Unit 1 - Extra

Question 1

Firm XYZ is an authorised person in the UK and communicates a promotion from Firm JKL, an authorised overseas person.

Answer 1

The extent to which the compensation will or will not be available must be stated

Where a firm communicates or approves a financial promotion on behalf of an overseas person, the financial promotion must make clear which firm has communicated or approved it and (where relevant) must explain:
That the rules for the protection of investors will not apply
The extent to which the UK compensation scheme arrangements will be available (and if they will not, that fact), and
If the communicator wishes to do so, the details of any overseas compensation and/or the deposit protection scheme applicable.
The firm must not communicate and/or approve the promotion unless it has no doubt that the overseas firm will deal with its UK clients honestly and reliably.

Question 2

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

Answer 2

Either venue A or venue B provided the cost difference only reflects actual execution cost differences

Explanation
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.

Question 3

Which one of the following conduct rules applies to all persons captured by the SM&CR regime? You must:

Answer 3

The correct answer is: D - Observe proper standards of market conduct

Explanation
The individual conduct rules that apply to ALL SM&CR individuals are:
• You must act with integrity
• You must act with due skill, care and diligence
• You must be open and cooperative with the FCA and PRA and other regulators
• You must pay due regard to the interests of customers and treat them fairly
• You must observe proper standards of market conduct

Question 4

When considering the rule on product information to be disclosed before providing services, to whom would the firm need to make these disclosures?

Answer 4

The correct answer is: A - Retail clients only

Explanation
The product disclosure rules (i.e. KIDs) would only apply to retail clients.

Question 5

Which one of these is not a per se eligible counterparty

Answer 5

The correct answer is: C - Local authority

Explanation
Local authorities are retail clients, and can never be treated as eligible counterparties.

Question 6

The Tax and Chancery Chamber of the Upper Tribunal is operated by

Answer 6

The correct answer is: D - A government department

Explanation
The Tribunal as an appeal committee is independent of the Regulator. It is run by the Ministry of Justice.

Question 7

Under the regime created by the retail distribution review, which of the following is TRUE?

Answer 7

The charge can be ongoing and based on a percentage of the funds invested

Explanation
Advisers must move to fee-based charging. This can be an upfront fee or an ongoing fee based on a percentage of the funds invested (as long as an on going service is provided). Fees should be itemised and disclosed up front, but this should be based on the service provided not the product.

Question 8

The FCA guidance on electronic communication with a client states that a firm should do all of the following, except

Answer 8

A
Be able to demonstrate that the client wishes to communicate using this type of media
B
If entering an agreement, make it clear to the client that a contractual relationship has legal consequences
C
Have in place arrangements to ensure secure transmission and receipt of the communication

Except:
D
Be able to demonstrate that it made it clear to the client that instructions communicated in this manner may not be acted upon immediately

Explanation
The firm should also be able to verify the authenticity and integrity of the communication, together with the date and time sent and received.

Question 9

Which of the following best represents the FCA view on industry guidance

Answer 9

The FCA will not monitor or enforce compliance

Explanation
It is not mandatory and the FCA will not enforce or compel other bodies to enforce the guidance.

Question 10

Which of the following statements complies with the inducements rules?

Answer 10

An acceptable commission is one that has been paid to a client

Explanation
In relation to designated investment business or, in the case of MiFID business, another ancillary service, a firm must not pay to, or accept from, a person other than the client any fee or commission (or provide or receive any non-monetary benefit).

Question 11

When a firm provides designated investment business to a retail client, the training and competency requirements do not apply for which of the following?

Answer 11

Arranging

Explanation
The rules apply for advising, dealing, managing and overseeing on a daily basis.

Question 12

Which of the following is not true regarding the Financial Services Compensation Scheme?

Answer 12

Eligible counterparties may never make a claim on the scheme

Explanation
Retail clients may claim on the scheme in respect of all losses (subject to a maximum claim).
Professional clients can claim in respect of long-term insurance and compulsory insurance (e.g. employers liability insurance). Partnerships, but not other professional clients, may also claim in respect of deposits.
Eligible counterparties may also claim in respect of long-term and compulsory insurance only.

