Last Minute Study / Past Paper Questions / AI Questions Flashcards
What are the FCA operational and strategic objects
Strategic:
1. Ensure relevant markets function well
Operational:
1. Consumer Protection Objective
2. Integrity Objective
3. Competition Objective
What is the PRAs strategic objective and insurance objective
The PRA has been given a single general objective of promoting the safety and soundness of PRA authorised persons
Insurance objective relates to contracts of insurance and is: secure an appropriate degree of protection for policy holders.
What are the specified activities under RAO?
- Deposits
- Electronic Money
- Rights under Contract of Insurance
- Shares
- Debentures
- Government and Public Securities
- Warrants (instruments given entitlements to securities)
- Certificates representing certain securities
- Units in a CIS
- Rights as a stakeholder pension scheme
- Rights under a personal pension scheme
- Options
- Futures
- CFDs
- Llyods syndicate capacity and syndicate membership
- Rights under funeral plan contract
- Home finance transactions
- Credit Agreements
- Consumer hire agreement
- Greenhouse gas emission allowance.
- Rights to or interest in specified investments.
Focus on remebering deposits, contract of insurance, shares, units in CIS, options, futures, home finance, emmsion allowances.
Which of the following is an excluded activity and, hence, does not require authorisation under
FSMA?
A. Safeguarding and administering investments
B. Dealing on an agency basis
C. Dealing as principal in connection with an employee share scheme
D. Accepting deposits
C - Dealing as principal in connection with an employee share scheme is an excluded activity and so does
not require authorisation.
Which of the following are specified investment under the Regulated Activities Order?
A. A cash deposit held with a bank
B. Trade bills, cheques and other bills of exchange
C. Commodity futures for commercial purposes
D. Buying foreign currency for a foreign holiday
A - Commodity futures for commercial purposes, trade bills, cheques and other bills of exchange and products and FX spot transactions (such as the buying of foreign currency for a holiday or trip) are NOT
part of the list of specified investments.
The RAO excludes futures agreed for commercial purposes as opposed to those made for investment/speculative purposes.
Which of the following are statutory notices?
A. Warning, decision and supervisory notices
B. Warning, decision and final decision notices
C. Warning, decision and discontinuance notices
D. Supervisory, discontinuance and final decision notices
A - The FCA publishes statutory notices on its website that comprise warning, decision and supervisory notices. Notices of discontinuance and final notices are deemed non-statutory for the purposes of the DEPP part of the FCA Handbook and are not published on the FCA website.
Which of the following instruments are caught under the insider dealing legislation?
A. Debt securities
B. Private Companies
C. Spot Foreign Exchange
D. Bank account and savings account
A - Debt securities are caught under the insider dealing legislation; however, the other three options are not in scope – ie, MiFID financial instruments.
The Guidance provided by the Joint Money Laundering Steering Group (JMLSG):
A. has been approved by the FCA and forms part of the Handbook
B. is mandatory for all investment firms
C. is approved and published by the FCA and the PRA
D. highlights best practice that has been approved by the Treasury
D - Guidance provided by the JMLSG is not approved by the FCA or the PRSA. The JMLSG guidance is not mandatory; it is industry guidance provided on best practices within the financial services sector.
One of the two broad reasons for the JMLSG customer due diligence requirements is to help the firm be satisfied that the customer is who they say they are and there are no legal reasons preventing the relationship; the other reason is to:
A. identify the customer or beneficial owner
B. obtain verification of the beneficial owner and conduct additional checks
C. assist law enforcement
D. obtain information about the intended nature of the business relationship
C - as it is one of the two broad reasons. The other answers are the three aspects to CDD at the outset of a new business relationship.
Which tier imposed by the Information Commissioner’s Office (ICO) is correct for the higher maximum penalty?
A. £3.8 million or 4%
B. £5.2 million or 2%
C. £8.7 million or 2%
D. £17.5 million or 4%
D - There are two tiers of penalty that the ICO can impose – the higher maximum penalty and the standard maximum:
* The higher maximum amount is £17.5 million or 4% of the total annual worldwide turnover in the preceding financial year, whichever is higher. In practice, the higher maximum amount can apply to any failure to comply with any of the data protection principles, any rights an individual may have or
in relation to any transfers of data to third countries.
