IAD Level 1 - Mock 5 Flashcards
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 authorised by the FCA for all of these products
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.
A government may wish to keep its budget in balance but still increase aggregate monetary demand by relying on what economic effect?
A. Stabilisation
B. Balanced Budget Multiplier
C. Trade Deficit Reducer
D. PSNCR
B. The balanced budget multiplier is due to the fact that the government spends all the money individuals pay in tax which would otherwise have been saved.
Which of the following would ALWAYS be contained within the key information document?
A. A description of the firm and its services
B. A description of the terms and features of a product
C. A statement of whether the firm is agent or principal
D. A meaningful benchmark against which performance can be matched
B. The KID is a generic product factsheet, telling retail clients about the product they are considering.
The Financial Ombudsman offers voluntary jurisdiction as well as compulsory. Which one of the following may be covered by the voluntary jurisdiction?
A. Providing payments on plastic cards
B. Providing execution only services on securities
C. Safeguarding and the administration of client assets
D. Providing regulated mortgage services as a building society
A. Providing payments on plastic cards is subject to voluntary jurisdiction. Providing mortgages is also voluntary if it were offered by a non-FCA authorised firm. A building society is FCA authorised and therefore subject to compulsory jurisdiction.
A trader at a stockbroking firm has mis-marked the valuation of his open positions in order to hide the losses that he has accumulated over the last two months. This has been possible as the profit and loss reporting system has been replaced with a new system which allows staff to manually input the settlement price of illiquid positions. The head of the trading desk, who commissioned the new system, has now discovered this cover up. In terms of the conduct rules, which rule has the manager possibly breached?
A. Act with integrity
B. Take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
C. Take reasonable steps to ensure that the business of the firm for which you are responsible complies with the regulatory system
D. Observe proper standards of market conduct
B. An approved person failing to supervise and monitor adequately the individual or individuals to whom responsibility for dealing with an issue or authority for dealing with a part of the business has been delegated is in contravention of Senior Manager Conduct Rule 3.
In relation to the best execution rules in the conduct of business sourcebook, is it acceptable for a firm to charge different amounts for conducting the same trade on TWO different execution venues?
A. Yes - provided disclosure is made to the client
B. Yes - provided the difference between the charges represents differences in trading costs on the execution venues
C. No - it is never acceptable
D. No - it is not acceptable when there is only a choice of two venues
B. Yes - provided the difference between the charges represents differences in trading costs on the execution venues.
The COBs state that the firm must not structure its charges or its commissions in such a way as to discriminate unfairly between execution venues.
In respect of the general rules on communications, a firm must disclose which information before providing services?
A. The firm’s name
B. Name of the firm’s representatives
C. The name and address of the regulator
D. Settlement policies
A. The appropriate information needs to be disclosed before providing services in respect of:
- The firm and its services
- Designated investment and proposed investment strategies
- Execution venues
- Costs and associated charges
You are an investment manager with an authorised firm, handling a large and diverse portfolio of clients. Whilst cycling to the office one morning, you cycle past the main factory of BJL, a quoted manufacturing company, and notice that it is being consumed by flames.
Which of the following courses of action is most appropriate for you to take?
A. Do nothing, as to act would be acting upon inside information, which is illegal under the CJA93
B. Advise your clients to sell any shares that they own in BJL as soon as possible
C. Advise your clients to purchase put options on BJL shares as soon as possible
D. Phone your friend, a journalist writing the gossip column for a financial newspaper, and tell her the news
B. The fact that the factory is burning is not ‘inside information’, as it is immediately obvious to anybody passing by. Given that you have a ‘large and diverse portfolio of clients’, it is reasonable to assume that there are many retail clients in your portfolio. Derivative products are considered high-risk investments, and so are unlikely to be suitable for many of your clients. Since the factory is the ‘main’ factory for BJL, it is reasonable to assume that their sales revenue and profits will be hit, at least in the short term, therefore advising your clients to sell in anticipation of a falling share price seems a reasonable action to take.
Even more reasonable, of course, would be to select option E ‘phone the fire brigade’ though unless this is one of the options presented to you then you cannot select it. This reinforces the exam-technique point that you should approach each question at face value, and don’t reject valid options whilst wishing some other ‘real-world’ option was present.
