass to whoever is nominated in his will.
C) Winnie will need to purchase Walter's share of the property.
D) Winnie will own 50% of the property but retain an interest in the other 50%.
Q34 answer & justifications
**A) Correct. Where a property is held on a joint tenancy basis and one party dies, the deceased's share of the property automatically transfers to the survivor.**
B) Where a property is held on a joint tenancy basis and one party dies, the deceased's share of the property automatically transfers to the survivor.
C) Where a property is held on a joint tenancy basis and one party dies, the deceased's share of the property automatically transfers to the survivor.
D) Where a property is held on a joint tenancy basis and one party dies, the deceased's share of the property automatically transfers to the survivor.
35
Q35. The difference between a lasting power of attorney and an ordinary power of attorney is that:
A) a lasting power of attorney can be agreed on a verbal basis between donor and donee but ordinary power of attorney must be registered at the Public Trust Office.
B) a lasting power of attorney can be revoked at any time by the donor, whereas an ordinary power of attorney can only be revoked by the Court of Protection.
C) an ordinary power of attorney becomes invalid if the donor loses mental capacity, whereas a lasting power of attorney remains effective.
D) an ordinary power of attorney remains valid if the donor loses mental capacity, whereas a lasting power of attorney becomes invalid.
Q35 answer & justifications
A) A lasting power of attorney must be registered at the Office of the Public Guardian.
B) Once in force, a lasting power of attorney can only be revoked by the Court of Protection.
**C) Correct. An ordinary power of attorney will cease when the donor loses mental capacity: a lasting power of attorney will come into force upon mental incapacity.**
D) An ordinary power of attorney will cease when the donor loses mental capacity; a lasting power of attorney will come into force upon mental incapacity.
36
Q36. If Roger is declared bankrupt, under normal circumstances, for how long will his bankruptcy order remain in place?
A) 1 year.
B) 2 years.
C) 3 years.
D) 4 years.
Q36 answer & justifications
**A) Correct. Under normal circumstances, a bankruptcy order will remain in force for 12 months.**
B) Under normal circumstances, a bankruptcy order will remain in force for 12 months.
C) Under normal circumstances, a bankruptcy order will remain in force for 12 months.
D) Under normal circumstances, a bankruptcy order will remain in force for 12 months.
37
Q37. Which of the following persons would most likely be considered automatically resident in the UK for tax purposes?
A) Bella, a first-time visitor to the UK, who will spend 180 days in this tax year in the UK developing her Italian-based fashion company.
B) Dmitri, a first-time visitor to the UK, who has a seven-month contract for business consultancy in London, which commenced in January 2015.
C) Luigi, a first-time visitor to the UK, who has a nine-month contract in Essex with a telecoms company, which commenced in April 2015.
D) Sandra, who normally lives in France but spends two months a year helping on the family farm in Scotland.
Q37 answer & justifications
A) An individual will be automatically resident in the UK if they are present in the UK for at least 183 days in a tax year. Bella's stay is just below this limit.
B) An individual will be automatically resident in the UK if they are present in the UK for at least 183 days in a tax year. Although Dmitri is here for more than 183 days, his stay is spread over two tax years and will not exceed the 183 days per tax year rule.
**C) Correct. An individual will be automatically resident in the UK if they are present in the UK for at least 183 days in a tax year. Luigi's stay will exceed this in the current tax year.**
D) An individual will be automatically resident in the UK ift hey are present in the UK for at least 183 days in a tax year. Sandra's stay is well below this limit.
38
Q38. Harold has received a cheque for £300 in respect of share dividends. What was the gross amount upon which this payment was based?
A) £330.00.
B) £333.33.
C) £367.50.
D) £387.00.
Q38 answer & justifications
A) The net dividend of £300 will be based on a gross dividend of £333.33 less 10% (£33.33) deducted at source ie 10/9 x £300 = £333.33.
**B) Correct. The net dividend of £300 will be based on a gross dividend of £333.33 less 10% (£33.33) deducted at source ie 10/9 x £300 = £333.33.**
C) The net dividend of £300 will be based on a gross dividend of £333.33 less 10% (£33.33) deducted at source ie 10/9 x £300 = £333.33.
D) The net dividend of £300 will be based on a gross dividend of £333.33 less 10% (£33.33) deducted at source ie 10/9 x £300 = £333.33.
39
Q39. Jake has been advised that his redundancy payment will definitely suffer a tax liability because:
A) he is a higher rate taxpayer in the current tax year.
B) he was previously made redundant four years ago.
C) the availability of an alternative employment was rejected.
D) the total amount of his redundancy payment is £52,500.
Q39 answer & justifications
A) It is the amount of the redundancy payment, not the current tax status, which initially determines liability.
B) Previous redundancy payments are discounted.
C) The offer of alternative employment does not impact once redundancy is declared.
**D) Correct. If a redundancy payment exceeds £30,000 it is liable to be taxed.**
40
Q40. Which of the following personally owned assets would be exempt from capital gains tax?
A) A piece of personal jewellery valued at £20,000.
B) A Spanish property used for holiday visits.
C) Euros held for use on foreign holidays.
D) Shares purchased on the UK stock market.
Q40 answer & justifications
A) Only chattels valued at £6,000 or less are exempt from CGT.
B) Unlike a principal residence, a second home will not be exempt from CGT.
**C) Correct. Foreign currency (for private use) is exempt from CGT.**
D) Listed shares are not exempt from CGT.
41
Q41. Gains from which of the following are not exempt from capital gains tax in the hands of the investor?
A) Authorised unit trust.
B) Gilts.
C) NS&I 65+ Guaranteed Growth Bonds.
D) Stocks and shares ISA.
Q41 answer & justifications
**A) Correct. An investor, in unit trusts is potentially liable for CGT on gains.**
B) Gilts are exempt from CGT.
C) NS&I products are exempt from CGT.
D) ISAs are exempt from CGT.
42
Q42. In the calculation of capital gains tax liability, what are 'allowable deductions'?
A) Costs incurred in acquiring, enhancing and disposing of an asset.
B) Costs incurred in acquiring, maintaining and disposing of an asset.
C) Government fixed allowances dependent on how long the asset is held.
D) Indexation allowance.
Q42 answer & justifications
**A) Correct. Allowable deductions are the overall costs of acquisition, enhancement and disposal.**
B) Maintenance costs are not an allowable deduction.
C) Indexation and taper relief have not been available since 6 April 2008.
D) Indexation has not been available since 6 April 2008.
43
Q43. When shares are purchased using a telephone share dealing service, the:
A) buyer pays the stamp duty reserve tax based on the market value.
B) owner of the shares must be a stockbroker.
C) share transfer can be registered before the documents are stamped.
D) transaction has been completed orally so no stamp duty reserve tax is payable.
Q43 answer & justifications
**A) Correct. On purchase of shares, SDRT of 0.5% of market value must be paid.**
B) On purchase of shares, SDRT of 0.5% of market value must be paid.
C) On purchase of shares, SDRT of 0.5% of market value must be paid.
D) On purchase of shares, SDRT of 0.5% of market value must be paid.
44
Q44. A sole trader with no employees may be subject to which classes of National Insurance contributions?
A) Classes 1 and 4.
B) Classes 2 and 3.
C) Classes 2 and 4.
D) Classes 3 and 4.
Q44 answer & justifications
A) A self-employed person normally pays Class 2 contributions (flat rate) and Class 4 contributions (based on profits).
B) A self-employed person normally pays Class 2 contributions (flat rate) and Class 4 contributions (based on profits).
**C) Correct. A self-employed person normally pays Class 2 contributions (flat rate) and Class 4 contributions (based on profits).**
D) A self-employed person normally pays Class 2 contributions (flat rate) and Class 4 contributions (based on profits).
45
Q45. Mandy is pregnant with her first baby. She has been a full-time self-employed graphic designer since leaving university. What state benefit might Mandy be able to claim before her baby is born?
A) Child Benefit.
B) Income Support.
C) Maternity Allowance.
D) Statutory Maternity Pay.
Q45 answer & justifications
A) Child Benefit will only be payable once the child is born.
B) Income Support is designed to help those on a lower income and who are working less than 16 hours per week.
**C) Correct. Maternity Allowance is to help working women who are pregnant but who cannot claim SMP (in this case because Mandy is self-employed).**
D) Mandy cannot claim SMP as she is not an employee.
46
Q46. When a 'chargeable lifetime transfer' is made, what maximum rate of tax, if any, can apply immediately?
A) Nil.
B) 18%.
C) 20%.
D) 40%.
Q46 answer & justifications
A) A fixed rate of 20% can apply to chargeable lifetime transfers.
B) A fixed rate of 20% can apply to chargeable lifetime transfers.
**C) Correct.**
D) A fixed rate of 20% can apply to chargeable lifetime transfers.
47
Q47. For the current tax year, what is the small companies rate for corporation tax?
A) 18%.
B) 20%.
C) 21%.
D) 22%.
Q47 answer & justifications
A) The rate is 20% in 2015/16.
**B) Correct. The rate is 20% in 2015/16.**
C) The rate is 20% in 2015/16.
D) The rate is 20% in 2015/16.
48
Q48. For an investment to grow in real terms, it must increase in value:
A) after allowing dealing costs.
B) at a rate greater than inflation.
C) at regular intervals.
D) in line with national average earnings.
Q48 answer & justifications
A) Real growth is growth above the increase in inflation.
**B) Correct. Real growth is growth above the increase in inflation.**
C) Real growth is growth above the increase in inflation.
D) Real growth is growth above the increase in inflation.
49
Q49. Which type of fee is normally charged on a fixed-rate mortgage, but not on a standard variable rate mortgage?
A) Arrangement fee.
B) Broker fee.
C) Higher lending charge.
D) Valuation fee.
Q49 answer & justifications
**A) Correct. An arrangement fee is most likely to be charged on a fixed-rate mortgage, but not on a SVR mortgage**
B) A broker fee would be payable if a broker is used irrespective of the type of mortgage arranged.
C) A higher lending charge applies at certain loan-to-value levels, and is not applied with reference to the interest rate option used.
D) A valuation fee would be charged on both mortgages.
50
Q50. An advantage of a variable rate mortgage is that:
A) arrangement fees can always be added to the loan.
B) borrowers are able to benefit from reductions in interest rates.
C) first-time buyers are able to budget accurately in the early years.
D) repayments to the lender are lower than any other product.
Q50 answer & justifications
A) A variable rate mortgage does not normally carry an arrangement fee.
**B) Correct. A variable rate mortgage is beneficial if interest rates fall.**
C) Unlike a fixed rate (or capped) mortgage, a variable rate mortgage does not allow accurate budgeting.
D) It is not possible in advance to accurately predict how repayments will compare to other products.
51
Q1. The section within the FCA Handbook covering specialist sourcebooks includes arrangements for:
A) individual responsibilities.
B) international trading.
C) product derivatives.
D) professional firms.
Q1 answer & justifications
A) The specialist sourcebooks include arrangements for professional firms such as accountants and solicitors and the supervision of Lloyds of London.
B) The specialist sourcebooks include arrangements for professional firms such as accountants and solicitors and the supervision of Lloyds of London.
C) The specialist sourcebooks include arrangements for professional firrns such as accountants and solicitors and the supervision of Lloyds of London.
**D) Correct. The specialist sourcebooks include arrangements for professional firms such as accountants and solicitors and the supervision of Lloyds of London.**
52
Q2. Which body is responsible for the Financial Ombudsman Service?
A) Competitions and Markets Authority.
B) Financial Conduct Authority.
C) Financial Policy Committee.
D) Prudential Regulation Authority.
Q2 answer & justifications
A) The FCA is responsible for the Financial Ombudsman Service.
**B) Correct. The FCA is responsible for the Financial Ombudsman Service.**
C) The FCA is responsible for the Financial Ombudsman Service.
D) The FCA is responsible for the Financial Ombudsman Service.
53
Q3. One of the six outcomes for retail consumers in relation to Treating Customers Fairly requires that firms ensure that there are no unreasonable barriers to:
A) accessing products, receiving suitable advice, or complaining.
B) accessing products, switching product or provider, or making a claim.
C) switching product or provider, receiving suitable advice, or making a claim.
D) switching product or provider, making a claim, or complaining.
Q3 answer & justifications
A) It is a requirement under outcome 6 that consumers must not face unreasonable barriers when switching product or provider, making a claim, or complaining.
B) It is a requirement under outcome 6 that consumers must not face unreasonable barriers when switching product or provider, making a claim, or complaining.
C) It is a requirement under outcome 6 that consumers must not face unreasonable barriers when switching product or provider, making a claim, or complaining.
**D) Correct. This is a requirement under outcome 6.**
54
Q4. Miranda is an approved person in a customer function. Which of the following principles does not specifically apply to her role?
A) She must act with due skill, care and diligence.
B) She must act with integrity.
C) She must observe proper standards of market conduct.
D) She must take reasonable steps to ensure that the whole business complies with the regulations.
Q4 answer & justifications
A) Acting with due skill, care and diligence is a key principle.
B) Acting with integrity is a key principle.
C) Observing proper standards of market conduct is a key principle.
**D) Correct. Taking steps to ensure that the business complies is a principle only for those in a position of significant influence.**
55
Q5. The FCA requires that a firm's systems and controls must:
A) be agreed by the FCA before implementation.
B) be notified to customers.
C) be regularly reviewed.
D) meet an agreed industry standard.
Q5 answer & justifications
A) There is no requirement for systems and controls to be agreed by the FCA before implementation.
B) There is no requirement for systems and controls to be notified to customers.
**C) Correct. It is a requirement that systems and controls should be regularly reviewed.**
D) There is no agreed industry standard, although the systems and controls must be appropriate to the business.
56
Q6. Which statement best describes the relationship between the 'fit and proper' test and approved persons?
A) A 'fit and proper' test is recommended by the FCA for anyone applying for a role in a controlled function.
B) A satisfactory 'fit and proper' test is necessary before an individual can fulfil a role in a controlled function.
C) The 'fit and proper' test is mainly designed to establish the creditworthiness of an authorised person.
D) The 'fit and proper' test relates solely to previous business activity in a controlled function.
Q6 answer & justifications
A) The fit and proper test Is mandatory (rather than simply recommended) for anyone applying for a role in a controlled function.
**B) Correct. The fit and proper test is mandatory for anyone applying for a role in a controlled function.**
C) Creditworthiness is only part of the fit and proper test.
D) The fit and proper test applies to current circumstances (eg financial soundness, competence) as well as previous activity.
57
Q7. Under the definitions of market abuse, which of the following is specifically covered?
A) Dishonesty.
B) Insider dealing.
C) Money laundering.
D) Pricing.
Q7 answer & justifications
A) Market abuse is separated Into two aspects, insider dealing and market manipulation.
**B) Correct. Market abuse is separated into two aspects, insider dealing and market manipulation.**
C) Market abuse is separated into two aspects, insider dealing and market manipulation.
D) Market abuse is separated into two aspects, insider dealing and market manipulation.
58
Q8. Which of the following is not one of the Financial Conduct Authority's Principles for Businesses?
A) To act with due skill, care and diligence.
B) To act with integrity.
C) To have a clear chain of responsibility.
D) To observe proper standards of market conduct.
Q8 answer & justifications
A) To act with due skill, care and diligence is one of the 11 Principles for Businesses.
B) To act with integrity is one of the 11 Principles for Businesses.
**C) Correct. While it is important for a firm to have a clear chain of responsibility, this is not one of the 11 Principles for Businesses.**
D) To observe proper standards of market conduct is one of the 11 Principles for Businesses.
59
Q9. Which of the following is exempt from the Consumer Credit Act 2006?
A) A credit card account with a limit of £5,000.
B) A further advance for £15,000 for home improvements, from the existing lender.
C) A second-charge loan for £20,000, secured on property, for a car purchase.
D) An unsecured personal loan of £10,000.
Q9 answer & justifications
A) A credit card arrangement is not exempt.
**B) Correct. Further loans from the existing provider are exempt and would fall under mortgage regulation.**
C) A second-charge loan used for a purpose other than home purchase / improvements is not exempt.
D) An unsecured loan will not be exempt.
60
Q10. When Henry received his monthly payslip on 21 June, his normal occupational pension scheme contribution of £250 had been deducted by his employer. What is the latest date that his employer should pass this contribution to the scheme, if the Pension Regulator's guidelines are followed?
A) 22 June.
B) 30 June.
C) 19 July.
D) 21 July.
Q10 answer & justifications
A) Contributions should be paid to the scheme by the 19th day of the month following the month in which they were deducted.
B) Contributions should be paid to the scheme by the 19th day of the month following the month in which they were deducted.
**C) Correct. Contributions should be paid to the scheme by the 19th day of the month following the month in which they were deducted.**
D) Contributions should be paid to the scheme by the 19th day of the month following the month in which they were deducted.
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Q11. The maximum size of loan, if any, regulated by the Consumer Credit Act 2006 is:
A) £15,000.
B) £20,000.
C) £25,000.
D) unlimited.
Q11 answer & justifications
A) There is no maximum size of loan for consumer credit regulation.
B) There is no maximum size of loan for consumer credit regulation.
C) There is no maximum size of loan for consumer credit regulation.
**D) Correct. There is no maximum size of loan for consumer credit regulation.**
62
Q12. A firm of stockbrokers is conducting MiFID business. When giving advice to their clients, for what minimum period, if any, must they keep records of such advice?
A) Three years.
B) Five years.
C) Six years.
D) Indefinitely.
Q12 answer & justifications
A) Records of advice for MiFID business must be kept for a minimum of five years.
**B) Correct. Records of advice for MiFID business must be kept for a minimum of five years.**
C) Records of advice for MiFID business must be kept for a minimum of five years.
D) Records of advice for MiFID business must be kept for a minimum of five years.
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Q13. Which of the following statements would be the correct definition of the solvency margin required of a life assurance company?
A) The excess of the company's assets over its mathematical provisions.
B) The excess of the company's assets over the projected mortality rate.
C) The excess of the company's mathematical provisions over its assets.
D) The excess of the company's mathematical provisions over the projected mortality rate.
Q13 answer & justifications
**A) Correct. The solvency margin is the excess of the company's assets over its mathematical provisions.**
B) The solvency margin is the excess of the company's assets over its mathematical provisions.
C) The solvency margin is the excess of the company's assets over its mathematical provisions.
D) The solvency margin is the excess of the company's assets over its mathematical provisions.
64
Q14. In the context of FCA supervision of firms, the term 'flexible portfolio' means:
A) firms that are supervised by a team of sector specialists.
B) firms with a customer base that is prone to significant fluctuations.
C) firms with a wide range of regulatory permissions.
D) firms with diverse investment interests.
Q14 answer & justifications
**A) Correct. Flexible portfolio firms are supervised by a team of sector specialists.**
B) Flexible portfolio firms are supervised by a team of sector specialists.
C) Flexible portfolio firms are supervised by a team of sector specialists.
D) Flexible portfolio firms are supervised by a team of sector specialists.
65
Q15. Mark sold an investment bond in 2007 and receives trail commission. In June 2015, he advised that the client make an additional investment into the bond. Which of the following explains how Mark should be paid?
A) The client must decide the basis of payment.
B) The total investment may continue on a commission basis.
C) The trail commission may continue but the additional investment must be paid under adviser charging.
D) The trail commission must cease and the adviser must charge the client for the total investment.
Q15 answer & justifications
A) Advisers may continue to receive trail commission on investments sold before 31 December 2012 (until April 2016) but must charge clients for advice on top-up investments.
B) Advisers may continue to receive trail commission on investments sold before 31 December 2012 (until April 2016) but must charge clients for advice on top-up investments.
**C) Correct. Advisers may continue to receive trail commission on investments sold before 31 December 2012 (until April 2016) but must charge clients for advice on top-up investments.**
D) Advisers may continue to receive trail commission on investments sold before 31 December 2012 (until April 2016) but must charge clients for advice on top-up investments.
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Q16. If the FCA discovers a contravention of its rules, one of the steps it may take is to vary a firm's permissions.
This means that the firm:
A) may have its authorisation withdrawn.
B) may have one of its regulated activities removed or restricted.
C) will be forced to transact business that it does not wish to conduct.
D) will be subject to an injunction preventing it from profiting from the breach.
Q16 answer & justifications
A) Variation of a firm's permissions may involve removal or restriction of one of the firm's regulated activities.
**B) Correct. Variation of a firm's permissions may involve removal or restriction of one of the firm's regulated activities.**
C) Variation of a firm's permissions may involve removal or restriction of one of the firm's regulated activities.
D) Variation of a firm's permissions may involve removal or restriction of one of the firm's regulated activities.
67
Q17. For dual-regulated firms, which of the following controlled functions is approved as a required function by the PRA?
A) Appointed actuary.
B) Chief executive officer.
C) Director.
D) Head of internal audit.