Question 13

For which one of these financial instruments is a firm required to assess appropriateness when performing execution only services?

Answer 13

Securitised debt embedding a derivative

Explanation
The other instruments are considered to be simpler financial instruments and therefore the appropriateness test is not required.

Question 14

Under which of the following circumstances do the conduct of business rules not require a firm to enter into a client agreement

Answer 14

The client enters into an insurance contract with the firm as principal

Explanation
The COBS are explicit in saying that MiFID business requires a client agreement for all customers, unless the firm acts as principal with an insurance contract.

Question 15

Which one of the following is NOT regarded by the FCA as a reasonable inducement to be paid by a product provider to a firm in relation to the sale of packaged products?

Answer 15

Office rent

Explanation
The inducement must be for the client and it must not be something that the firm would normally expect to pay, such as office rent. ‘Minor non-monetary benefits’, such as tea and coffee and biscuits at a meeting, are also allowed.

Question 16

Where a firm becomes aware of a conflict of interest that may damage a particular client’s interests, which of the following procedures must the firm follow?

Answer 16

Manage the conflict and continue to deal

Explanation
Where a firm identifies a conflict of interest they must manage it. Only if they are unable to manage the conflict are they required to disclose it.

Question 17

To be marketed in an EEA country a UK unit trust must

Answer 17

Conform with UCITS directive and member state’s regulations

Explanation
If a UK regulated CIS conforms with UCITS directive and member state’s regulations, then it can apply for a UCITS passport from the FCA and market itself across the EEA

Question 18

Which of the following does NOT require a key information document

Answer 18

Cash deposit individual savings account

Explanation
Under PRIIPs, investment funds, insurance-based investment products, retail structured securities and structured term deposits all require KIDs

Question 19

Which of the following is TRUE in respect of the conflicts of interest policy?

Answer 19

Where a firm is part of a group, the policy should take account any potential conflicts arising from that group

Explanation
This is a tricky question.
The rules protect ALL types of client.
A description of the policy should be provided to retail clients and potential retail clients.
The policy itself does not require firms to maintain effective and administrative arrangements, but shows how they will identify and manage conflicts.

Question 20

Which of the following best describes the cancellation period offered to a client of the firm?

Answer 20

Compulsory for certain products

Explanation
Reflection periods of 14 or 30 days have to be offered when the firm sells packaged products or cash deposit ISAs.

Question 21

According to the inducement provisions stated by the FCA, which of the following is not an appropriate payment by the firm

Answer 21

A third party providing general office equipment used for word processing and accountancy in the normal running of the firm’s activities

Explanation
General office equipment is specifically prohibited by FCA regulations.

Since office equipment, the firm would normally expect to pay, hence it’s an inducement to receive it

Question 22

For what time period would a firm keep records on confirmation of trades for MiFID business?

Answer 22

Five years from dispatch

Explanation
A firm must retain a copy of any confirmation dispatched to a client for the following periods from the date of dispatch:
- Five years - MiFID business
- Three years - non-MiFID business

Question 23

When the holdings of a married couple are automatically aggregated as a result of deciding if one of the sizable holdings rules have been broken, this is known as working as:

Answer 23

Connected parties

Explanation
Connected parties are automatically joined because of their relationship. Connected parties include spouses, children that are minors and family-owned businesses.

Question 24

Which ONE of the following investments is NOT permitted under the Markets in Financial Instruments Directive?

Answer 24

Mortgages

Explanation
MiFID does not cover mortgages.

Question 25

A defence against a charge of carrying out a regulated activity without authorisation could be:

Answer 25

Managing own portfolio

Explanation
Dealing for yourself where no service is offered to others is an excluded activity

Question 26

For the purpose of the best execution rule, which one of the following is not an acceptable execution venue?

Answer 26

Any over the counter arrangement

Explanation
Execution venues must be outlined in the firm’s execution policy. Although some OTC markets are acceptable venues, it would not be an automatic choice and the firm would need to justify the choice. Of the four answers available, OTC is the best choice

Question 27

When a firm is carrying out which type of business is the FCA’s Conduct of Business Rule relating to suitability required?

