4. The FCA's Conduct of Business and Client Assets Sourcebooks

Question 1

IMPORTANT: What is the aim of The Conduct of Business Sourcebook (COBS)?

Answer 1

To move the regulatory approach towards a better focus on outcomes rather than compliance with detailed and prescriptive rules. It also implemented the provisions of MiFID which relate to conduct of business.

Question 2

IMPORTANT: What is the impact of location on the application of the COBS rules?

Answer 2

The general application rule is based on geographical location and states that firms are subject to COBS if they carry on any of a range of activities from an establishment maintained by them or their appointed representative in the UK. SO if a French bank e.g. establishes a branch in the UK but doesn’t carry on business in the UK, then not subject to COBS
-COBS Handbook no longer applies to MiFID business of a UK MiFID firm carried on from an establishment in another EEA state.
-The rules in COBS that derive from MiFID apply to a Non-UK MiFID investment firm, EEA firms operating from a branch in the UK will be classified as a ‘third-country firm’ carrying out MiFID business within the UK.

Question 3

IMPORTANT: If a bank establishes a branch in the UK, under what circumstances will it be subject to the FCA Conduct of Business sourcebook?
a) Only if advising or selling is carried out be UK nationals
b) Only if its products or services are unique to the UK
c) Only if business is carried on within the UK
d) Under all circumstances

Answer 3

C

Question 4

IMPORTANT: What activities are subject to the COBS rules?

Answer 4

The activities which are subject to COBS are:
* designated investment business
* long-term insurance business in relation to life policies (so not all),
* accepting deposits – in part, eg, financial promotion rules, and rules on preparing and providing product information.

Question 5

To which one of the following activities do the conduct of business rules apply?
ALong-term insurance business in relation to life policies
BOffering car breakdown insurance
CCredit unions
DRegulated mortgages

Answer 5

A)
COBs rules apply to:
* designated investment business
* long-term insurance business in relation to life policies (so not all),
* accepting deposits – in part, eg, financial promotion rules, and rules on preparing and providing product information.

Question 6

IMPORTANT: Does COBS apply to appointed representatives directly or indirectly?

Answer 6

Indirectly

Question 7

MEM & IMPORTANT: What are examples of designated Investment business? Mifid instruments and Non-Mifid?

Answer 7

Dealing
Broking (/Overseeing)
Advising
Managing

MIFID instruments:
Shares
bonds
derivatives

Non-Mifid DI:
Packages products
-retail investment products

Question 8

When a firm provides designated investment business to a retail client, the training and competency requirements do not apply for which of the following?
A Advising and dealing on certain investments
B Managing investments
C Daily oversight of safeguarding assets
D Arranging deals in derivatives

Answer 8

D)
The rules apply for advising, dealing, managing and overseeing/broking on a daily basis. Doesn’t say ‘arranging’

Question 9

Under the FCA Training and Competency rules, who must be supervised?
A All staff performing any activity
B All staff performing specified activities
C Staff not yet deemed competent performing specified activities
D Staff not yet deemed competent performing any activit

Answer 9

B - Under the Training and Competency rules, firms must not allow an employee to carry on any of the
specified activities without appropriate supervision. Firms are required to ensure that employees are
appropriately supervised at all times.

Question 10

Which of the following is true of the training and competence rules?
A Authorised firms are required to ensure their employees arecompetent for their role in the firm under Principle forBusinesses 3, Management and Control
B Approved examinations must be obtained within one year ofworking for an authorised firm
C An employee must have passed the regulatory module beforedealing with professional clients
D An overseas individual may be allowed to sit just the regulatorymodule if they have at least four years relevant experienceoutside the UK

Answer 10

A

Question 11

Which of the following is true with regard to the Training and Competence Sourcebook?
A
Authorised firms are only required to ensure that theirapproved persons are competent for their role in the firm
B
FCA firm employees must have their competence regularlyreviewed
C
Appropriate examinations must be obtained for relevant roleswithin three years of working in the financial services
D
All employees must take appropriate examinations

Answer 11

B

Question 12

IIMPORTANT: An FCA firm must not knowingly deal for its own account until the clients for whom the publication was intended have has a reasonable time to react to it unless:

Answer 12

1. The firm is a market maker dealing the in the normal course of business (No matter what info they have they are obliged to trade the securities for liquidity)
2. Unsolicited client orders (if a client comes in and asks firm to deal then the firm is permitted)

Question 13

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?
A
Real-time financial promotions
B
Non real-time financial promotions
C
All financial promotions
D
Real-time and non real-time financial promotions

Answer 13

B - The general requirement for such a check is a requirement for non-real time (written) financial promotions only.

Question 14

IMPORTANT: What activities are partially exempt from COBS?