Q17 answer & justifications
**A) Correct. Required functions for PRA regulated firms are CF12 actuary, CF12A with profits actuary and CF12B Lloyds actuary function.**
B) This is a governing function.
C) This is a governing function.
D) This is a systems and control function.
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Q18. Which of the following individuals' roles in a regulated firm would be classified by the FCA as a 'customer function'?
A) Barry, who is in charge of the risk assessment department.
B) David, a non-executive director of a multi-national insurer.
C) George, who is a pension transfer adviser.
D) Ron, who is in charge of settlements.
Q18 answer & justifications
A) Risk assessment is a systems and control function, not a customer function.
B) Non-executive director is a governing function, not a customer function.
**C) Correct. Pension transfer adviser is a customer function.**
D) Management of settlements is a significant management function, not a customer function.
69
Q19. What specific FCA financial promotions rules requirements apply to direct offer financial promotions?
A) Records must be retained for 7 years.
B) The promotion must be approved by a director of the firm.
C) The promotion must contain the name of the conduct regulator, the FCA.
D) They must only be sent to customers who have specifically requested them.
Q19 answer & justifications
A) Direct offer financial promotions are not subject to different record keeping requirements.
B) Direct offer financial promotions are not subject to different approval requirements.
**C) Correct. Direct offer financial promotions must contain the name of the conduct regulator, the FCA.**
D) Direct offer financial can be sent to any customer who has not opted out of receiving marketing.
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Q20. Which risk warning must appear on all advertising material containing details of past investment performance?
Past performance:
A) is not necessarily a guide to future performance.
B) is not necessarily better than future performance.
C) is only a general guide to the future.
D) over a period of five years or more is a reasonable guide to the future.
Q20 answer & justifications
**A) Correct. There must be a warning that past performance is not necessarily a guide to future performance.**
B) There must be a warning that past performance is not necessarily a guide to future performance.
C) There must be a warning that past performance is not necessarily a guide to future performance.
D) There must be a warning that past performance is not necessarily a guide to future performance.
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Q21. Once an employee of a regulated firm is deemed to be competent, the firm must have arrangements in place for this competence to be maintained. This is most commonly achieved through:
A) continuing professional development.
B) imposed learning courses.
C) in-house tutorials.
D) regular testing.
Q21 answer & justifications
**A) Correct. Employees are expected to maintain competence primarily through continuing professional development.**
B) It is unusual for learning courses to be imposed for maintaining competence, although this often occurs for new products, etc.
C) In-house tutorials are normally only available in larger institutions. They are not appropriate across the board.
D) Regular testing does take place in larger organisations but it is the end product rather than the process.
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Q22. Simon has undergone his initial training as a financial adviser but has not yet passed the regulatory module of an appropriate approved examination. Under what circumstances might he be allowed to advise customers about regulated products, if at all?
A) He may do so, provided he acts under close supervision.
B) He may do so, provided investments are below an agreed level.
C) He may do so, if all advice is double-checked by a representative of the FCA.
D) Under no circumstances can he offer advice to customers.
Q22 answer & justifications
A) Even when acting under supervision, an adviser must have passed the regulation and ethics module before giving advice.
B) An adviser must have passed the regulation and ethics module of the level 4 qualification before giving advice under supervision, regardless of the level of investments.
C) An adviser must have passed the regulation and ethics module of the level 4 qualification before giving advice under supervision.
**D) Correct. An adviser must have passed the regulation and ethics module of the level 4 qualification before giving advice under supervision, in all circumstances.**
73
Q23. For a non-MiFID firm, training and competence records for all individuals must be retained for what minimum period after they have stopped carrying out regulated activity?
A) Three years.
B) Five years.
C) Seven years.
D) Ten years.
Q23 answer & justifications
**A) Correct. Training and competence records must be kept for a minimum of three years after an employee has left the firm or ceased carrying out regulated activities.**
B) Training and competence records must be kept for a minimum of three years after an employee has left the firm or ceased carrying out regulated activities.
C) Training and competence records must be kept for a minimum of three years after an employee has left the firm or ceased carrying out regulated activities.
D) Training and competence records must be kept for a minimum of three years after an employee has left the firm or ceased carrying out regulated activities.
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Q24. Which of the following statements is true in relation to Training and Competence rules?
A) All employees must pass an appropriate examination.
B) All new entrants to the industry must attain competence within 12 months.
C) Firms must monitor continuing competence.
D) Records of assessment criteria must be kept for ten years.
Q24 answer & justifications
A) Not all employees must pass an appropriate examination.
B) There is no specific time limit set by the regulator for new entrants to gain competence, although a firm may wish to set its own standards.
**C) Correct. Ongoing competence must be monitored.**
D) Records of assessment criteria must be kept for a minimum of three years after an employee has left the firm.
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Q25. A number of particular advantages were identified as a benefit that would result from the basic advice process. Which of the following was not specifically identified as an advantage?
A) Larger average investments.
B) Less complex regulation.
C) Reduced costs.
D) Wider potential customer market.
Q25 answer & justifications
**A) Correct. Broadening the market should encourage less sophisticated and poorer Investors into play. This is likely to reduce average investments, not increase them.**
B) Less complex regulation was seen as deliverable.
C) Less complex regulation was seen as leading to lower costs.
D) Simplified advice was seen as a way of broadening the market.
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Q26. Simon has found that his loan, taken out in 2005, is subject to Financial Conduct Authority regulation. This is because it is a:
A) business loan, secured by a first charge over his business premises.
B) buy-to-let loan, secured by a first charge over the property.
C) debt consolidation loan, secured by a second mortgage over his residential property.
D) home improvement loan, secured by a first charge over his residential property.
Q26 answer & justifications
A) This is not subject to FCA regulation.
B) This is not subject to FCA regulation.
C) This is not subject to FCA regulation.
**D) Correct. This is subject to FCA regulation.**
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Q27. Ben, an adviser, is required under FCA rules to provide a key features illustration (KFI) detailing the APR to his client. This confirms that the client has expressed a particular interest in:
A) collective investment business.
B) mortgage business.
C) offshore business.
D) protection business.
Q27 answer & justifications
A) A KFI detailing the APR must be provided when giving mortgage advice.
**B) Correct. A KFI detailing the APR must be provided when giving mortgage advice.**
C) A KFI detailing the APR must be provided when giving mortgage advice.
D) A KFI detailing the APR must be provided when giving mortgage advice.
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Q28. Jason is in the process of applying for a mortgage and has just received a tariff of charges from the lender. What is the latest point in the process that he has reached?
A) Issue of the initial disclosure documentation.
B) Pre-application disclosure.
C) Offer stage.
D) Legal completion.
Q28 answer & justifications
A) A tariff of charges should be issued at the offer stage (MCOB 6).
B) A tariff of charges should be issued at the offer stage (MCOB 6).
**C) Correct. A tariff of charges should be issued at the offer stage (MCOB 6).**
D) A tariff of charges should be issued at the offer stage (MCOB 6).
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Q29. David, an existing residential mortgage adviser, is required to take a further examination to be permitted to give advice on which of the following mortgages?
A) Buy-to-let mortgages.
B) Equity release.
C) Further advances.
D) Second charges.
Q29 answer & justifications
A) David would not need to take a further examination to advise on a buy-to-let mortgage. However, to be able to give equity release advice, an adviser requires further qualification eg Certificate in Regulated Equity Release.
**B) Correct. To be able to give equity release advice, an adviser requires further qualification eg Certificate in Regulated Equity Release.**
C) David would not need to take a further examination to advise on further advances. However, to be able to give equity release advice, an adviser requires further qualification eg Certificate in Regulated Equity Release.
D) David would not need to take a further examination to advise on second charges. However, to be able to give equity release advice, an adviser requires further qualification eg Certificate in Regulated Equity Release.
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Q30. If a customer cancels their general insurance contract within the cooling-off period, the insurance company must return any sums paid to it within how many days?
A) 7.
B) 14.
C) 28.
D) 30.
Q30 answer & justifications
A) If a customer cancels, the insurance company must return any sums paid to it within 30 days.
B) If a customer cancels, the insurance company must return any sums paid to it within 30 days.
C) If a customer cancels, the insurance company must return any sums paid to it within 30 days.
**D) Correct. If a customer cancels, the insurance company must return any sums paid to it within 30 days.**
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Q31. Which of the following is most likely to be an eligible counterparty?
A) A firm acting on behalf of a retail client.
B) A private individual.
C) A small business.
D) Another authorised firm.
Q31 answer & justifications
A) A firm authorised to conduct investment business is normally an eligible counterparty.
B) A firm authorised to conduct investment business is normally an eligible counterparty.
C) A firm authorised to conduct investment business is normally an eligible counterparty.
**D) Correct. A firm authorised to conduct investment business is normally an eligible counterparty.**
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Q32. When disclosing the adviser charge to a client in cash terms, what information is not required when the charge is payable over a period of time?
A) The amount due.
B) The frequency.
C) The implications of cancellation of a retail investment product before the adviser charge is paid.
D) The term.
Q32 answer & justifications
A) The information disclosed must include the amount due, frequency and implications if the Investment product is cancelled before payment is made.
B) The information disclosed must include the amount due, frequency and implications if the Investment product is cancelled before payment is made.
C) The information disclosed must include the amount due, frequency and implications if the Investment product is cancelled before payment is made.
**D) Correct. The information disclosed must include the amount due, frequency and implications if the Investment product is cancelled before payment is made.**
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Q33. To meet the FCA definition of independent advice, recommendations must be based on:
A) a complete analysis of the relevant market.
B) a comprehensive and fair analysis of the relevant market.
C) a comprehensive and inclusive analysis of the whole market.
D) a thorough and fair analysis of the whole market.
Q33 answer & justifications
A) Independent advice must be based on a comprehensive and fair analysis of the relevant market.
**B) Correct. Independent advice must be based on a comprehensive and fair analysis of the relevant market.**
C) Independent advice must be based on a comprehensive and fair analysis of the relevant market.
D) Independent advice must be based on a comprehensive and fair analysis of the relevant market.
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Q34. Which of the following most accurately describes the advice that must be given by independent intermediaries?
A) A suitable product from the host employer.
B) That which is unrestricted, unbiased and comprehensive.
C) The cheapest product from any provider.
D) The cheapest product from the host employer.
Q34 answer & justifications
A) Independent intermediaries must make recommendations that are unrestricted and unbiased and from the whole of the market. They will not be tied to selling the products of a host employer.
**B) Correct. Independent intermediaries must make recommendations that are unrestricted and unbiased and from the whole of the market.**
C) Independent intermediaries must make recommendations that are unrestricted and unbiased and from the whole of the market, but the most suitable product will not necessarily be the cheapest.
D) Independent intermediaries must make recommendations that are unrestricted and unbiased and from the whole of the market, but the most suitable product will not necessarily be the cheapest, nor will they be tied to selling the products of a host employer.
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Q35. When carrying out designated investment business, other than advising on packaged products, a firm must provide which additional document to the client?
A) A business card carrying out-of-hours contact details.
B) A client agreement.
C) A suitability letter.
D) An IDD and a menu.
Q35 answer & justifications
A) The adviser is not obliged to provide 'out-of-hours' contact details, even for designated investment business. The adviser should provide a client agreement
**B) Correct. The document given to the client when carrying out designated investment business is the client agreement.**
C) A suitability letter is provided for sales of life assurance, pension, collective investment and pensions transfer business. The document given to a client when carrying on designated investment business is a client agreement.
D) The IDD and menu have been replaced by the SCDD. For designated investment business, the adviser is obliged to provide an additional document, the client agreement.
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Q36. Joe runs his own firm of independent financial advisers and wishes to create his own factfind document. Under what circumstances, if any, can this be permitted?
A) None.
B) Joe is free to prepare his own document.
C) Joe must seek approval from his main product providers.
D) Joe must seek the FCA's approval of the text.
Q36 answer & justifications
A) There is no prescribed format for a factfind.
**B) Correct. There is no prescribed format for a factfind.**
C) There is no prescribed format for a factfind.
D) There is no prescribed format for a factfind.
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Q37. David has arranged a life policy for his customer, Jane. When is the latest date that the suitability report can be sent to Jane?
A) Five days after the end of the cooling-off period.
B) Five days after the final interview.
C) Five days after the initial interview.
D) Before conclusion of the contract.
Q37 answer & justifications
A) For a life policy, a suitability report must be sent before the contract is concluded.
B) For a life policy, a suitability report must be sent before the contract is concluded.
C) For a life policy, a suitability report must be sent before the contract is concluded.
**D) Correct. For a life policy, a suitability report must be sent before the contract is concluded.**
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Q38. Responsibility for product selection in relation to 'execution-only' business rests with the:
A) adviser.
B) customer.
C) product provider.
D) regulator.
Q38 answer & justifications
A) With an 'execution-only' transaction, there is no requirement to provide advice or make any recommendations. The responsibility lies with the customer.
**B) Correct. With an 'execution-only' transaction, there is no requirement to provide advice or make any recommendations. The responsibility lies with the customer.**
C) With an 'execution-only' transaction, there is no requirement to provide advice or make any recommendations. The responsibility lies with the customer.
D) With an 'execution-only' transaction, there is no requirement to provide advice or make any recommendations. The responsibility lies with the customer.
89
Q39. When an adviser transacts designated investment business for a client, the essential rights and obligations applying to the relationship would normally be disclosed in which document?
A) The client agreement.
B) The key features document.
C) The statutory cancellation notice.
D) The suitability report.
Q39 answer & justifications
**A) Correct. For designated investment business, the essential rights and obligations of the relationship are normally disclosed in the client agreement.**
B) For designated investment business, the essential rights and obligations of the relationship are normally disclosed in the client agreement.
C) For designated investment business, the essential rights and obligations of the relationship are normally disclosed in the client agreement.
D) For designated investment business, the essential rights and obligations of the relationship are normally disclosed in the client agreement.
90
Q40. Henry invested £10,000 in a unit-linked lump sum product and cancelled seven days later. He subsequently received a refund of £9,500. What did the reduction in his original investment represent?
A) The adviser’s fee.
B) The cancellation charge.
C) The handling charge.
D) The reduction in the value of investment.
Q40 answer & justifications
A) Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No fees or charges can be taken.
B) Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No fees or charges can be taken.
C) Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No fees or charges can be taken.
**D) Correct. Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No fees or charges can be taken.**
91
Q41. A financial adviser must issue a key features illustration prior to a sale being concluded, for all of the following products except:
A) gilt-edged securities.
B) life assurance.
C) stakeholder pensions.
D) unit trusts.
Q41 answer & justifications
**A) Correct. A key features illustration will be required where advice is being given on a packaged product. It will not be required for a direct investment such as gilts.**
B) A key features illustration will be required where advice is being given on a packaged product (eg life assurance, pension policies, unit trusts / OEICs).
C) A key features illustration will be required where advice is being given on a packaged product (eg life assurance, pension policies, unit trusts / OEICs).
D) A key features illustration will be required where advice is being given on a packaged product (eg life assurance, pension policies, unit trusts / OEICs).
92
Q42. In relation to money laundering, how is 'property' defined under the European Directive 2005?
A) Assets held in cash within the European Union only.
B) Assets of every kind including legal documents giving title to such assets.
C) Intangible assets only.
D) Tangible assets only.
Q42 answer & justifications
A) Property is defined as assets of every kind, tangible or intangible, including legal documents. It is not restricted to cash assets.
**B) Correct. Property is defined as assets of every kind, tangible or intangible, including legal documents.**
C) Property is defined as assets of every kind, tangible or intangible, including legal documents.
D) Property is defined as assets of every kind, tangible or intangible, including legal documents.
93
Q43. What is the main reason why an authorised firm's senior management must obtain an annual report from its Money Laundering Reporting Officer?
A) So that they can be compliant with the Financial Services and Markets Act.
B) So that they can be compliant with the Proceeds of Crime Act.
C) To monitor activities and report suspicions.
D) To review activities and strengthen controls.
Q43 answer & justifications
A) The annual report is to monitor activities and reduce deficiencies. This will be compliant with the Joint Money Laundering Steering Group's guidelines.
B) The annual report is to monitor activities and reduce deficiencies. This will be compliant with the Joint Money Laundering Steering Group's guidelines.
C) The annual report is to monitor activities and reduce deficiencies. This will be compliant with the Joint Money Laundering Steering Group's guidelines.
**D) Correct. The annual report is to monitor activities and reduce deficiencies. This will be compliant with the Joint Money Laundering Steering Group's guidelines.**
94
Q44. Why was the Financial Action Task Force set up?
A) To assist consumers who have unmanageable debts.
B) To co-ordinate the international fight against money laundering.
C) To implement the Treating Customers Fairly initiative.
D) To provide a central point for consumers to receive information on pension queries.
Q44 answer & justifications
A) The Financial Action Task Force was set up to assist international initiatives to combat money laundering.
**B) Correct. The Financial Action Task Force was set up to assist international initiatives to combat money laundering.**
C) The Financial Action Task Force was set up to assist international initiatives to combat money laundering.
D) The Financial Action Task Force was set up to assist international initiatives to combat money laundering.
95
Q45. Why might money laundering regulations create financial exclusion?
A) Because certain non-residents cannot be offered banking facilities.
B) Because customers want to know why they have been declined for a financial product.
C) Because financial organisations are wary of opening bank accounts with cash deposits.
D) Because not everyone can provide the necessary identification.
Q45 answer & justifications
A) Money laundering requirements may create financial exclusion because not everyone will have the necessary identification.
B) Money laundering requirements may create financial exclusion because not everyone will have the necessary identification.
C) Money laundering requirements may create financial exclusion because not everyone will have the necessary identification.
**D) Correct. Money laundering requirements may create financial exclusion because not everyone will have the necessary Identification.**
96
Q46. Under the FCA's complaints-handling requirements, firms must make a commitment to try to resolve complaints within:
A) three working days.
B) one month.
C) eight weeks.
D) three months.
Q46 answer & justifications
A) Firms should try to resolve complaints within eight weeks.
B) Firms should try to resolve complaints within eight weeks.
**C) Correct. Firms should try to resolve complaints within eight weeks.**
D) Firms should try to resolve complaints within eight weeks.
97
Q47. Which of the following statements regarding complaints referred to the Financial Ombudsman Service is false?
A) The firm involved should investigate the complaint before the Ombudsman.
B) The Ombudsman's decision is binding on the firm and the client.
C) The Ombudsman's decision is binding on the firm only.
D) The Ombudsman will not usually consider any complaint that is the subject of a court case.
Q47 answer & justifications
A) A complaint should be made to a firm before it is referred to the Ombudsman.
**B) Correct. The Ombudsman's ruling is binding upon the firm, only not on the client.**
C) The Ombudsman's ruling is binding upon the firm only.
D) The Ombudsman will not usually consider any complaint that is the subject of a court case.
98
Q48. John held deposits with both Bank A and Bank B for a number of years. It is 1 September 2015 and both banks have become insolvent. John received a higher level of compensation from the FSCS for Bank A than in respect of his savings with Bank B. This is because:
A) Bank B had recently made the annual interest payment on John's account.
B) John had £70,000 in a joint account with Bank A and £70,000 in a sole named account with Bank B.
C) John had £100,000 in a joint account he held with his wife at Bank A and £100,000 in a sole named account with Bank B.
D) John had £100,000 saved with Bank A and £90,000 with Bank B.
Q48 answer & justifications
A) Compensation from the FSCS is based on the amount held.
B) FSCS would pay the same amount in respect of each account.
**C) Correct. Compensation is limited to £85,000 per person so John and his wife would have received £100,000 in respect of the account with Bank A and only £85,000 in respect of the account with Bank B.**
D) FSCS would pay £85,000 in respect of each account.
99
Q49. Under the Data Protection Act 1998, the definition of 'sensitive personal data' includes all of the following areas, except:
A) mental health.
B) political persuasion.
C) proceedings in civil courts.
D) religious beliefs.
Q49 answer & justifications
A) Information about an individual's mental health will be classed as sensitive data.
B) Information about an individual's political persuasion will be classed as sensitive data.
**C) Correct. Information about civil proceedings (unlike criminal proceedings) will not be classed as sensitive data.**
D) Information about an individual's religious beliefs will be classed as sensitive data.
100
Q50. Fred has requested a copy of his personal data held by his bank. The Data Protection Act 1998 requires that: -
A) any corrections must be completed within 14 days.
B) he first confirms his identity, by providing a copy of his birth certificate or passport.
C) his bank provides his data within 40 days of Fred's written request.
D) the bank limits any administrative charge to a maximum of £25.
Q50 answer & justifications
A) Information must be provided within 40 days.
B) In general, as data must be kept confidential, identification is often required. The Data Protection Act 1998 does not insist on the type of identification.
**C) Correct. Information must be provided within 40 days.**
D) The maximum charge can be up to £50 depending on the nature of the request.
101
Q1. Financial intermediaries can provide maturity transformation because they:
A) aggregate many small deposits from a large number of clients.
