Unit 2

Question 1

One of the six outcomes for retail customers in relation to the fair treatment of customers requires that firms ensure that there are no unreasonable barriers to:
A. Accessing products, receiving suitable advice, or complaining.
B. Accessing products, switching product or provider, or making a claim.
C. Switching product or provider, receiving suitable advice, or making a claim.
D. Switching product or provider, making a claim, or complaining.

Answer 1

D. This is a requirement under Outcome 6.

Question 2

One of the Pension Regulator’s powers is that it is able to investigate schemes to identify and monitor risks. All schemes must carry out the following actions except:
A. Giving notification of any changes to important information.
B. Informing the regulator quickly if it discovers that it cannot meet the funding requirements.
C. Making regular returns to the Pension Regulator.
D. Providing details to the regulator of every transfer out of the scheme.

Answer 2

D. There is no requirement to provide details of every transfer out.

Question 3

When buying goods or services, consumers have the right to each of the following except:
A. Clear and honest information before they buy.
B. To be supplied with goods that are fit for purpose.
C. To get what they paid for.
D. To pay a fair price that reflects market rates.

Answer 3

D. There is no automatic right to get a fair price that reflects market rates.

Question 4

Which of the following risks would be defined as that arising from the way a business is run and managed?
A. Capital adequacy risk.
B. Internal risk.
C. Liquidity risk.
D. Operational risk.

Answer 4

D. Operational risk is that arising from the way a business is run and managed.

Question 5

In the context of FCA supervision of firms, the term ‘flexible portfolio’ means:
A. Firms which have a customer base that is prone to significant fluctuations.
B. Firms with a wide range of regulatory permissions.
C. Firms with diverse investment interests.
D. Lower-risk firms supervised through market-based thematic work and engagement programmes.

Answer 5

D. Flexible portfolio firms are supervised by a mixture of targeted supervisory work and programmes of education and communication.

Question 6

When carrying out designated investment business, other than advising on packaged products, a firm must provide which additional document to the client?
A. A business card carrying out-of-hours contact details.
B. A client agreement.
C. A suitability letter.
D. An initial disclosure document (IDD).

Answer 6

B. The document given to the client when carrying out designated investment business is the client agreement.

Question 7

Simon has found that his loan, taken out in 2005, is subject to FCA regulation under MCOB. This is because it is a:
A. Business loan, secured by a first charge over his business premises.
B. Buy-to-let loan, taken out to help buy a property to add to his portfolio or buy-to-lets.
C. An unsecured debt-consolidation loan.
D. Home-improvement loan, secured by a first charge over his residential property.

Answer 7

D. This is subject to FCA regulation under MCOB.

Question 8

Jason is in the process of applying for a mortgage and has just received a tariff of charges from the lender. What is the latest point in the process that he has reached?
A. Issue of the initial disclosure documentation.
B. Pre-application disclosures.
C. Offer stage.
D. Completion stage.

Answer 8

C. A tariff of charges should be issued at the offer stage (MCOB 6).

Question 9

If a customer cancels their level term assurance contract within the cooling-off period, the insurance company must return all premiums laid to it within how many days?
A. Seven.
B. Fourteen.
C. Twenty-eight.
D. Thirty

Answer 9

D. Level term assurance is a pure protection contract so, if a customer cancels, the insurance company must return all premiums paid to it within 30 days.

Question 10

Which of the following is most likely to be classed as an eligible counterparty?
A. A firm acting on behalf of a retail client.
B. A private individual.
C. A small business.
D. Another authorised firm.

Answer 10

D. A firm authorised to conduct investment business is normally an eligible counterparty.

Question 11

An authorised firm was unable to describe the advice it offered as being independent because it:
A. Did not provide advice on insurance products.
B. Only offered products from providers that were legally binding to it.
C. Only provided advice on investment products.
D. Used a panel of providers for the products it recommended.