Answer 27

Advisory MiFID services on behalf of retail and professional clients

Explanation
Suitability is required to be assessed for discretionary and advisory business. For MiFID services, this rule covers all customers. For non-MiFID designated investment business, the rule only covers retail clients.

Question 28

Who performs the regulatory check of a mail-shot sent by an appointed representative?

Answer 28

The compliance department of the appointing firm

Explanation
The general non-real time financial promotion rules require each promotion to be signed off by compliance or another employee with sufficient knowledge to do so

Question 29

What do insider dealing and market abuse have in common?

Answer 29

They can both involve the use of non public information

Explanation
Market abuse is dealt with by the Market Abuse Regulation. Market abuse does not require the person to have intended to abuse the market. Insider dealing is a criminal offence, however market abuse is a civil offence.

Question 30

Which of the following best describes the relationship between the FCA, the PRA and the board of the Financial Services Compensation Scheme (FSCS)?

Answer 30

The Chairman of the board of the FSCS is appointed by the FCA

Explanation
The FSCS is operationally independent of the Regulator, although it must account directly to the Regulator for its actions.

Question 31

In relation to data protection, to whom does a firm’s Data Input Officer report?

Answer 31

The firm’s Data Controller

Explanation
The data input officer within a firm will report to the firm’s data controller

Question 32

The FCA intend to take action against a firm for a breach of a rule. Which of the following will inform the firm of the action proposed?

Answer 32

Warning notice

Explanation
The warning notice gives the recipient details about the action proposed and why the FCA proposes to do so.

Question 33

Which of the following is the correct interaction between the FCA regulations on money laundering and the JMLSG guidelines?

Answer 33

Firms cannot usually be disciplined for not following the regulations if they follow the JMLSG guidelines

Explanation
The JMLSG guidelines provide an indication of what is expected of financial sector firms and, when tailored by a firm to its own risk base and business profile. They provide a safe harbour in respect of the regulations.

Question 34

Which of the following functions in an authorised firm is LEAST likely to require approval under the individual accountability regime?

Answer 34

Customer advisor on investments

Explanation
A role advising customers is the best answer here, as it is the most likely to require certification, not approval.

Question 35

The MLRO must report to senior management at least every:

Answer 35

12 months

The MLRO must report to senior management at least once every calendar year.

Question 36

Which of the following instruments is NOT within the scope of the Criminal Justice Act 1993 (Insider Dealing)?

Answer 36

Building Society share account

Explanation
A building society share account would not be covered as it has no secondary market

Question 37

An authorised firm, acting on behalf of a client, has received an order to buy 5,000 shares in XYZ plc just before the market opens. The firm believes that the market will open with a sharp fall due to significant losses on the S&P 500 overnight. When should the firm execute the transaction?

Answer 37

The firm may delay execution if it believes it is in the best interests of the client

Explanation
The rule states that a transaction should be executed as soon as is reasonably practicable. Transactions may be delayed if the firm has taken reasonable steps to ensure that the deal will not operate to the client’s disadvantage.

Question 38

Which of the following is not an appropriate action for avoidance of a conflict of interest?

Answer 38

Implementing Chinese walls in place of a personal account notice

Explanation
Personal account notices cannot be substituted with Chinese walls. The personal account dealing rules are mandatory.

Question 39

When the Regulations Decision Committee issues a final notice to a firm at the end of the investigation procedure, which of the following is not included on a final notice

Answer 39

The disciplinary action taken by the firm

Explanation
A final decision notice is issued by the RDC and will not include information on any disciplinary action the firm has taken against its employees

Question 40

The main objective of the ‘Persons Discharging Managerial Responsibility’ (PDMR) regime is:

Answer 40

To ensure the LSE is perceived to be a fair and orderly market

Explanation
The ‘Persons Discharging Managerial Responsibility’ (PDMR) regime does not prevent directors’ dealings, although it does attempt to restrict dealings during the closed periods (when there is a greater risk of insider dealing).