B) match a wide range of short-term deposit accounts to longer term loans.
C) provide services to clients from many different geographical locations.
D) reduce the risk of default or fraud by lending to a wide variety of borrowers.
Q1 answer & justifications
A) Pooling many small deposits is a process of aggregation (rather than maturity transformation).
**B) Correct. Maturity transformation involves matching a wide range of deposit accounts with different terms to a wide range of depositors.**
C) Maturity transformation involves the matching of differing timescales rather than geographical locations.
D) Maturity transformation involves matching a wide range of deposit accounts with different terms to a wide range of depositors.
102
Q2. Which of the following describes a function of the Bank of England?
A) Acting as banker to the government.
B) Depositing money with the International Monetary Fund.
C) Managing new issues of gilt-edged securities.
D) Regulating the sale and marketing of all UK investments.
Q2 answer & justifications
**A) Correct. The Bank of England acts as banker to the government.**
B) The Bank of England does not deposit money with the IMF.
C) The Bank of England no longer manages the issue of gilt-edged securities (This function is now carried out by the Debt Management Office.)
D) The FCA regulates the sale and marketing of investments in the UK.
103
Q3. The main reason that the Bank of England transferred responsibility for the management of new issues of gilt edged securities to the Debt Management Office was to:
A) avoid conflicts of interest.
B) give control to the Treasury.
C) limit the power of the Monetary Policy Committee.
D) minimise the administrative costs.
Q3 answer & justifications
**A) Correct. This function was transferred to avoid conflicts of interest that might arise from the bank's responsibility for setting interest rates.**
B) This function was transferred to avoid conflicts of interest that might arise from the bank's responsibility for setting interest rates.
C) This function was transferred to avoid conflicts of interest that might arise from the bank's responsibility for setting interest rates.
D) This function was transferred to avoid conflicts of interest that might arise from the bank's responsibility for setting interest rates.
104
Q4. Jenny has had an element of her husband John's income tax allowance transferred to her. This must mean that:
A) Jenny is a higher-rate taxpayer.
B) Jenny is an additional-rate taxpayer.
C) John died in the current financial year.
D) John was born after 5 April 1935.
Q4 answer & justifications
A) Spouses and civil partners can transfer up to 10% of their personal allowance as long as the transferor was born after 5th April 1935 and neither party Is a higher or additional-rate taxpayer.
B) Spouses and civil partners can transfer up to 10% of their personal allowance as long as the transferor was born after 5th April 1935 and neither party Is a higher or additional-rate taxpayer.
C) An income tax personal allowance does not transfer at death.
**D) Correct. Spouses and civil partners can transfer up to 10% of their personal allowance as long as the transferor was born after 5th April 1935 and neither party is a higher or additional-rate taxpayer.**
105
Q5. For a basic-rate taxpayer, which of the following statements would be regarded as an advantage of having an ordinary building society savings account?
A) A high rate of interest, reflecting the risks involved.
B) A tax-free return, but no guarantee of performance.
C) Security of capital with interest payments.
D) The potential for capital growth with little risk.
Q5 answer & justifications
A) As a low risk investment, a building society account will not usually offer high rates of interest.
B) Interest from a building society account will be taxable.
**C) Correct. Building society savings accounts offer regular interest payments with little risk to capital.**
D) Building Society accounts do not offer potential for capital growth.
106
Q6. Jon has invested in short-dated gilts. According to the definition provided by the Debt Management Office, this means that:
A) he is unable to access his capital until the end of the fixed term.
B) payment of interest is net of UK basic rate tax.
C) the interest will be paid at the end of the fixed term.
D) they have a maximum term to redemption of seven years.
Q6 answer & justifications
A) Capital can be accessed by selling the gilts before redemption date.
B) Interest is paid gross on UK gilts.
C) Interest is paid during the term of the gilt.
**D) Correct. The DMO defines short dated gilts as those with a term to redemption of up to 7 years.**
107
Q7. Jim is a higher-rate taxpayer who has investments in gilt-edged securities that pay interest of £10,000 p a. How much tax, if any, will be deducted at source from the payment made to him?
A) None.
B) £1,000.
C) £2,000.
D) £4,000.
Q7 answer & justifications
**A) Correct. Although subject to income tax, the interest is paid gross.**
B) Although subject to income tax, the interest is paid gross.
C) Although subject to income tax, the interest is paid gross.
D) Although subject to income tax, the interest is paid gross.
108
Q8. If Helen invests in shares which are quoted in the Alternative Investment Market, her shares:
A) are likely to be in new, small companies with growth potential.
B) have a minimum guaranteed capital value.
C) must be held by her for at least one year before they can be sold.
D) will provide a fixed income for the first five years.
Q8 answer & justifications
**A) Correct. The AIM is intended for new, small companies with the potential for growth.**
B) The AIM is intended for new, small companies with the potential for growth. There is no minimum capital value.
C) The AIM is intended for new, small companies with the potential for growth. There is no minimum holding period.
D) The AIM is intended for new, small companies with the potential for growth. They do not offer fixed income.
109
Q9. A company is paying a dividend which has a dividend cover of 0.95. This indicates that it:
A) has reduced its payment compared with last year.
B) is highly profitable.
C) is quoted on the Alternative Investment Market.
D) will be paid out of retained surpluses.
Q9 answer & justifications
A) There is no direct correlation between dividend cover and previous dividends paid.
B) The dividend cover does not automatically reflect profitability.
C) The dividend cover is not a direct indicator of the market traded on.
**D) Correct. Dividend cover of less than 1 indicates that part of the dividend is being paid out of retained surpluses and therefore calling on reserves.**
110
Q10. Which of the following is not regarded as a 'commodity' investment?
A) Commercial property.
B) Electricity.
C) Gold.
D) Royalties on works of art.
Q10 answer & justifications
**A) Correct. This is not a commodity.**
B) Electricity is now regarded as a commodity.
C) Gold is a commodity.
D) These are regarded as commodities.
111
Q11. Which of the following statements regarding investments is true?
A) Gilts are negotiable and any gain may be subject to capital gains tax.
B) Interest on gilts is paid without deduction of income tax but is taxable.
C) Interest on local authority stock is paid without deduction of income tax but is taxable.
D) Local authority stocks are not negotiable and carry a government guarantee.
Q11 answer & justifications
A) Gilts are not subject to CGT.
**B) Correct. Interest on gilts is paid gross but is taxable.**
C) Interest on local authority stock is paid net of tax.
D) Local authority stock is not government backed.
112
Q12. Returns from which of the following NS&I products are tax-free?
A) Children's Bonds.
B) Direct Saver.
C) Income Bonds.
D) Investment account.
Q12 answer & justifications
**A) Correct. Returns on Children's Bonds are tax-free.**
B) Direct Saver pays interest gross but is taxable.
C) Income Bonds pay interest net of tax.
D) Investment accounts pay interest gross but the payment is taxable.
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Q13. The primary reason why an individual would consider using a short-term investment in a foreign currency is connected with:
A) capital funding.
B) investment diversification.
C) the overall level of return.
D) the taxation benefits.
Q13 answer & justifications
A) The requirement to fund capital would be more likely to be achieved with longer term holdings.
B) Long-term, not short-term investments are used to achieve investment diversification.
**C) Correct. Short-term foreign currency investment is usually driven by high interest rates.**
D) Although taxation can be an issue, it is the level of returns which is the primary driver for short-term investment.
114
Q14. Which of the following is true in relation to the manager of an investment trust?
A) They can borrow to potentially improve capital and income growth.
B) They can cancel units if the fund value falls sharply.
C) They can issue more units or repurchase units according to demand.
D) They cannot benefit from the effects of gearing.
Q14 answer & justifications
**A) Correct. As a company, an investment trust can borrow for investment purposes.**
B) Shares in an investment trust cannot be cancelled.
C) An investment trust has a fixed share capital - it cannot change the number of shares.
D) An investment trust can borrow for investment purposes and can benefit from the effects of gearing.
115
Q15. Michael requires a life policy to pay out a guaranteed fixed cash value at maturity and needs the level of life cover and premiums to remain fixed throughout the term. Which of the following types of policy would be most suitable?
A) Low cost with-profits endowment assurance.
B) Non-profit endowment assurance.
C) Unit-linked endowment assurance.
D) Universal whole-of-life assurance.
Q15 answer & justifications
A) The return from a with-profits policy is dependent on bonuses.
**B) Correct. A non-profit endowment has a fixed sum assured upon death or maturity.**
C) The return from a unit linked policy is based on investment performance.
D) A whole-of-life policy does not have a maturity date or guaranteed cash value.
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Q16. Under the terms of a traditional split-capital investment trust, what minimum percentage, if any, of the income generated by the portfolio is allocated to the income shares?
A) Nil.
B) 50%.
C) 75%.
D) 100%.
Q16 answer & justifications
A) Under the terms of a traditional split capital investment trust, all of the income is allocated to the income shares.
B) Under the terms of a traditional split capital investment trust, all of the income is allocated to the income shares.
C) Under the terms of a traditional split capital investment trust, all of the income is allocated to the income shares.
**D) Correct. Under the terms of a traditional split capital investment trust, all of the income is allocated to the income shares.**
117
Q17. Chris has entered into a futures contract for the purchase of a commodity. Which of the following is correct?
A) She can convert the future into a call option at a fixed price on the contract date.
B) She can trade her derivative on the open market at any time prior to the contract's specified date.
C) She has an obligation to buy the commodity at the agreed time and price.
D) She will be able to choose whether to exercise her option to trade in the commodity at the fixed price and time, or let the contract lapse.
Q17 answer & justifications
A) Futures contracts and call options are separate types of derivative. They are pot linked.
B) Futures contracts cannot be traded.
**C) Correct. Futures contracts involve an obligation to trade.**
D) The investor cannot choose whether or not to trade. Futures contracts involve an obligation to trade.
118
Q18. Which of the following is a feature of a repayment mortgage?
A) Repayments will be unchanged throughout the term of the mortgage.
B) The borrower will have to take out an investment policy to cover the shortfall at the end of the mortgage.
C) The capital amount does not reduce over the term of the mortgage.
D) The proportions of capital and interest making up the payment change over the term of the mortgage.
Q18 answer & justifications
A) Repayments will not be fixed throughout the term, as they may vary with interest rate movements.
B) Provided that monthly payments are made on time, the loan will be fully repaid at the end of the term. There will not be a shortfall.
C) The capital amount owing will reduce over the term.
**D) Correct. Payments mainly consist of interest in the early stages of the mortgage. Later in the term, more of the payments will be for the capital.**
119
Q19. Which of the following is true in relation to mortgages?
A) A remortgage is a way of lenders charging a higher interest rate.
B) A remortgage is an additional loan from a new lender.
C) A second mortgage increases the loan from the same lender.
D) A second mortgage is an additional secured loan from a new lender.
Q19 answer & justifications
A) If lenders wish to increase interest rates, they can do so on an existing mortgage.
B) A remortgage is not an additional loan. It is a replacement of the first mortgage.
C) A second mortgage is an additional secured loan on the same property from a new lender.
**D) Correct. A second mortgage is an additional secured loan on the same property from a new lender.**
120
Q20. When contributing to a personal pension, what rate of tax relief, if any, is given at source?
A) Nil.
B) 10%.
C) 20%.
D) 40%.
Q20 answer & justifications
A) 20% relief is given at source for everyone.
B) 20% relief is given at source for everyone.
**C) Correct. 20% relief is given at source for everyone.**
D) 20% relief is given at source for everyone.
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Q21. What is the maximum amount of capital protection, if any, offered by a 'structured' investment product?
A) Nil.
B) 50%.
C) 75%.
D) 100%.
Q21 answer & justifications
A) The maximum level of capital protection available on such products is 100%, although this can vary by provider.
B) The maximum level of capital protection available on such products is 100%, although this can vary by provider.
C) The maximum level of capital protection available on such products is 100%, although this can vary by provider.
**D) Correct. The maximum level of capital protection available on such products is 100%, although this can vary by provider.**
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Q22. Jon, a computer technician, hurts one hand, causing lasting damage, and has to be re-employed part-time at a lower salary. What effect will his return to work have on his income protection insurance (IPI) benefits?
A) Proportionate benefit may be paid, until retirement.
B) Proportionate benefit may be paid but no other claims under the policy will be met.
C) They may continue at the same level until retirement.
D) They will automatically cease immediately.
Q22 answer & justifications
**A) Correct. Proportionate benefits may be payable if a claimant can return to work but on a lower salary.**
B) Proportionate benefits may be payable if a claimant can return to work but on a lower salary. This will not prevent future claims.
C) Proportionate benefits may be payable if a claimant can return to work but on a lower salary. The benefits will not continue at the level rate as previously.
D) Proportionate benefits may be payable if a claimant can return to work but on a lower salary.
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Q23. Mike is retiring from his company after 25 years and will receive an occupational pension of £12,000 per annum. He is planning to take a cash lump sum of £30,000 and £4,000 pa from his personal pension plan. If the value of his personal pension is £120,000, what will the tax liability be on these benefits?
A) He will be liable to capital gains tax on the lump sum above the annual allowance.
B) He will not have a tax liability on either of the pension benefits.
C) The lump sum will be tax free but he will pay income tax on the annual income.
D) The regular pension will be paid tax free but Mike will pay basic rate income tax on the lump sum.
Q23 answer & justifications
A) The lump sum will not be subject to any tax.
B) The lump sum will be tax free but the pension income will be subject to income tax.
**C) Correct. The lump sum will be tax free but the pension income will be subject to income tax.**
D) The lump sum will be tax free but the pension income will be subject to income tax.
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Q24. The main advantage of writing a life assurance policy in trust is to:
A) create a tax-exempt fund.
B) ensure the policy obtains qualifying status.
C) increase personal allowances.
D) place the proceeds outside the individual's estate.
Q24 answer & justifications
A) A policy written in trust will fall outside an individual's estate and the proceeds will not be subject to IHT. The trust will not affect the taxation of the underlying fund.
B) A policy written in trust will fall outside an individual's estate and the proceeds will not be subject to IHT. The trust will not affect the policy's qualifying status.
C) A policy written in trust will fall outside an individual's estate and the proceeds will not be subject to IHT. It will not have an effect on the policyholder's personal allowance.
**D) Correct. A policy written in trust will fall outside an individual's estate and the proceeds will not be subject to IHT.**
125
Q25. William and Kate have a standard variable-rate mortgage which is due to be repaid by a UK equity stocks and shares ISA. Which factor would most immediately adversely affect their monthly budgeting?
A) A fall in interest rates.
B) A fall in the FTSE 100 Index.
C) A rise in interest rates.
D) A rise in the FTSE 100 Index.
Q25 answer & justifications
A) A fall in rates could only benefit their budget.
B) This could ultimately be an issue, but not in the short term.
**C) Correct. A rise in interest rates may well cause a problem, as they are on a standard variable rate.**
D) This could only serve to benefit them in the long term.
126
Q26. When assessing the suitability of a proposed recommendation, which of the following factors is not relevant?
A) The financial outlay required from the client.
B) The remuneration to the adviser.
C) The state benefits that the client may receive.
D) The timescale over which the product will run.
Q26 answer & justifications
A) Affordability is a relevant factor when giving advice.
**B) Correct. Level of remuneration should have no effect on the advice given.**
C) Entitlement to state benefits will need to be taken into consideration.
D) Timescale will have to be considered when deciding on suitability.
127
Q27. Which of the following could be described as 'proactive servicing'?
A) A letter to a client asking the reason for non-payment of three premiums.
B) A letter to a client who is querying the charges on his unit trust.
C) A telephone call to a client to arrange a pre-agreed review following a salary increase.
D) A telephone call to a client's wife who has contacted you to advise you of her husband's death.
Q27 answer & justifications
A) Proactive servicing involves instigating action by contacting a client to discuss further needs.
B) Proactive servicing involves instigating action by contacting a client to discuss further needs.
**C) Correct. Proactive servicing involves instigating action by contacting a client to discuss further needs.**
D) Proactive servicing involves instigating action by contacting a client to discuss further needs.
128
Q28. Once an adviser has completed a factfind in respect of a client, which of the following is a fundamental consideration that should always be taken into account, before making an investment recommendation?
A) Attitude to risk.
B) Employment details.
C) Mortgage arrangements.
D) Number of dependants.
Q28 answer & justifications
**A) Correct. A client's attitude to risk must always be taken into consideration.**
B) A client's attitude to risk must always be taken into consideration. Employment details would be gathered but might not be relevant to any investment recommendation.
C) A client's attitude to risk must always be taken into consideration. Clients might not have a mortgage.
D) A client's attitude to risk must always be taken into consideration. Clients might not have dependants.
129
Q29. Which of the following could be described as 'reactive servicing'?
A) A letter to a client asking the reason for non-payment of a life assurance premium.
B) A letter to a client offering to call and discuss a newly launched product.
C) A telephone call to a client asking them if they wish to take advantage of a special offer.
D) An annual telephone call to a client to ascertain if his circumstances have changed.
Q29 answer & justifications
**A) Correct. This is contact with the client as a result of specific information received.**
B) This is an example of proactive servicing.
C) This is an example of proactive servicing.
D) This is an example of proactive servicing.
130
Q30. Which of the following is a reason for beneficiaries under a will to execute a 'deed of variation"?
A) Inheritance tax advantages can be obtained.
B) It is a way of avoiding intestacy.
C) It is a way of meeting the executor's wishes.
D) It is a way of rendering a will void.
Q30 answer & justifications
**A) Correct. Inheritance tax may be reduced by the re-arrangement of the allocation of the estate.**
B) With a valid will, intestacy will not be a concern.
C) Exercising a deed of variation would be the right of the beneficiaries, rather than the executors.
D) A deed of variation will not invalidate a will.
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Q31. William has created a trust but still maintains ownership rights. This is because:
A) he is a remainderman under the settlement
B) he is entitled to income distribution.
C) the beneficiaries are all under age 18.
D) the trustees include William.
Q31 answer & justifications
A) Any entitlement benefit within a settlement does not impact on the legal ownership of the trust property. A remainderman is a person who takes the capital of an estate on the death of the life tenant.
B) Any entitlement benefit within a settlement does not impact on the legal ownership of the trust property.
C) The age or other status of beneficiaries does not impact on the legal ownership of the trust property.
**D) Correct. By being a trustee, William automatically retains legal ownership of the trust property, albeit in a different capacity.**
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Q32. Peter, an agent, has acted outside his authority in setting up an arrangement with a third party. Subsequently, his principal confirmed the arrangement with the third party. At what time, if at all, did this arrangement first become binding on the principal?
A) At completion of contracts.
B) Only if consideration is paid within 30 days.
C) When it was set up.
D) When the principal communicated with the third party.
Q32 answer & justifications
A) An agent's act outside of his authority can be subsequently ratified by the principal.
B) An agent's act outside of his authority can be subsequently ratified by the principal.
C) An agent's act outside of his authority can be subsequently ratified by the principal.
**D) Correct. An agent's act outside of his authority can be subsequently ratified by the principal.**
133
Q33. Which of the following has full capacity to enter into a legal contract?
A) A limited company.
B) A person under the age of 18 years.
C) An unauthorised insurance company.
D) Someone with reduced mental capacity.
Q33 answer & justifications
**A) Correct. A limited company is a separate legal entity and can enter into a contract.**
B) Someone under 18 only has limited powers to enter into a contract.
C) An insurance company will only have capacity to contract if it is authorised by the PRA or FCA.
D) Someone with reduced mental capacity has only limited powers to enter into a contract.
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Q34. Peter, Paul and Pamela own a house on a tenants-in-common basis, each having a 1/3 share. In the event of Paul's death:
A) his estate is obliged to sell his share to Peter and Pamela.
B) Peter and Pamela are obliged to purchase Paul's share from his estate.
C) Peter and Pamela will each automatically increase their share to 50%.
D) the beneficiary of Paul's share will be determined by reference to his will or the laws of intestacy.
Q34 answer & justifications
A) If a property is held on a tenants-in-common basis and one party dies, the deceased's share passes under the terms of their will or under the rules of intestacy. There is no requirement for the beneficiary to sell.
B) If a property is held on a tenants-in-common basis and one party dies, the deceased's share passes under the terms of their will or under the rules of intestacy. There is no requirement for the other owners to buy the share from the beneficiary.
C) If a property is held on a tenants-in-common basis and one party dies, the deceased's share passes under the terms of their will or under the rules of intestacy. It will not pass automatically to the other owners of the property.
**D) Correct. If a property is held on a tenants-in-common basis and one party dies, the deceased's share passes under the terms of their will or under the rules of intestacy.**
135
Q35. What role does the Court of Protection play with respect to powers of attorney?
A) All powers of attorney must be registered with the Court of Protection.
B) Any action taken by the attorneys must be agreed by the Court of Protection.