* The standard maximum may be applied where there are infringements of other provisions, such as administrative requirements of the legislation. The standard maximum is £8.7 million or 2% of the total annual worldwide turnover in the preceding year, whichever is higher.
If a firm is carrying on activity on an eligible counterparty basis, which of the following rules applies to them?
A. Best execution
B. Client order handling
C. Conflicts of interest
D. Client agreements
C - Options A, B and D are disapplied for eligible counterparties (COBS – Annex 1) business. The conflicts of interest rules (SYSC 10) are applicable to all authorised/regulated firms
Why is a commodity derivatives dealer classified as a per se professional client?
A. Commodity derivatives are MiFID financial instruments
B. The activity is conducted by way of business
C. The dealer is an investment firm
D. The dealer is unable to qualify as a retail client
C - Clients that are investment firms are, by default, classified as per se professional clients. The dealer does not have to ‘qualify’ for re-classification to retail client; they could request this in order to obtain greater regulatory protection
In relation to non-MiFID business, which of the following retail clients may be suitable for reclassification as an elective professional client?
A. A newly appointed trustee of a trust exceeding €500,000
B. A client to whom the firm regularly sends financial promotions for non-mainstream investment opportunities
C. A client who has recently inherited a sizeable portfolio
D. The spouse of one of the firm’s investment managers
B - For non-MiFID business, clients whom the firm assesses as capable of making their own investment decisions can be reclassified as elective professional clients. If a firm considers a client sufficiently sophisticated that the firm is able to promote non-mainstream investments to them, that client is likely to satisfy the qualitative assessment for an elective professional client. The other examples do not give any indication of investment expertise.
Which of the following is a retail investment product?
A. Home income plan
B. Occupational pension scheme
C. Unit in a collective investment scheme
D. Commodity derivative
C - A unit in any type of collective investment scheme, whether or not the scheme is regulated, is classed as a retail investment product
Which of the following statements is TRUE about a client that is an eligible counterparty for executing orders?
A. If the client requires investment advice they will be classified as a per se professional client for that service
B. The eligible counterparty status provides the client with regulatory protection for the execution of orders
C. The firm must conduct both qualitative and quantitative assessments on the client before executing orders
D. The firm is only required to conduct a qualitative assessment on the client before executing orders
A - An eligible counterparty only has that classification in relation to eligible counterparty business, such as the execution of orders. If the client requires another service such as investment advice, they will be classified as a per se professional client for that service. Eligible counterparties have little or no protection under the regulatory system. Options C and D are only relevant for retail client reclassification
What are the retail investment products?
(a) a life policy; or
(b) a unit; or
(c) a stakeholder pension scheme
(d) a personal pension scheme (including a group personal pension scheme);
(e) an interest in an investment trust savings scheme; or
(f) a security in an investment trust; or
(g) any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset; or
(h) a structured capital-at-risk product;
Which of the following is TRUE in relation to the rules on disclosure of costs and associated charges for MiFID business?
A. They apply to retail and professional clients
B. Commissions have to be shown separately
C. All fees, commissions and charges must be disclosed by the firm
D. A firm has to disclose any taxes payable via the firm
C - The disclosure of costs and charges has to be made to retail clients. Commission charges/costs must be itemised separately.
A firm has to disclose all related fees, commissions, charges and expenses and any taxes payable via the firm.
The FCA removed the requirement for professional clients and ECPs – although they could request for this information, and a firm would need to decide whether to provide based on commercial decisions, as it is not a regulatory requirement.
In which of the following circumstances does a firm have to send a suitability report?
A. If the recommendation is to increase a regular premium to an existing life insurance contract
B. If the recommendation is for a client to undertake a pension transfer
C. If the firm is acting as an investment manager for a retail client and recommends a regulated collective investment scheme (CIS)
D. If the recommendation is to make a further investment into an existing packaged product
B - the other options are all exempt from the requirement to send a suitability report.