Question 41

A retail client approaches a financial advisor (FA) to gain advice on a pension product. Which of the following must be disclosed regarding the scope and range of the advice by the FA before doing business?

Answer 41

Scope and range of advice in a durable medium

Explanation
The scope and range of advice needs to be disclosed by all financial advisors, unless they are giving advice on stakeholder products. The disclosure must be made in a durable medium.

Question 42

When a firm uses a website to promote a product and gives the facility for an online application this would be considered to be?

Answer 42

Direct non real-time offer

Explanation
Website promotions are deemed to be non-real time financial promotions.

Question 43

Which of the following represents an acceptable inducement under COBS

Answer 43

Management fees

Explanation
Allowable services are those that would be directly relevant to customers

Question 44

In relation to rules governing regulated and unregulated activities, Part 9A of the Financial Services and Markets Act 2000 empowers the FCA to do which one of the following

Answer 44

Create rules that are legally binding on authorised firms concerning regulated activity and also activity that is not regulated

Explanation
Part 9A of the FSMA empowers the FCA to make rules that are legally binding on authorised firms concerning regulated activity and also activity that is not regulated.

Question 45

According to guidance in the FCA handbook which of the following would BEST indicate that an investment manager of a client portfolio was engaged in churning

Answer 45

Excessive activity in a client’s portfolio containing shares

Explanation
Persons acting in collusion that secure a dominant position over the supply of or demand for an investment. A sale or purchase of an investment where there is no change in beneficial interest or market risk. Both are market abuse.
Excessive activity in a client’s portfolio containing packaged products is switching

Question 46

A firm has received a sell limit order from a professional client. The order is the tenth order received from that client over a period of three months. The order cannot be executed immediately through the firm.
Which of the following reasons would justify the firm not making the order public on the LSE

Answer 46

The client has instructed otherwise

Explanation
Limit orders from all customers, not executed immediately, must be made public.
The only exceptions to this requirement is if the client instructs otherwise, or if the order volume is greater than normal market size.

Question 47

Which ONE of the following is LEAST LIKELY to be a professional client

Answer 47

Unauthorised firm

Explanation
The Bank of England, IMF and pension providers are all examples of ‘per se’ professional clients. An unauthorised firm could be either a professional firm or retail client and therefore is the best answer.

Question 48

Although a client provides a firm with specific instructions, the firm executes the trade in accordance with their own trade execution policy. What must the firm do?

Answer 48

Report itself to the FCA, as it is potentially in breach of regulations

Explanation
If a client gives specific instruction, the firm is obliged to act on them, and in doing so is deemed to have achieved ‘best execution’

Question 49

In relation to an authorised firm placing reliance on others for information, which of the following is not a qualifying criteria?

Answer 49

The information provider must be based in the UK

Explanation
There is no requirement for the information provider to be based in the UK.

Question 50

The COBS relating to financial promotions require an individual with appropriate expertise to check that the promotion is fair, clear and not misleading. For which of the following types of financial promotion is such a confirmation exercise required before issue

Answer 50

Non real-time financial promotions

Explanation
The general requirement for such a check is a requirement for non-real time financial promotions only.

Question 51

Which of these is an eligible claimant under the FSCS

Answer 51

A shareholder who owns < 5% of an organisation

Explanation
Eligible claimants are certain persons who have a protected claim against an authorised person who is in default. This includes most clients of the defaulting firm, except:
- Other authorised firms
- Overseas financial institutions
- Supranational institutions, governments and central administrative authorities
- Provincial, regional, local and municipal authorities; and
- Large companies or large mutual associations

Question 52

In relation to providing investments, the rule on inducements in the Conduct of Business rules, which ONE of the following is TRUE?

Answer 52

The rules allow the firm to pay an inducement to the client

Explanation
The rule ““A firm must not pay to, or accept from, a person other than the client, any fee, commission or non-monetary benefit”” allows payment to, and from, the client.

The inducement rules apply to all customers, i.e. professional clients and retail clients.