C) Both lasting powers of attorney and enduring powers of attorney can only be revoked with the consent of the Court of Protection.
D) The Court of Protection retains a list of all those qualified to act as attorneys.
Q35 answer & justifications
A) Ordinary powers of attorney do not need to be registered: enduring powers of attorney need to be registered with the Office of the Public Guardian.
B) All actions of an attorney do not need to be agreed by the court.
**C) Correct. Only the court can revoke lasting and enduring powers of attomey.**
D) There is no list of qualified attorneys.
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Q36. What requirement rests on a discharged bankrupt when applying for a mortgage?
A) Always disclose the previous bankruptcy to the lender.
B) As he is now discharged, there is no requirement.
C) Only disclose the information if the lender asks.
D) To ensure the lender conducts a thorough credit search.
Q36 answer & justifications
**A) Correct. A person, by law, must disclose a previous bankruptcy when applying for a mortgage.**
B) A person, by law, must disclose a previous bankruptcy when applying for a mortgage.
C) A person, by law, must disclose a previous bankruptcy when applying for a mortgage.
D) A person, by law, must disclose a previous bankruptcy when applying for a mortgage.
137
Q37. Sarah has been advised that, during the current tax year, part of her overall income will be taxed at a rate of 37.5%. This confirms that she:
A) has made excess pension contributions above the annual allowance.
B) is a higher rate taxpayer with dividend income.
C) is an additional rate taxpayer with dividend income.
D) is in receipt of pension income.
Q37 answer & justifications
A) Additional rate taxpayers pay income tax at 37.5% with 10% deducted at source and a further 27.5% payable on the net income.
B) Additional rate taxpayers pay income tax at 37.5% with 10% deducted at source and a further 27.5% payable on the net income.
**C) Correct. Additional rate taxpayers pay income tax at 37.5% with 10% deducted at source and a further 27.5% payable on the net income.**
D) Pension income is taxed as earned income at 20%, 40% or 45%.
138
Q38. Susie's building society pays a net interest rate of 4% on her savings. She is a basic rate taxpayer. What is the equivalent gross rate?
A) 4.80%.
B) 5.00%.
C) 5.60%.
D) 6.67%.
Q38 answer & justifications
A) The gross interest has 20% income tax deducted at source. If the net interest is 4.00%, the gross is 5.00% (4.00 divided by 0.8).
**B) Correct. The gross interest has 20% income tax deducted at source. If the net interest is 4.00%, the gross is 5.00% (4.00 divided by 0.8).**
C) The gross interest has 20% income tax deducted at source. If the net interest is 4.00%, the gross is 5.00% (4.00 divided by 0.8).
D) The gross interest has 20% income tax deducted at source. If the net interest is 4.00%, the gross is 5.00% (4.00 divided by 0.8).
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Q39. Jeremy has capital losses that exceed gains made in the current tax year. What option, if any, does he have in relation to the residual losses?
A) Carry them back to last year.
B) Carry them forward to future years.
C) Claim a capital gains tax rebate.
D) None.
Q39 answer & justifications
A) Surplus capital losses can be carried forward to be used in future years.
**B) Correct. Surplus capital losses can be carried forward to be used in future years.**
C) Surplus capital losses can be carried forward to be used in future years.
D) Surplus capital losses can be carried forward to be used in future years.
140
Q40. When does a person acquire their 'domicile of origin?'
A) At birth.
B) At age 16.
C) At age 18.
D) At age 21.
Q40 answer & justifications
**A) Correct. Domicile of origin is determined at birth.**
B) Domicile of origin is determined at birth.
C) Domicile of origin is determined at birth.
D) Domicile of origin is determined at birth.
141
Q41. Two newly appointed trustees have been advised that their CGT allowance for the current tax year will be 100% of the standard allowance, rather than 50%, because:
A) none of the previous year's allowance had been used.
B) the trust assets are primarily based overseas.
C) the trust consists entirely of business assets.
D) they act as trustees of a trust for a mentally disabled person.
Q41 answer & justifications
A) Unused allowances cannot be carried forward.
B) The geographical base for the trust assets does not impact on a UK-based trust.
C) Allowance limits do not change in respect of business assets.
**D) Correct. The trustees of trusts for mentally disabled people are entitled to the full CGT allowance.**
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Q42. A qualifying life policy is maturing, and the owner has been advised that capital gains tax will apply to the policy proceeds. This confirms that:
A) over 50% of the invested funds were held overseas.
B) ownership had changed hands.
C) the policy was based offshore.
D) the policy was written under trust.
Q42 answer & justifications
A) Where funds are invested is not relevant to the CGT.
**B) Correct. If a policy is sold it is potentially liable to CGT in the hands of the new owners.**
C) Life policies, whether they are offshore or onshore, are subject only to the income tax regime, not to the capital gains tax regime.
D) Writing a life policy under trust does not, of itself, give rise to CGT.
143
Q43. What is the stamp duty reserve tax due on a purchase of bearer instruments with a market value of £100,000?
A) £500.
B) £1,000.
C) £1,500.
D) £2,000.
Q43 C answer & justifications
A) The rate of SDRT on bearer instruments is 1.5%. £100,000 x 1.5% = £1,500.
B) The rate of SDRT on bearer instruments is 1.5%. £100,000 x 1.5% = £1,500.
**C) Correct. The rate of SDRT on bearer instruments is 1.5%. £100,000 x 1.5% = £1,500.**
D) The rate of SDRT on bearer instruments is 1.5%. £100,000 x 1.5% = £1,500.
144
Q44. Class 2 National Insurance contributions would be paid by:
A) a finance director in a firm of management consultants.
B) a self-employed hairdresser operating as a sole trader.
C) an employed administrative assistant earning £12,500.
D) an office cleaner paid £10,000 under the PAYE system.
Q44 answer & justifications
A) As an employee, a director will pay Class 1 contributions.
**B) Correct. A self-employed sole trader will pay Class 2 contributions.**
C) An employee will pay Class 1 contributions.
D) An employee will pay Class 1 contributions.
145
Q45. Which state benefit is described as 'a benefit for disabled people who need personal care at or after age 65'?
A) Attendance Allowance.
B) Carer's Allowance.
C) Employment and Support Allowance.
D) Personal Independence Payment.
Q45 answer & justifications
**A) Correct. Attendance Allowance is for people over the age of65 who need care as a result of disability.**
B) Carer's Allowance is to assist a full-time carer, rather than the person receiving care.
C) Employment and Support Allowance is to assist someone who is unable to work as a result of illness/disability.
D) Personal Independence Payment is designed for people under 65 who need personal care.
146
Q46. Fred made a 'chargeable lifetime transfer' of £1 m. When will inheritance tax always be payable?
A) Immediately.
B) Six years after the gift.
C) Seven years after the gift.
D) Following the death of the donor.
Q46 answer & justifications
**A) Correct. A fixed rate of 20% applies to chargeable lifetime transfers, and is payable immediately.**
B) A fixed rate of 20% applies to chargeable lifetime transfers, and is payable immediately.
C) A fixed rate of 20% applies to chargeable lifetime transfers, and is payable immediately.
D) A fixed rate of 20% applies to chargeable lifetime transfers, and is payable immediately.
147
Q47. Which of the following goods and services are exempt from VAT?
A) Children's clothes.
B) Education.
C) Food.
D) Medicines.
Q47 answer & justifications
A) Although children's clothes are zero - rated, they are not exempt.
**B) Correct. Education services are exempt.**
C) Although food is zero - rated, it is not exempt.
D) Although medicine is zero - rated, it is not exempt.
148
Q48. Ethel has £50,000 in a basic building society savings account. Her son has pointed out that her savings may no longer keep pace with inflation. This is specifically because:
A) her savings interest rate has recently been reduced.
B) she is now eligible to receive gross interest payments.
C) sterling is performing poorly against the US dollar.
D) the government borrowing requirement has increased.
Q48 answer & justifications
**A) Correct. A reduction in an interest rate may mean that it no longer keeps up with inflation.**
B) A reduction in an interest rate may mean that it no longer keeps up with inflation.
C) A reduction in an interest rate may mean that it no longer keeps up with inflation.
D) A reduction in an interest rate may mean that it no longer keeps up with inflation.
149
Q49. Which of the following mortgage interest rate options always decreases when the lender's standard variable rate of interest reduces?
A) Capped rate mortgage.
B) Collared rate mortgage.
C) Deferred interest mortgage.
D) Discounted mortgage.
Q49 answer & justifications
A) If the cap is lower than the new rate, it will have no effect.
B) If the collar is above the new rate, then the change will have no effect.
C) A deferred interest mortgage may be on a fixed rate.
**D) Correct. A discounted mortgage carries a discount off the normal variable rate.**
150
Q50. What is Gross Domestic Product?
A measure of the value of:
A) demand within a country over a specified period of time.
B) goods and services produced within a country over a specified period of time.
C) money supply within a country over a specified period of time.
D) national average earnings within a country over a specified period of time.
Q50 B answer & justifications
A) GDP is defined as 'a measure of the value of goods and services within a country over a specified period of time'.
**B) Correct. GDP is defined as 'a measure of the value of goods and services within a country over a specified period of time’.**
C) GDP is defined as 'a measure of the value of goods and services within a country over a specified period of time'.
D) GDP is defined as 'a measure of the value of goods and services within a country over a specified period of time'.
151
Q1. The Financial Conduct Authority's single strategic objective is to:
A) ensure that relevant markets work well, so customers get a fair deal.
B) govern organisations that manage investments on behalf of other people.
C) oversee the administration of all types of investment business.
D) regulate the marketing and sale of all life assurance products.
Q1 answer & justifications
**A) Correct. The FCA's single strategic objective is to ensure that relevant markets perform well.**
B) The FCA's single strategic objective is to ensure that relevant markets perform well. It is not to directly govern other organisations.
C) The FCA's single strategic objective is to ensure that relevant markets perform well. It is not to oversee the administration of investment business.
D) The FCA's single strategic objective is to ensure that relevant markets perform well. The FCA and the PRA together regulate the UK financial services industry, and this is a wider remit than just regulating the marketing and sale of life assurance.
152
Q2. Individuals who are allowed to carry out 'controlled functions' in relation to a firm's regulated activities are known as:
A) appointed persons.
B) appropriate persons.
C) approved persons.
D) authorised persons.
Q2 answer & justifications
A) An individual working in an authorised firm who carries out a controlled function must be an approved person ie individually approved by the FCA.
B) An individual working in an authorised firm who carries out a controlled function must be an approved person ie individually approved by the FCA.
**C) Correct. An individual working in an authorised firm who carries out a controlled function must be an approved person ie individually approved by the FCA.**
D) An individual working in an authorised firm who carries out a controlled function must be an approved person ie individually approved by the FCA.
153
Q3. Which of the following is not one of the Financial Conduct Authority's Principles for Businesses?
A) Customers: relationships of trust.
B) Facilitation of competition.
C) Management and control.
D) Relations with regulators.
Q3 answer & justifications
A) Customers: relationships of trust is one of the FCA's Principles for Businesses.
**B) Correct. Facilitation of competition is not one of the FCA's Principles for Businesses**
C) Management and control is one of the FCA's Principles for Businesses
D) Relations with regulators is one of the FCA's Principles for Businesses
154
Q4. In relation to how a firm deals with the regulatory bodies, which of the following is not defined within the Financial Conduct Authority's Principles for Businesses? A firm must:
A) deal with its regulators in a co-operative way.
B) deal with its regulators in an open way.
C) disclose all data on a regular basis to its regulator.
D) disclose data that the regulator would reasonably expect.
Q4 answer & justifications
A) Dealing with regulators in a co-operative way is defined within the Principles for Businesses.
B) Dealing with regulators in an open way is defined within the Principles for Businesses.
**C) Correct. There is no requirement to disclose all data.**
D) Disclosing data that the regulator would reasonably expect is defined within the Principles for Businesses.
155
Q5. Under the FCA's rules relating to approved persons, into which type of function would the Money Laundering Reporting Officer be categorised?
A) Customer function.
B) Governing function.
C) Required function.
D) Risk function.
Q5 answer & justifications
A) Money laundering reporting is a required function.
B) Money laundering reporting is a required function.
**C) Correct. Money laundering reporting is a required function.**
D) Money laundering reporting is a required function.
156
Q6. Which of the following areas is not included in the 'fit and proper' test required by the FCA?
A) Complaints received.
B) Criminal record.
C) Current levels of earnings.
D) Disqualification as a director.
Q6 answer & justifications
A) Complaints received is included, as it reflects on an individual's honesty, integrity and reputation.
B) Criminal record is included, as it reflects on an individual's honesty, integrity and reputation.
**C) Correct. Level of earnings is not included as part of the fit and proper test.**
D) Disqualification as a director is included, as it reflects on an individual's honesty, integrity and reputation.
157
Q7. Which of the following is most likely to be in evidence for insider dealing to take place?
A) A person being in a position of trust
B) A person having access to restricted information.
C) A significant degree of trading.
D) Transmission of information.
Q7 answer & justifications
A) The key aspect is access to information not available to others. A position of trust may help in this regard.
**B) Correct. The key aspect is access to information not available to others - and then using this for personal gain.**
C) The use of information for personal gain to any degree is the measure.
D) It is not purely about transmitting information: personal gain can be achieved without telling anyone about restricted information.
158
Q8. Under the requirements of Treating Customers Fairly, firms must ensure that product literature is clear and:
A) appropriate to the expected financial sophistication of the target customer group.
B) available in all EU languages, whether or not the product is being sold outside of the UK.
C) contains relevant comparisons with products available from competitors.
D) suitable for all consumers whether they have, or do not have existing financial knowledge.
Q8 answer & justifications
**A) Correct. Firms are expected to tailor their product literature to the likely needs of the target group.**
B) This is not a specific requirement of TCF, although may be appropriate if a product is being sold across the EU.
C) The information should enable customers to make a comparison, but competitor product details do not need to be included.
D) The level of detail should be appropriate to the likely needs of the target group, rather than be suitable for all consumers.
159
Q9. Which of the following facts must be included on all quotations for loans regulated by the Consumer Credit Act 2006?
A) The annual percentage rate.
B) The Bank of England base rate.
C) The lender's registered office address.
D) The purpose of the loan.
Q9 answer & justifications
**A) Correct. The APR must be quoted for all regulated loans.**
B) The APR must be quoted for all regulated loans.
C) The APR must be quoted for all regulated loans.
D) The APR must be quoted for all regulated loans.
160
Q10. Paula is employed by a building society. She wants to make a complaint about the treatment she has received as a member of the society's final-salary pension scheme. To whom should she first refer her complaint if she is unable to gain satisfaction from the scheme's trustees?
A) The Financial Conduct Authority.
B) The Pensions Advisory Service.
C) The Pensions Ombudsman.
D) The Pensions Regulator.
Q10 answer & justifications
A) If agreement cannot be reached with the scheme trustees, the next point of reference for a complainant is the Pensions Advisory Service.
**B) Correct. If agreement cannot be reached with the scheme trustees, the next point of reference for a complainant is the Pensions Advisory Service.**
C) If agreement cannot be reached with the scheme trustees, the next point of reference for a complainant is the Pensions Advisory Service.
D) If agreement cannot be reached with the scheme trustees, the next point of reference for a complainant is the Pensions Advisory Service.
161
Q11. Which of the following statements best describes the situation applying where a contract is found to contain a term that is deemed to be unfair?
A) As long as it is practicable, the rest of the contract can continue.
B) The business can choose to bind the consumer to the contract.
C) The contract will continue as specified.
D) The whole contract will be invalid.
Q11 answer & justifications
**A) Correct. As long as it is practicable, the rest of the contract can continue.**
B) As long as it is practicable, the rest of the contract can continue. The unfair term will not be binding in the consumer unless the consumer chooses to be bound by it.
C) As long as it is practicable, the rest of the contract can continue. The contract will only continue as specified if the consumer chooses to be bound by the unfair term.
D) As long as it is practicable, the rest of the contract can continue.
162
Q12. To which of the following will the provisions of MiFID always apply?
A firm which:
A) is underwriting the issue of any of the specified financial instruments.
B) provides life assurance advice.
C) provides mortgage advice.
D) transmits orders for collective investments.
Q12 answer & justifications
**A) Correct. Underwriting the issue of any of the specified financial instruments falls under the scope of MiFID.**
B) Life assurance advice is not covered by MiFID.
C) Mortgage advice is not covered by MiFID.
D) This does not always apply: it depends on the type of firm and the scope of their activities.
163
Q13. Liquidity is a measure of:
A) the excess of a business's assets over its liabilities.
B) an insurance company's potential exposure to claims.
C) the ease and speed with which a business's assets can be converted to cash.
D) the level of savings held in notice accounts.
Q13 answer & justifications
A) Liquidity is the ease and speed with which a business's assets can be converted to cash.
B) Liquidity is the ease and speed with which a business's assets can be converted to cash.
**C) Correct. Liquidity is the ease and speed with which a business's assets can be converted to cash.**
D) Liquidity is the ease and speed with which a business's assets can be converted to cash.
164
Q14. Which of the following bank employees would not normally require individual FCA approval?
A) A branch cashier.
B) A money laundering reporting officer.
C) A pensions adviser.
D) An investment adviser.
Q14 answer & justifications
**A) Correct. Being a branch cashier is not a controlled function so FCA approval is not required.**
B) A money laundering reporting officer is a required function and needs FCA approval.
C) A pensions adviser is a customer function and needs FCA approval.
D) An investment adviser is a customer function and needs FCA approval.
165
Q15. For supervision purposes under the FCA, firms fall into one of four categories. What type of firm falls into the first category, C1?
A) Banking and insurance groups.
B) Investment advisers.
C) Small firms, including most intermediaries.
D) Wholesale firms.
Q15 answer & justifications
**A) Correct. Under FCA supervision, firms fall into one of four categories - C1 to C4. Those with very large assets and a very large number of retail customers (banking and insurance groups) fall into the first category, C1.**
B) Under FCA supervision, firms fall into one of four categories- C1 to C4. Those with very large assets and a very large number of retail customers (banking and insurance groups) fall into the first category, C1.
C) Under FCA supervision, firms fall into one of four categories- C1 to C4. Those with very large assets and a very large number of retail customers (banking and insurance groups) fall into the first category, C1.
D) Under FCA supervision, firms fall into one of four categories- C1 to C4. Those with very large assets and a very large number of retail customers (banking and insurance groups) fall into the first category, C1.
166
Q16. If an approved person or authorised firm is judged to be guilty of misconduct, which of the following is not a disciplinary option open to the FCA?
A) Financial penalty.
B) Imprisonment.
C) Issue a warning notice.
D) Publish a statement of misconduct.
Q16 answer & justifications
A) The disciplinary options open to the FCA are Financial Penalty, issue a warning notice, and publish a statement of misconduct.
**B) Correct. The FCA doesn't have the power to imprison approved persons, this can only be done by the courts**
C) The disciplinary options open to the FCA are Financial Penalty, issue a warning notice, and publish a statement of misconduct.
D) The disciplinary options open to the FCA are Financial Penalty, issue a warning notice, and publish a statement of misconduct.
167
Q17. Which of the following Individuals' roles in a regulated firm would be classified by the FCA as a 'required function'?
A) Barbara, who is an investment adviser with an investment house.
B) Jackie, who is the chief executive of a mutual insurer.
C) Jean, who is the Money Laundering Reporting Officer for a large group of IFAs.
D) Lisa, who is a corporate finance adviser.
Q17 answer & justifications
A) An investment adviser is a customer function, not a required function.
B) Chief executive is a governing function, not a required function.
**C) Correct. Money Laundering Reporting Officer is a required function.**
D) Corporate finance adviser is a customer function, not a required function.
168
Q18. Which of the following is most likely to be classified as an 'approved' person as they perform an FCA required function?
A) A compliance officer.
B) A personnel manager.
C) A training officer.
D) An internal auditor.
Q18 answer & justifications
**A) Correct. A compliance officer will be acting in a required function and will need FCA approval.**
B) A personnel manager will not normally need FCA approval.
C) A training officer will not normally need FCA approval.
D) The head of internal audit is the approved person, not the internal auditors.
169
Q19. A firm is preparing a promotion for retail customers. Under FCA rules and guidance, the information must be understandable:
A) by an average member of the target group.
B) easily by all potential members of the target group.
C) unless defined technical terms are used.
D) with the help of a professional adviser.
Q19 answer & justifications
**A) Correct. Information supplied must be understandable by an average member of the group it is aimed at.**
B) Information supplied must be understandable by an average member of the group it is aimed at.
C) Information supplied must be understandable by an average member of the group it is aimed at.
D) Information supplied must be understandable by an average member of the group it is aimed at.
170
Q20. A building society is to launch a postal campaign to draw attention to its new European Equity Fund. In order to comply with FCA rules, what information must be included in the literature that will be sent to customers?
A) A balanced view of any benefits and risks.