Answer 11

B. This would be a form of restricted advice.

Question 12

For new sales, which of the following product types can an independent financial adviser receive commission from a product provider?
A. Income protection.
B. Investment bond.
C. Stocks and shares ISA.
D. Unit Trust

Answer 12

A. Commission can be paid for pure protection products, including income protection and term assurance.

Question 13

David has arranged a life policy for his customer, Jane. Assuming that Jane does not require immediate cover and that details of suitability are not provided orally, what is the latest date that the suitability report can be sent to Jane?
A. Before conclusion of the contract.
B. Five days after the end of the cooling-off period.
C. Five days after the final interview.
D. Five days after the initial interview.

Answer 13

A. For a life policy, a suitability report must be sent before the contract is concluded.

Question 14

Under the EU Fourth Money Laundering Directive, beneficial owners of legal entities are defined as those who own or control what minimum percentage of the legal entity?
A. 5%.
B. 10%.
C. 25%.
D. 50%.

Answer 14

C. The minimum percentage is 25%.

Question 15

A financial adviser must issue a key features or key information document prior to a sale busing concluded for all of the following products except:
A. Gilt-edged securities.
B. Life assurance.
C. Stakeholder pensions.
D. Unit trusts.

Answer 15

A. A key features or key information document will be required where advice is being given on a packaged product. It will not be required for a direct investment such as gilts.

Question 16

In relation to money laundering, how is ‘property’ defined under the Third Money Laundering Directive 2005?
A. Assets held in cash within the European Union only.
B. Assets of every kind, including legal documents giving title to such assets.
C. Intangible assets only.
D. Tangible assets only.

Answer 16

B. Property is defined as assets of every kind, tangible or intangible, including legal documents.

Question 17

John held deposits with Bank A and Bank B and they were both declared insolvent on 1 September 2019. The FSCS paid a higher amount of compensation for his holdings with Bank A.
This is because:
A. Bank B had recently made the annual interest payment on John’s account.
B. John and his wife held £164,000 in a joint account in Bank A and £80,000 in his sole name in Bank B.
C. John had £70,000 in a joint account with his brother in Bank A and £35,000 in his sole name in Bank B.
D. John had £100,000 saved with Bank A and £90,000 with Bank B.

Answer 17

B. Compensation is limited to £85,000 per person, so John would have received £82,000 in respect of the joint account with Bank A and £80,000 in respect of the account with Bank B.

Question 18

To which body should a firm report a significant breach of handling personal data?
A. The Financial Conduct Authority.
B. The Financial Ombudsman Service.
C. The Prudential Regulation Authority.
D. The Information Commissioner.

Answer 18

D. Significant breaches of personal data should be reported to the Information Commissioner.

Question 19

Under the Senior Managers Regime, into which type of function would the Money Laundering Reporting Function be categorised?
A. Customer function.
B. Governing function.
C. Risk function.
D. Senior management function.

Answer 19

The Money Laundering Reporting Function is a senior management function.

Question 20

When Henry received his monthly payslip on 21 June, his normal occupational pension scheme contribution of £259 had been deducted by his employer. What is the latest date that his employer should pass this contribution to the scheme, if the Pension Regulator’s guidelines are followed?
A. 22 June.
B. 30 June.
C. 19 July.
C. 21 July.

Answer 20

C. Contributions should be paid to the scheme by the 19th day of the month following the month in which they were deducted, ie 19 July.

Question 21

The FCA Training and Competence Sourcebook applies to:
A. Financial advisers, supervisors of those advisers, and supervisors of certain ‘back office’ functions.
B. Supervisors of advisers, supervisors of certain ‘back office’ functions and clerical input staff.
C. Supervision of certain ‘back office’ functions, clerical claims staff and supervisors of advisers.
D. The company accountants, financial advisers and supervisors of certain ‘back office’ functions.

Answer 21

A. The three groups are: (a) financial advisers / investment managers / dealers; (b) their supervisors; and (c) supervisors of certain ‘back office’ functions, such as underwriting claims.