In which of the following circumstances do the rules on appropriateness apply?
A. Personal recommendation to a retail client to purchase a UK-authorised collective investment scheme
B. Retail client responding to a direct offer financial promotion to deal in warrants
C. Discretionary portfolio management for a retail client
D. Personal recommendation to a professional client to invest in a hedge fund
B - The rules on non-advised sales (appropriateness) apply to a range of MiFID and non-MiFID investment services which do not involve advice or discretionary portfolio management.
In which of the following circumstances is an appropriateness assessment required?
A. Portfolio manager making a discretionary decision to deal
B. Financial adviser who advises a client to invest in a UK-authorised CIS
C. Private wealth manager who advises a professional client to invest in a hedge fund
D. A firm transmitting an execution-only order in a security admitted to trading on a authorised investment exchange (RIE)
D - Options A, B & C would require the firm to undertake a suitability assessment. Whereas option D is captured by the requirement for the firm to complete an appropriateness assessment because it is providing an MiFID investment service
Which of the following is one of the FCA’s Consumer Duty ‘outcomes’ that firms must comply with?
A. Communications outcome
B. Treating customers fairly outcome
C. Price outcome
D. Consumer understanding outcome
D- because the four outcomes in the Consumer Duty are the:
* Products and Services Outcome
* Price and Value Outcome
* Consumer Support Outcome, and
* Consumer Understanding Outcome.
What are the 4 Consumer Duty (PRIN 12) outcomes?
- Products and Services Outcome
- Price and Value Outcome
- Consumer Support Outcome, and
- Consumer Understanding Outcome.
How often must a firm internally reconcile client assets tak8ng the standard approach?
A. Everyday
B. Monthly
C. As often as is necessary
D. At whatever frequency is requested by the client
C - It is up to a firm to decide the necessary frequency of completing reconciliations of safe custody
accounts.
What is the maximum amount of monetary award against an authorised firm that the Financial Ombudsman Service (FOS) can make?
A. £85,000
B. £170,000
C. £375,000
D. £415,000
D - The maximum monetary amount that the FOS can award against a firm is £415,000. For complaints about acts or omissions by firms on or after 1 April 2019 and which are referred to the FOS on or after 1 April 2023.
Why does the Money Laundering Reporting Officer (MLRO) have responsibility for the training of staff in relation to identifying money laundering activity?
A. Compliance officers require MLROs to undertake this function
B. It is required by the JMLSG
C. It is required by the FCA
D. It is required by the Proceeds of Crime Act
C - The MLRO’s responsibility is derived from a firms responsibility to have appropriate systems and controls.
When a firm gives permission to an employee to undertake a personal account transaction it must:
A. promptly notify the FCA
B. promptly notify the employee
C. receive prompt notification that the transaction has been conducted
D. obtain permission from the FCA
C - Personal account dealing rules require details of the transactions undertaken to be notified to the firm promptly so that it keeps record of these personal transactions.
Which of the following is true with regards to the Inducements rules for MiFID business?
A. Minor non-monetary benefits do not need to be disclosed to retail clients
B. The requirements apply to activities undertaken with a client classified as an ECP
C. Firms are not required to provide detailed disclosure to clients, even when requested
D. Minor non-monetary benefits must be capable of enhancing the quality of service provided by the firm to the client
D - The inducements rules should be seen as payment rules as they prohibit any payment, unless expressly permitted. The rules on inducements apply to firms carrying on designated investment business which is MiFID business as well as non-MiFID business. The rules only apply to professional clients and retail clients; therefore, investment firms undertaking ECP business will not be subject to the detailed inducement provisions
A minor non-monetary benefit is one which:
* is clearly disclosed prior to the provision of the relevant service to the client is capable of enhancing the quality of service provided to the client
* is of a scale and nature that it could not be judged to impair the firm’s compliance with its duty to act honestly, fairly and professionally in the best interests of the client
Firms can satisfy their disclosure obligations under these rules if they:
* disclose the essential arrangements for such payments/benefits in summary form undertake to their client that further details will be disclosed on request, and
* do, in fact, give such details on request
Which of the following is true of persons discharging managerial responsibilities under UK MAR?
