U2: T21 - CONDUCT OF BUSINESS REQUIREMENTS II

Question 1

Ella and Martin’s daughter, Lydia, is in the first year of her three‐year university degree; she is currently in halls of residence but will need to rent accommodation privately next year. Ella and Martin are planning to buy a four‐bedroom house in the university town; Lydia will be able to live there until she completes her degree, and they will get rental income on the other rooms.

If they apply for a mortgage to buy the property, will it qualify as a consumer buy to let?

Answer 1

No – although Lydia will be living in the house initially, Ella and Martin’s primary motivation in purchasing the property is as a business investment. Additionally, if they buy a four‐bedroom house, Lydia will presumably be occupying less than 40 per cent of the property.

Question 2

The Standards of Lending Practice do not apply to mortgages. What is the regulation that covers mortgages?

Answer 2

Mortgages are regulated under the Mortgages and Home Finance Sourcebook (MCOB).

Question 3

A mortgage arranged for which of the following mortgagors would not be a regulated mortgage?

a) Terry and Angel, who are joint borrowers buying their first home.
b) Laszlo and Yuri, who are creating a mortgage in their capacity as trustees.
c) John, who is a sole borrower, trading up to a bigger property.
d) Décor Plus, which is a public limited company.

Answer 3

Answer is D)

The mortgage arranged for Décor Plus would not be a regulated mortgage.

Question 4

Which of the following methods of obtaining new business is not permitted for a regulated mortgage?

a) Cold calling.
b) Mortgage introducers.
c) Radio advertising.
d) TV advertising.

Answer 4

Answer is A)

Cold calling, because it is an unsolicited real‐time promotion.

Question 5

Maurice wants to use the equity in his property by arranging a lifetime mortgage. He wants exactly the same product that his brother has and does not want to waste time considering other options.

Why would it not normally be possible for Maurice to proceed on an execution‐only basis, even though he knows exactly what he wants?

Answer 5

Execution‐only transactions are permitted only for business borrowers, high‐net‐worth individuals and mortgage professionals. Even if Maurice were a high‐net‐worth client, it would not be possible to carry out the transaction on an execution‐only basis because it is not possible to opt out of advice for an equity release scheme such as a lifetime mortgage.

Question 6

Which of the following statements is untrue in relation to the offer document that is produced following a mortgage application?

a) It must contain details of the monthly payments.
b) It must state how long the offer is valid for.
c) It must explain how the customer can withdraw from the contract once the mortgage is completed.
d) It must be accompanied by an up‐to‐date tariff of charges.

Answer 6

Answer is C)

This statement is untrue because it is not possible for a customer to withdraw from the contract once the mortgage is completed.

Question 7

When assessing affordability for a mortgage application, which of the following is regarded as committed expenditure?

a) Repayments on a personal loan.
b) Council tax.
c) Water bills.
d) Costs of travel to work.

Answer 7

Answer is A)

Repayments on a personal loan. The others are examples of basic essential expenditure.

Question 8

To ensure that there is no danger of misrepresenting the policy benefits, an adviser must always provide the product information published by the product provider and allow the customer to make their purchasing decision on the basis of that information.

True or false?

Answer 8

False.

ICOBS 6 requires firms to ensure customers are given appropriate information about a policy; what is appropriate may vary depending on the customer’s knowledge, experience and ability, and the complexity of the product.

Question 9

Eva has just taken out an income protection policy. If she changes her mind and decides she no longer wants this policy, what cancellation rights does she have?

Answer 9

Eva may cancel her policy within 30 days as it is a protection policy.

Question 10

The Standards of Lending Practice are an example of self‐regulation.

True or false?

Answer 10

True

Question 11

A customer who wishes to buy a stakeholder pension product may receive:

a) focused advice.
b) generic advice.
c) information only.
d) basic advice.

Answer 11

d) Basic advice may be provided for stakeholder products.

Question 12

What is the key difference between focused advice and simplified advice?