Consider the following roles at an authorised firm.
- Michael supervises Brian who gives advice on pension products to retail clients
- Pauline supervises Alan who executes trades in shares and bonds for retail clients
In respect of the two supervisors only and according to the Training and Competency Sourcebook:
A. Pauline must have 3 years experience
B. Only Michael must have passed an appropriate exam
C. Only Pauline must be competent to perform the role
D. Michael must have appropriate coaching and assessment skills
B. Although Pauline may have to sit an appropriate exam (this if for the firm to decide), Michael MUST. The sourcebook states, “If the employee is advising on packaged products to retail customers the firm must ensure that the supervisor has passed an appropriate examination.” Both Michael and Pauline must be competent and have appropriate coaching and assessment skills. There is no minimum experience requirement to become a supervisor.
Note: both the employees being supervised would need an appropriate qualification under T&C.
With regard to the client money rules, when should shortfalls identified by an internal reconciliation be repaid?
A. At the end of the business day
B. At the end of the next business day
C. Before the end of ten business days
D. Before the end of 25 business days
A. Following reconciliation, any discrepancies that have been identified internally need to be rectified by the close of the business on the day the reconciliation is performed. If it is external reconciliation and there is a discrepancy, the firm must investigate and correct it as soon as possible.
A firm is able to execute a client order on venue A or venue B. If the spread associated with venue A is better, the firm must execute on:
A. Venue A
B. Venue B
C. Neither venue A or venue B
D. Either venue A or venue B provided the cost difference only reflects actual execution cost differences
D. Different prices can only be charged for different venues if the difference reflects the actual execution cost differentials and not, for example, commissions received by the executing broker. The increased execution costs may reflect a better service.
Frances performs the role of CASS operational oversight function at a small investment firm. Which of the following statements is true of her role?
- Statement 1: She must have passed the fit and proper test to perform the function
- Statement 2: She will need to ensure a client money and asset return (CMAR) is made monthly
A. Statement 1 is true and statement 2 is false
B. Both statements are true
C. Statement 1 is false and statement 2 is true
D. Neither statement is true
A. CASS operational oversight is a certification fuction of a firm and the fit and proper test will need to be passed before performing this function. As a small investment firm, only two CMARs per year need to be made to the FCA.
All of the following types of Designated Investment Business carried out for a retail client are covered by the Training and Competency rules EXCEPT:
A. Arranging
B. Dealing
C. Managing
D. Overseeing on a day-to-day basis
A. The Training and Competency rules apply to those advising, dealing, managing, or overseeing for retail clients.
With regard to POCA and the Money Laundering Regulations which of the following statements is FALSE?
A. Mary performs a certification function and suspects, but is not wholly sure, that Jim in another department is involved in money laundering; failure to report would constitute an offence
B. Geoff, in dealings with a clients, informs them that he cannot proceed with business as a suspicion of money laundering has been filed on their account. This is punishable with a prison sentence of up to two years
C. Michael, when processing and accepting client money, knows that the money has come from criminal activity. This is punishable with a prison sentence of up to five years
D. Peter suspects a money laundering activity and does not make a disclosure as soon as practicable. This is punishable with a prison sentence of up to five years
C. The offence Michael could be guilty of is assisting. This is punishable with a maximum penalty of 14 years and not five. Failure to report a suspicion could result in a five-year prison sentence. The penalty for tipping off (Geoff) is a maximum of 2 years in prison.
Which of the following is not a feature of the FCA’s principles-based approach to money laundering in their Senior Management Arrangements, Systems and Controls (SYSC) Sourcebook? Firms should:
A. Establish and maintain effective systems and controls for compliance with JMLSG
B. Be able to identify, assess, monitor and manage money laundering risk
C. Establish measures to ensure that money laundering risk is taken into account in their day-to-day operation
D. Delegate overall responsibility for the establishment and maintenance of effective anti-money laundering systems and controls to the MLRO
A. Although adherence to the JMLSG guidance is taken into consideration by the FCA in any investigation, it is not a requirement of SYSC that firms do so.