A. Notifications must be made promptly
B. Notifications must be made within 7 days
C. There are no restrictions relating to the pending announcement of a firm’s annual or interim results
D. The FCA must approved all transactions 30 days prior to the company’s annual or interim results being announced
A - the notification must be made promptly after the transaction/s has been executed.
The Proceeds of Crime Act (POCA) 2002 includes provisions related to which of the following?
A. The offence of market abuse
B. The offence of making false and misleading statements
C. The protection of persons who inform authorities of their concerns
D. The requirement to disclose suspicious money laundering transactions
D - POCA is concerned with laundering the proceeds of criminal activities
When must a firm normally send a written confirmation after carrying out an order for a retail client?
A. The same business day
B. No later than the next business day
C. Within three business days
D. Within five business days
B - For retail clients, the trade confirmation must be sent as soon as possible and no later than the next business day.
In relation to the FCA’s complaints handling requirements, which of the following is TRUE?
A. The complaint must be dealt with at the firm by an individual involved in the original matter
B. The firms is not obliged to advise the complainant of their rights to take the complaint to the FOS
C. The firm’s procedures for the receiving of eligible complaints apply to complaints received by both oral and written notification
D. The firm must maintain a document on its internal procedures for dealing with complaints. However, it is only required to provide this to clients/complainants when requested to do so
C - Customer complaints procedures apply to complaints received orally or in writing
Which of the following is TRUE in connection with a MiFID firm communicating with retail clients?
A. The firm’s name must be included in the communication
B. The information can highlight benefits without having to highlight risks
C. Financial promotions must name the FCA or PRA as the firm’s regulator
D. Where comparisons are made, the source of the information does not have to be identified
A - The firm’s name must be included in communications.
The rules on personal account dealing do not apply to which of the following?
A. Options
B. Overseas markets
C. Life policies
D. Initial Public Offerings (IPOs)
C - The rules on personal account dealing do not apply to personal transactions in life policies.
Under the Consumer Duty Cost-Cutting rules, which of the following applies regarding a firm’s requirement to avoid causing foreseeable harm to retail consumers?
A. All retail customers must be protected from all risks associated with buying a firms product or service
B. Firms are prohibited from talking a commercial view to profiting from retail consumers on new products and services
C. Firms must ensure that retail consumers understand and accept the inherent risk associated with their product or service
D. Firms must ensure that all products or services sold to retail consumers are designed to meet their financial needs and requirements
C - because Firms must ensure that retail customers understand and accept the inherent risk in products, Firms do not have a responsibility to protect customers from all foreseeable harm and customers must understand and accept inherent risks associated with products (which must be presented in a manner by firms that is clear, fair, not misleading and transparent).
A firm is permitted to deal for itself prior to the publication of a research recommendation under which of the following circumstances?
A. It anticipates customer demand
B. It is a market maker acting in good faith
C. The market price is likely to be unaffected by publication
D. The firm’s documentation states that it may deal ahead of publication
B - Exceptions to the restriction on trading ahead of the publication of research include execution-only client orders and market makers acting in good faith.
Which of the following is true of the restrictions on the promotion of certain financial instruments to retail clients?
A. There are no bans or restrictions on firms to incentive retail clients to invest or purchase high risk investments
B. It relates to the sale of ‘Non-Mass investments’
C. Only ‘Restricted Mass Markets Investments’ can be marketed and sold to Professional Clients
D. Risk warnings can be generic and be available on the firm’s website
B - From 1 December 2022, rules related to risk warnings for financial promotions of high-risk investments apply, in particular:
* Promotion of ‘Non Mass Market Investments’ (NMMI) is banned to retail investors.
* Promotions of ‘Restricted Mass Market Investments’ (RMMI) are subject to certain restrictions to retail investors
* Banning incentives to invest – i.e. the provision of monetary or non-monetary benefits such as refer a friend or new joiner bonuses
* Personalised risk warnings.