Disclosure of the inducement must be made to the client before providing the service. The prohibition does not apply to ‘minor non-monetary benefits’.

Question 53

Under FCA regulations, which of the following is true of a written financial promotion?

Answer 53

A firm can arrange for a third party to carry out the confirmation exercise and the responsibility for the promotion remains with the firm

Explanation
Notice that there is a difference between confirmation and approval. Approval would lead to the approving firm taking on the responsibility. Confirmation, effectively proof reading, would leave the responsibility with the original firm.

Question 54

Which of the following gives the FCA the power to prosecute insider dealing offences?

Answer 54

Financial Services and Markets Act 2000

Explanation
The offence is contained within the CJA 1993, however the ability of the FCA to prosecute comes from FSMA 2000.

Question 55

When a firm communicates initially with a retail client, COBS requires it to provide ‘appropriate information’, which includes all of the following except

Answer 55

Who to refer complaints to if they cannot be resolved by the firm

Explanation
Reference to any complaints resolution body is not necessary

Question 56

Which of the following would not be exempt from requiring authorisation

Answer 56

Lloyd’s of London

Explanation
It is a member of Lloyd’s that would be exempt

Question 57

How is the Pension Protection Fund (PPF) funded?

Answer 57

They take on assets from schemes tranferred to the PPF

Explanation
The PPF will:
• Charge a levy on all eligible pension schemes (not all schemes)
• Take on the assets of schemes that transfer to the PPF
• Recover money, and other assets, from the insolvent employers of the schemes (not members of the scheme), and
• Invest all income and assets.

The aim is to make sure they can pay members’ compensation for as long as they are entitled to it.

HM Treasury does not contribute to this fund.

Question 58

A fund manager sends out a mailshot blindly to several clients. The email contains information regarding the manager’s products and his website. Which of the following is covered under the Distance Marketing Directive

Answer 58

The email and the website

Explanation
Since the email promotes the website, both would be covered under the directive.

Question 59

In which of the following circumstances would it be permissible to not give a client a client agreement?

Answer 59

Retail clients paying for advice only with no resultant deals

Explanation
Client agreements need to be sent out to all clients; that is retail clients for all designated investment business and professional clients for MiFID business only. Although client agreements would need to be sent to clients receiving advisory services (these assume deals are performed based on that advice), they would not be needed for advice only, where no resultant deals occur.

Question 60

According to the conduct of business rules and in relation to MiFID business, a firm must have in place a client agreement when it carries on:

Answer 60

Designated investment business for a retail client and MiFID business for a professional client

Explanation
Designated Investment Business is made up of MiFID and non-MiFID business. In respect of MiFID business, both retail and professional are protected. RC get protected for all designated investment business.
NOTE: whilst designated investment business includes MiFID and non-MiFID business NOT all non-MiFID business is designated investment business. For example, bank deposits and pure protection insurance is not designated investment business

Question 61

A per se professional client asks an authorised firm for it to be categorised as a retail client for extra protection for MiFID business. Which is TRUE about the firm’s response

Answer 61

The firm would enter into a written agreement regarding re-categorisation

Explanation
Risk warnings would be signed if the client were opting-up. All clients are permitted to ask for extra protection by being re-categorised. This re-categorisation can be, generally, regarding specific services or regarding specific investments.

Question 62

When the FCA grants an exchange with recognised status, it:

Answer 62

Requires that the exchange must be fit and proper

Explanation
In order to be recognised by the FCA, these exchanges and clearing houses need to be fit and proper for their purpose. Once recognised, the exchanges are referred to as recognised investment exchanges (RIEs), and the clearing houses are referred to as recognised clearing houses (RCHs). RIEs and RCHs are exempt persons in that they do not need to seek authorisation from the FCA to carry out regulated activities – they are, instead, recognised.

Question 63

When confirming whether a financial promotion complies with the financial promotions regulations, which of the following is TRUE?

