U2: T18 - REGULATING FIRMS AND INDIVIDUALS Flashcards
What is Part 4A permission?
Permission under Part 4A of the Financial Services and Markets Act 2000 to carry out specified regulated activities.
One of the reasons why direct investment in shares is considered higher risk is because it is not classified as a regulated investment.
True or false?
False. Investment in shares is a regulated investment.
When assessing whether a person is fit and proper to perform a senior management function, the FCA requires that particular attention be given to certain factors.
Which of the following is not a factor that the FCA requires to be considered?
a) Whether the person has obtained a relevant qualification.
b) Whether the person has undergone or is undergoing training.
c) Whether the person possesses a relevant degree of competence.
d) Whether the person has worked in the financial services industry for at least five years.
Answer is D)
There is no need to pay attention to how long someone has worked in the industry; an individual may have worked in the industry for many years but have a poor track record, while an individual who is new to the industry may have good credentials.
Which one of the following job applicants is least likely to meet the FCA ‘fit and proper’ requirements?
a) George, who has recently been made redundant from a firm of independent financial advisers.
b) Irene, who currently has an authorised overdraft limit of £2,000.
c) Francois, whose father’s house was taken into possession by the lender three years ago.
d) Yvette, who has missed her last two mortgage payments following a divorce.
Yvette. The ‘fit and proper’ requirements include a check of financial soundness, and missing mortgage payments would have adversely affected Yvette’s credit rating.
What was the main reason behind the introduction of the Senior Managers and Certification Regime in 2016?
The regime was introduced in order to clarify responsibilities within a firm, thus making it easier to hold individuals to account for a particular failing. Prior to its introduction, the FCA and PRA had found it difficult to determine individual responsibility when seeking to take action against firms in the financial services industry.
An employee is being reviewed to ensure they are maintaining their competence, as required by the TC sourcebook.
What three areas will the review focus on?
The employee’s:
- technical knowledge and application;
- skills and expertise;
- understanding of changes in the market and to products, legislation and regulation.
What is a ‘fixed portfolio’ firm?
A ‘fixed portfolio’ firm is one that has a large number of customers and the potential to have a major impact on the market; it receives the highest level of supervision, involving continuous assessment and a designated individual supervisor.
If the FCA discovers a contravention of its rules, one of the steps it may take is to vary a firm’s permissions.
This means that:
a) the firm may no longer be able to carry out one or more of its regulated activities.
b) the firm will be required to sell assets to provide restitution.
c) the firm will need to seek authorisation from a different regulator.
d) the firm will be required to submit each sale to the FCA for approval.
The firm may no longer be able to carry out one or more of its regulated activities.
In relation to the FCA’s enforcement powers, what is the difference between ‘restitution’ and ‘redress’?
Restitution refers to the FCA’s power, with a court order, to require an person or firm to forfeit any profit made as a result of contravening an FCA rule. Redress applies to a situation in which an identifiable customer has made a loss as a result of a contravention of an FCA rule; the FCA, with a court order, can require that the loss be made good.
Whose rights are protected by the Public Interest Disclosure Act 1998?
a) Shareholders who oppose directors’ remuneration packages.
b) Employees who raise concerns about breaches of regulation or other misconduct.
c) Bank/building society deposit account holders in the event of a provider becoming insolvent.
d) MPs who raise concerns about financial services providers in Parliament.
Answer is b)
Employees who raise concerns about breaches of regulation or other misconduct. (See Topic 17 for more details on the Public Interest Disclosure Act 1998.)
Why is regulatory attention focused on fixed portfolio firms?
Fixed portfolio firms are those that have the greatest impact on consumers and the financial services marketplace, therefore the FCA directs most of its resources to supervising these firms.
A firm has taken disciplinary action against a senior manager for a breach of FCA conduct rules. Within what period must the firm report the breach to the FCA?
a) 7 days.
b) 10 days.
c) 14 days.
d) 28 days.
a) 7 days.
Which of these roles would not be subject to the FCA Tier 1 conduct rules?
a) Mortgage adviser.
b) Claims manager.
c) New business assistant.
d) IT technician.
d) IT technician.
Which of the following is not an FCA-regulated activity?
a) Accepting deposits.
b) Debt collecting.
c) Foreign currency exchange.
d) Mortgage administration.
c) Foreign currency exchange.
Misha started a role as a trainee investment adviser with a firm of independent financial advisers in 2020, but left after 9 months to move into retail management. She started a trainee investment adviser role with another firm in January 2022. By when must Misha pass an appropriate qualification?
a) March 2024.
b) December 2025
c) March 2026.
d) December 2026.
Misha’s previous time in the role counts as part of the 48-month deadline.
