IAD Level 1 - End of Book Mock Flashcards
The FCA’s approach to the prevention of money laundering is described as principles-based. Which of the following best describes the most appropriate application of this for a firm?
A. The money laundering reporting officer (MLRO) must report all suspicious activities to the FCA and National Crime Agency (NCA)
B. An MLRO is not required if the firm can demonstrate the low impact and risk of it being used for money laundering activity
C. The MLRO must be a member of the firm’s board of directors
D. Firm’s senior management must carry out a risk assessment
D. The SYSC requirements place obligations on firms’ senior management to ensure they have systems and controls in place, which are appropriate to the business for the prevention of money laundering and terrorist financing.
In order to determine the arrangements and controls needed by a firm for these purposes, its senior management needs to carry out a risk assessment. This should consider such factors as: the nature of the firm’s products and services; the nature of its client base and geographical location; and the ways in which these may leave the firm open to abuse by criminals.
Which of the following is correct in respect of the Bribery Act 2010?
A. The act does not cover non-UK registered/incorporated companies
B. The Act only covers the offering or promising of a bribe when carried out in the UK
C. The Act only covers legal persons/companies, not individuals
D. It creates a corporate liability for failing to prevent bribery on behalf of a commercial organisation
D. The Act contains two general offences covering the offering, promising of giving of a bribe (active bribery) and the requesting, agreeing to receive or accepting of a bribe (passive bribery) at Sections 1 and 2 respectively. It also sets out two further offences which specifically address commercial bribery. Section 6 of the Act creates an offence relating to bribery of a foreign public official in order to obtain or retain business or an advantage in the conduct of Business, and Section 7 creates a new form of corporate liability for failing to prevent bribery on behalf of a commercial organisation.
The FCA rules regarding the recording of voice conversations and electronic requirements were mainly developed for market abuse and market manipulation monitoring. However, the rules do not apply to all activities undertaken by firms.
Which of the following activities require a firm to comply with the FCA’s voice conversations and electronic conditions?
A. The corporate treasury function of a listed company calling a bank to carry out a deposit and FX activity
B. A member of staff carrying out corporate finance procedures
C. A collective investment scheme operator making scheme purchases
D. A fund manager calling a broker to place an order on behalf of accounts managed by them
D. Option D is the correct answer because requirements in MiFID II bought into scope orders placed by discretionary fund managers.
Options A, B and C are incorrect because the rules on voice conversations and electronic communication apply to specified activities that relate to qualifying investments admitted to trading on a trading venue, plus they relate to communications linked to client orders and dealing in financial instruments. Therefore, this excludes staff carrying out the activity and functions of treasury and corporate finance, as well as activities carried out between operators of collective investment schemes. Option A is incorrect because the corporate treasury function of a listed company is exempt from the recording requirements.
ANP Bank receives an execution-only order, which has not been solicited from one of its clients. The client, the chief executive of SDC plc, wishes to sell 150,000 shares in his company. ANP Bank acts as the corporate broker for SDC plc. What should ANP Bank do?
A. Decline to act for the client and report the order to the FCA
B. Report the client and the transaction to the FCA and the NCA but execute the order
C. Decline to act for the client, explaining that there is a non-manageable conflict of interest
D. Carry out the client order but report the transaction to the FCA
D. The firm can carry out the transaction, but it must report its suspicions to the FCA via a Suspicious Transaction Order Report (STOR).
B is not correct as suspicions of market abuse are reported to the FCA, not the NCA.
FSMA gives the FCA powers to undertake enforcement action when it is satisfied that a person has engaged in market abuse.
Which of the following penalties can the FCA impose on a person whom it is satisfied has undertaken market abuse?
A. Fine the profit made, as permitted under FSMA
B. Ban them from working in a senior manager function and levy a fine
C. If their firm fines and sacks them, the FCA cannot take further action
D. Withdraw their approved person status
B. The FCA can impose fines for market abuse, it can levy a fine on top of the profit gained from such activity - which can be up to 40% of an individual’s salary (including pension contributions and bonus).
Even if a firm sacks and fines an individual, the FCA will still look to ban the individual from being a senior manager (an ‘SMF’) and fine the individual if they are found guilty of market abuse.
Which of the following is an FCA threshold condition principle that will be applied when a firm’s application for authorisation is reviewed?
A. The firm is a body corporate
B. The firm must hold sufficient capital reserves which count towards its regulatory capital
C. The firm must carry on business in the UK
D. They will not authorise firms, products and services that pose a threat to their statutory objectives
C. The firm must carry on business in the UK.
The FCA has threshold conditions that it applies when reviewing applications for authorisation. They are: location of offices (the head office and the place where the firm carries on business must be in the UK); effective supervision (firms must be capable of being effectively supervised by the FCA having regard to the nature, complexity and the way in which firms operate and the regulated activities that they carry on/seek to carry on); appropriate resources; be suitable and have an appropriate business model.
A new business model threshold condition will demonstrate the importance that the FCA places on a firm’s ability to put forward an appropriate, viable and sustainable business model, given the nature and scale of business that they intend to carry out.
The FCA interacts with a number of other bodies. In terms of its relationship with the Financial Ombudsman Service (FOS), which of the following is TRUE?