B) That at least 50 per cent of the customer's available funds should be retained on a deposit basis.
C) That equity funds generally underperform in the early years because of the charges.
D) That investments into the equity fund must be made for a minimum period of ten years.
Q20 answer & justifications
**A) Correct. A firm must ensure that information is accurate and, in particular, does not emphasise any potential benefits of relevant business or a relevant investment without also giving a fair and prominent indication of any risks.**
B) A firm must ensure that information is accurate and, in particular, does not emphasise any potential benefits of relevant business or a relevant investment without also giving a fair and prominent indication of any risks.
C) A firm must ensure that information is accurate and, in particular, does not emphasise any potential benefits of relevant business or a relevant investment without also giving a fair and prominent indication of any risks.
D) A firm must ensure that information is accurate and, in particular, does not emphasise any potential benefits of relevant business or a relevant investment without also giving a fair and prominent indication of any risks.
171
Q21. The FCA Training and Competence Sourcebook applies to:
A) financial advisers, supervisors of those advisers and supervisors of certain 'back office' functions.
B) supervisors of advisers, supervisors of certain 'back office' functions and clerical input staff.
C) supervisors of certain 'back office' functions, clerical claims staff and supervisors of advisers.
D) the company accountants, financial advisers and supervisors of certain 'back office' functions.
Q21 answer & justifications
**A) Correct. The three groups are: (a) financial advisers / investment managers / dealers; (b) their supervisors; and (c) supervisors of certain 'back office' functions, such as underwriting claims.**
B) The three groups are: (a) financial advisers / investment managers / dealers; (b) their supervisors; and (c) supervisors of certain 'back office' functions, such as underwriting claims.
C) The three groups are: (a) financial advisers / investment managers / dealers; (b) their supervisors; and (c) supervisors of certain 'back office' functions, such as underwriting claims.
D) The three groups are: (a) financial advisers / investment managers / dealers; (b) their supervisors; and (c) supervisors of certain 'back office' functions, such as underwriting claims.
172
Q22. What is the minimum period for which records of details obtained through the factfind, in respect of a recommendation for a regular contribution personal pension contract, which is not an opt-out or a transfer, must be kept?
A) 3 years.
B) 5 years.
C) 10 years.
D) Indefinitely.
Q22 answer & justifications
A) Records of factfind details in respect of pension contracts must be kept for a minimum of five years.
**B) Correct. Records of factfind details in respect of pension contracts must be kept for a minimum of five years.**
C) Records of factfind details in respect of pension contracts must be kept for a minimum of five years.
D) Records of factfind details in respect of pension contracts must be kept for a minimum of five years.
173
Q23. Which of the following should be part of a firm's training regime for FCA training and competence purposes?
A) Employees should be given one-to-one training.
B) New employees should be given the most intense training.
C) The effectiveness of the training should be evaluated.
D) The training must be conducted at least annually.
Q23 answer & justifications
A) There is no specified requirement for one-to-one training.
B) This is a generalisation; all training should be appropriate and timely.
**C) Correct. The effectiveness of the training in achieving its objectives must be evaluated.**
D) No specified time limits are set out.
174
Q24. Why is it important that financial advisers keep records of their advice?
A) In case similar advice is required by another customer.
B) It is mandatory under the Data Protection Act.
C) To be able to demonstrate compliance with the regulations.
D) To exceed the regulatory requirements.
Q24 answer & justifications
A) Advisers must keep their client files for a specified time, under FCA regulations.
B) Advisers must keep their client files for a specified time, under FCA regulations.
C) Advisers must keep their client files for a specified time, under FCA regulations.
D) Advisers must keep their client files for a specified time, under FCA regulations.
175
Q25. For what period of time must records be kept that a firm has chosen to offer basic advice to a particular client and the range of stakeholder products used?
A) 1 year.
B) 3 years.
C) 5 years.
D) Indefinitely.
Q25 answer & justifications
A) Records of basic advice must be retained for 5 years.
B) Records of basic advice must be retained for 5 years.
**C) Correct. Records of basic advice must be retained for 5 years.**
D) Records of basic advice must be retained for 5 years.
176
Q26. Which of the following types of mortgage arrangement will remain outside FCA regulation beyond 21 March 2016?
A) Buy-to let mortgages arranged by a business.
B) Buy-to let mortgages for consumers.
C) Home reversion schemes.
D) Lifetime mortgages.
Q26 answer & justifications
**A) Correct. Buy-to let mortgages for businesses are not currently regulated and will remain unregulated beyond 21 March 2016.**
B) Buy-to let mortgages for consumers will be regulated by the FCA for the first time from 21 March 2016.
C) Home reversion schemes are currently covered by MCOB regulation.
D) Lifetime mortgages are currently covered by MCOB regulation.
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Q27. Where MCOB rules apply to a residential mortgage, what minimum percentage of property must be occupied as a residence by the borrower?
A) 10%.
B) 40%.
C) 60%.
D) 100%.
Q27 answer & justifications
A) A borrower (or their family) must occupy at least 40% of the property.
**B) Correct. A borrower (or their family) must occupy at least 40% of the property.**
C) A borrower (or their family) must occupy at least 40% of the property.
D) A borrower (or their family) must occupy at least 40% of the property.
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Q28. For which type of mortgage, if any, is a firm required to issue a suitability report?
A) Buy-to-let only.
B) Commercial only.
C) Residential only.
D) None.
Q28 answer & justifications
A) There is no requirement to issue a suitability report to a client for any type of mortgage, although advisers may do so if they wish.
B) There is no requirement to issue a suitability report to a client for any type of mortgage, although advisers may do so if they wish.
C) There is no requirement to issue a suitability report to a client for any type of mortgage, although advisers may do so if they wish.
**D) Correct. There is no requirement to issue a suitability report to a client for any type of mortgage, although advisers may do so if they wish.**
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Q29. Jeremy and Sandra have an interest-only mortgage and have received written advice to check the performance of their repayment vehicle. Under the MCOB rules, this Is most likely to have been issued by:
A) the Financial Conduct Authority.
B) the investment product provider.
C) their financial adviser.
D) their mortgage lender.
Q29 answer & justifications
A) MCOB 7 requires that annual statements are issued by the lender regarding the progress of the mortgage. These must include a recommendation to check that any repayment vehicle is on track.
B) MCOB 7 requires that annual statements are issued by the lender regarding the progress of the mortgage. These must include a recommendation to check that any repayment vehicle is on track.
C) MCOB 7 requires that annual statements are issued by the lender regarding the progress of the mortgage. These must include a recommendation to check that any repayment vehicle is on track.
**D) Correct. MCOB 7 requires that annual statements are issued by the lender regarding the progress of the mortgage. These must include a recommendation to check that any repayment vehicle is on track.**
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Q30. The introduction of regulations for general insurance from January 2005 was partly in response to the EU Directive on insurance mediation. This directive was designed to:
A) limit the commissions or fees that can be paid on general insurance products.
B) open and standardise the market for insurance intermediaries throughout the European Union.
C) require all general insurance brokers to standardise the level of premiums across the industry.
D) set minimum qualification standards for advisers.
Q30 answer & justifications
A) The EU Directive on insurance mediation was designed to open up and standardise the market for insurance intermediaries throughout the European Union.
**B) Correct. The EU Directive on insurance mediation was designed to open up and standardise the market for insurance intermediaries throughout the European Union.**
C) The EU Directive on insurance mediation was designed to open up and standardise the market for insurance intermediaries throughout the European Union.
D) The EU Directive on insurance mediation was designed to open up and standardise the market for insurance intermediaries throughout the European Union.
181
Q31. Which of the following Is not one of the three categories of customer as defined by the FCA?
A) A corporate client.
B) A professional client.
C) A retail client.
D) An eligible counterparty.
Q31 answer & justifications
**A) Correct. A corporate client is not a separately defined category of customer. A corporate customer may be from any one of the three categories (eligible counterparty, professional client or retail client).**
B) A professional client is a defined category of customer (the other two are eligible counterparty and retail client).
C) A retail client is a defined category of customer (the other two are eligible counterparty and professional client).
D) An eligible counterparty is a defined category of customer (the other two are professional client and retail client).
182
Q32. For which of the following types of business would a client agreement need to be provided?
A) Cash ISAs.
B) Direct shareholdings.
C) Life assurance.
D) Personal pensions.
Q32 answer & justifications
A) A client agreement is not required in respect of a cash ISA.
**B) Correct. A client agreement is required in respect of investments such as direct shareholdings, futures and options.**
C) A client agreement is not required for advice on packaged investments such as life assurance and personal pensions.
D) A client agreement is not required for advice on packaged investments such as life assurance and personal pensions.
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Q33. How does the use of specialists within a firm impact on their status as independent advisers?
A) A firm providing independent advice should have a specialist in every advice area or no specialists at all.
B) A specialist in one product or advice area can only advise on other products and advice areas on a restricted basis.
C) If an individual decides to specialise in one product or advice area, they can no longer describe themselves as being independent.
D) Within a firm, a specialist may claim to offer independent advice provided that he or she can meet the independence rule in every personal recommendation he or she provides.
Q33 answer & justifications
A) A specialist may claim to offer independent advice provided that they can meet the independence rule in every personal recommendation they provide.
B) A specialist may claim to offer independent advice provided that they can meet the independence rule in every personal recommendation they provide.
C) A specialist may claim to offer independent advice provided that they can meet the independence rule in every personal recommendation they provide.
**D) Correct. A specialist may claim to offer independent advice provided that they can meet the independence rule in every personal recommendation they provide.**
184
Q34. Under what circumstances, if any, is a firm of IFAs permitted to select products from a panel of product providers?
A) Never.
B) For any type of product, provided that the panel is sufficiently broad and is reviewed regularly.
C) For investment-based products only.
D) Provided that the same panel is used for all of their customers.
Q34 answer & justifications
A) An IFA is allowed to use a panel provided that it is sufficiently broad in its composition to enable the firm to make personal recommendations based on a comprehensive and fair analysis of the market, and provided that it is reviewed and updated regularly.
**B) Correct. An IFA is allowed to use a panel provided that it is sufficiently broad in its composition to enable the firm to make personal recommendations based on a comprehensive and fair analysis of the market, and provided that it is reviewed and updated regularly.**
C) An IFA is allowed to use a panel provided that it is sufficiently broad in its composition to enable the firm to make personal recommendations based on a comprehensive and fair analysis of the market, and provided that it is reviewed and updated regularly.
D) An IFA is allowed to use a panel provided that it is sufficiently broad in its composition to enable the firm to make personal recommendations based on a comprehensive and fair analysis of the market, and provided that it is reviewed and updated regularly.
185
Q35. A restricted adviser is one who:
A) does not meet the requirements to be independent under the FCA Handbook definition.
B) only advises in one area of the market, such as mortgages.
C) only offers 'basic advice' and can only provide one or more of the suite of stakeholder products.
D) offers products from one specific product provider.
Q35 answer & justifications
**A) Correct. A restricted adviser is one who does not meet the requirements to be independent under the FCA Handbook definition.**
B) A restricted adviser is one who does not meet the requirements to be independent under the FCA Handbook definition. It may be that they only offer advice in one area of the market, such as mortgages, but this is not the definition of 'restricted'.
C) A restricted adviser is one who does not meet the requirements to be independent under the FCA Handbook definition.
D) A restricted adviser is one who does not meet the requirements to be independent under the FCA Handbook definition. It may be that they only offer the products of one specific provider, but this is not the definition of 'restricted'.
186
Q36. Joe runs his own firm of independent financial advisers and wishes to create his own factfind document. Under what circumstances, if any, can this be permitted?
A) None.
B) Joe is free to prepare his own document.
C) Joe must seek approval from his main product providers.
D) Joe must seek the FCA's approval of the text.
Q36 answer & justifications
A) There is no prescribed format for a factfind.
**B) Correct. There is no prescribed format for a factfind.**
C) There is no prescribed format for a factfind.
D) There is no prescribed format for a factfind.
187
Q37. When an adviser makes a recommendation to a client, but the client insists on selecting a different product, the adviser:
A) cannot proceed and should terminate the process.
B) should record the advice given and ask the client to sign to the effect that they wish to pursue an alternative.
C) should refer the client to a restricted adviser, who is governed by lower suitability requirements.
D) should refer the client to another independent financial adviser.
Q37 answer & justifications
A) If a client wishes to undertake a transaction that is contrary to advice given, the adviser should record the advice given and will normally require the client to sign to confirm that they have acted against advice.
**B) Correct. If a client wishes to undertake a transaction that is contrary to advice given, the adviser should record the advice given and will normally require the client to sign to confirm that they have acted against advice.**
C) If a client wishes to undertake a transaction that is contrary to advice given, the adviser should record the advice given and will normally require the client to sign to confirm that they have acted against advice.
D) If a client wishes to undertake a transaction that is contrary to advice given, the adviser should record the advice given and will normally require the client to sign to confirm that they have acted against advice.
188
Q38. What does an 'execution-only' transaction require an adviser to do?
A) To effect the transaction at the adviser's discretion.
B) To give no advice and only execute the transaction.
C) To make a range of recommendations for the customer.
D) To provide advice that will confirm the customer's choice.
Q38 answer & justifications
A) The transaction that the client requires must be executed on the best possible terms, not at the adviser's discretion.
**B) Correct. With an execution-only transaction, no advice or recommendation is provided.**
C) With an execution-only transaction, no advice or recommendation is provided.
D) With an execution-only transaction, no advice or recommendation is provided.
189
Q39. Freda is being advised to purchase a life assurance product. This means that the adviser's charges must be disclosed:
A) at the latest, when the cancellation notice is sent to Freda.
B) in writing before any business is discussed.
C) in writing within five business days after the business is transacted.
D) verbally before the business is transacted.
Q39 answer & justifications
A) Where advice is being given, the amount of charges must be disclosed in writing before any business is discussed.
**B) Correct. Where advice is being given, the amount of charges must be disclosed in writing before any business is discussed.**
C) Where advice is being given, the amount of charges must be disclosed in writing before any business is discussed.
D) Where advice is being given, the amount of charges must be disclosed in writing before any business is discussed.
190
Q40. Janice has cancelled an investment plan within the cancellation period but has received back less than she invested. Why is this?
A) A surrender charge has been applied to her plan.
B) A withdrawal charge has been applied to her plan.
C) She invested a lump sum into a unit-linked plan, which has fallen in value.
D) She invested a regular premium into a unit-linked savings endowment.
Q40 answer & justifications
A) Where a single premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No charges can be taken.
B) Where a single premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No charges can be taken.
**C) Correct. Where a single premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. This risk must be explained to the customer in advance.**
D) Where a single premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. This does not apply to regular premium plans.
191
Q41. Investment business is being transacted by an independent financial adviser with a client.
In these circumstances, who is responsible for presenting a key features document to the client?
A) The adviser.
B) The adviser's manager.
C) The product provider.
D) The regulator.
Q41 answer & justifications
**A) Correct. When investment business is being transacted, providing the client with a key features document is the responsibility of the adviser.**
B) When investment business is being transacted, providing the client with a key features document is the responsibility of the adviser.
C) When investment business is being transacted, providing the client with a key features document is the responsibility of the adviser.
D) When investment business is being transacted, providing the client with a key features document is the responsibility of the adviser.
192
Q42. In the UK, law enforcement in respect of activities covered by the Financial Action Task Force (FATF) is the responsibility of:
A) money laundering officials.
B) the Crown Prosecution Service.
C) the Financial Conduct Authority.
D) the National Crime Agency.
Q42 answer & justifications
A) The FATF is an inter-governmental policy-making body and, as such, transfers law enforcement activities to authorities in individual countries, which in the UK is the National Crime Agency.
B) The FATF is an inter-governmental policy-making body and, as such, transfers law enforcement activities to authorities in individual countries, which in the UK is the National Crime Agency.
C) The FATF is an inter-governmental policy-making body and, as such, transfers law enforcement activities to authorities in individual countries, which in the UK is the National Crime Agency.
**D) Correct. The FATF is an inter-governmental policy-making body and, as such, transfers law enforcement activities to authorities in individual countries, which in the UK is the National Crime Agency.**
193
Q43. If a staff member of a financial services organisation were to be accused of 'arranging' under the Proceeds of Crime Act 2002, It could mean that they had:
A) knowingly become involved in the process of converting criminal property.
B) personally owned the proceeds of criminal activity.
C) personally used the proceeds of criminal activity.
D) unwittingly failed to report a potentially suspicious transaction.
Q43 answer & justifications
**A) Correct. Arranging is knowing involvement in a process that will enable someone else to acquire or control criminal property.**
B) Arranging is knowing involvement in a process that will enable someone else to acquire or control criminal property. Personal possession or use is a separate offence.
C) Arranging is knowing involvement in a process that will enable someone else to acquire or control criminal property. Personal possession or use is a separate offence.
D) Arranging is knowing involvement in a process that will enable someone else to acquire or control criminal property.
194
Q44. A provider of investments has set up a stocks and shares ISA for a new client. Why was it not necessary, for the company to obtain evidence of identity for money-laundering purposes?
A) Investment amounts of less than £10,000 are exempt from money-laundering identification requirements.
B) Investments into stocks and shares ISAs are exempt from money-laundering identification requirements.
C) The client is only temporarily resident in the UK.
D) The client was introduced by an intermediary who obtained the necessary evidence.
Q44 answer & justifications
A) For new customers, identification will normally be required, regardless of the amount involved.
B) ISAs are not exempt from identification requirements.
C) Residence is not an issue. For all new customers, identification will normally be required.
**D) Correct. If a client is introduced by an intermediary, it is permissible to rely on the intermediary's confirmation that evidence has been obtained.**
195
Q45. Staff training on money laundering must cover all of the following requirements except:
A) the law relating to money laundering.
B) the firm's procedures.
C) how to liaise with the National Crime Agency.
D) the responsibilities of the firm's Money Laundering Reporting Officer.
Q45 answer & justifications
A) Staff training should include the law relating to money laundering.
B) Staff training should include the firm's procedures.
**C) Correct. Staff training will not include how to liaise with the National Crime Agency. This is the responsibility of the Money Laundering Reporting Officer.**
D) Staff training should include the responsibilities of the Money Laundering Reporting Officer.
196
Q46. If a member of an occupational pension scheme has an unresolved complaint after exhausting both the trustee and TPAS procedures, what period of time is usually permitted in which to refer the matter to the Pensions Ombudsman?
A) Three months.
B) Six months.
C) One year.
D) Three years.
Q46 answer & justifications
A) A complaint must be referred to the Pensions Ombudsman within three years of the final response from the trustees.
B) A complaint must be referred to the Pensions Ombudsman within three years of the final response from the trustees.
C) A complaint must be referred to the Pensions Ombudsman within three years of the final response from the trustees.
**D) Correct. A complaint must be referred to the Pensions Ombudsman within three years of the final response from the trustees.**
197
Q47. John has been waiting eight weeks for a response regarding his complaint about a financial services product. Under FOA rules, what action is he entitled to take?
A) Contact a claims management company.
B) Refer his complaint to the Financial Ombudsman Service.
C) Refer his complaint to the Financial Services Compensation Scheme.
D) Request that the complaint is referred to the firm's Chief Executive.
Q47 answer & justifications
A) If a complaint is unresolved after eight weeks, it can be referred to the FOS. There is no need to involve a claims management company under any circumstances.
**B) Correct. If a complaint is unresolved after eight weeks, it can be referred to the FOS.**
C) The FSCS exists for complaints against insolvent firms. If a complaint about a product is unresolved after eight weeks, it can be referred to the FOS.
D) Referring to the Chief Executive is not an option. If a complaint is unresolved after eight weeks, it can be referred to the FOS.
198
Q48. David's car insurer has gone out of business and he has lost £2,000 on his compulsory third party policy. How much compensation, if any, may he be entitled to receive from the FSCS?
A) None.
B) £1,000.
C) £1,800.
D) £2,000.
Q48 answer & justifications
A) On default of an insurance company, compensation is 100% in respect of compulsory insurance.
B) On default of an insurance company, compensation is 100% in respect of compulsory insurance.
C) On default of an insurance company, compensation is 100% in respect of compulsory insurance.
**D) Correct. On default of an insurance company, compensation is 100% in respect of compulsory insurance.**
199
Q49. If a customer requests to see information held about him in an organisation's files, how long does the organisation have to respond to that request under the Data Protection Act 1998?
A) 14 days.
B) 28 days.
C) 30 days.
D) 40 days.
Q49 answer & justifications
A) Information must be provided within 40 days.
B) Information must be provided within 40 days.
C) Information must be provided within 40 days.
**D) Correct. Information must be provided within 40 days.**
200
Q50. Which FCA sourcebook specifies the length of time for which information collected during the course of a customer factfind is kept?
A) Conduct of Business Sourcebook.
B) The Prudential Sourcebook.
C) The Systems and Controls Sourcebook.
