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Investment Environment > Exam questions > Flashcards

Exam questions Flashcards

1
Q

What is the last stage of the process of investing?

A

Fund selection

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2
Q

What is offset, for corporation tax purposes, against a company’s annual losses?

A

This year’s profits, last year’s profits and future profits and future profits of the same trade.

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3
Q

How are US Government bonds traded?

A

OTC

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4
Q

Which pair of words closely describe a ‘financial promotion’?

A

Invitation/inducement

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5
Q

What is the maximum jail sentence for assisting a money launderer?

A

14 years

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6
Q

What is exempt from capital gains tax liability?

A
  • NS&I Savings Certificates and Premium Bonds
  • Lottery and betting winnings
  • FX for private use
  • EIS and SEIS investments held for at least 3 years
  • VCT investments held for at least 3 years
  • Gilts and qualifying corporate bonds
  • Single chattels up to £6000 gross proceeds per item
  • Wasting chattels (i.e. with a predictable life of less than 50 years)
  • Private cars
  • ISAs and Child Trust Funds
  • Principal Private Residence (PPR)
  • The first £50,000 of shares received under an employee shareholder agreement, subject to a lifetime agreement of £100,000.
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7
Q

What regulatory requirements are there with regards to a fact-find?

A

None

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8
Q

What is the best method to establish affordability?

A

A cashflow analysis - monthly income and outgoings

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9
Q

What is the helpful mnemonic to remember the list of exempt persons?

A 
APRIL
A - Appointed Representatives
P - Professions
R - Recognised Institutions
I - Institutions
L - Lloyds Members
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10
Q

How often should a firm report to the FCA with reference to complaints received?

A

Twice a year.

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11
Q

Under the Certification Regime for bank employees, employees are certified by:

A

The employing bank. The relevant bank will have the responsibility for certifying these individuals. Individuals will no longer be approved by the regulator.

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12
Q

Who is responsible for insider dealing legislation?

A

HM Treasury

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13
Q

The Criminal Justice Act of 1993, which legislates against insider dealing, makes it a criminal offence for connected persons to act on insider information , in respect to what instruments?

A
  • Shares
  • Debt securities
  • Warrants
  • Depository receipts
  • Derivatives
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14
Q

If a person is considered an insider, and holds material non-public information, it is an offence if they:

A
  • Deal in the affected securities
  • Encourage others to deal in the affected securities
  • Disclose the information to another person
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15
Q

What are the general defences against insider dealing?

A
  • They did not expect the to achieve profits or that the information was price-sensitive (material).
  • They believed the information to be public.
  • They would have acted in the same way without the information.
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16
Q

How would a ‘principles-based’ approach be best described?

A

Firms having fewer detailed FCA rules to follow but must follow higher-level principles.

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17
Q

What can shareholders normally seek to achieve at an AGM?

A
  • Approve/reject the proposed dividend
  • Approve the accounts
  • Reappoint directors/auditors

They cannot increase the dividend that has been declared by the investors.

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18
Q

What are the main exemptions, set out by the Financial Promotions Order, that would not need to be approved by an authorised firm and comply with financial promotion rules?

A
  • Investment professionals (a communication with an authorised/exempt person)
  • Deposits and Insurance
  • HNWIs and Sophisticated Investors
  • Promotions subject to the takeover code
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19
Q

What is the maximum percentage of the total ISA allowance for the year that you can invest in a cash ISA?

A

100%. There is no separate limit for Cash ISAs: the investor can allocate money between cash and stocks and shares however they want.

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20
Q

How often should a periodic statement be sent out to a retail client for a securities portfolio?

A

Every 6 months.

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21
Q

How often should a periodic statement be sent out to a retail client for a leveraged portfolio?

A

Every month.

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22
Q

What is the rate of inheritance tax payable when an estate is left to a spouse/civil partner?

A

0% (IHT not payable in this scenario)

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23
Q

Under the terms of the Takeover Code, what is the least amount of time that the takeover firm must leave a bid to the shareholders of the other company, before they can change/remove their bid?

A

21 days. If it then goes ‘unconditional’ it must be left for a further 14 days.

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24
Q

What is the maximum custodial sentence for failing to report money laundering?

A

5 years and an unlimited fine.

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25
Q

What is the purpose of probate?

