IAD Level 1 - Mock 1 Flashcards
The FCA, acting as the competent authority for listing, is referred to as the ‘FCA Primary Markets Function’. To satisfy their rules you must ensure you:
A. Produce accounts
B. Disclose price sensitive information to the markets
C. Ensure that trading is profitable
D. Comply with the Market Abuse Regulation
B. The FCA Primary Markets Function rules stipulate only that an interim report needs to be made under disclosure regarding price sensitive information.
Which of the following is TRUE in respect of the conflicts on interest policy?
A. The rules protect retail clients alone from the conflicts that could arise between clients of the same firm
B. It requires firms to maintain effective administrative arrangements
C. Where a firm is part of a group, the policy should take account any potential conflicts arising from that group
D. The conflicts policy should be provided in full to retail clients
C. The rules protect ALL types of client. A description of the policy should be provided to retail clients and potential retail clients. The policy itself does not require firms to maintain effective administrative arrangements, but shows how they will identify and manage costs.
Frank is worried about the risk posed to his mortgage payments by the prospect of his becoming unemployed or sick; however, Frank has little disposable income but has some savings. Which type of insurance cover should Frank consider purchasing?
A. Income protection insurance with a short deferral period
B. Family income benefit
C. Income protection insurance with a long deferral period
D. Unemployment benefit
C. Income protection insurance products can provide up to 75% of an individual’s income in case of sickness or unemployment. They are costly, although the policy can be made cheaper by choosing a long deferral period. This increases the time that elapses between the client becoming ill or unemployed and the policy starting to make payments.
Consider the following individuals:
- Rita, a research analyst, knowingly passes inside information to her brother and encourages him to deal
- Iris, the owner of a fast food restaurant, looks after criminal property until it appears to be legitimate
- William, an asset manager, deals on investment research that was specifically produced for the firm’s clients
Which of the following is true?
A. Only Rita and Iris could be served with an unlimited fine
B. William and Rita could serve a ten year prison sentence
C. Only Rita is guilty of Insider Dealing as defined under the Criminal Justice Act
D. Iris cannot be charged with financial crime
C. Rita is committing Insider Dealing. This is a criminal offence and can be punished with ten years in prison and an unlimited fine.
Iris is committing a money laundering offence. This is a criminal offence and can be punished with 14 years in prison and an unlimited fine.
William is front running. This is not necessarily a breach of law, but is a breach of FCA regulation. Disciplinary measures will be taken by the FCA which could involve an unlimited fine.
Anyone, whether a market participant or not, can be accused and prosecuted for financial crime.
Reegiman plc would like to arrange permission from the FCA to begin offering funeral plan contracts to its elderly clients. When trying to use the FCA’s Online Notification and Application System (ONA system), Reegiman plc find that they are not able to use this system to complete the application.
Which of the following is a possible reason for this? Reegiman plc:
A. Is not yet authorised to carry out any regulated activity
B. Is already authorised to offer personal pensions to its clients
C. Is already authorised to offer life insurance policies to its clients
D. Does not need to be authorised to offer funeral plan contracts as these are not designated investment business
A. The ONA can only be used for varying existing permissions; it cannot be used for the original Part IV authorisation request, it is irrelevant that funeral plan contract was are not designated investment business - they are still regulated activities and as such Reegiman needs permission to offer them.
Can a third party appeal to the Tribunal on behalf of an authorised firm against a decision notice?
A. Yes, if the appeal is made within 28 days of the notice being issued
B. Yes, if the time limits for the disciplinary procedures are extended
C. Yes, if other parties can agree to this appeal being made
D. No, only the firm to whom the notice was issued can appeal
A. A third party can appeal to the Tribunal on behalf of an authorised firm if the appeal is made within 28 days of the notice being issued.
A person who receives a decision notice or supervisory notice (including a third party who has been given a copy of a decision notice) haas the right to refer the Regulator’s decision to the Tax and Chancery Chamber of the Upper Tribunal.
A trader who offers advisory services decides to buy shares of a company she advises on via a firm other than her own. Which of the following statements are correct regarding the appropriate procedure for the trader?
A. She must obtain written permission from her company and the executing firm
B. She needs written permission from her own firm, and she must send notification to her firm once the trade has been executed
C. As she is grading away from her own firm, no permission is needed
D. She requires verbal approval from her line manager before the trade
B. Offing to the personal account dealing rules, written permission is required before the trade and a notification must be sent to the firm once the trade is done.
Which of the following is NOT usually regarded as among the aims of a government’s economic policy?
A. To achieve sustainable growth
B. To control inflation
C. To achieve full employment
D. To keep interest rates low
D. To achieve sustainable growth, to control inflation and to achieve full employment are all among the aims of economic policy. The other main aim is to achieve a Trade Balance.