Answer 63

Confirmation of compliance must be made by a person with appropriate expertise

Explanation
The person checking the promotion must have appropriate expertise.
If a firm is not authorised, they must get the promotion checked by an authorised firm

Question 64

The directors of a UK financial institution use an overseas agent who, it has been proved, has accepted and used bribes in their activities. Which of the following would be a valid defence against any of the four offences of the Bribery Act 2010?

Answer 64

The directors could prove that adequate procedures are in place to prevent bribery

Explanation
Full defence may be possible if there is proof of adequate procedures being in place to prevent bribery and these can be clearly demonstrated.

Question 65

When a firm trades with an eligible counterparty, which one of the following rules does not apply?

Answer 65

Selling and advising

Explanation
COBS have a limited application to eligible counterparties and the advising and selling regulations do not apply.

Question 66

After the initial investigation by the FCA officers, the information is typically handed over to the Regulatory Decisions Committee who would decide what action is necessary. Any proposed action would be stated in a warning or supervisory notice. Which of the following could be issued by the RDC instead of these notices?

Answer 66

Notice of discontinuance

Explanation
A notice of discontinuance will be issued when the RDC decides that no further action is required

Question 67

When an appointed representative is communicating a promotion to retail clients, and making appointments, which of the following is not required?

Answer 67

The detailed risks of the investment

Explanation
The detailed risks of the investment can be discussed at a later date.

Question 68

Fixed vs flexible portfolio firms

Supervisory model

tools of supervision

Answer 68

fixed portfolio = large firm subject to proactive supervision

flexible portfolio = all other firms

Model

• proactive
• reactive
• thematic

Tools

• diagnostic
• monitoring
• remedial
• preventative

Question 69

PRA fundamental principles

Answer 69

1. integrity
2. skill, care and diligence
3. prudence
4. adequate financial resources
5. effective risk management
6. organization and control
7. relationship with regulators
8. resolution procedures

Question 70

Specified investments under RAO

and specified activities

Answer 70

shares/warrants
debt instruments
units in CISs
options on (specified investments, currencies, precious metals) (not other commodities)
futures (All futures, any commodities)
pensions 
regulated mortgages

Excluded investments

• property
• tangible assets (oil, metals, etc)
• currencies (spot and forwards)
• premium bonds

Activities

• dealing
• arranging
• managing
• advising

Excluded activities

• newspaper advising (not tipsheets tho)
• unpaid trustees (nominees and executors)
• employee share scheme
• dealing as principal (on own account)

Question 71

individual conduct rules (5)

Senior manager conduct rules (4)

Answer 71

1. act with integrity
2. due skill, care and diligence
3. open and cooperative with regulators
4. treat customers fairly
5. proper standards of market conduct

SM

• take steps to ensure business is controlled effectively
• firm complies with relevant regulatory requirements
• delegation of responsibility
• disclose info to regulators which they would reasonably expect notice

Question 72

CISI code of conduct

Answer 72

1. personal accountability
2. client focus
3. conflict of interest
4. respect for market partners
5. professional development
6. aware of capabilities
7. respect others and the environment
8. speak up and listen up

Don’t forget stakeholders, add section which states who is impacted by each statement.

Question 73

Explain the regulators enforcement process

Answer 73

Initial investigation
—>
Preliminary findings
—> (private warning or action)

RDC steps in

1. • warning notice
   • supervisory notice
   • notice of discontinuance

firms response

2. • decision notice
   • supervisory notice
   • notice of discontinuance

appeal to Upper Tribunal within 28 days

3. • final decision
   • final supervisory
   • notice of discontinuance

---------------------------------
warning = intention for discipline
supervisory = for support
decision = taking action
final = doing on certain day

statutory

• warning notice
• decision notice
• supervisory notice

Question 74

STOR

Answer 74

Suspicious transaction and order reports

Firms should not second guess what is suspicious

Question 75

PDMR

Answer 75

Persons discharging managerial responsibilities

MAR PDMR regime = Disclosure transactions in own shares of company to the firm and FCA within 3 business days from transaction.