FCA rules require a firm to seek references from previous employers before an individual can be appointed to a senior manager or certification function. The references must cover what period?
a) The last 3 years.
b) The last 5 years.
c) The last 6 years.
d) The last 10 years.
c) The last 6 years.
The Senior Managers Regime includes four specific conduct rules for those covered by the regime. Which one of those rules is incorrectly stated below?
a) SM1: take reasonable steps to ensure that the business of the firm is controlled effectively.
b) SM2: take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
c) SM3: 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 responsibilities effectively.
d) SM4: disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
a) SM1: take reasonable steps to ensure that the business of the firm is controlled effectively.
SM1 should read: you must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
Which of the following is not an FCA enforcement power?
a) Withdrawal of a permitted activity.
b) Prosecution.
c) Seek an injunction.
d) Redress.
b) Prosecution.
Geoff is a financial adviser, specialising in non-MiFID investments. For how long must Geoff’s firm keep records of his training and competence after he leaves the firm?
a) As long as the firms deems to be appropriate.
b) At least three years.
c) At least five years.
d) Indefinitely.
b) At least three years.
Jeremy’s firm is assessing his fitness and propriety and is considering his complaints record. Which element of the test would this be considering?
a) Capability.
b) Competence.
c) Financial soundness.
d) Honesty, integrity and reputation.
d) Honesty, integrity and reputation.
Compliant Finance is a small firm of advisers that have been categorised as a flexible portfolio firm for supervision purposes. This means that the firm:
a) Is able to add new regulated activities without seeking permission.
b) Is supervised by a named individual.
c) only deals with retail customers.
d) is supervised through the FCA customer contact centre.
d) is supervised through the FCA customer contact centre.
Which of the following would not be considered regulated investments by the FCA?
A) Securities
B) Contractual investments
C) Physical investments (e.g. bar of Gold)
C) Physical investments (e.g. bar of Gold)
The FCA defines 2 key categories of regulated investment:
1) Securities (such as shares, debentures and gilts);
2) Contractually based investments (including life policies, personal pensions, options and futures)
The activities for which firms must be authorised were first listed in:
A) Financial Services and Markets Act 2000 (Regulated Activities) Order 2000
B) Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
C) Financial Services and Markets Act 2000 (Regulated Activities) Order 2002
B) Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
Often referred to as the Regulated
Activities Order (RAO).
The activities for which firms must be authorised were first listed in:
A) Financial Services and Markets Act 2000 (Regulated Activities) Order 2000
B) Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
C) Financial Services and Markets Act 2000 (Regulated Activities) Order 2002
B) Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
Often referred to as the Regulated
Activities Order (RAO).
Who is the SM&CR (Senior Managers and Certification Regime) not applicable for?
A) Banks
B) Building Societies
C) Mortgage advisors
D) Credit Unions
C) Mortgage advisors
What was implemented in the aftermath of the 2007–09 financial crisis following criticism of the regulators approved persons regime by the Parliamentary Committee on Banking Standards?
1) FSMA 2012
2) SM&CR
3) Basel III
2) SM&CR
What type of portfolio firm is described by:
“The vast majority of firms present a lower level of risk and are classed this way. These firms are supervised through a mixture of targeted supervisory work depending on the markets they operate in and programmes of communication and education.”
A) Fixed Portfolio
B) Flexible Portfolio
B) Flexible Portfolio
Under the FCA’s 3 Pillars of supervision what type of supervision is best described by:
“Pre-emptive identification of harm through review and assessment of firms and portfolios: this includes business model analysis and reviewing the drivers of culture”
A) Proactive Supervision
B) Reactive Supervision
C) Issues and products
A) Proactive Supervision
Under the FCA’s 3 Pillars of supervision what type of supervision is best described by:
“Dealing with issues that are emerging or have happened to prevent harm growing”
A) Proactive Supervision
B) Reactive Supervision
C) Issues and products
B) Reactive Supervision
Under the FCA’s 3 Pillars of supervision what type of supervision is best described by:
“Wider diagnostic or remedy work where there is actual or potential harm across a number of firms”
A) Proactive Supervision
B) Reactive Supervision
C) Issues and products
C) Issues and products
Records for non-MIFID business competence training must be kept for:
A) At least 3 years
B) at least 5 years
C) Indefinitely
A) At least 3 years
All records relating to the training
and competence of individual employees must be retained for specific minimum periods of time after the person ceases to carry out the activity or leaves the company.
- at least three years for individuals carrying out non-MiFID business;
- at least five years for individuals carrying out MiFID business;
- indefinitely for individuals carrying out pensions transfer business.
Records for pension transfer business competence training must be kept for:
A) At least 3 years
B) at least 5 years
C) Indefinitely
C) Indefinitely
Records for MiFID business competence training must be kept for:
A) At least 3 years
B) at least 5 years
C) Indefinitely
B) at least 5 years