A

To establish ownership of the estate before the assets of the deceased person are distributed. Executors need to obtain a Grant of Probate from the Probate Registry to show they are entitled to administer the estate.

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26
Q

When must an authorised firm assess appropiateness?

A

When dealing with derivatives in response to a direct financial promotion.

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27
Q

What are the four examples of packaged products?

A
  • Life policies
  • Collective Investment Schemes
  • Investment Trust Saving Schemes
  • Pension Schemes
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28
Q

When is a suitability report not required?

A

When dealing with ‘basic’ levels of advice on stakeholder products.

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29
Q

For whom is a basic written agreement concerning designated investment business always needed?

A

Retail clients.

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30
Q

When a lengthy announcement of price-sensitive information is given on the LSE, what kind of information should have prominence?

A

Current and future trading options.

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31
Q

What kind of advice must a retail investment advisor give when offering independent advice?

A

Unbiased, unrestricted advice based on a comprehensive and fair analysis of the relevant market.

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32
Q

Why has the regulator introduced the term ‘retail investment product’?

A

To reflect the range of products that a consumer would expect such an advisor to have knowledge of.

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33
Q

What information must be included in a financial promotion concerning past performance?

A
  • Performance for the previous 5 years (with complete 12-month periods).
  • No guarantee of future performance.
  • Currency.
  • Commissions.

There is no requirement to include information of other similar funds/products.

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34
Q

When do suitability rules apply?

A

When a firm makes a personal recommendation in relation to a designated investment.

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35
Q

What necessary information to firms require from a client to assess their suitability?

A
  • Client’s knowledge and experience
  • Client’s financial position
  • Client’s investment objective
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36
Q

What is the central aim of appropriateness rules?

A

To prevent complex products (derivatives) being sold on an execution only basis (without advice), to retail clients.

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37
Q

What is the firm able to do if it deems a financial product inappropriate for a particular client?

A

It can warn them. If they ignore this warning, it is up to the firm whether or not to go ahead with the transaction.

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38
Q

How long must records relating to appropriateness be kept for?

A

5 years

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39
Q

When does a firm not need to assess the appropriateness of a particular retail client concerning the sale of a complex product?

A
  • If it is receiving/transmitting an order in relation to which it has assessed suitability.
  • If it is able to rely on the recommendation of an investment firm.
  • With a current client.
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40
Q

What is a member firm?

A

A brokerage firm that holds at least one membership on a regulated investment exchange.

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41
Q

What are all LSE member firms?

A

Broker-dealers with dual-capacity. This means that they can act as agents on behalf of customers or as principals dealing directly with the customers. They are not obliged to act as Market-Makers.

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42
Q

What is the settlement period for UK equities?

A

T+2

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43
Q

What must firms include when providing their semi-annual report on complaints received?

A
  • Total number of complaints received
  • Total number of complaints closed
  • Total number of complaints referred to accepted by the FOS
  • Total amount of redress paid out to complainants
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44
Q

What are the only things dealing commission can be used to buy?

A

Research and execution services.

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45
Q

What do ‘round trip’ costs refer to?

A

The transaction costs of buying and selling a financial instrument or investment.

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46
Q

What is a perquisite?

A

A benefit one enjoys due to their particular job/position.

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47
Q

What two things does an investment policy statement concentrate on?

A
  • Strategic asset allocation

- Tactical asset allocation

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48
Q

In what scenario would the inheritance tax rate be reduced to 36%?

A

If at least 10% of the net estate is left to charity.

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49
Q

If someone leaves 10% of their estate to charity when they day, what rate of IHT will the rest of their estate be charged by?

A

36%

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50
Q

How often should a Statement of Investment Principles be sent to members of the pension scheme?

A

Annually

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51
Q

Who would normally prosecute a firm for conducting unauthorised regulated activities?

A

The FCA

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52
Q

Under the outdated Data Protection Act 1998, up to how much could the data provider charge a customer who wanted to access that data?

A

£10

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53
Q

What conditions apply to a firm processing personal data?

A
  • Being obtained lawfully and fairly.
  • Must be accurate and updated regularly.
  • Must not be held for longer than is necessary.
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54
Q

To whom does the Bribery Act 2010 apply to?