Answer 12

Focused advice is provided when the customer has set parameters for the areas they wish to discuss. Simplified advice is provided when the adviser sets out specific areas of a customer’s needs for which they are providing advice.

Question 13

Which of the following is true regarding the Payments Services Directive?

a) Banks do not have to give third‑party providers access to accounts in order to carry out transactions.
b) Payments are not covered by the Directive if one of the payment service providers is outside the European Economic Area.
c) In cases not involving fraud or negligence, the maximum a payer can be obliged to pay for an unauthorised payment is €150.
d) Payment service providers must respond to complaints within 15 working days of receipt.

Answer 13

d) Payment service providers must respond to complaints within 15 working days of receipt.

Question 14

Jane’s adviser has explained that they will only provide advice on pensions for her. This is an example of:

a) basic advice.
b) focused advice.
c) simplified advice.
d) generic advice.

Answer 14

c) simplified advice.

Question 15

What type of advice is ‘limited form of advice that applies to stakeholder products.’

A) Basic Advice
B) Focused Advice
C) Simplified Advice
D) Generic Advice

Answer 15

A) Basic Advice

Basic advice is a limited form of advice that applies to stakeholder products. It is focused on one or more specific client needs; it does not involve an analysis of the client’s circumstances that are not directly relevant to those needs. It involves the use of a set of scripted questions to establish whether a stakeholder product within the firm’s range is suitable for the customer.

Question 16

What type of advice is ‘information that does not relate to a particular product or investment and does not meet the characteristics of regulated advice’

A) Basic Advice
B) Focused Advice
C) Simplified Advice
D) Generic Advice

Answer 16

D) Generic Advice

• Advice or information that does not relate to a particular product or investment and does not meet the characteristics of regulated advice
• For example, ‘for most people it is sensible to have adequate financial protection in place’

Question 17

What type of advice is ‘limited advice/at the request of the customer, advice and recommendations relate to specific needs or investments’

A) Basic Advice
B) Focused Advice
C) Simplified Advice
D) Generic Advice

Answer 17

B) Focused Advice

• Where, at the request of the customer, advice and recommendations relate to specific needs or investments
• Also referred to as limited advice

Question 18

What type of advice is ‘limited, by the firm providing it, to one or more of a customer’s needs’

A) Basic Advice
B) Focused Advice
C) Simplified Advice
D) Generic Advice

Answer 18

C) Simplified Advice

• Advice that is limited, by the firm providing it, to one or more of a customer’s needs
• Does not involve analysis of the customer’s circumstances that are not directly relevant to those needs
• This type of advice may be provided face to face, over the phone or online

Question 19

In terms of mortgage regulation, which of the following is not one of the criteria for a mortgage to be regulated by MCOBS?

a) The mortgage must be secured on land.
b) The land or property must be in the UK or the European Economic Area.
c) The dwelling must occupy at least 40% of the land.
d) The mortgage is taken out by an individual or trustees.

Answer 19

b) The land or property must be in the UK or the European Economic Area.

There are 3 criteria for a MCOB regulated mortgage:
1) The mortgage must be secured on land.
2) The dwelling must occupy at least 40% of the land.
3) The mortgage is taken out by an individual or trustees

Question 20

The lender has just discovered that Dave and Sheila are in arrears with their mortgage. Within what period must the lender write to them with specified information about the arrears?

a) 7 working days.
b) 10 working days.
c) 15 working days.
d) 30 working days.

Answer 20

c) 15 working days.

Question 21

When a lender makes a mortgage offer, MCOBS requires that the:

a) offer cannot be conditional under any circumstances.
b) offer must remain valid for at least three months.
c) offer is binding on the lender and the borrower.
d) borrower must be given at least seven days to decide whether to accept the offer.

Answer 21

d) borrower must be given at least seven days to decide whether to accept the offer.