D) The Training and Competence Sourcebook.
Q50 answer & justifications
**A) Correct. The record-keeping requirements are contained in the Conduct of Business Sourcebook.**
B) The record-keeping requirements are contained in the Conduct of Business Sourcebook.
C) The record-keeping requirements are contained in the Conduct of Business Sourcebook.
D) The record-keeping requirements are contained in the Conduct of Business Sourcebook.
201
Q1. To be acceptable as a medium of exchange, money must have all of the following properties, except for which of the following?
A) It must be divisible into small units.
B) It must be free from the effects of inflation.
C) It must be generally acceptable to all parties in all transactions.
D) It must be sufficient in quantity.
Q1 answer & justifications
A) To act as a medium of exchange, money must be divisible into small units.
**B) Correct. Even when acting as a medium of exchange, money will not be free from the effects of inflation.**
C) To act as a medium of exchange, money must be acceptable in transactions.
D) To act as a medium of exchange, money must be sufficient in quantity.
202
Q2. Which of the following do building societies and friendly societies automatically have in common?
A) Absence of a requirement to hold general meetings.
B) Direct supervision by the Bank of England.
C) Ownership structure.
D) Shares traded on the Alternative Investment Market.
Q2 answer & justifications
A) Both are managed in principle through general meetings of their members.
B) Both are now authorised by the PRA and regulated by the PRA and the FCA and not directly supervised by the Bank of England.
**C) Correct. Both are mutual organisations and owned by their members.**
D) Both are mutual organisations and do not have traded shares.
203
Q3. How can a bank involved in wholesale banking normally raise money quickly to finance business activities?
A) By a further issue of shares.
B) By borrowing from the Bank of England.
C) By issuing gilts.
D) From the interbank market.
Q3 answer & justifications
A) A bank involved in wholesale banking will normally borrow money from the interbank market if it wishes to finance business activities.
B) A bank involved in wholesale banking will normally borrow money from the interbank market if it wishes to finance business activities. It will only borrow from the Bank of England if it is short of liquidity.
C) A bank involved in wholesale banking will normally borrow money from the interbank market if it wishes to finance business activities.
**D) Correct. A bank involved in wholesale banking will normally borrow money from the interbank market if it wishes to finance business activities.**
204
Q4. Diane has been told that she must pay a certain class of National Insurance typically on a twice yearly basis. This confirms that she is:
A) earning more than the upper earnings limit.
B) on maternity leave.
C) self-employed.
D) temporarily working abroad.
Q4 answer & justifications
A) National Insurance contributions for employees are normally paid monthly.
B) Maternity leave does not require payments of National Insurance on a twice-yearly basis.
**C) Correct. Self-employed Class 4 NI contributions are paid twice-yearly along with income tax.**
D) Periodic collection of NI costs relates to self-employed status, not overseas status.
205
Q5. Which of the following investments would be the most suitable for a person who did not wish to be subject to capital risk?
A) A building society deposit account.
B) A managed unit trust.
C) Blue chip shares.
D) Warrants.
Q5 answer & justifications
**A) Correct. In order of capital risk, starting with the least risky, the order would be: building society deposit account, managed unit trust, blue chip shares, warrants.**
B) In order of capital risk, starting with the least risky, the order would be: building society deposit account, managed unit trust, blue chip shares, warrants.
C) In order of capital risk, starting with the least risky, the order would be: building society deposit account, managed unit trust, blue chip shares, warrants.
D) In order of capital risk, starting with the least risky, the order would be: building society deposit account, managed unit trust, blue chip shares, warrants.
206
Q6. Which of the following statements regarding local authority stocks is false?
A) They are a form of unsecured lending.
B) They offer a fixed rate of interest.
C) They pay interest at half-yearly intervals.
D) They pay interest net of basic-rate income tax.
Q6 answer & justifications
**A) Correct. Local authority stocks are secured on local authority assets.**
B) Local authority stocks pay fixed interest, half-yearly net of 20% income tax.
C) Local authority stocks pay fixed interest, half-yearly net of 20% income tax.
D) Local authority stocks pay fixed interest, half-yearly net of 20% income tax.
207
Q7. Daisy has recently purchased both gilt-edged securities and local authority bonds. In which primary way will they differ?
A) The availability of a fixed repayment date.
B) The frequency of interest payments.
C) The variability of interest paid.
D) The way in which interest payments are taxed.
Q7 answer & justifications
A) Both investments usually offer fixed repayment dates.
B) Both investments pay interest half yearly.
C) Interest is fixed for both investments.
**D) Correct. Interest from gilts is paid gross, whereas income from local authority bonds has 20% income tax deducted at source.**
208
Q8. Jack purchased a share when the price was relatively high. He was able to justify the purchase because:
A) dividends had decreased.
B) the dividend cover was 0.80.
C) the price/earnings ratio was high when compared with that for similar shares.
D) the price has increased by more than 25% in two years.
Q8 answer & justifications
A) A company decreasing its dividends does not necessarily make purchasing its shares an attractive option.
B) The dividend cover ratio indicates the proportion of a company's profits that are paid in dividends. A ratio of less than 1 is considered unattractive to investors.
**C) Correct. A high P/E ratio when compared with shares in the same sector or the sector average, means that the share is in demand and offers the prospect of higher than average earnings in the future.**
D) An increase in price does not, in itself, determine that a share is an attractive proposition.
209
Q9. For which type of share does a warrant holder have the right to subscribe?
A) Convertible.
B) Ordinary.
C) Preference.
D) Redeemable.
Q9 answer & justifications
A) A warrant gives the right to purchase ordinary shares.
**B) Correct. A warrant gives the right to purchase ordinary shares.**
C) A warrant gives the right to purchase ordinary shares.
D) A warrant gives the right to purchase ordinary shares.
210
Q10. If a company has a temporary cash surplus then short-term international investment will see it invest in the country that has:
A) the highest interest rates.
B) the lowest tax rates.
C) the lowest unemployment rate.
D) the most secure government bonds.
Q10 answer & justifications
**A) Correct. A company with a temporary cash surplus will use short term international investment to invest in the country with the highest interest rates.**
B) A company with a temporary cash surplus will use short term international investment to invest in the country with the highest interest rates.
C) A company with a temporary cash surplus will use short term international investment to invest in the country with the highest interest rates.
D) A company with a temporary cash surplus will use short term international investment to invest in the country with the highest interest rates.
211
Q11. A right to buy shares at a specified price by a certain date is a:
A) call option.
B) forward contract.
C) future contract.
D) put option.
Q11 answer & justifications
**A) Correct. A call option is a right to buy shares at a specified price by a certain date.**
B) A forward is an obligation not a right.
C) A future is an obligation not a right.
D) A put option is a right to sell shares at a specified price by a certain date.
212
Q12. Which statement best explains the tax treatment of NS&I Income Bonds?
A) Income is paid gross but liable to tax at the recipient's marginal rate.
B) Income is paid net of 10% savings tax, and higher and additional-rate taxpayers must pay remaining tax through their tax return.
C) Income is paid net of basic-rate tax, and higher and additional-rate taxpayers must pay remaining tax through their tax return.
D) Income is paid tax-free.
Q12 answer & justifications
**A) Correct. Income is paid gross but liable to tax.**
B) Income is paid gross but liable to tax.
C) Income is paid gross but liable to tax.
D) Income is paid gross but liable to tax.
213
Q13. Greg decided to invest in cumulative preference shares as he:
A) wanted guaranteed security.
B) intended to convert to ordinary shares.
C) wanted some certainty regarding future dividend payment.
D) was eager for capital growth.
Q13 answer & justifications
A) Cumulative preference shares do not provide guaranteed security.
B) Cumulative preference shares do not have any specific rights of conversion unless specifically issued on a convertible basis.
**C) Correct. The dividend payments on preference shares are generally fixed and if dividends are not paid, entitlement is accumulated until they can be paid.**
D) Cumulative preference shares are for investors seeking income rather than capital.
214
Q14. Jayne, an additional rate taxpayer, has a fixed-interest unit trust from which she receives gross income of £2,000 per annum. How much further tax will she have to pay?
A) £200.
B) £400.
C) £500.
D) £650.
Q14 answer & justifications
A) £200 implies an additional tax payment of 10%, whereas the additional amount is 25%.
B) 20% is paid at source (£400) and a further 25% (£500) as an additional payment.
**C) Correct. 20% is paid at source (£400) and a further 25% (£500) as an additional payment.**
D) This is based on 32.5% which relates to equity-based unit trusts.
215
Q15. Three of the following types of charges may be applied to an investment held with an open ended investment company. Which is the exception?
A) Administration costs.
B) Annual management charge.
C) Initial charge.
D) Policy fee.
Q15 answer & justifications
A) Administration costs may be deducted from income.
B) Annual management charges may be deducted from the fund.
C) An initial charge may be levied on an OEIC.
**D) Correct. A policy fee may be charged on a life policy, but not on an OEIC.**
216
Q16. Under a unit trust, what does the cancellation price represent?
A) The maximum offer price at which a full encashment of units may be made.
B) The minimum bid price which investors will receive when they cash in their units.
C) The price applicable to investors who cancel their investment during the cooling-off period.
D) The price at which the manager will buy back units if underlying assets do not have to be traded.
Q16 answer & justifications
A) The cancellation price is the minimum (not maximum) bid price upon encashment.
**B) Correct. The cancellation price is the minimum bid price upon encashment.**
C) Investors who cancel during the cooling-off period will receive an offer price. (The cancellation price is a bid price).
D) The cancellation price is the bid price when underlying assets do need to be traded.
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Q17. What happens when an option reaches its maturity date?
A) The full maturity value of the option is paid to the investor.
B) The investor can choose to exercise the option at the predetermined price, or let the option lapse.
C) The investor can opt to extend the option date for a further period, at the same price.
D) The option can be converted to a warrant.
Q17 answer & justifications
A) An option does not have a maturity value.
**B) Correct. Upon expiry, the investor can exercise the option or let it lapse.**
C) There is no right to extend an option. Upon expiry, the investor can exercise the option or let it lapse.
D) There is no right to convert an option into a warrant. Upon expiry, the investor)can exercise the option or let it lapse.
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Q18. Which of the following is one way in which a repayment mortgage differs fundamentally from an interest-only mortgage?
A) Life cover is not automatically built in.
B) Provided monthly repayments are made on time, the loan is guaranteed to be fully repaid at the end of the term.
C) The higher the interest rate, the higher the monthly repayment to the lender.
D) The interest rate charged is usually higher.
Q18 answer & justifications
A) There is no automatic life cover with repayment mortgages and interest-only mortgages.
**B) Correct. Provided payments are made, a repayment mortgage will be fully repaid. There is no guarantee of repayment with an interest-only mortgage, the returns will be dependent on investment performance.**
C) An increase in interest rates will increase repayments with both repayment and interest-only mortgages.
D) Interest rates will usually be the same for both types of mortgage.
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Q19. Which of the following arrangements would help someone on a low income to become an owner-occupier?
A) Buy-to-let mortgage.
B) Lifetime mortgage.
C) Shared ownership.
D) Tracker-rate mortgage.
Q19 answer & justifications
A) A shared ownership scheme allows those on low incomes to become owner-occupiers.
B) A shared ownership scheme allows those on low incomes to become owner-occupiers.
**C) Correct. A shared ownership scheme allows those on low incomes to become owner-occupiers.**
D) A shared ownership scheme allows those on low incomes to become owner-occupiers.
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Q20. Julia is a higher rate taxpayer. She understands that she pays her pension contributions net of tax relief to the product provider, and has to reclaim the remainder from HMRC. At what rate is this further relief reclaimed from HMRC?
A) 10%.
B) 18%
C) 20%.
D) 40%.
Q20 answer & justifications
A) She obtains 20% at source so will claim 20% from HMRC by assessment.
B) She obtains 20% at source so will claim 20% from HMRC by assessment.
**C) Correct. She obtains 20% at source so will claim 20% from HMRC by assessment.**
D) She obtains 20% at source so will claim 20% from HMRC by assessment.
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Q21. If Kim and Chris opt for a joint repayment mortgage, the most suitable way to ensure that the loan will be repaid if one of them dies is by:
A) contributing to an Income Protection Insurance (IPI) policy.
B) investing in an endowment assurance.
C) making contributions to a critical illness policy.
D) taking out joint life first death mortgage protection assurance.
Q21 answer & justifications
A) Joint life first death mortgage protection assurance will repay the mortgage upon the death of either of them. Income protection insurance does not cover against death.
B) Joint life first death mortgage protection assurance will repay the mortgage upon the death of either of them. As the mortgage capital decreases, so does the life cover. Endowment assurance does not have reducing life cover, it also has an investment content which is not required for a repayment mortgage.
C) Joint life first death mortgage protection assurance will repay the mortgage upon the death of either of them. A critical illness policy does not cover against death.
**D) Correct. Joint life first death mortgage protection assurance will repay the mortgage upon the death of either of them. As the mortgage capital decreases, so does the life cover.**
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Q22. Which of the following life assurance policies usually carries the most investment risk?
A) Unit-linked.
B) Unitised with-profits.
C) Non-profit.
D) With-profits.
Q22 answer & justifications
**A) Correct. Unit-linked life assurance does not provide any guaranteed minimum return at maturity. It reflects stock market fluctuations.**
B) With a unitised with-profits policy, a minimum value of the policy is guaranteed at maturity.
C) With a non-profit policy, a minimum value of the policy is guaranteed at maturity.
D) With a with-profits policy, a minimum value of the policy is guaranteed at maturity.
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Q23. Which of the following is not usually a financial priority of a retired individual?
A) Building up a capital reserve.
B) Inheritance tax planning.
C) Long-term care provision.
D) Generating income to maintain their standard of living.
Q23 answer & justifications
**A) Correct. Building up a capital reserve is not normally a priority. Long-term care, inheritance tax and generating income to maintain a standard of living may be concerns.**
B) Building up a capital reserve is not normally a priority. Long-term care, inheritance tax and generating income to maintain a standard of living may be concerns.
C) Building up a capital reserve is not normally a priority. Long-term care, inheritance tax and generating income to maintain a standard of living may be concerns.
D) Building up a capital reserve is not normally a priority. Long-term care, inheritance tax and generating income to maintain a standard of living may be concerns.
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Q24. James was domiciled in the UK at the time of his death. His estate for inheritance tax purposes would include all assets:
A) in countries without a double taxation agreement with the UK only.
B) in the EC only.
C) In the UK only.
D) wherever situated in the world.
Q24 answer & justifications
A) If an individual is domiciled in the UK, inheritance tax is chargeable on their worldwide assets.
B) If an individual is domiciled in the UK, inheritance tax is chargeable on their worldwide assets.
C) If an individual is domiciled in the UK, inheritance tax is chargeable on their worldwide assets.
**D) Correct. If an individual is domiciled in the UK, inheritance tax is chargeable on their worldwide assets.**
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Q25. Which of the following financial needs would normally be the financial priority for a married couple with a young family?
A) Increase the mortgage.
B) Pension provision.
C) Protection for dependants.
D) School fees provision.
Q25 answer & justifications
A) Protection for dependants against the effects of death or illness of a wage earner would normally be the most urgent need.
B) Protection for dependants against the effects of death or illness of a wage earner would normally be the most urgent need.
**C) Correct. Protection for dependants against the effects of death or illness of a wage earner would normally be the most urgent need.**
D) Protection for dependants against the effects of death or illness of a wage earner would normally be the most urgent need.
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Q26. A complaint against an independent financial adviser is likely to be upheld if:
A) their business card failed to mention their qualifications.
B) they failed to provide a key features document before the sale was closed.
C) the cancellation notice was sent by the provider.
D) the illustration had been prepared in advance by the product provider.
Q26 answer & justifications
A) There is no requirement for qualifications to be listed on a business card.
**B) Correct. The key features document should be given to the client before the sale is closed.**
C) It is permissible for the cancellation notice to be sent by the provider.
D) The illustration can be prepared by the product provider.
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Q27. Which of the following describes the overall purpose of a factfind?
A) Establishing a client's current financial position in terms of income and expenditure only.
B) Gaining detailed knowledge of a client's personal and financial circumstances.
C) Getting a client to identify all their existing life and pension policies.
D) Understanding a client's current position in terms of assets and liabilities only.
Q27 answer & justifications
A) Know your customer requirements mean that an adviser must define a client's needs and objectives. The factfind is used to identify circumstances and objectives. This will go further than simply establishing income and expenditure.
**B) Correct. Know your customer requirements mean that an adviser must define a client's needs and objectives. The factfind is used to identify circumstances and objectives.**
C) Know your customer requirements mean that an adviser must define a client's needs and objectives. The factfind is used to identify circumstances and objectives. This will involve more than simply looking at life and pension policies.
D) Know your customer requirements mean that an adviser must define a client's needs and objectives. The factfind is used to identify circumstances and objectives. This will go further than simply establishing assets and liabilities.
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Q28. Which of the following does not need to be included when presenting a product recommendation to a client?
A) The benefits that the client will enjoy.
B) The client needs that the product will address.
C) The other products considered but discounted.
D) The risks inherent to the product.
Q28 answer & justifications
A) The benefits must be explained.
B) The client needs that the product will address must be discussed.
**C) Correct. There is no need to include products that were considered but discounted.**
D) Risks must be outlined.
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Q29. The relationship built between a financial adviser and a customer, should be built upon mutual:
A) interest.
B) needs.
C) profit.
D) trust.
Q29 answer & justifications
A) These relationships are built upon mutual trust. It is vital to the advice-giving process.
B) These relationships are built upon mutual trust. It is vital to the advice-giving process.
C) These relationships are built upon mutual trust. It is vital to the advice-giving process.
**D) Correct. These relationships are built upon mutual trust. It is vital to the advice-giving process.**
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Q30. When an individual dies intestate, leaving a spouse, children and an estate valued at £210,000, which of the following applies?
A) The entire estate passes to the spouse absolutely.
B) The estate is divided equally between the surviving spouse and children.
C) The first £50,000 passes to the surviving spouse absolutely, along with a life interest in half the remaining estate.
D) The surviving spouse inherits a life interest only in the deceased's entire estate.
Q30 answer & justifications
**A) Correct. In this situation, a spouse/registered civil partner will receive up to £250,000 plus half of the balance absolutely so the whole of the £210,000 will pass to the spouse.**
B) In this situation, a spouse/registered civil partner will receive up to £250,000 plus half of the balance absolutely so the whole of the £210,000 will pass to the spouse.
C) In this situation, a spouse/registered civil partner will receive up to £250,000 plus half of the balance absolutely so the whole of the £210,000 will pass to the spouse.
D) In this situation, a spouse/registered civil partner will receive up to £250,000 plus half of the balance absolutely so the whole of the £210,000 will pass to the spouse.
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Q31. Gwen wrote her will five years ago and a deed of variation has now been executed. This confirms that:
A) a civil court has amended the will's terms.
B) Gwen has substantially changed her will.
C) Gwen is now deceased.
D) the executors have been substituted.
Q31 answer & justifications
A) A deed of variation is executed after death by the beneficiaries.
B) Gwen can change her will or replace it at any time. A deed of variation is executed after death.
**C) Correct. A deed of variation is executed after death (within 2 years).**
D) Gwen can freely change the proposed executors at any time. A deed of variation is executed after death.
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Q32. John is completing the proposal form for the level term assurance he is hoping to take out. Which of the following describes how he must answer the questions?
A) By following the principle of 'caveat emptor'.
B) By following the principle of 'utmost good faith'.
C) By taking reasonable care not to make a misrepresentation.
D) By volunteering all material facts.
Q32 answer & justifications
A) A proposer must take reasonable care not to make a misrepresentation.
B) A proposer must take reasonable care not to make a misrepresentation.
**C) Correct. A proposer must take reasonable care not to make a misrepresentation.**
D) A proposer must take reasonable care not to make a misrepresentation.
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Q33. An agent has made an agreement outside the parameters of his authority laid down by the principal. Assuming a liability occurs, the agent will avoid this if;
A) apparent authority has been given.
B) the existence of the principal is known to the third party.
C) the third party is also represented by an agent.
D) the third party resides outside the UK.
Q33 answer & justifications
**A) Correct. If, by word or deed, the principal gives the impression that he has authorised the action, liability will reside with him.**
B) If, by word or deed, the principal gives the impression that he has authorised the action, liability will reside with him.
C) If, by word or deed, the principal gives the impression that he has authorised the action, liability will reside with him.
D) If, by word or deed, the principal gives the impression that he has authorised the action, liability will reside with him.
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Q34. Which of the following items of property would be referred to as personalty?
A) A collection of vintage wines.
B) A detached house.
C) A paddock used for grazing horses.
D) A Victorian factory building.
Q34 answer & justifications
**A) Correct. Land and buildings are referred to as realty. Other assets such as wine are personalty.**
B) Land and buildings are referred to as realty.
C) Land and buildings are referred to as realty.