A

Firms with ‘demonstrably business presence’ in the UK. This is assessed by a ‘common sense approach’ (broadly if a company is listed)

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55
Q

Four main offences of Bribery Act 2010:

A

Active Bribery - offering, promising or giving a bribe.
Passive Bribery - requesting, agreeing to receive or accepting a bribe.
Bribing a foreign public official.
Failure of firms to prevent bribery.

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56
Q

What six principles are set out by the Ministry of Justice as a guidance to firms that fall under the jurisdiction of the Bribery Act 2010?

A 
Proportionate procedures
Top-level commitment 
Risk assessment
Due diligence
Communication + Training
Monitoring and review
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57
Q

What is the objective of the Criminal Offences Act 2017?

A

To make companies and partnerships liable for failing to prevent tax evasion.

58
Q

What are the three stages to be liable for prosecution under the Criminal Offences Act 2017?

A
  1. Tax evasion by an individual/firm.
  2. Facilitation of this by a representative of the firm.
  3. Failing to prevent stage two.
59
Q

What is the maximum penalty of the Criminal Offences Act 2017?

A

Unlimited penalty

60
Q

What is an accepted defence under the Criminal Offences Act 2017?

A
  • A firm having adequate prevention procedures already in place.
  • If it was unrealistic to have expected it to have certain procedures in place.
61
Q

What is the maximum gross sum that a parent may pay into a child’s building society savings accounts gross before the income becomes treated as income from the parent and taxed as such?

A

£100

62
Q

What is the normal method of issuance for UK government bonds?

A

By variable price auction - (‘competitive auction’), where the bidder pays the price they bid.

63
Q

What is the normal method of issuing US T-bonds?

A

By Dutch auction - in which the auctioneer decides a price then lowers to meet the bidder.

64
Q

If the FCA refuses to grant a Part 4A permission to a firm (authorisation), to whom should the firm file a complaint?

A

The Upper Tribunal

65
Q

How are dividends paid?

A

Gross (without tax deductions), this means that there is never a need of a tax repayment. They are subject to income tax rates.

66
Q

Which major piece of legislation gave the FCA its statutory powers?

A

Financial Services and Markets Act 2000 (FSMA 2000)

67
Q

What is the normal settlement convention for Eurobonds?

A

T+2. Euroclear and Clearstream are the two main systems available for settling Eurobond transactions.

68
Q

Who is responsible for the regulation of settlement systems and ‘recognised clearing houses’ (RCs)?

A

The Bank of England - institutions that provide both exchange services and central counter-party clearing services are regulated by the BoE with respect their activities as RCs.

69
Q

Who is responsible for the regulation of a person performing a controlled function in an overseas territory?

A

The home state.

70
Q

What does the rule on inducements aim to achieve?

A

Prevents authorised firms from making and receiving payments which can lead to avoidance of their duty to the client.

71
Q

What does the rule inducements for firms in the scope of MiFID consist of?

A

Disclosing to clients the existence of monetary and non-monetary benefits before services are provided.

72
Q

In what circumstances may a poll vote be demanded by shareholders under the Companies Act?

A
  • If they have 10% of the voting rights.
  • If requested by 5 members who have the right to vote.
  • If requested by the Chairman
73
Q

In what circumstances would people have power under the company’s Articles of Association to convene a general meeting whenever they see fit?

A
  • If they are Directors.

- If they are a shareholder with more than 5% holdings.

74
Q

Under MiFID, if an investment firm sets up a branch in another EEA state, to whose local rules will the branch have to adhere?

A

Home and host states. If a firm has a physical presence in another EEA country, it must adhere to the local rules of that country for most of the Conduct of Business rules. However, there are a few minor exceptions, such as personal account dealing rules, that follow home state rules.

75
Q

What are the time limits for a complainant, who has not reached a resolution from a firm after 8 weeks of filing the original complaint, to contact the FOS?

A
  • 6 months after the firm’s final response.
  • 6 years after the event.
  • 3 years since becoming aware of the problem.
76
Q

What are the maximum amounts of compensation the FOS are able to provide?

A

Complaints made after 1 April 2019: £350,000
Complaints made before 1 April and to the FOS after 1 April: £160,000
Complaints made before 1 April: £150,000

77
Q

Who is considered an eligible complainant?