Trevor has just retired and when assessing his available funds with which to fund his retirement he discovers a share account belonging to him that he had forgotten about. Unfortunately, as the account had been dormant and unclaimed for well over 12 years, the firm holding the account has ceased to treat it as client assets and has paid the value of the account, at the time £23,500, to a charity. Had the account remained active it would now be worth £32,000. What claim on the funds does Trevor have?
A. Trevor has no claim on the funds. The account was inactive for over 12 years and was no longer considered client’s assets
B. Trevor may have a claim on the funds. Although the account was no longer considered client’s assets, the value of £23,500 may be returned at the discretion of the firm’s governing body
C. Trevor does have a claim on the funds. Although the account was no longer considered client assets the governing body of the firm must unconditionally pay Trevor £23,500 if he claims.
D. Trevor does have a claim on the funds. Although the account was no longer considered client assets the governing body of the firm must unconditionally pay Trevor £32,000 if he claims.
C. If a firm wishes to pay away such a balance to a registered charity, then the governing body must approve of this and unconditionally undertake to pay to the clients concerned a sum equal to the balance paid away to charity in the event of the client seeking to claim the balance in the future. In this case, the sum paid away was £23,500.
How is the FCA funded?
A. The FCA receives all of its funding from the government via the Treasury
B. The FCA is funded via fines levied upon authorised firms
C. The fees are based on fee-blocks according to the regulated activities of the firm
D. The FCA funds itself via its own activities on the marketplace
C. The FCA allocated the fees to fee-blocks according to the permission agreed with the FCA. The FCA will then combine this with the volume of Business conducted in each block - often referred to as a fee-tariff.
The PRA has regulatory obligations over certain firms in the financial services, which of the following best indicates one of these obligations?
A. The PRA will ensure that the firm conducts itself in a manner that maintains the integrity of the markets
B. PRA firms must prove to the PRA that they have effective resolution planning for orderly failure
C. The PRA must ensure that money laundering procedures are followed
D. It is an objective of the PRA to ensure that no PRA-regulated firm fails
B. Market conduct to maintain the integrity of the financial markets (including money laundering provisions) is a responsibility of the FCA. The PRA is not charged with ensuring that no firm fails. Instead, they need to ensure that if a firm does fail, it does so in an orderly manner.
An unsolicited real-time communication is simply an elaborate regulatory description of a cold call, but what can be promoted via such a communication?
A. Readily realisable securities which include warrants
B. A personal pension
C. Higher volatility fund
D. Geared packaged products
B. A firm may only make a cold call in one of the following three circumstances:
- The recipient of the cold call has an established existing client relationship with the firm and envisages receiving cold calls.
- The cold call relates to a generally marketable product (which is not a higher volatility fund)
- The cold call relates to activities where the only investments involved are readily realisable securities (other than warrants) and generally marketplace non-geared packaged products.
In the process of action taken by the FCA under the Decision Procedure and Penalties Manual, which of the following should follow immediately after the firm receives a warning notice?
A. The FCA will now begin their investigation of the firm
B. The firm has the right to make representation, which may lead to the FCA amending the notice or even cease action
C. The Regulatory Decisions Committee will issue a decision notice based on the content
D. No further action is taken as this is between the firm and the FCA
B. The general process is: Investigation, Warning notice, Representation to the Regulatory Decisions Committee, Decision Notice, Appeal to the Tribunal, Final notice.
Remember that there are other elements such as supervisory notices, further decision notices, private warnings and notices of discontinuance.
You are a private client adviser and have recently inherited a portfolio from one of your colleagues. The client is labelled as a low risk investor, but after analysing the portfolio you realise that it has a medium risk profile. To fulfil the requirements of a trusted adviser, which of the following courses of action is most appropriate for the firm?
A. Do nothing. The client has not complained about the make-up of the portfolio so has accepted its risk profile
B. Realign the portfolio to the client’s risk appetite with the firm absorbing the cost
C. Rebalance the portfolio to the client’s risk profile, making adjustments to the portfolio to cover the costs
D. Review all of the portfolios that have been inherited from this colleague and realign the portfolios where necessary
D. This is an ethics question. Review all the portfolios that have been inherited and realign the portfolios where necessary is the best answer here. Realign the portfolio to the client’s risk appetite with the firm absorbing the cost is a good response, but too narrow. Thinking about your own client and your own reputation is valid, but if the portfolio you inherited is flawed, it makes sense to run a review to check the others.
Which of the following best describes the purpose of the Persons Distributing Managerial Responsibilities (PDMR) Regime?
A. It is designed to protect directors from the appearance of insider dealing
B. It requires directors to hold shares in their company for at least two years
C. It prevents directors from issuing shares in their company
D. It prevents directors from buying shares in their company
A. This is the best possible answer, as under the PDMR Regime directors are prohibited from buying shares prior to the announcement of results. Therefore D is only partially correct as directors are only prohibited from buying shares at certain times. Directors should hold shares for the long term, but there is no stated minimum holding period in the PDMR Regime.