Close period 30 days before announcement

Question 76

stakebuilding disclosure rules

Answer 76

EU 4 business days

UK 2 business days

Question 77

MiFID core activities and ancillary services

Answer 77

Core

• reception/transmission of orders
• execution of orders
• portfolio management
• investment advice
• underwriting and placing
• operating MTF or OTF

Ancillary services

• safekeeping and administration
• loans to carry out transactions
• investment research and financial analysis

Question 78

MiFID instruments and exclusions

Answer 78

• shares/debt
• units in CIS
• money market
• derivatives on securities, currencies, interest rates or yields
• commodity derivatives (cash or psychical settled)
• etc

Exclusions

• bank accounts
• FX
• physically settled derivatives if for commercial use
• commodity spot trading
• all mortgages

Question 79

EU COBS home/host rules

Answer 79

Typically follow home state COBS unless branch and client are host state, then follow the host state COBS rules.

Question 80

COBS and designated investment business

Answer 80

COBS apply directly to firms conducting designated investment business or insurance business from an establishment in the UK.

Designated investment business =

• dealing
• arranging
• advising
• managing

in all MiFID instruments and some non-MiFID instruments such as packaged products which are retail investment products.

Question 81

COBS/CASS which rules relate to which clients

Answer 81

All clients (EC, PC, RC)

• client categorisation
• most information disclosure rules
• conflict of interest rules
• occasional and periodic reporting rules
• client assets

Retail client only rules

• financial promotions rules
• retail investment product disclosures (KFD, KIID, KID)
• sending suitability report to client

All other rules apply to retail and professional clients

Question 82

Quantitative tests for client categorisation

Answer 82

BS/turnover/own funds

per se PC
20/40/2

in relation to non-mifid business

per se PC
12.5/25/250employ

Elective pro
average trade freq of 10 per Q over last 4 Q’s
portfolio > 500k euro
worked 1 or more in fin sector

Question 83

Distance marketing directive

Answer 83

Applies when there is no face-to-face contact between the client and the firm

When a distance contract is concluded the client is given:

• minimum specified information about a financial product
• a right to cancel

Question 84

Packaged products vs retail investment products

Answer 84

packaged products

• life policy
• regulated CIS
• investment trust savings scheme
• stakeholder pension
• personal pension

retail investment products

• packaged products plus
• share in investment trust
• structured capital at risk products

Question 85

Eligible complainants

Answer 85

• consumer (individual acting in private manner)
• business with fewer than 10 emply and turnover of less than 2m
• charities with annual income less than £6.5m
• trusts with net assets less than £5m
• certain SMEs with annual turnover less than £6.5m and balance sheet threshold of £5m, or fewer than 50 employees

Question 86

Can a third party appeal to the Tribunal on behalf of an authorised firm against a decision notice?

Answer 86

Yes, if the appeal is made within 28 days of the notice being issued

Explanation
A person who receives a decision notice or supervisory notice (including a third party who has been given a copy of a decision notice) has the right to refer the Regulator’s decision to the Tax and Chancery Chamber of the Upper Tribunal (formerly known as the FSMT).

Question 87

The Collective Investment Scheme Sourcebook does not apply to which of the following?

Answer 87

The correct answer is: C - Director of an investment trust

Explanation
Investment trust companies are not classified as a CIS and therefore are not covered by the CIS Sourcebook.

Question 88

Market abuse is different from the offence of insider dealing in all of the following ways except:

Answer 88

It should be easier for the FCA to impose a custodial sentence

Explanation
The burden of proof is less difficult to establish than beyond a reasonable doubt and hence it should be easier to demonstrate abusive behaviour. However, only fines can be imposed. Market abuse is applicable across the board.

Question 89

To which one of the following activities do the conduct of business rules apply?

Answer 89

Long-term insurance business in relation to life policies

Explanation
The conduct of business rules also apply to designated investment business.

Question 90

If an authorised firm is conducting unauthorised regulated activities, this will be considered to be which ONE of the following?

Answer 90

A criminal matter

Explanation
This is a tricky question as, strictly, unauthorised regulatory activity can be dealt with in both the criminal and civil courts. However FSMA makes the breach of the general prohibition a criminal offence; therefore the criminal offence is the best answer.