A
  • Consumers
  • Small businesses (less than 10 employees and €2million turnover)
  • Charities (annual income of less than £1m)
  • Trusts (NAV less than £1m)
78
Q

How long must records of complaints be kept for a MiFID business?

A

5 years

79
Q

How long must records of complaints be kept for a non-MiFID business?

A

3 years

80
Q

How often must firms report to the regulator on complaints received?

A

Twice a year.

81
Q

What is the function of the Financial Services and Compensation Scheme (FSCS) and how much compensation can they provide?

A

To compensate eligible complainants when an authorised firm becomes insolvent. They can provide 100% compensation for up to £85,000.

82
Q

What are excluded from MiFID?

A
  • Insurance companies
  • Collective Investment Schemes
  • Credit institutions
83
Q

When must a director inform the market (via a Primary Information Provider (PIP))?

A

When purchasing shares in his own company.

84
Q

To whom is the best execution rule designed to protect?

A

Retail and professional clients. They cannot opt out of this.

85
Q

What are the three different methods of conducting an internal record custody check?

A

Internal custody reconciliation method - individual records vs. aggregate records.
Internal system evaluation method - evaluating current processes.
Physical asset reconciliations - total count and rolling stock methods.

86
Q

How long must records under custody rules be kept for?

A

5 years

87
Q

What are the four institutions where client bank accounts can be held?
(For the purpose of a retail investment advisor (RIA) who is not authorised to hold client money. Money should be paid directly into client account).

A
  • Central Bank.
  • Credit Institution within the EEA.
  • Bank authorised in a third country.
  • Qualifying money market fund.
88
Q

How often must firms perform internal client money reconciliations (checks)?

A

Each business day.

89
Q

What are the two main methods of internal client money reconciliations (checks)?

A
  1. Individual client balance method - adding together all accounts.
  2. Net negative add-back method - only available to asset management and loan-based crowdfunding firms.
90
Q

Which client types is a basic written agreement needed?

A

Just retail clients. But firms can still supply one.

91
Q

What asset class has the highest allocation within UK pension funds?

A

Equities

92
Q

What action would best describe front-running?

A

A firm dealing ahead of an announcement which contains non-public material information.

93
Q

Within how many days does a retail client have the right to cancel a purchase of a collective investment scheme?

A

14 days.

94
Q

Under GDPR rules, firms suffering from a breach of personal data must notify the Information Commissioner (ICO) within what period of time?

A

72 hours

95
Q

How long can annual capital losses be carried forward, for the purposes of CGT, be carried forward for?

A

Indefinitely

96
Q

What kind of investment strategy would swaps be most associated with?

A

A liability-driven investment strategy that tries to match assets with liabilities.

97
Q

How long must firms keep records of financial promotions?

A

6 years

98
Q

How long is a firm obliged to keep records to enable them to justify and complete a tax return?

A

6 years

99
Q

When is a buyer exempt from paying SDLT on a property?

A
  • Transfers for no chargeable consideration.
  • Transfers from divorce.
  • Transfers from charities.
  • Transfers from a Will.
100
Q

What is the SDLT rates on leasehold properties?

A

0-£150,000: 0%
£150,000-£5m: 1%
£5m+: 2%

101
Q

How often do companies with profits of more than £1.5m pay corporation tax?

A

Every quarter

102
Q

When do most companies pay corporation tax?

A

9 months and one day after the end of the accounting period.

103
Q

How many days does a retail client have the right to cancel the purchase of a life policy after the purchase?

A

30 days

104
Q

What goods/services are taxed at the reduced VAT of 5%

A

Energy products and services

105
Q

What goods/services are exempt from VAT?

A

Commissions and Nominee services

106
Q

When must a Key Features Document be provided to a client?

A

When recommending a client purchase a packaged product (other than AIFs/UCITS funds)

107
Q

What are the key features of a Key Features Document?

A
  • The firm’s brand
  • Key facts logo
  • FCA
108
Q

Why is capital allocation thought to be more efficient when markets have high liquidity and price transparency?

A

High liquidity and price transparency cause the cost of capital to decrease.

109
Q

How many years do EISs and SEISs need to be held before a disposal becomes exempt from CGT?

A

3 years

110
Q

How long must records on company resolutions be held for?

