TOPIC 17 - The FCA's aims and activities

Question 1

The Financial Conduct Authority’s objectives do not include which of the following?

a) Limiting competition in the interests of consumers.

b) Securing an appropriate degree of protection for consumers.

c) Ensuring that relevant financial markets function well.

d) Protecting and enhancing the integrity of the UK financial system.

Answer 1

a) Limiting competition in the interests of consumers.

Question 2

‘A person knowingly gives out false or misleading information in order to influence the price of a share for personal gain’ is a definition of:

a) insider dealing.

b) market manipulation.

c) pecuniary advantage.

d) whistleblowing.

Answer 2

b) market manipulation.

Question 3

Which part(s) of the Financial Conduct Authority Handbook contain(s) binding obligations for firms?

a) Evidential provisions only.

b) Rules and guidance.

c) Rules only.

d) Guidance and evidential provisions.

Answer 3

c) Rules only.

Question 4

Which of the following is false in relation to the fair treatment of customers?

a) It applies to all stages of the product and sales cycle.

b) It requires high-quality advice to prevent mis-sales.

c) It is based on six specific rules.

d) It is the responsibility of senior management in a firm.

Answer 4

c) It is based on six specific rules.

The FCA has six outcomes to ensure fair treatment of customers. These are things a firm should strive to achieve, rather than rules that it must follow.

Question 5

In relation to the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS), which of the following is true?

a) The PRA and the FCA are jointly responsible for the FOS, and the FCA is responsible for the FSCS.

b) The PRA and the FCA are jointly responsible for the FSCS, and the FCA is responsible for the FOS.

c) The PRA is responsible for the FOS and the FCA is responsible for the FSCS.

d) The FCA and the PRA are jointly responsible for both schemes.

Answer 5

b) The PRA and the FCA are jointly responsible for the FSCS, and the FCA is responsible for the FOS.

Question 6

Which body “looks at the economy in broad terms to identify and address risks that may threaten the stability of the whole (or large parts of the) economy”?

a) The Monetary Policy Committee.

b) The Bank of England.

c) The Prudential Regulation Authority.

d) The Financial Policy Committee.

Answer 6

d) The Financial Policy Committee.

Question 7

The main benefit of principles-based regulation is that it:

a) allows firms to take decisions on how to achieve expected regulatory outcomes.

b) provides firms with guidance rather than any specific rules.

c) ensures firms follow the detailed principles contained in the regulator’s rules.

d) provides firms with absolute clarity about the processes they must follow.

Answer 7

a) allows firms to take decisions on how to achieve expected regulatory outcomes.

Question 8

n relation to the FCA’s Principles for Businesses, which of the following is false?

a) The fair treatment of customers is mainly covered by Principle 6 ‘Customers’ interests’.

b) Principle 3 ‘Management and control’ covers the way firms should address risks facing the business.

c) Principle 11 ‘Relations with regulators’ requires a firm to report itself in the event of a breach of FCA regulations.

d) A requirement for firms to consider affordability when advising clients is covered by Principle 4 ‘Financial prudence’.

Answer 8

d) A requirement for firms to consider affordability when advising clients is covered by Principle 4 ‘Financial prudence’.

Principle 4 ‘Financial prudence’ requires firms to maintain adequate financial resources.

Question 9

Which of the following is subject to a specific Conduct of Business sourcebook in the FCA Handbook?

a) Credit unions.

b) Professional firms.

c) Consumer credit.

d) Mortgages and home finance.

Answer 9

d) Mortgages and home finance.

Question 10

Which Act of Parliament saw the creation of a number of new regulatory bodies and the abolition of the FSA?

a) The Financial Services Act 1986.

b) The Financial Services and Markets Act 2000.

c) The Financial Services Act 2012.

d) Bank of England and Financial Services Act 2016.

Answer 10

c) The Financial Services Act 2012.

Question 11

The main driver for changes to the regulatory structure governing financial services that were introduced in 2013 was:
a) the collapse of Barings Bank.
b) the weaknesses exposed by the 2007–09 financial crisis and a number of mis selling scandals.
c) the deregulation of banks and building societies.
d) the need to respond to changes in lifestyle.

Answer 11

b) the weaknesses exposed by the 2007–09 financial crisis and a number of mis selling scandals.

Question 12

The FCA’s role is to identify and address risks that may threaten the stability of the economy as a whole. True or false?

Answer 12

False. This is the key role of the FPC, the Financial Policy Committee.

Question 13

The FCA is the conduct regulator for all firms within the financial services industry and the prudential regulator for
firms that are not considered systemically important. Explain what is meant by:
a) conduct regulation.
b) prudential regulation.
c) systemically important.

Answer 13

a) Conduct regulation requires firms to ensure that products and services they supply to consumers meet the consumers’ needs, and to act appropriately and deal fairly with consumers.

b) Prudential regulation aims to ensure that businesses are established and run on a sound financial basis, to limit the risk of a business failing and to minimise the impact on consumers and the wider economy if a business does fail.

c) ‘Systemically important’ refers to financial institutions that play a key role in the national and global economy. If they were to fail, it would have a significant adverse impact on the national or global financial system.

Question 14

Name the three operational objectives of the FCA.

Answer 14

i) Protecting consumers by securing an appropriate degree of protection;

ii) Protecting financial markets, by protecting and enhancing the integrity of the UK financial system;

iii) Promoting effective competition by promoting effective competition in the interests of consumers

Question 15

What is the difference between ‘rules’ and ‘guidance’ in the FCA Handbook?

Answer 15

Rules impose binding obligations and firms can face sanctions for not complying with them. Guidance explains the rules and indicates ways in which firms can comply but is not binding and firms are not required to
follow it

Question 16

Name four powers that the FCA can exercise in its regulation of business conduct.

Answer 16

Competition powers;
Product intervention powers;
Power of disclosure;
Power to take formal action against misleading financial promotions

Question 17

Which one of the following is not one of the FCA ‘Principles for Businesses’ with which a firm must comply?

A firm must:

a) communicate with customers in a clear manner.
b) conduct its business with integrity.
c) maintain an independent compliance function.
d) observe proper standards of market conduct.

Answer 17

c) maintain an independent compliance function.

Question 18

The FCA Handbook contains a section on redress. This section
of the Handbook is primarily concerned with:
a) sales policy.
b) recruitment standards.
c) maintaining and developing skills and knowledge.
d) complaints and compensation.

Answer 18

d) complaints and compensation.

Question 19

Which of the following is the phrase used by the FCA to summarise its requirements for effective communication
designed to ensure the fair treatment of customers?
Information must be:
a) accurate, up to date and detailed.
b) clear, fair and not misleading.
c) brief, clear and accurate.
d) concise, written in plain English and truthful.

Answer 19

b) clear, fair and not misleading.

Question 20

What are the six outcomes for retail customers that a firm must aim to deliver to demonstrate that it is providing fair treatment to its customers?

Answer 20

 Consumers will be confident that the firms they are dealing with are committed to fair treatment of customers.
 Products are designed to meet the needs of properly identified customer groups.
 Consumers are provided with clear information at all stages, before, during and after a sale.
 Any advice given is suitable for the customer, taking account of their circumstances.
 Products perform as customers have been led to expect, and associated services are of an acceptable standard.
 There are no unreasonable barriers to switching product or provider, making a claim, or complaining.