Question 22

Which of the following customers would not be considered vulnerable under MCOBS?

a) Dorothy, who is applying for a lifetime mortgage.
b) Andy, who is entering a sale‑and‑rent‑back agreement.
c) John, who is exercising his statutory Right‑to‑Buy.
d) Sarah, who is buying a shared-ownership flat.

Answer 22

d) Sarah, who is buying a shared-ownership flat.

Question 23

In which one of the following situations would a mortgage be classified as a consumer buy-to-let mortgage?

a) Clyde, who has inherited a house that needs major renovation. He needs a mortgage to complete the refurbishment before letting it out until he has decided on his next step.
b) Tim and Penny, who intend to raise a further mortgage on their property to buy a second property to rent out as a business.
c) Stephen, who has just moved into his new wife’s property and intends to raise a mortgage on his own property to bring it to a standard to let out long-term.
d) Clare, who owns three rental properties and will use one as security for a mortgage to buy another rental property.

Answer 23

a) Clyde, who has inherited a house that needs major renovation. He needs a mortgage to complete the refurbishment before letting it out until he has decided on his next step.

Question 24

When assessing affordability, MCOBS considers council tax to be what type of expenditure?

a) Basic essential.
b) Cost of living.
c) Discretionary.
d) Committed.

Answer 24

a) Basic essential.

Question 25

MCOBS considers the following as what type of expenditure?

“Repayments on credit agreements or other contractual arrangements.”

A) Basic Essential
B) Committed

Answer 25

B) Committed

Question 26

MCOBS considers the following as what type of expenditure?

“Expenditure on food and other housekeeping costs, utilities, telephone, council tax, buildings insurance, ground rent and service charges for leasehold properties, and essential travel to work and school.”

A) Basic Essential
B) Committed

Answer 26

A) Basic Essential

Question 27

Mahir and Salena are arranging an interest-only mortgage, supported by an ISA, to buy their new home. What obligations does their lender have?

a) To insist that they have appropriate life cover in place for the mortgage.
b) To check at least once during the mortgage term that the ISA is still in place.
c) To check the performance of the ISA at least annually.
d) To advise them on their choice of ISA or refer them to an IFA.

Answer 27

b) To check at least once during the mortgage term that the ISA is still in place.

Question 28

For how long must a firm keep a record of a non-real-time financial promotion for mortgages after it was last used?

a) 12 months.
b) 24 months.
c) 36 months.
d) Indefinitely.

Answer 28

a) 12 months.

Question 29

MCOBs consider the following applicants ‘Vulnerable Customers’. True or false?

1) Right-to-Buy
2) Sale-and-rent-back
3) Equity release

Answer 29

True

Question 30

Consumer buy to lets differ from Business buy to lets because they are incidental/non-deliberate landlords.

True or false?

Answer 30

True

Consumer BTL mortgage is defined as one where the mortgage has not been entered into wholly or predominantly for the purpose of a business carried out by the borrower.

e.g. they are moving country/ are letting to a family member etc

Question 31

When did the Payment Services Directive (PSD2) come into effect?

1) 13Jan2016
2) 13Jan2017
3) 13Jan2018

Answer 31

3) 13Jan2018

Question 32

Under the Payment Services Directive (PSD2) the maximum amount a payer can be obliged to pay in an unauthorised payment scenario is:

1) 50 EUR
2) 100 EUR
3) 105 EUR

Answer 32

1) 50 EUR

The amount a payer can be obliged to pay in an unauthorised payment scenario has reduced from €150 to €50, except in cases of fraud or gross negligence by the payer.

Question 33

Payment Service Providers (PSPs) must respond to payment disputes under PSD within:

1) 7 days and occasionally 14
2) 10 days and occasionally 30
3) 15 days and occasionally 35

Answer 33

3) 15 days and occasionally 35

PSPs must put in place dispute resolution procedures and are required to respond to payment complaints within 15 business days of receipt. In exceptional circumstances, a holding reply can be provided, explaining the reasons for the delay, with the final response being received within 35 business days.