A

10 years

111
Q

How long must records of client agreements be held for?

A

5 years

112
Q

What is the normal approach to client money segregation?

A

The firm must ensure that any client money received goes straight into a client bank account.

113
Q

What is the alternative approach to client money segregation and when may it be used?

A

Client money is paid into and out of the company’s own bank account. This may occur if the transactions are complex, numerous, related to firm’s business or involve multiple currencies.

114
Q

What notice must a firm give the FCA before adopting the alternative approach to client money segregation?

A

3 months notice in writing.

115
Q

What is a client bank account?

A

An account in the name of the firm with an appropriate description.

116
Q

What is a designated client bank account?

A

A normal account - but if the bank fails then the account is NOT pooled with any other type of account unless the firm also fails.

117
Q

What is a designated client fund account?

A

A normal account - but if the bank fails the account is pooled with other designated client fund accounts at the same bank.

118
Q

What happens if a joint tenant wanted to dispose of their interest in a property during their lifetime?

A

They must give notice to the other joint tenant(s) and convert to a tenancy in common.

119
Q

When must a PDMR undertaking a personal transaction in their company notify the company?

A

Within 4 business days

120
Q

Who pays Class 1A/1B national insurance contributions (NICs)?

A

Employers and employees. Class 1A by employers only and Class 1B by both.

121
Q

Who pays Class 2 national insurance contributions (NICs)?

A

Self-employed persons, at a flat rate.

122
Q

When must a company apply customer due diligence (CDD)?

A
  • Establishing a business relationship.
  • Carrying out a transaction of more than €15,000.
  • Suspicion of money-laundering/terrorism.
  • Doubts about customer’s verification.
123
Q

When might a company apply enhanced due diligence (EDD)?

A
  • High risk situations
  • Customer not physically present
  • Correspondent banking
  • Politically Exposed Persons (PEPs)
124
Q

When might a company apply simplified due diligence (EDD)?

A
  • Financial sector firms
  • Listed companies
  • UK public authorities
  • Child Trust funds
  • Pension funds
125
Q

When is SDRT not applicable on purchases?

A
  • AIM
  • ISDX growth
  • ETFs
  • Bonds
  • Derivatives
126
Q

How many calendar days of notice must a public company give when they call a general meeting?

A

14 days.

21 days for an AGM

127
Q

How many calendar days of notice must a public company give when they call an annual general meeting?

A

21 days.

14 days for an AGM

128
Q

How often must a firm managing investments by a transaction-by-transaction basis (not derivatives) for a retail client, provide a periodic statement?

A

Every year

129
Q

Under FCA’s approach, retail intermediaries (C4 firms) require assessment every:

A

4 years

130
Q

How often must a firm conduct external reconciliations between its internal accounts and the accounts of a third party holding client money on the behalf of the firm?

A

As often as is necessary

131
Q

What is the minimum number of years that someone needs to pay National Insurance Contributions in order to qualify for the maximum new state pension introduced from 6 April 2016?

A

35 years

132
Q

What does the Public Interest Disclosure Act do?

A

Establishes a framework that protects employees in the case of whistleblowing.

133
Q

What is the maximum tax-deferred allowance that a person can withdraw from a single premium insurance bond each year?

A

Up to 5% of its original premium plus any unused allowance from previous years.

134
Q

How often must a statement of funding principles drawn up for a occupational pension scheme (DB) be reviewed?

A

Every 3 years

135
Q

How often must a Statement of Investment Principles be provided to members of work-based pension schemes?

A

Each year

136
Q

Which regulatory body is responsible for overseeing the systematic infrastructure of central counter-parties, securities settlement systems, and recognised payment systems?

A

The Bank of England

137
Q

What persons do not pay National Insurance Contributions?

A
  • Persons under the age of 16.

- Persons over the state pension age.

138
Q

What is the tax rate from income generated from a life assurance fund?

A

20%

139
Q

How are gains made within ‘reporting’ offshore funds taxed?

A

At CGT rates

140
Q

How are gains made within ‘non-reporting’ offshore funds taxed?

A

At the investor’s marginal rate of income tax (losses cannot be offset against other gains).

141
Q

How would prudent segregation be best described?

A

A firm paying its own money into a client account, in order to prevent the shortfall of client money.

Investment Environment (7 decks)

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