A. FSMA 2000 directed the FCA to create an independent body to oversee complaints against the FCA and to set compensation levels for investors
B. The FOS can award unlimited costs against a firm as a result of a complaint
C. The board members of the FOS are appointed by the FCA but they remain independent
D. The FCA oversees and reviews the outcomes of the FOS where compensation is awarded against firms
C. FSMA 2000 requires the establishment of an ombudsman scheme for dealing with disputes between consumers and firms. The FOS, which is designed to provide quick resolution of disputes between eligible complainants and their product/service providers with a minimum of formality, acts as an independent person. The chairperson and other directors of the FOS are appointment by the FCA but the terms of their appointed must be such as to secure their independence from the FCA.
Which of the following GENERAL powers of attorney will continue to have authority to deal with a donor’s financial affairs?
A. PoA provided to a relative, who is then declared bankrupt
B. PoA provided by the donor to their son, then nine months later the donor dies
C. PoA provided to the sister of the donor, based solely on personal welfare matters and then one year later the donor becomes mentally incapacitated
D. PoA provided by a donor to a relative, who three years later emigrates and takes up US citizenship
D. Option D is correct because a PoA is normally excluded for a small number of reasons and it can only be given by someone who has the mental capacity to do so. Therefore, it will be revoked if the donor loses capacity. In addition, it will be automatically revoked if the donor dies, becomes bankrupt, passes a specified time limit or revokes it himself.
The financial promotion rules provide exemptions from the rules in specific circumstances. Which of the following is exempt from the financial promotion rules?
A. A promotion to a professional client
B. The promotion of non-MiFID business to a retail client
C. The promotion of packaged products to a UK-domiciled retail client
D. One-off promotions that are not cold calls
D. The financial promotion rules are disapplied in certain cases, notably excluded communications. One such rule is a one-off promotion that is not a cold call. All the other options are covered by the financial promotion rules.
Which of the following is the main aim of the prudential regime for UK MiFID investment firms?
A. A firm is able to meet its liabilities as they fall due
B. Focus on the harm that firms pose to consumers and markets
C. Firms must undertake regulatory reporting on a six-monthly basis based on their interim report and final reports and accounts
D. Firms have in place sound, effective and complete processes, strategies and systems controls
B. The new prudential requirements for MiFID investment firms look to refocus prudential requirements and expectations away from the risks that firms face towards looking at and mitigating the potential harm that they pose to consumers and markets - shifting away from the aim and objective from the CRD/CRR (Capital Requirements Directives and Regulations) on the basis that these are different types of firms and the business activities that they undertake.
The aim of MiFID was to develop a single market and enhance investor protection. This was achieved by the allowing:
A. Firms would be permitted to provide investment services into other EU member states
B. Permitting the harmonisation of trading hours
C. Permitting the cross-selling of investment funds
D. The provision of investment advice to retail clients
A. One of the main aims in relation to MiFID (and the single market) was to provide firms with an EU passport to provide services, therefore, once a firm is authorised and regulated in their home state they could provide financial services in any other EU member state.
The CEO of a listed company wishes to sell some shares she holds in the company. Which of the following applies?
A. If the value of the transactions is €100,000 then no disclosure is required
B. She cannot carry out the transactions 60 days prior to the publication of the company’s annual reports and accounts
C. She is not required to notify the company that she has carried out the share sale
D. She cannot carry out the transactions 30 days prior to the publication of the company’s annual reports and assets
D. All transactions must be reported by both the company and the employee of the company. The ‘closed period’ where no transactions are permitted is 30 days before the announcement of the interim financial report/year-end financial report.
KB Bank is about to launch an advertising campaign to promote a new product aimed at retail investors. Which of the following best describes the purpose of the financial promotion rules in respect of the promotion that KB Bank will be carrying out?
A. To foster an open and honest relationship with the regulator
B. To have appropriate management and control processes and procedures
C. To ensure that retail investors receive good outcomes
D. To protect clients
C. The purpose of the rules is to ensure that financial promotions are identified as such, and that they are fair, clear and not misleading. With the introduction of the FCA’s Consumer Duty rules, Principles 6 and 7 are disapplied, and Principle 12 will apply - i.e. ensuring that retail clients receive good outcomes.
JKL & Co has recently formed a partnership with STU & Co. As the compliance officer of JKL, you become concerned as to the suitability of the advice given by STU recently and feel that the cases should be re-examined. The CEO of STU is the partnership’s CEO and partners of both JKL and STU will remain liable in respect of their activities prior to the formation of the partnership. You feel that it would be unethical to rely on that to protect the clients and wish to take positive action.
Which of the following actions is NOT appropriate in the circumstances?
A. Arrange for an independent review to be undertaken of all sales to assess whether the advice given was suitable
B. Arrange for a review to be undertaken by the relevant business units of all sales to satisfy whether suitability has been achieved
C. Advise the partnership’s CEO of your concerns
D. Consider advising the FCA that there is a concern over the suitability of advice and the measures being put in place within the partnership
B. If there are concerns about the suitability of advice provided then any review of this must be undertaken by someone independent of the business unit responsible for the sales practice - they are hardly going to recommend actions to be taken against themselves.
Independent reviews can be undertaken internally by internal audit or compliance, or externally by law/accountancy firms/
Which of the following would be IN SCOPE of the Certification regime?
A. A non-executive director, chair of the risk committee
B. The chief risk officer
C. Chief underwriting officer
D. Individuals working in sales and trading functions in the UK branch of a third-country bank
D. These roles/functions would be subject to the Certification Regime because they would be classified as material risk takers performing a significant harm function within the firm.
Individuals performing the roles noted in Options A, B and C would be classified as Senior Managers, performing Senior Management Functions - requiring approval/authorisation by the FCA and/or the pRA.
