IAD Level 1 - Mock 3 Flashcards
Which of the following is least likely to have an impact on a firm’s ethical culture?
A. The timeliness of its regulatory reporting
B. The training and succession plans of the firm
C. The remuneration of the firm’s managers and staff
D. The geographical structure of the firm
A. The timeliness of a firm’s regulatory reporting has little to do with the overall culture of a firm. Firm culture covers staff in general rather specific staff. The more geographically diverse is the structure of the firm, the more difficult it becomes for a strong single firm culture to arise. Training, succession and remuneration policies also have a strong effect upon the culture of the firm.
Which clients need to have the most comprehensive risk explanation provided to them?
A. An execution only retail client selling shares to the firm
B. An execution only retail client selling warrants
C. A discretionary professional client engaged in derivatives
D. An execution only retail client buying options
D. The risks should be explained to the client as specified by the client’s knowledge etc. given that the first two are sales of assets pre-owned. A professional client would most likely not have a significant explanation of the risks given the requirements, as they are considered to have sufficient knowledge and experience.
What happens when a specific instruction from a client would prevent a firm from following its order execution policy when carrying out the transaction? The firm must:
A. Decline to carry out the transaction
B. Ask the client to confirm the instruction in writing
C. Carry out the order as instructed
D. Ignore the instruction and follow its order execution policy
C. Carry out the order as instructed. This is required by the Conduct of Business Rules.
In respect of financial promotions issued by appointed representatives, which of the following is responsible?
A. It is always the responsibility of the appointed representative
B. It is always the responsibility of the firm
C. It is the responsibility of both the appointed representative and the firm
D. It is the responsibility of the generator, not the firm
B. The financial promotion is the responsibility of the firm.
The generator refers to the person who creates the financial promotion, i.e. printer or advertising company.
- Susanna Hoffs has been accused of helping her cousin to place some funds raised via selling stolen cars into a bank account.
- Tommy Lawton has been accused of market abuse relating to an NYSE.life trade by the FCA.
- Duncan Ferguson has been accused of providing funds to an animal rights group which hacks into the IT systems of medical research companies and changes records relating to animal experimentation.
- Debbi Peterson has been accused of offering her clients paid-for investment advice relating to listed share transactions, despite the fact that she has not been authorised to do so.
Which of the four individuals has committed an offence for which the maximum prison term is FIVE years in prison?
A. Susanna Hoffs
B. Tommy Lawton
C. Duncan Ferguson
D. Debbi Peterson
C. Susanna Hoffs is accused of assisting a criminal to launder criminal funds - this has a maximum prison term of 14 years. Tommy Lawton is accused of market abuse - this has no prison term, but can be punished with an unlimited fine. Duncan Ferguson is accused of providing funds to terrorists - this has a maximum prison term of 5 years. Debbi Peterson is accused of breaching the general prohibition - this has a maximum prison term of 2 years.
Which of the following is the correct interaction between the FCA regulations on money laundering and the JMLSG guidelines?
A. JMLSG guidelines are statutory, the regulations are guidance
B. The regulations are statute, JMLSG guidelines are guidance
C. JMLSG guidelines overrule the regulations if money laundering is suspected
D. Firms cannot usually be disciplined for not following the regulations if they follow the JMLSG guidelines
D. The JMLSG guidelines provide an indication of what is expected of financial sector firms and, when tailored by a firm to its own risk base and business profile.
The law is prescribed by the proceeds of crime act (POCA), which has nothing to do with the FCA. Also, do not confuse the Money Laundering Regulations 2017 (MLR 2017), which is also law, with FCA regulations, which is not law. FCA money laundering regulations (contained in SYSC) provide admin provisions for firms at risk - ie, they tell them what controls they should use in order to reduce their risk exposure. SYSC are regulations, rather than the law, ie they are not statute.
JMLSG (guidance) then advises firms on how best to implement the FCA’s money laundering regulations. Guidance is not ‘binding’. This means that it is not mandatory and the firm does not have to follow it. However, these guidance notes have been accepted by HMT, so in following them you could not be considered in breach of the FCA’s regulations. If the firm does not follow the guidance, this protection is lost.
The main objective of the PDMR Regime is:
A. To ensure the LSE is perceived to be a fair and orderly market
B. To prevent directors dealing in company shares
C. To restrict directors from holding shares in competitor companies
D. To ensure that confidence is maintained in foreign markets
A. The main objective of the Persons Discharging Managerial Responsibility (PDMR) Regime is to ensure the LSE is perceived to be a fair and orderly market.
The PDMR Regime does not prevent directors’ dealings, although it does attempt to restrict dealings during the closed periods (when there is a greater risk of insider dealing).
Two firms offer services to a client. Firm A offers services in US trade bills and soybean options. Firm B offers services in US treasury bills and options on silver.