Question 22

A customer ended his relationship with a lender two years and six months ago. For a minimum of how many more months should the evidence of the customer’s identity be retained by the lender?
A. 6 months.
B. 18 months.
C. 30 months.
D. 42 months,

Answer 22

C. Evidence of identification must be kept until at least five years after the relationship with the customer ceased,

Question 23

Jeremy and Sandra have an interest-only mortgage and have received written advice to check the performance of their repayment vehicle. Under the MCOB rules, this is most likely to have been issued by:
A. The Financial Conduct Authority.
B. The investment product provider.
C. Their financial adviser.
D. Their mortgage adviser.

Answer 23

D. MCOB 7 requires that annual statements are issued by the lender regarding the progress of the mortgage. These must include a recommendation to check that any repayment vehicle is on track.

Question 24

Under FCA rules, a financial institution that requires advice on a transaction from another financial institution is most likely to be categorised as:
A. A professional client.
B. A retail client.
C. An eligible counterparty.
D. An independent client.

Answer 24

A. The financial institution in this scenario is most likely to be categorised as a professional client. Eligible counterparties are financial institutions that do not require advice.

Question 25

Freda is meeting her adviser to discuss her financial protection needs and to obtain advice on life assurance. This means that the adviser’s charges must be disclosed:
A. At the latest, when the cancellation notice is sent to Freda.
B. In writing before any business is discussed.
C. In writing within five business days after the business is transacted.
D. Verbally before the business is transacted.

Answer 25

B. Where advice is being given, the amount of charges must be disclosed in writing before any business is discussed.

Question 26

Nico opened his bank account in 2016 and closed it in 2017. He has no other accounts with the bank. Under the money laundering regulations, what is the earliest year that the bank could destroy the evidence of identity collected when Nico’s account was opened?
A. 2019.
B. 2020.
C. 2021.
D. 2022.

Answer 26

D. 2022 as it is five years after the relationship ended.

Question 27

If a member realises that they have cause to complain about their occupational pension scheme, and is unable to resolve it with the scheme, how long do they have to refer it to the Pensions Ombudsman?
A. Eight weeks.
B. Three years.
C. Five years.
D. Six years.

Answer 27

B. A complaint must be referred to the Pensions Ombudsman within three years of the event being complained about, excluding time spent dealing with the service itself and TPAS.

Question 28

David’s car insurer has gone out of business and he has lost £2,000 on his compulsory third party policy. How much compensation, if any, may he be entitled to receive from the FSCS?
A. None.
B. £1,000.
C. £1,800.
D. £2,000.

Answer 28

D. On default of an insurance company, compensation is 100% in respect of compulsory insurance.

Question 29

Which FCA sourcebook specifies the length of time for which information collected during the course of a customer factfind is kept?
A. Conduct of Business Sourcebook.
B. The Prudential Sourcebook.
C. The Systems and Controls Sourcebook.
D. The Training and Competence Sourcebook.

Answer 29

A. The record-keeping requirements are contained in the Conduct of Business Sourcebook.

Question 30

A key information document (KID) must provide the consumer with:
A. All of the terms and conditions of the product.
B. Easy and concise information to read, no longer than 3 sides of A4.
C. None of the product’s risks as they are confirmed in the product’s T&Cs.
D. Key information about the project, no longer than 5 sides of A4.

Answer 30

B. The KID focuses on key features only (provided on 3 sides of A4) and the T&Cs are contained in a separate document.

Question 31

After arrears have arisen, within what period should mortgage customers be provided with specific information from their lender?
A. Immediately.
B. 7 working days.
C. 15 working days.
D. 30 working days.

Answer 31

C. Arrears information must be provided within 15 working days (MCOB 13).

Question 32

The Financial Services Compensation Scheme (FSCS) is under the responsibility of the:
A. FCA only.
B. FCA and PRA.
C. Financial Ombudsman Service.
D. PRA only.