* Investors with a firm must be provided with a personalised risk warning – it must include the client’s name.
What must firms be subject to to be classified as a Common Platform Firm?
Firms subject to either the Capital Requirements Directive (CRD) or the Markets in Financial Instruments Directive (MiFID).
What does DTR stand for?
Disclosure and Transparency Rules (DTR).
Contained in the FCA’s DTR Sourcebook. The rules apply to issuers of securities on certain markets and aim to ensure that information is properly handled
Who are the Joint Money Laundering Steering Group (JMLSG)?
A group whose membership is made up of trade bodies in the financial services sector. The JMLSG has published guidance notes which set out how
firms should interpret and implement the Money Laundering Regulations. This guidance is not binding but, where there is a breach, compliance
with the guidance
What is a nominated officers (NO)?
A term for the officer who is required to receive a firm’s internal suspicion reports under the Proceeds of Crime Act (POCA), the Terrorism Act and the Money Laundering Regulations. In practice, this is usually the same individual as the money laundering reporting officer (MLRO)
What is the Public Interets Disclosure Act (PIDA) 1998?
Realtes to whisleblowing. Among other things, this provides protection for employees who, in good faith, disclose suspicions of wrongdoing within an organisation. Firms cannot retaliate against its staff and must have suffienet procedures in this and appoint a whilsterblower champion.
Who are the Regulatory Decisions Committee (RDC)?
- An (almost) independent committee (part of the FCA board) make the certain regulatory decisions.
- The committee reviews evidence presented by both FCA staff and the firm or individual in question, providing an unbiased judgment on matters like sanctions, warnings, and disciplinary actions.
- The RDC can refuse/revoke Part 4A permission and give prohibition orders. Essentially the FCA’s final decision maker on enforcement.
- They can set policies around regulated activities and make Part 4A changes.
The PRA use the Enfrocement Decision Making Committee (EDMC).
What is the UK European Market Infrastructure Regulation (UK EMIR)?
The European Market Infrastructure Regulation (EMIR) on derivatives, central counterparties and trade repositories came into force in 2012. UK EMIR became applicable on 31 December 2020, following the end of the Brexit transition period.
The UK EMIR is where you report derivative transactions.
What is Short Selling Transaction Reporting (UK SFTR)?
- Regulated by the FCA though the EU Short Selling Regulations (SSR) and the amendment though the EU Exit Regulation 2018.
- Need to report your transactions if you are net short.
What is the punishment for breaching genereal prohibition?
2 years jail and unlimited fine. All previius agreements are unenforceable.
Defense: they took all reasonable precautions when performing due diligence
What is a prohibition order?
- The FCA/PRA can issue a prohibition order to stop an entity from performing a function.
- Breach of order is a fine.
- You can apply to varied or revoked.
- Defense: they took all reasonable precautions when performing due diligence
What are the three types of customer due diligence (CDD) requiremetns set out by the JMLSG Guidance?
- ID Customer/Beneficial Owner
- Get Verification of their ID
- Get information about the intended nature of their business.
When would you need to carry out an appropriateness test?
Non-advised sales apply to a range of MiFID (and some non-MiFID) investment services which do not involve advice or discretionary portfolio management.
It occurs when a cleint is is wanting to do a non-advised transaction. It should cover the clients knowledge regarding service/transaction type, nature, volume, frequency in transactions, level of education.
Firms don’t need to ask for this test if
* they are execution only
* client is insistant
* tested already for the same client doing the same type of transaction
What should a firm do if a client does not pass the appropriateness test?
They should warn its not appropriate
What is the difference between compulsory jurisdictions (CJ) and voluntart juristiction (VJ) in reagards to the Financial Ombudsmen Service (FOS)
CJ relates to FCA authorised firms where its compulsory for unresolved complaints to be brough to the FoS.
Vj refers to when a firm opts into being in an agreement with the FOS, becoming VJ participants.