Which of the following is true?
A. Firm A would not need to be authorised by the FCA for either product. Firm B would need to be authorised by the FCA for both products
B. Both firms would need to be authorised by the FCA for the bills, but not for the options
C. Firm A would need to be authorised by the FCA for the US trade bills only and Firm B would need to be authorised by the FCA for both products
D. Both firms would need to be auth
A. Options on soybeans are not specified investments, so no authorisation is needed to provide services in those. Options on precious metals (including silver), however, are specified. Although debt instruments are generally considered specified investments, trade bills are specifically excluded from authorisation in the Regulated Activities Order.
Which of the following would the FCA not consider acts of misconduct subject to disciplinary proceedings?
A. An employee failing to comply with the firm’s own policy of independence
B. Providing false or misleading information to the FCA outside of an FCA investigation
C. Acting in such a way as to cause another approved person to be in breach of the FCA rules
D. Dealing ahead of the firm’s research where the research is intended for the firm’s use only
D. Research that is not intended for the clients of a firm is not covered by the FCA rules so would not be a breach.
Who is the Tax and Chancery Chamber of the Upper Tribunal set up by?
A. Financial Ombudsman Service
B. His Majesty’s Treasury
C. Financial Services Compensation Scheme
D. The Ministry of Justice
D. The Ministry of Justice sets up and runs the Upper Tribunal.
If a client has provided insufficient information for a firm to assess suitability, which of the following is a firm, engaged in designated investment business, permitted to do?
A. Deal on a non-advisory basis for the client on their instruction
B. Provide a personal recommendation on the information received
C. Report the client to the Financial Conduct Authority
D. Provide a personal recommendation following a risk warning
A. If insufficient information has been provided, a personal recommendation cannot be provided. Therefore, dealing on a non-advisory basis is the best answer.
Which of the following is TRUE in regard of the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC) in the FCA Handbook?
A. Firms must take reasonable care to organise and control its affairs responsibly and effectively
B. Firm should vest responsibility for an effective and responsible organisation in specific named directors and senior managers
C. It creates a common and binding platform of systems and controls for both scope and non-scope firms
D. These arrangements, processes and mechanisms must be comprehensive and applied equally across affected firms
A. Firms must take reasonable care to organise and control its affairs responsibly and effectively. This is true.
Firm should vest responsibility for an effective and responsible organisation in specific directors and senior managers, but not necessarily ‘named’. A stated role or position is sufficient.
SYSC creates a common and binding platform of systems and controls for scope firms (those covered by MiFID and or the CRD). Non-scope firms should treat the book as guidance, not binding rules.
These arrangements, processes and mechanisms must be comprehensive and proportionate to the nature, scale and complexity of a firm’s activities, not equally across firms.
According to the Conduct of Business Rules, when an appointed representative communicates a financial promotion, who ultimately bears responsibility for that communication?
A. The appointed representative communicating the promotion
B. The authorised firm that approves the promotion
C. The product provider if different from the approving authorised firm
D. The person who confirms compliance of the financial promotion
B. Responsibility for the communication remains with the authorised firm, even if communicated by an appointed representative.
VSF plc is an investment bank that, amongst other things, offers structured products via intermediary firms to clients. One such structured product offers investors a guaranteed minimum 20% yield with a 75% capital guarantee, so long as the investment is held for a minimum of five years.
ABP Ltd is an advisory firm, concentrating primarily upon elderly investors. ABP Ltd has recently started selling VSF products, including the structured product mentioned above, and has also recently implemented a remuneration scheme for its sales staff offering to pay them a cash incentive worth 20% of all commission received from selling any VSF product for the next three months.
From the point of view of VSF plc, which of the following is the most ethically relevant consideration? The fact that ABP Ltd is:
A. Incentivising its sales team to sell VSF products, rather than those of other investment banks
B. Selling products on a commission basis
C. Selling this particular structured product, given its investor base
D. Encouraging its sales team to sell this commission-based product by offering them a cash incentive risks commission bias
C. Make sure you read the question carefully - you are asked to consider VSF’s point of view. The structured product created by VSF is obviously a medium- to long-term investment. VSF should therefore not be comfortable with the fact that this product is being marketed to elderly investors. Whilst it is certainly true that the cash incentive bonus risks commission bias, this is the ethical concern most relevant to ABP, not to VSF.
Principle 6 of the Principles for Businesses is Customers’ Interests. Who is protected by this principle?
A. Retail clients only
B. Retail clients and professional clients only
C. Retail clients and professional clients for their MiFiD business
D. Retail clients, professional clients and eligible counterparties
B. In the Principles of Business a CUSTOMER means Retail and Professional Clients, regardless of the business transacted with them. A Client in the Principles also covers Eligible counter parties.