Answer 32

B. The FCA and PRA have joint responsibility for the Financial Services Compensation Scheme (FSCS).

Question 33

Which of the following types of mortgage arrangement became regulated by the FCA under MCOB for the first time from March 2016?
A. Second charge loans.
B. Business buy-to-let mortgages.
C. Further advances.
D. Lifetime mortgages.

Answer 33

A. Second charge loans became regulated by the FCA for the first time from 21 March 2016.

Question 34

Which of the following is a specific FCA requirement in relation to direct offer advertisements?
A. Records of advertisements must be retained for 7 years.
B. The advertisement must always be approved by a director of an authorised firm.
C. The advertisement must contain the name of the conduct regulator, the FCA.
D. They just only be sent to customers who have specifically requested them.

Answer 34

C. Advertisements must provide the name of the conduct regulator, the FCA.

Question 35

If found guilty of the offence of reckless misconduct, a senior manager could face a prison sentence of up to:
A. Two years.
B. Five years.
C. Seven years.
D. Ten years.

Answer 35

C. The offence of reckless misconduct carries a prison sentence of up to seven years and/or an unlimited fine.

Question 36

Which of the following statements best describes the situation that applies when a contract is found to contain a term that is deemed to be unfair?
A. As long as it is practicable, the rest of the contract can continue,
B. The business can choose to bind the consumer to the contract.
C. The contract will continue as specified.
D. The whole contract will be invalid,

Answer 36

A. As long as it is practicable, the rest of the contract can continue.

Question 37

Paula wants to complain about the treatment she received from her final-salary pension scheme. She has been unable to achieve a satisfactory resolution using the scheme’s internal complaints process. She has decided to take the matter to the next formal stage of the complaints process. To which body should she refer her complaint to in order to get a binding decision?
The:
A. Financial Conduct Authority.
B. Pensions Ombudsman.
C. Financial Ombudsman Service.
D. Pension Regulator.

Answer 37

B. Paula should now refer her complaint to the Pensions Ombudsman.

Question 38

Under the Money Laundering Regulations 2017, the maximum jail sentence for any individual who recklessly makes a statement in the context of money laundering which is false or misleading is:
A. 2 years.
B. 5 years.
C. 10 years.
D. 14 years.

Answer 38

A. The maximum jail sentence is two years.

Question 39

Which is the following is not one that must be satisfied by an advertisement to comply with the FCA’s guidelines in respect of financial promotions?
A. Information about past performance must be based on a period of at least five years, where possible.
B. It must be approved by the FCA.
C. It must be clear, fair and not misleading.
D. It must include a clear and adequate description of the product or service

Answer 39

B. An advertisement does not need to be directly approved by the FCA. It will need to be approved by an authorised person within the firm.

Question 40

Where a complaint relates to a personal pension plan, for what minimum period must the records be maintained?
A. One year.
B. Three years.
C. Five years.
D. Six years.

Answer 40

B. Where a complaint refers to a personal pension plan, records must be kept for a minimum of three years,

Question 41

What maximum prison sentence may apply to an individual convicted of a bribery offence?
A. 3 years.
B. 5 years.
C. 10 years.
D. 14 years.

Answer 41

C. The maximum prison sentence is ten years for an individual convicted of a bribery offence.

Question 42

With effect from 1 April 2019, what is the maximum award that the Financial Ombudsman Service can make in respect of an individual complaint?
A. £150,000 including interest and costs.
B. £150,000 plus interest and costs.
C. £160,000 including interest and costs.
D. £350,000 plus interest and costs.

Answer 42

D. The maximum binding award is £350,000 plus reasonable costs of the complainant.

Question 43

The maximum penalty for a breach of data protection regulations is:
A. An enforcement notice.
B. €20m or 4% annual worldwide turnover.
C. Limited to a maximum of £15,000.
D. 100% of global turnover.

Answer 43

B. The maximum penalty is €20m of 4% of an organisation’s annual worldwide turnover.