Answer 14

A range of COBS rules are disapplied, in certain cases, for firms carrying on ELIGABLE COUNTERPARTY BUSINESS. These include:
* General conduct of business obligations (such as inducements).
* Communicating with clients (including financial promotions).
* Provision of information about the firm, its services and its remuneration.
* Client agreements.
* Appropriateness requirements (non-advised services).
* Best execution and client order handling.
* Labelling of non-independent research.
* Information relating to designated investments

Question 15

When an appointed representative is communicating a promotion to retail clients, andmaking appointments, which of the following is not required?
A
The detailed risks of the investment
B
Whether the client wishes to continue
C
The caller’s name
D
A contact point to cancel the appointment

Answer 15

A - risks can be discussed at a later date.

Question 16

IMPORTANT : Do appointed representatives have to comply with the COBS rules?

Answer 16

No, appointed representatives are exempt, because they can carry out a range of regulated activities under the umbrella of their principal firm, which has accepted responsibility for the activity.

Question 17

IMPORTANT: How will a MiFID firm classify its client in relation to non-MiFID business?

Answer 17

MiFID laid down rules on how client categorisation has to be carried out for MiFID business. For non-MiFID business, the FCA uses the same client categorisation terminology, but the rules on how the categories must be applied are modified in some cases.

If a firm provides a mix of MiFID and non-MiFID services, it must categorise clients in accordance with the MiFID requirements, unless the MiFID business is conducted separately from the non-MiFID business.

Question 18

IMPORTANT Q: What are the three client categories? WHO HAS THE LEAST PROTECTION?

Answer 18

• a retail client
• a professional client (An entity required to be authorised or regulated to operate in the financial markets or large undertakings - Mifid = balance sheet of EUR20mln and Non-Mifid = net assets are at least £5m OR governments)
• an eligible counterparty (no large undertakings: E.G. credit institution, investment firm, insurance company, central bank, pension fund etc)
  The classification determines the level of protection the client receives, with retail clients being afforded the most protection, and eligible counterparties the least.

Question 19

MEM & IMPORTANT: A client is considered an eligible counterparty for the execution of orders. Which of the following is true?
AThe client receives regulatory protection for the execution of orders
BThe client will be classified as a per se professional client for advisory services
CThe firm must assess the client against large undertaking criteria
DNeither firm nor counterparty may transact due to potential conflicts of interest

Answer 19

B - Eligible counterparty (ECP) status only applies to eligible counterparty business, i.e. dealing activities. ECP status does not apply to advisory services. Any client considered an ECP for dealing will be a per se PC for advisory services.

Question 20

Which one of the following would automatically be treated as a per-se professional clientfor MiFID business?
A
A company with a balance sheet of €13m and a turnover of€30m
B
A Trust with a balance sheet of €22m and own funds of €1.5m
C
A company with own funds of €2.5m and a balance sheet of€12.5m
D
An authorised firm with a balance sheet of €18m and ownfunds of €32m

Answer 20

D - all authorised/regulated (btw you have to be authorised or exempt to be regulated) firms are treated as per se professional for both MiFID and Non-MiFIDbusiness.

Question 21

MEM & IMPORTANT: What are the criteria for reclassifying a retail client as an elective professional client?

Answer 21

• Qualitative test (MiFID and non): the firm has assessed their (or its) expertise, experience and knowledge and believes that they can make their own investment decisions and understand the risks involved

*Quantitative test (MiFID) :
- the client carried out 10 significantly sized transactions PER QUARTER on the relevant market OVER the past 4 quarters
- Client’s financial portfolio > €500,000 (cash deposits and financial instruments)
* the client works or has worked as a professional in the financial services sector for at least 1 year on a basis which requires knowledge of the transactions envisaged.

Assuming the client passes the qualitative and, for MiFID business, the quantitative test, the client must put in writing to the firm their wish to be reclassified

Question 22

A retail client wishes to opt up to a professional client. Which of the following is arequirement under the quantitative test?
A
10 trades in the previous quarter in the investment in question
B
Expertise, experience and knowledge of the investment inquestion
C
Portfolio of investment assets above €500K
D
At least 3 years relevant professional experience

Answer 22

C -
Not A because it’s at least 10 significant trades PER quarter in the last 4 QUARTERS. This statement isn’t enough.
Not D because it’s at least 1 year, not 3.

Question 23

An existing client approaches their firm and requests that they give him a lower level ofprotection. Which of the following would be appropriate action for the firm to take? The firm must:
A
Offer this level of protection based on specific clientinstructions
B
Only offer this level of protection if the client in question isalready deemed a professional client
C
Not offer this level of protection as if it were appropriate to doso it would have categorised the client as such already
D
First assess the client and then, if necessary, warn them of theadditional risks

Answer 23

D - they are asking to opt up so assess and then warn.