D) Land and buildings are referred to as realty.
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Q35. Which of the following is the definition of an attorney?
A person who:
A) delegates authority to another to act on their behalf.
B) does not himself have the authority to enter into a contract.
C) is given authority to act on behalf of another person.
D) moves abroad but wishes to retain a decision maker in the UK.
Q35 answer & justifications
A) An attorney acts on behalf of another individual.
B) An attorney acts on behalf of another individual.
**C) Correct. An attorney acts on behalf of another individual.**
D) An attorney acts on behalf of another individual.
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Q36. One of the financial restrictions placed on undischarged bankrupts is that they are:
A) only able to borrow nominal amounts of money.
B) only able to work on an employed basis.
C) unable to buy goods except for their own consumption.
D) unable to contribute to protection policies.
Q36 answer & justifications
**A) Correct. An undischarged bankrupt will only be able to borrow nominal amounts.**
B) An undischarged bankrupt will not generally face restrictions on employment status.
C) An undischarged bankrupt is free to purchase goods although generally not on credit.
D) An undischarged bankrupt is free to contribute to protection policies.
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Q37. William was deemed to be automatically resident in the UK for tax purposes in the previous tax year. What is the minimum number of days that he must have been in the UK in that tax year?
A) 1 day.
B) 90 days.
C) 183 days.
D) 365 days.
Q37 answer & justifications
A) A person needs to be resident in the UK for 183 days in one tax year in order to be deemed to be automatically resident in the UK for tax purposes.
B) A person needs to be resident in the UK for 183 days in one tax year in order to be deemed to be automatically resident in the UK for tax purposes.
**C) Correct. A person needs to be resident in the UK for 183 days in one tax year in order to be deemed to be automatically resident in the UK for tax purposes.**
D) A person needs to be resident in the UK for 183 days in one tax year in order to be deemed to be automatically resident in the UK for tax purposes.
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Q38. Who is allowed to use expenses to reduce income tax liability?
A) Employees only.
B) Employees, partners and sole traders.
C) Sole traders only.
D) Sole traders and partners only.
Q38 answer & justifications
A) All individuals (employees and self-employed) can deduct allowable expenses when calculating income tax.
**B) Correct. All individuals (employees and self-employed) can deduct allowable expenses when calculating income tax.**
C) All individuals (employees and self-employed) can deduct allowable expenses when calculating income tax.
D) All individuals (employees and self-employed) can deduct allowable expenses when calculating income tax.
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Q39. Donald, a higher rate taxpayer, has a 20-year endowment policy with a sum assured of £20,000. Which of the following features is likely to make it subject to tax at maturity?
A) The first year's premium was £125 and the tenth year's premium was £275.
B) The first year's premium was £150 and the tenth year's premium was £290.
C) The premiums ceased after 17 years.
D) The total premiums payable amounted to £22,500.
Q39 answer & justifications
**A) Correct. The tenth year's premium Is more than twice the first, making the policy non-qualifying and potentially subject to tax at maturity.**
B) This level of premium increase is within the qualifying limits.
C) Payment of premiums must be maintained for ten years or three-quarters of the original term. As the term is 20 years, ceasing payment after 17 years would not make the policy non-qualifying.
D) The benefit payable on death must be at least equal to 75% of the premiums payable; at £20,000 the sum assured is above this threshold.
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Q40. Fiona, an additional-rate taxpayer, sold shares in May 2015 at a gain of £41,200. Assuming that this is her only transaction in the current tax year, how much capital gains tax will Fiona be liable for on the sale?
A) £5,418,
B) £7,416.
C) £8,428.
D) £11,438.
Q40 answer & justifications
A) This assumes £41,200 less annual allowance of £11,100 = £30,100 x 18% = £5,418. the 18% rate would apply to a basic rate (not a higher rate) taxpayer.
B) £7,416 assumes that the whole gain is taxed at 18%.
**C) Correct. £41,200 less annual allowance of £11,100 = £30,100 X 28% = £8,428.**
D) £11,438 assumes that the net gain is taxed at 38%.
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Q41. Which of the following statements in respect of capital gains tax (CGT) is correct?
A) CGT may be payable on a deceased's estate in addition to inheritance tax.
B) Chargeable assets held within and outside the UK may be subject to CGT on disposal.
C) Investment bonds are subject to CGT because they are classed as unearned income.
D) The annual exemption allowance may be carried forward to be used in a later tax year.
Q41 answer & justifications
A) CGT will not be payable upon the death of an individual.
**B) Correct. For an individual who is UK resident and domicile, worldwide chargeable assets may be subject to CGT if there is a gain on disposal.**
C) These are subject to income tax, not CGT.
D) The annual exemption cannot be carried forward.
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Q42. When an antique was purchased for £20,000, the dealer's fee was £2,000. A repair cost £1,800 and improvement costs were £3,000. How much of these costs could legitimately be offset against the capital gain?
A) £1,800.
B) £3,000.
C) £5,000.
D) £6,800.
Q42 answer & justifications
A) The cost of improvements to an asset can be treated as part of its purchase price, but the costs of maintenance and repair cannot.
B) The cost of improvements to an asset can be treated as part of its purchase price, but the costs of maintenance and repair cannot.
**C) Correct. The cost of improvements to an asset can be treated as part of its purchase price, but the costs of maintenance and repair cannot.**
D) The cost of improvements to an asset can be treated as part of its purchase price, but the costs of maintenance and repair cannot.
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Q43. Emma bought some shares by electronic transfer that cost her £3,500. How much stamp duty reserve tax did she have to pay?
A) £17.50.
B) £35.00.
C) £105.00.
D) £140.00.
Q43 answer & justifications
**A) Correct. The rate of SDRT is 0.5%. £3,500 x 0.5% = £17.50.**
B) The rate of SDRT is 0.5%. £3,500 x 0.5% = £17.50.
C) The rate of SDRT is 0.5%. £3,500 x 0.5% = £17.50.
D) The rate of SDRT is 0.5%. £3,500 x 0.5% = £17.50.
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Q44. Which of the following statements in respect of Jobseeker's Allowance is correct?
A) A claimant must be out of work or working less than 16 hours a week.
B) A claimant must have not more than £2,000 in savings to be able to benefit.
C) A claimant must not be in receipt of earned income or investment income.
D) A male claimant must be between the ages of 16 and 60 years to benefit.
Q44 answer & justifications
**A) Correct. This is one of the criteria to be eligible for JSA.**
B) The savings limit for Jobseekers Allowance is £3,000.
C) A claimant can be in receipt of income and still claim JSA.
D) There is no difference in criteria for men or women, they must be over age 18 but below pensionable age.
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Q45. For inheritance tax purposes, what is the maximum gift that can be given to a grandchild who is getting married, without them incurring any tax liability either now or in the future?
A) £1,000.
B) £2,500.
C) £3,000.
D) £5,000.
Q45 answer & justifications
A) This is the amount for non-family members.
**B) Correct. This is the limit for grandparents.**
C) This is the annual gift limit for IHT generally.
D) This is the limit for parents.
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Q46. Class 4 National Insurance contributions would be paid by:
A) Brian, an employee, who has previously been working abroad and now wishes to build up entitlement to a full state pension.
B) Jack, self-employed, who makes regular profits exceeding £12,000 pa.
C) Julie, with earnings of £14,000 pa, who is employed by a sole trader.
D) Stephanie, a mature student, who wishes to make voluntary contributions in respect of previous low earnings.
Q46 answer & justifications
A) An employee who wishes to build up entitlement to a state pension would make voluntary payments, which are Class 3 contributions.
**B) Correct. A self-employed individual will pay Class 4 contributions, based on profits above £8,060.**
C) An employee will pay Class 1 contributions.
D) Voluntary payments that are designed to build up a full state pension are Class 3 contributions.
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Q47. What rate of withholding tax is levied on non-resident entertainers and sportspeople in the UK?
A) 10%.
B) 18%.
C) 20%.
D) 25%.
Q47 answer & justifications
A) A rate of 20% withholding tax applies to non-resident entertainers and sports people.
B) A rate of 20% withholding tax applies to non-resident entertainers and sports people.
**C) Correct. A rate of 20% withholding tax applies to non-resident entertainers and sports people.**
D) A rate of 20% withholding tax applies to non-resident entertainers and sports people.
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Q48. The Bank of England's inflation target, as set by the government, is that the annual rate of CPI inflation will be between:
A) 0% and 2%.
B) 1% and 3%.
C) 2% and 4%.
D) 3% and 5%.
Q48 answer & justifications
A) The government intends that inflation will be 2% subject to a fluctuation of 1% up or down.
**B) Correct. The government intends that inflation will be 2% subject to a fluctuation of 1% up or down.**
C) The government intends that inflation will be 2% subject to a fluctuation of 1% up or down.
D) The government intends that inflation will be 2% subject to a fluctuation of 1% up or down.
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Q49. Which type(s) of policy, if any, are used by governments to achieve their long-term economic objectives?
A) fiscal only.
B) monetary only.
C) monetary and fiscal.
D) neither monetary nor fiscal.
Q49 answer & justifications
A) Both monetary and fiscal policies are used by governments for this purpose.
B) Both monetary and fiscal policies are used by governments for this purpose.
**C) Correct. Both monetary and fiscal policies are used by governments for this purpose.**
D) Both monetary and fiscal policies are used by governments for this purpose.
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Q50. Nick and Lynne are keen to take advantage of a better deal and remortgage with a new lender. However, their existing lender has informed them that if they move, they will have to pay an additional six months' interest. The most likely reason for this is that:
A) their lender is reclaiming the valuation fee outlay.
B) they have a fixed-rate mortgage.
C) they have a standard variable-rate mortgage.
D) they have arrears on their mortgage account.
Q50 answer & justifications
A) A fixed-rate mortgage often has early repayment charges for switching to another provider.
**B) Correct. A fixed-rate mortgage often has early repayment charges for switching to another provider.**
C) A fixed-rate mortgage often has early repayment charges for switching to another provider.
D) A fixed-rate mortgage often has early repayment charges for switching to another provider.
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Q1. Which of the following is not an operational objective of the Financial Conduct Authority?
A) Promoting effective competition in the interests of consumers.
B) Protecting and enhancing the integrity of the UK financial system.
C) Removing all risk from the UK financial system.
D) Securing an appropriate degree of protection for consumers.
Q1 answer & justifications
A) Promoting effective competition in the interests of consumers is an operational objective of the FCA
B) Protecting and enhancing the integrity of the UK financial system is an operational objective of the FCA.
**C) Correct. Removing all risk is not an operational objective of the FCA. There will never be 100% protection against investment risk.**
D) Securing an appropriate degree of protection for consumers is an operational objective of the FCA.
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Q2. Which of the following is not regarded as a financial crime by the FCA?
A) Insider dealing.
B) Market manipulation.
C) Mis-selling investments.
D) Money laundering.
Q2 answer & justifications
A) Insider dealing is where a person uses (to their own advantage) information that is not available to others and is one of the main areas of financial crime that the FCA seeks to control.
B) Market manipulation, where a person knowingly gives out false information, is one of the main areas of financial crime that the FCA seeks to control.
**C) Correct. Mis-selling of investments is an area that the FCA wishes to control, although it will not necessarily be a criminal offence.**
D) Money laundering is one of the main areas of financial crime that the FCA seeks to control.
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Q3. Which of the following is not one of the Financial Conduct Authority's Principles for Businesses with which a firm must comply?
A) Be open and honest with the market in all respects.
B) Communicate with clients in a clear manner.
C) Conduct business with integrity.
D) Observe proper standards of market conduct.
Q3 answer & justifications
**A) Correct. This is not one of the FCA's Principles for Businesses.**
B) Communications with clients is one of the FCA's Principles for Businesses.
C) Conducting business with integrity is one of the FCA's Principles for Businesses.
D) Observing proper standards of market conduct is one of the FCA's Principles for Businesses.
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Q4. One of the Principles for Businesses as defined by the Financial Conduct Authority is that firms must act with skill, care and:
A) diligence.
B) honesty.
C) probity.
D) professionalism.
Q4 answer & justifications
**A) Correct. A firm must act with skill, care and diligence.**
B) A firm must act with skill, care and diligence.
C) A firm must act with skill, care and diligence.
D) A firm must act with skill, care and diligence.
255
Q5. Under the FCA's rules relating to approved persons, into which type of function would the head of internal audit be categorised?
A) Customer function.
B) Governing function.
C) Required function.
D) Systems and controls function.
Q5 answer & justifications
A) Internal audit is a systems and control function.
B) Internal audit is a systems and control function.
C) Internal audit is a systems and control function.
**D) Correct. Internal audit is a systems and control function.**
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Q6. Which of the following job applicants is least likely to meet the FCA 'fit and proper’ requirements?
A) Gill, who has recently been made redundant from a firm of independent financial advisers.
B) Irene, who currently has an authorised overdraft limit of £2,000.
C) Josie, whose father's house was repossessed three years ago.
D) Veronica, who has recently received two county court judgments for non-payment of bills.
Q6 answer & justifications
A) The fit and proper test requires an individual to be financially sound. Being made redundant would not be a breach of this requirement.
B) The fit and proper test requires an individual to be financially sound. Having an authorised overdraft limit would not normally be a breach of this requirement.
C) The fit and proper test requires an individual to be financially sound. The adverse financial position of a relative of the individual would not normally be a breach of this requirement.
**D) Correct. The fit and proper test requires an individual to be financially sound. Receiving CCJs may adversely affect an individual's financial soundness.**
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Q7. Ivor deliberately leaked an incorrect story that his bank was sustaining significant losses due to credit problems, and then made a profit through share dealing. This type of activity is defined as:
A) insider dealing.
B) market manipulation.
C) money laundering.
D) professional malpractice.
Q7 answer & justifications
A) Knowingly giving out false or misleading information in order to influence the price of a share for financial gain is known as market manipulation, not insider dealing.
**B) Correct. Knowingly giving out false or misleading information in order to influence the price of a share for financial gain is known as market manipulation.**
C) Knowingly giving out false or misleading information in order to influence the price of a share for financial gain is known as market manipulation, not money laundering.
D) Knowingly giving out false or misleading information in order to influence the price of a share for financial gain is known as market manipulation, not professional malpractice.
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Q8. Treating Customers Fairly (TCF) is an example of which type of approach to regulation?
A) High-level monitoring.
B) High-level standards.
C) Principles-based regulation.
D) Principles for Businesses.
Q8 answer & justifications
A) TCF is an example of a principles-based approach to regulation.
B) The high-level standards are a specific section of the FCA Handbook, covering, among other things, the threshold conditions, Statements of Principles for Approved Persons and the 'fit and proper’ test.
**C) Correct. TCF is an example of principles-based regulation.**
D) TCF is not a part of the Principles for Businesses.
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Q9. When buying goods or services consumers have a right to each of the following except:
A) Clear and honest information before they buy.
B) To be supplied with goods and services that are fit for purpose.
C) To get what they have paid for.
D) To pay a fair price that reflects market rates.
Q9 answer & justifications
A) Consumers have a right to clear and honest information before they buy.
B) Consumers have a right to be supplied with goods and services that are fit for purpose.
C) Consumers have a right to get what they have paid for.
**D) Correct. There is no automatic right to pay a fair price that reflects market rates.**
260
Q10. One of the Pension Regulator's powers is that they are able to investigate schemes to identify and monitor risks. All schemes must carry out the following actions except:
A) give notification of any changes to important information.
B) inform the regulator quickly if it discovers that it cannot meet the funding requirements.
C) make regular returns to the Pensions Regulator.
D) provide details to the regulator of every transfer out of the scheme.
Q10 answer & justifications
A) All schemes must give notification of any changes to important information.
B) A scheme must inform the regulator as soon as possible if there is a funding problem.
C) All schemes must make regular returns to the regulator.
**D) Correct. There is no requirement to provide details of every transfer out.**
261
Q11. Which of the following is not one of the areas covered by the rules on unfairness as detailed in the Consumer Rights Act 2015?
A) The contract should be made in good faith.
B) The contract should be transparent.
C) The terms should be fair.
D) There must be insurable interest.
Q11 answer & justifications
A) There must not be a breach of good faith.
B) A contract should be transparent and written in clear, easily understood language.
C) All terms must be fair.
**D) Correct. Insurable interest does not apply to general (non-insurance) contracts.**
262
Q12. Which oversight group would be most likely to review an authorised firm's financial statements and accounts?
A) Compliance officers.
B) External auditors.
C) Internal auditors.
D) Trustees.
Q12 answer & justifications
A) External auditors are particularly concerned with reviewing a firm's published financial statements and accounts.
**B) Correct. External auditors are particularly concerned with reviewing a firm's published financial statements and accounts.**
C) External auditors are particularly concerned with reviewing a firm's published financial statements and accounts.
D) External auditors are particularly concerned with reviewing a firm's published financial statements and accounts.
263
Q13. A bank's capital as a proportion of its risk-weighted assets is referred to as the:
A) Capital adequacy margin.
B) Liquidity ratio.
C) Prudential standard.
D) Solvency ratio.
Q13 answer & justifications
A) Capital as a proportion of risk-weighted assets is a bank's solvency ratio.
B) Capital as a proportion of risk-weighted assets is a bank's solvency ratio. Liquidity is a measure of how quickly assets can be converted into cash.
C) Capital as a proportion of risk-weighted assets is a bank's solvency ratio. The solvency requirements are an element of prudential regulation.
**D) Correct. Capital as a proportion of risk-weighted assets is a bank's solvency ratio.**
264
Q14. Which of the following best describes the range of products that may be sold by a restricted adviser who is fully authorised?
A) Any product from the market as a whole.
B) Products from a limited range of specific providers.
C) Products from any company regulated by the Financial Conduct Authority.
D) Products from any non-registered company.
Q14 answer & justifications
A) A restricted adviser is one who offers products from a limited range of specific product providers. An adviser who offers products from the market as a whole is defined in the FCA Handbook as 'independent'.
**B) Correct. A restricted adviser is one who offers products from a limited range of specific product providers.**
C) A restricted adviser is one who offers products from a limited range of specific product providers.
D) A restricted adviser is one who offers products from a limited range of specific product providers.
265
Q15. The FCA's supervision model is based on three pillars, which are:
A) ARROW visits; skilled persons reports; risk assessments.
B) Firm systematic framework; ARROW visits; event-driven work.
C) Firm systematic framework; event-driven work; issues and products.
D) Skilled person's reports; risk assessments; allocated supervisor visits.
Q15 answer & justifications
A) The three pillars of the FCA supervision model are: firm systematic framework, event-driven work and issues and products.
B) The three pillars of the FCA supervision model are: firm systematic framework, event-driven work and issues and products.
**C) Correct. The three pillars of the FCA supervision model are: firm systematic framework, event-driven work and issues and products.**
D) The three pillars of the FCA supervision model are: firm systematic framework, event-driven work and issues and products.
266
Q16. Which of the following is not an option available to the Financial Conduct Authority in enforcing standards for both organisations and authorised individuals?
A) Applying for an injunction.
B) Awarding compensation.
C) Disciplining.
D) Investigating.
Q16 answer & justifications
A) Injunctions, disciplinary action and investigation are ways of enforcing standards available to the FCA.
**B) Correct. Injunctions, disciplinary action and investigation are ways of enforcing standards available to the FCA. However, it cannot award compensation in these circumstances.**
C) Injunctions, disciplinary action and investigation are ways of enforcing standards available to the FCA.
D) Injunctions, disciplinary action and investigation are ways of enforcing standards available to the FCA.
267
Q17. Which of the following is not an FCA controlled function?
A) Appointed actuary.
B) Internal auditor.
C) Investment adviser.
D) Money Laundering Reporting Officer.
Q17 answer & justifications
A) An appointed actuary is a controlled function, in the category of required functions.
**B) Correct. An internal auditor is not a controlled function.**
C) An investment adviser is a controlled function, in the category of customer function.
D) Money Laundering Reporting Officer is a controlled function, in the category of required functions.
268
Q18. Douglas is a sleeping partner in a limited liability IFA partnership with his son Richard. How does the FCA view Douglas's position in the business?
A) The FCA ignores his role, as he is a sleeping partner, and simply retains a record of his name.
B) As he is not a director, there is no requirement for his approval by the FCA.
C) He is regarded as being in a governing function and must be approved by the FCA.
D) Since this is regarded as a family business, there is only a requirement for Richard to be approved.
Q18 answer & justifications
A) All partners (including sleeping partners) act in a governing function and need FCA approval.
B) All partners (including sleeping partners) act in a governing function and need FCA approval.
**C) Correct. All partners (including sleeping partners) ad in a governing function and need FCA approval.**
D) All partners (including sleeping partners) act in a governing function and need FCA approval.
269
Q19. A firm intends to make a series of cold calls to promote certain mortgage contracts. What rule applies?
A) A transcript of the call must be passed to the customer.