What are the Penalties for Market Abuse Offenses
UK MAR penalties
Conviction: 1 year jail and limited fine
Conviction on Inducement: 10 year jail and a fine
Pubilic Censure
What are the penalties for breaching the proceeds of crime act? (i.e. relation to criminal property, tipping of a person with a SAR report against them), disclosure failere)
- 14 years in jail and a fine for Concealment, Arrangement, Acquisition.
- 5 years in jail and a fine for failing to disclose.
- 2 years in jail and a fine for tipping off.
What are the penalties for bribing?
10 year jail for the indivdual.
Corporate offence is an unlimtied fine.
What are the 4 forms of market manipulation?
- Manipulating Transactions
- Manipulating Devices
- Dissemination
- Benchmark manipulation
What should be known by managers/ Persons discharging managerial responsibilities
Managers Transactions (UK MAR Section 19)
They (and their connected persons) are required to disclose personal transactions in relation to their firms issuance.
These notifications must be made promptly after the transactions and can only be made 30 calendar days before the companies interim or annual financial report.
What is the primary purpose of the FCA’s client suitability requirements?
A. To maximize firm profits
B. To ensure clients receive advice tailored to their needs
C. To guarantee clients achieve high returns
D. To simplify financial product offerings
B
How does the FCA define “suitability” in the context of financial advice?
A. Recommending high-yield investments
B. Matching a product or service to a client’s needs, goals, and risk tolerance
C. Promoting low-risk products to all clients
D. Following industry trends without individual assessment
B
Why is it important for firms to comply with client suitability requirements?
A. To avoid FCA audits
B. To protect clients and maintain trust in the financial industry
C. To prevent competitors from gaining an advantage
D. To comply with international trade agreements
B
What key factors must firms consider when assessing the suitability of a product for a client?
A. Product popularity and commission fees
B. Client’s age, financial situation, goals, and risk tolerance
C. Market trends and competitor offerings
D. Past performance of similar products
B
How should a firm evaluate a client’s investment knowledge and experience?
A. By assuming all clients are inexperienced
B. By reviewing their portfolio size only
C. By asking targeted questions about their past investment activities and understanding of risks
D. By analyzing their income levels
C
What steps must firms take to ensure a product aligns with a client’s risk tolerance?
A. Offer only low-risk products
B. Conduct a detailed risk assessment and confirm the client understands the associated risks
C. Encourage the client to take more risk for potential higher returns
D. Avoid assessing risk tolerance if the client is confident
B
What are the FCA’s expectations regarding the documentation of suitability assessments?
A. Firms are not required to document suitability assessments
B. Firms must keep comprehensive, accurate, and up-to-date records of all suitability assessments
C. Documentation is only required for high-net-worth clients
D. Firms should only document assessments if requested by the FCA
B
How long must firms retain records of client suitability assessments under FCA rules?
A. 1 year
B. 3 years
C. 5 years
D. 10 years
C
What are the consequences for firms that fail to meet suitability requirements?
A. Loss of clients and reduced profits only
B. Fines, sanctions, and reputational damage
C. Immediate business closure
D. Temporary suspension of services
B
How can firms demonstrate compliance with the FCA’s suitability rules during an audit?
A. By submitting all client complaints
B. By providing documented assessments and evidence of client communication
C. By showing marketing materials used for client acquisition
D. By highlighting their overall profit margins
B
How should a firm handle a situation where a client insists on investing in a high-risk product that doesn’t match their risk profile?
A. Allow the client to proceed without further action
B. Refuse to provide any advice
C. Explain the risks clearly, document the client’s decision, and ensure they understand the potential consequences
D. Encourage the client to choose a safer product instead
C
hat steps should be taken if a client’s financial situation or objectives change significantly?
A. Update the client’s suitability assessment and adjust recommendations accordingly
B. Ignore the changes and continue with the original plan
C. Terminate the client relationship
D. Offer only low-risk products going forward
A
How do FCA suitability requirements interact with MiFID II regulations?
A. They replace MiFID II requirements
B. They are aligned and reinforce the need for suitability assessments
C. MiFID II overrides FCA requirements entirely
D. They apply only to UK firms working in the EU
B