Question 24

Which of the following firms would be required to comply with the UK Conduct ofBusiness rules?
A
A UK subsidiary of a foreign firm writing life assurancebusiness for UK clients
B
A Japanese bank arranging hedging strategies for a UK basedcompany
C
A French company conducting business with a Germancompany
D
A UK bank arranging a commercial loan for a client in the UK

Answer 24

A: A package product
Designed Investment business -
Dealing
Broking (/Overseeing)
Advising
Managing
NOT arranging

MIFID instruments:
Shares
bonds
derivatives

Non-Mifid DI:
Packaged products
-retail investment products

Therefore, not B because it’s hedging (this is an exemption to being a specified investment even)
Not C because it’s nothing to do with the UK
Not D because it’s ARRANGING and loans arent the instruments

Question 25

IMPORTANT: Who are per se eligable counterparties?

Answer 25

-Authorised/Regulated firm -Central bank -Government -Supranational

Question 26

Which one of these is not a per se eligible counterparty? AInsurance company BUCITS scheme CLocal authority DSupranational organisation

Answer 26

C A and B are authorised/regulated firms

Question 27

IMPORTANT: Who can be an elective eligable counterparty?

Answer 27

The large undertaking firm (never an individual investor). No test.

Question 28

Which of the following could be categorised as an elective professional client? A An investor with a personal portfolio worth €100,000 and onaverage 20 transactions per quarter B A clerk at a financial services firm with, on average, fivetransactions per year C The head of research at a fund management firm with aportfolio worth €700,000 D An unauthorised firm with a balance sheet of €40m andturnover of €55m

Answer 28

C - As that's the quantative test for professional clients. Not D as that's criteria for a large undertaking (per se professional)

Question 29

*IMPORTANT*: Where a person with whom the firm is dealing (A) is acting as an agent of another person (B), who should the firm regard as the client? What are the exceptions to this?

Answer 29

The agent (A). Exceptions: -Written agreement between the firm and agent to treat B as the client -Purpose of the agency is to avoid duties owed to B (appointed representative)

Question 30

IMPORTANT: George has verbally agreed that Elaine should make some investments on his behalf. If Elaine approaches investment firm A to make an investment, and the firm knows that the agreement is in place, who would be deemed to be A's client and why? A_ George, because the firm knows that the agreement has been made verbally B) Elaine, because the firm knows that the agreement has been made verbally C) George because it doesn't matter how the agreement has been made, it is still his money D) Elaine, because it doesn't matter how the agreement has been made, it is her who has made the investment decision

Answer 30

A) SHOULD BE IN WRITING in order for the client to be Elaine

Question 31

Which one of the following is not defined as the client of a firm? A A client of an appointed representative of the firm B A person acting through an agent C A person to whom a financial promotion is communicated by the firm D A potential client

Answer 31

B) An agent is to be considered to be the client unless agreed otherwise (written agreement or appointed rep (then both are considered))

Question 32

IMPORTANT: What are the notification requirements to clients on their client categorisation?

Answer 32

New clients must be notified of how the firm has classified them. Before the services are provided, they must also be advised of their rights to request recategorisation and of any limits in their protections which will arise from this.

Question 33

In the absence of agreement to the contrary, what must the firm do if a per se eligiblecounterparty asks to be subject to conduct of business protections? A Re-categorise it as a retail client B Re-categorise it as a professional client C Recategorise it as an eligible counterparty D The firm has to refuse the request

Answer 33

B - the client must be recategorised as a professional client and given more protection. A would be too drastic - If they request, they can also be classified as a retail client.

Question 34

A per se professional client asks an authorised firm for it to be categorised as a retailclient for extra protection for MiFID business. Which is TRUE about the firm's response? A A report of market manipulation should be madeIMMEDIATELY to the FCA B Re-categorisation is possible without telling the client C The firm would enter into a written agreement regarding re-categorisation D Although the firm must do it, they can wait until the client hassigned a risk warning

Answer 34

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

Question 35

IMPORTANT: What is the overriding principle to be applied in determining the categorisation status of a client? A Clients are categorised as retail or professional according to their declared personal wealth or balance sheet size if a corporate entity B Any client is a retail client unless they meet the criteria of a professional investor or eligible counterparty C Clients are first categorised as - US/Non-US; then EU/Non-EU and finally UK/Non-UK D All clients are categorised as retail or professional according to how many years experience they have of using investment products

Answer 35

B

Question 36

**IMPORTANT Q**: When is a firm required to provide a client agreement? Unless? What types of client does it involve?

Answer 36

In good time before the retail client is bound by the agreement, or before the provision of investment services, (whichever is earlier).UNLESS THE FIRM ACT AS PRINCIPAL WITH AN INSURANCE CONTRACT. RETAIL (mifid and non-mifid) AND PROFESSIONAL (MIFID ONLY).