B) Cold calls are not permitted.
C) Extended cooling-off terms will apply.
D) Only existing clients can be approached.
Q19 answer & justifications
A) Cold calls are not permitted in relation to mortgage contracts.
**B) Correct. Cold calls are not permitted in relation to mortgage contracts.**
C) Cold calls are not permitted in relation to mortgage contracts.
D) Cold calls are not permitted in relation to mortgage contracts.
270
Q20. Which of the following criteria is not one that must be satisfied by an advertisement to comply with the Financial Conduct Authority's guidelines on advertising?
A) Information about past performance must be based on a period of not less than five years, where possible.
B) It must be approved by the Financial Conduct Authority.
C) It must be fair and not misleading.
D) It must include a clear and adequate description of the product or service.
Q20 answer & justifications
A) FCA guidelines state that information about past performance must be based on a period of not less than five years (or the period for which the product has been available, if less).
**B) Correct. An advertisement does not need to be authorised directly by the FCA. It will need to be approved by an authorised person within the firm.**
C) FCA guidelines state that an advertisement must be clear, fair and not misleading.
D) FCA guidelines state that an advertisement must include a clear and adequate description of the product or service and the risks involved.
271
Q21. According to the Conduct of Business Sourcebook (COBS), it is necessary to keep adequate records of all dealings with customers. Which of the following is not a reason for this requirement?
A) To assist in responding to customer complaints.
B) To constitute an audit trail for inspections.
C) To provide evidence of compliance procedures.
D) To verify adviser remuneration.
Q21 answer & justifications
A) One of the main purposes of keeping records Is to enable a correct response to be made to any subsequent complaints.
B) One of the main purposes of keeping records is to facilitate an audit trail.
C) One of the main purposes of keeping records is to provide evidence of compliance.
**D) Correct. Maintaining records of adviser remuneration may serve a good business purpose, but it is not an FCA requirement.**
272
Q22. For non-MiFID firms, what is the minimum number of years for which companies are required to maintain records of an individual employee's training and competence, after the employee has left the company?
A) Three years.
B) Four years.
C) Five years.
D) Six years.
Q22 answer & justifications
**A) Correct. Training and competence records must be kept for a minimum of three years after an employee has left the firm.**
B) Training and competence records must be kept for a minimum of three years after an employee has left the firm.
C) Training and competence records must be kept for a minimum of three years after an employee has left the firm.
D) Training and competence records must be kept for a minimum of three years after an employee has left the firm.
273
Q23. Before employees are able to advise on investments without close supervision, they should:
A) be assessed as competent to undertake the role.
B) be assessed on technical knowledge and its application.
C) have completed the required number of hours of continuing professional development.
D) have successfully completed their probation period.
Q23 answer & justifications
**A) Correct. An employee must be assessed as competent and pass an appropriate examination before giving investment advice.**
B) An employee must be assessed as competent and pass an appropriate examination before giving investment advice. This will involve an assessment of skills as well as technical knowledge.
C) An employee must be assessed as competent and pass an appropriate examination before giving investment advice. CPD is a way of ensuring ongoing competence.
D) An employee must be actively assessed as competent before giving investment advice. Simply completing a probation period will not be sufficient.
274
Q24. In May 2015, Hayley left a non-MiFID firm, where she offered investment advice. When is the earliest date that the firm is permitted to destroy her training and competence records?
A) May 2017.
B) May 2018.
C) May2020.
D) May 2025.
Q24 answer & justifications
A) Training and competence records must be kept for a minimum of three years after an employee has left the firm.
**B) Correct. Training and competence records must be kept for a minimum of three years after an employee has left the firm.**
C) Training and competence records must be kept for a minimum of three years after an employee has left the firm.
D) Training and competence records must be kept for a minimum of three years after an employee has left the firm.
275
Q25. Sam has been encouraged to take basic financial advice, as she is not particularly financially astute. However, a friend has suggested that she receive full advice, because:
A) a more detailed needs assessment would take place.
B) risk would then be considered.
C) she has no financial dependants.
D) she recently took out a new mortgage.
Q25 answer & justifications
**A) Correct. The simplified process is, by definition, just that; full advice would lead to a more detailed assessment.**
B) Determining attitude to risk is part of the simplified process.
C) A lack of dependants does not mean that fuller advice is required.
D) The presence of an existing mortgage should not, of itself, exclude an individual from simplified advice.
276
Q26. Which of the following types of mortgage arrangement will fall under FCA regulation for the first time from 21 March 2016?
A) Buy-to-let mortgages for consumers.
B) Equity release.
C) Home improvement loans.
D) Lifetime mortgages.
Q26 answer & justifications
**A) Correct. Consumer buy-to-let mortgages will be regulated by the FCA for the first time from 21 March 2016.**
B) Consumer buy-to-let mortgages will be regulated by the FCA for the first time from 21 March 2016.
C) Consumer buy-to-let mortgages will be regulated by the FCA for the first time from 21 March 2016.
D) Consumer buy-to-let mortgages will be regulated by the FCA for the first time from 21 March 2016.
277
Q27. Pauline is offering mortgage advice to a client. Who is ultimately responsible for assuring that the mortgage loan is affordable? The:
A) adviser.
B) adviser's compliance department.
C) client.
D) lender.
Q27 answer & justifications
A) After the FCA's Mortgage Market Review (MMR) the responsibility for confirming a borrower's affordability rests with the lender.
B) After the FCA's Mortgage Market Review (MMR) the responsibility for confirming a borrower's affordability rests with the lender.
C) After the FCA's Mortgage Market Review (MMR) the responsibility for confirming a borrower's affordability rests with the lender.
**D) Correct. After the FCA's Mortgage Market Review (MMR) the responsibility for confirming a borrower's affordability rests with the lender.**
278
Q28. Which of the following is not a permitted method of attracting new mortgage customers under FCA regulations?
A) Mortgage introducers.
B) Radio advertising.
C) Unsolicited non-real-time promotions.
D) Unsolicited real-time promotions.
Q28 answer & justifications
A) Use of mortgage introducers is allowed.
B) Use of radio advertising is allowed.
C) Non-real-time promotions are allowed.
**D) Correct. Under MCOB rules, unsolicited calls cannot be made, unless expressly permitted by a customer.**
279
Q29. If it were proved that a mortgage adviser had been influenced by the fee payable when recommending a mortgage product to a customer, which of the following regulations would the adviser have breached?
A) Disclosure.
B) Responsible lending.
C) Suitable advice.
D) Undue influence.
Q29 answer & justifications
A) This would breach the requirement to give suitable advice. When determining the suitability of a mortgage for a client, an adviser should not be influenced by the remuneration they will receive.
B) This would breach the requirement to give suitable advice. When determining the suitability of a mortgage for a client, an adviser should not be influenced by the remuneration they will receive.
**C) Correct. This would breach the requirement to give suitable advice. When determining the suitability of a mortgage for a client, an adviser should not be influenced by the remuneration they will receive.**
D) This would breach the requirement to give suitable advice. When determining the suitability of a mortgage for a client, an adviser should not be influenced by the remuneration they will receive.
280
Q30. For home contents insurance, the cancellation period is:
A) 7 days.
B) 14 days.
C) 21 days.
D) 30 days.
Q30 answer & justifications
A) For general insurance the cancellation period is 14 days.
**B) Correct. For general insurance the cancellation period is 14 days.**
C) For general insurance the cancellation period is 14 days.
D) For general insurance the cancellation period is 14 days.
281
Q31. Under the suitability requirements, advisers should:
A) assume that a retail client fully understands the risks involved.
B) explain the potential product risks to an execution-only client, but not be concerned with 'best execution'.
C) offer exactly the same duty of care and advice for all clients.
D) provide the highest level of advice and duty of care to clients categorised as retail clients.
Q31 answer & justifications
A) It should not be assumed that a private customer understands the risks involved.
B) There is no requirement to explain risks to an execution-only client. However, an adviser should strive to carry out any transaction at best execution.
C) Eligible counterparties and professional clients receive lower levels of protection than retail clients.
**D) Correct. Retail clients should receive the highest level of customer protection.**
282
Q32. In order to provide information about the firm, its services and its charges, which of the following documents must be given to a client when giving advice on packaged products?
A) The initial disclosure document (IDD).
B) The key facts document.
C) The menu.
D) The FCA services and costs disclosure document (SCDD), or the firm's own disclosure documentation.
Q32 answer & justifications
A) The SCDD has replaced the menu and the IDD. This is the document that should be provided, although firms are not obliged to use the SCDD produced by the FCA. They may develop their own disclosure material.
B) The SCDD has replaced the menu and the IDD. This is the document that should be provided, although firms are not obliged to use the SCDD produced by the FCA. They may develop their own disclosure material.
C) The SCDD has replaced the menu and the IDD. This is the document that should be provided, although firms are not obliged to use the SCDD produced by the FCA. They may develop their own disclosure material.
**D) Correct. The SCDD has replaced the menu and the IDD. This is the document that should be provided, although firms are not obliged to use the SCDD produced by the FCA. They may develop their own disclosure material.**
283
Q33. Which of the following pieces of information is an adviser not obliged to provide to their client before any business is discussed?
A) Confirmation that they will consider products from every provider in the market.
B) Details of the firm's address and contact details.
C) Disclosure of status as either independent or restricted.
D) Disclosure of the firm's charging structure.
Q33 answer & justifications
**A) Correct. Because of the size of the marketplace, even an independent financial adviser can select from a smaller panel of providers that is representative of the market, provided that the panel is regularly reviewed.**
B) An adviser must provide details of the firm's address and contact details.
C) An adviser must disclose their status as either independent or restricted.
D) An adviser must disclose at the outset the firm's charging structure.
284
Q34. In addition to traditional packaged products, the term 'retail investment product' includes:
A) general nsurance products.
B) National Savings and Investments (NS&I) products.
C) packaged current accounts.
D) structured investment products and unregulated collective investments schemes.
Q34 answer & justifications
A) Retail investment products include any investment that offers exposure to underlying assets but in a packaged form, such as structured investments and unregulated collective investments.
B) Retail investments include any investment that offers exposure to underlying assets but in a packaged form, such as structured investments and unregulated collective investments.
C) Retail investments include any investment that offers exposure to underlying assets but in a packaged form, such as structured investments and unregulated collective investments.
**D) Correct. Retail investments include any investment that offers exposure to underlying assets but in a packaged form, such as structured investments and unregulated collective investments.**
285
Q35. Which of the following is not typically included in a services and costs disclosure document (SCDD) issued by an adviser?
A) A statement that the firm is authorised and the name of the regulator.
B) Details of the charging structure.
C) Details of what qualifications are held by each of the firm's advisers.
D) Details of whether the adviser offers independent or restricted advice.
Q35 answer & justifications
A) This is included in the SCDD.
B) This is included in the SCDD.
**C) Correct. This is included not in the SCDD.**
D) This is included in the SCDD.
286
Q36. During the course of a meeting where advice Is being provided, a client specifically states that they have a high-risk attitude to investments. The adviser should react to this by:
A) establishing whether there is supporting evidence for the client's statement.
B) offering the client a balanced portfolio.
C) persuading the client to reduce their risk profile.
D) recommending products marginally below high risk.
Q36 answer & justifications
**A) Correct. An adviser needs to ensure that the client understands how attitudes to risk are defined and the implications for the client's investment decisions.**
B) An adviser needs to ensure that the client understands how attitudes to risk are defined and the implications for the client's investment decisions.
C) An adviser needs to ensure that the client understands how attitudes to risk are defined and the implications for the client's investment decisions.
D) An adviser needs to ensure that the client understands how attitudes to risk are defined and the implications for the client's investment decisions.
287
Q37. When recommending a product to a client, the suitability of advice rules require that, in making a recommendation, the adviser must always abide by the fundamental principle of:
A) accepting that the client knows best.
B) offering the most cost-effective product.
C) offering the top-performing product.
D) serving the client's best interests.
Q37 answer & justifications
A) An adviser must recommend the product that is most suitable for a client. This may not always concur with the client's own view.
B) An adviser must recommend the product that is most suitable for a client. This is not necessarily the most cost-effective product.
C) An adviser must recommend the product that is most suitable for a client. This is not necessarily solely based on past performance.
**D) Correct. An adviser must recommend the product that is most suitable for a client.**
288
Q38. If a client intends to purchase an investment product on an 'execution-only' basis, then:
A) best execution rules will not apply.
B) no advice fee will be payable.
C) no advice will be required.
D) suitability rules will still apply.
Q38 answer & justifications
A) With an 'execution-only' transaction, no advice or recommendation is provided. However, the transaction that the client requires must be executed on the best possible terms.
B) With an 'execution-only' transaction, normal fee rules will apply.
**C) Correct. With an 'execution-only' transaction, no advice or recommendation is provided.**
D) With an 'execution-only' transaction, no advice or recommendation is provided. Suitability rules will not apply.
289
Q39. For mortgage sales, which of the following pieces of information is not required as part of the initial disclosures?
A) Fees associated with the service.
B) Arrears arrangements.
C) Complaints and compensation details.
D) The providers of mortgages under discussion.
Q39 answer & justifications
A) Fees must be disclosed at the outset, as part of the initial disclosures (MCOB 4).
**B) Correct. Arrears arrangements are disclosed at the start of the contract, not as part of the initial disclosures (MCOB 4).**
C) Complaints and compensation details must be disclosed at the outset, as part of the initial disclosures (MCOB 4).
D) The providers of mortgages under discussion must be disclosed at the outset, as part of the initial disclosures (MCOB 4).
290
Q40. A £12,000 single-premium unit-linked investment bond is cancelled by a customer within the cooling-off period. However, during this period, the stock market fell sharply. Consequently, so did the value of the bond. What is the customer likely to receive?
A) £12,000.
B) £12,000 less set-up charges.
C) 95% of the surrender value of the investment bond.
D) The market value of the bond on encashment.
Q40 answer & justifications
A) Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. Unlike a paid-up value, no charges can be taken.
B) Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No charges can be taken.
C) Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. This will not be a fixed percentage.
**D) Correct. Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. This risk must be explained to the customer in advance.**
291
Q41. After arrears have arisen, within what period should mortgage customers be provided with specific information from their lender?
A) Immediately.
B) 7 working days.
C) 15 working days.
D) 30 working days.
Q41 answer & justifications
A) Arrears information must be provided within 15 working days (MCOB 13).
B) Arrears information must be provided within 15 working days (MCOB 13).
**C) Correct. Arrears information must be provided within 15 working days (MCOB 13).**
D) Arrears information must be provided within 15 working days (MCOB 13).
292
Q42. A robbery occurred in Canada and the proceeds were laundered in the UK. Under what circumstances would the laundering of the proceeds be covered by the Third Money Laundering Directive?
A) In all circumstances.
B) Only if the launderers were EU citizens.
C) Only where the funds exceeded €15,000.
D) Only where the original offence was reported to the EU enforcement agencies.
Q42 answer & justifications
**A) Correct. The Directive specifies that money laundering that takes place within the EU will always be covered by EU money laundering rules, even where the activity that generated the property to be laundered took place in a non-EU country.**
B) The Directive specifies that money laundering that takes place within the EU will always be covered by EU money laundering rules, even where the activity that generated the property to be laundered took place in a non-EU country.
C) The Directive specifies that money laundering that takes place within the EU will always be covered by EU money laundering rules, even where the activity that generated the property to be laundered took place in a non-EU country.
D) The Directive specifies that money laundering that takes place within the EU will always be covered by EU money laundering rules, even where the activity that generated the property to be laundered took place in a non-EU country.
293
Q43. Mandy, a financial adviser, has completed a report form and submitted it to her company's Money Laundering Reporting Officer. Under what circumstances would she take this action?
A) Only when she believes a colleague may be supporting money laundering.
B) Only when she knows for certain that a client is involved in money laundering activity.
C) When she knows or suspects that a client is involved in money laundering activity.
D) When the value of the transaction exceeds €15,000.
Q43 answer & justifications
A) Referral to an MLRO should be made when a member of staff has reasonable grounds to suspect a client or another individual of money laundering. This is not restricted to colleagues only.
B) Referral to an MLRO should be made when a member of staff has reasonable grounds to suspect a client or another individual of money laundering. The member of staff does not need to be certain.
**C) Correct. Referral to an MLRO should be made when a member of staff has reasonable grounds to suspect a client or another individual of money laundering**
D) Evidence of identification is normally required for transactions above €15,000. There is no requirement to report all such transactions.
294
Q44. Paul was prosecuted under the Proceeds of Crime Act 2002 and received the maximum sentence of five years and a fine. This means that he must have been convicted of which money laundering offence?
A) Acquiring.
B) Arranging.
C) Concealing.
D) Tipping off.
Q44 answer & justifications
A) Acquiring, arranging or concealing each carry a maximum 14-year jail term.
B) Acquiring, arranging or concealing each carry a maximum 14-year jail term.
C) Acquiring, arranging or concealing each carry a maximum 14-year jail term.
**D) Correct. Tipping off carries a maximum 5-year jail term.**
295
Q45. A customer ended his relationship with a lender 2 years and 6 months ago. For a minimum of how many more months should the evidence of the customer's identity be retained by the lender?
A) 6 months.
B) 18 months.
C) 30 months.
D) 42 months.
Q45 answer & justifications
A) Evidence of identification must be kept until at least 5 years after the relationship with the customer ceased.
B) Evidence of identification must be kept until at least 5 years after the relationship with the customer ceased.
**C) Correct. Evidence of identification must be kept until at least 5 years after the relationship with the customer ceased.**
D) Evidence of identification must be kept until at least 5 years after the relationship with the customer ceased.
296
Q46. A firm has not given a final response to a complaint after eight weeks. What is the firm obliged to do at this point?
A) Inform the client that they can refer the matter to the Financial Ombudsman Service.
B) Inform the client that they can refer the matter to the Financial Services Compensation Scheme.
C) Refer the matter to the Financial Ombudsman Service.
D) Refer the matter to the Financial Services Compensation Scheme.
Q46 answer & justifications
**A) Correct. After eight weeks, the firm must inform the client of their rights to refer the matter to the FOS.**
B) After eight weeks, the firm must inform the client of their rights to refer the matter to the FOS.
C) After eight weeks, the firm must inform the client of their rights to refer the matter to the FOS.
D) After eight weeks, the firm must inform the client of their rights to refer the matter to the FOS.
297
Q47. What is the maximum binding award that the Financial Ombudsman Service can make in respect of an individual complaint?
A) £100,000 including costs.
B) £100,000 plus costs.
C) £150,000 including costs.
D) £150,000 plus costs.
Q47 answer & justifications
A) The maximum binding (upon a firm) award is £150,000 plus reasonable costs of the complainant.
B) The maximum binding (upon a firm) award is £150,000 plus reasonable costs of the complainant.
C) The maximum binding (upon a firm) award is £150,000 plus reasonable costs of the complainant.
**D) Correct. The maximum binding (upon a firm) award is £150,000 plus reasonable costs of the complainant.**
298
Q48. Which of the following claims would be covered by the Financial Services Compensation Scheme?
A) Damien, who is talking to his motor insurer about his accident with an uninsured driver.
B) David who has claimed against his high street bank for the advice he received about PPI cover.
C) Mike, whose complaint about investment advice was upheld but not honoured due to the default of his adviser.
D) Paul, who is claiming in relation to his offshore investment with a bank in the Isle of Man.
Q48 answer & justifications
A) This claim will not be met as his insurer is not in default.
B) This claim will not be met as his bank is not in default.
**C) Correct. FSCS covers claims where the firm is in default.**
D) FSCS does not cover Isle of Man.
299
Q49. If an individual is found guilty of a criminal offence at Crown Court under the Data protection Act 1998, the potential fine is:
A) limited to a maximum of £5,000.
B) limited to a maximum of £10,000.
C) limited to a maximum of £15,000.
D) unlimited.
Q49 answer & justifications
A) This is the maximum fine for offences under the Act that do not go to Crown Court.
B) There is a maximum fine of £5,000 for criminal offences under the Act unless the case goes to Crown Court, in which case the fine is unlimited.
C) There is a maximum fine of £5,000 for criminal offences under the Act unless the case goes to Crown Court, in which case the fine is unlimited.
**D) Correct. There is a maximum fine of £5,000 for criminal offences under the Act unless the case goes to Crown Court, in which case the fine is unlimited.**
300
Q50. In relation to the Data Protection Act 1998, which of the following is incorrect?
A) It applies only to electronic records.
B) It can apply to paper-based and electronic records.
C) It gives individuals the right of access to data relating to them.
D) It requires that data must be accurate.
Q50 answer & justifications
**A) Correct. The Data Protection Act 1998 applies to manual as well as computerised data.**
B) The Data Protection Act 1998 applies to paper-based as well as computerised data.
C) TheData Protection Act 1998 gives individuals the right of access to data relating to them.
D) Accuracy is a requirement of the Data Protection Act 1998.
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