Question 37

According to the conduct of business rules and in relation to MiFID business, a firm musthave in place a client agreement when it carries on: A Designated investment business for a retail client only B Eligible counterparty business C Any regulated activity for a retail client and a professional clientonly D Designated investment business for a retail client and MiFIDbusiness for a professional client

Answer 37

D

Question 38

A retail client who is habitually resident overseas does not wish to be sent a basicagreement letter for insurance business. The firm should: A Report them to the FCA B Send them the client agreement regardless C Not send them a client agreement D Not do business with them

Answer 38

C - Effecting insurance contracts is an exception to the rule requiring retail clients to be sent a clientagreement. The location of the client is irrelevant

Question 39

Under which of the following circumstances do the conduct of business rules not require a firm to enter into a client agreement? AThe client is habitually resident outside the UK BThe firm has established, by taking reasonable steps, that the client does not want to enter into such an agreement CThe client is habitually resident outside the UK and the firm has established, by taking reasonable steps, that the client does not want to enter into such an agreement DThe client enters into an insurance contract with the firm as principal

Answer 39

D

Question 40

*IMPORTANT Q*: For which type of business must firms retain client agreement records indefinitely? a) Home reversion plans b) long-term care insurance c) Pension opt-outs d) Endowment mortgages

Answer 40

C) Pension transfers, pension opt-outs or freestanding additional voluntary contributions.

Question 41

*IMPORTANT*: What information must be disclosed prior to providing services?

Answer 41

* the firm and its services * designated investments and proposed investment strategies, including appropriate guidance on, and warnings of, the risks associated with investments in those designated investments or in respectof particular investment strategies * execution venues * the costs and associated charges.

Question 42

IMPORTANT: When is a firm required to disclose any dealing comission arrangements to new customers? a) On completion of the first transaction in designated investment business b) Only when it signs a customer agreement c) Prir to conducting any designated investment business d) When the firm sends out the first valuation

Answer 42

C, others include: * the firm and its services * designated investments and proposed investment strategies, including appropriate guidance on, and warnings of, the risks associated with investments in those designated investments or in respectof particular investment strategies * execution venues * the costs and associated charges.

Question 43

IMPORTANT Q: If a firm is unable to provide a professional client, in advance, with a total price for all costs and charges which will be incurred, what action should it take? a) Defer providing the service b) Quote a max amount c) Disclose the calculation basis d) Specify the date it will be available

Answer 43

C) so that the client can verify and clarify them later

Question 44

IMPORTANT Q: Information about the firm that the firm must provide to clients or potential clients:

Answer 44

* the name and address of the firm, including the contact details necessary to enable the client to communicate effectively with the firm * in respect of MiFID business or equivalent third-country business, the languages in which the client may communicate and receive documents and other information from the firm * the methods of communication to be used between the firm and the client, including those for the sending and reception of orders * a statement of the fact that the firm is authorised and the name and contact details of the competent authority enabling it * if the firm is acting through an appointed representative or, where applicable, a tied agent, a statement detailing this fact, specifying in which EEA state the appointed representative or tied agent is registered is required * the nature, frequency and timing of reports on the performance of the service provided by the firm to the client, in accordance with the rules on reporting to clients on the provision of services * information about the firm’s CONFLICT OF INTEREST POLICY, a summary of the firm’s policy, including the manner in which the firm will ensure fair treatment of the client and that further details are available on request. That's retail, professional and eligible counterparty clients.

Question 45

Client information should be provided in good time before the provision of the firm’s services. But when may the firm provide the information immediately after the provision of services?

Answer 45

a. at the request of the client, the agreement was concluded using a means of distance communication which prevented the firm providing the information beforehand b. the firm complies with the rules in relation to voice telephone communications. The disclosures must be made in a durable medium or, if the website conditions are satisfied, via the firm’s website.

Question 46

What is durable medium?

Answer 46

A durable medium is paper, or any instrument which lets the recipient store the info so that they can access it for future reference for an appropriate time and on an unchanged basis.

Question 47

IMPORTANT Q: For the purposes of the FCA Rules, the term 'durable medium' excludes websites unless they meet prescribed requirements relating to: a) size and storage b) storage and retrieval c) retrieval and cost d) cost and size

Answer 47

B) A durable medium is paper, or any instrument which lets the recipient store the info so that they can access it for future reference for an appropriate time and on an unchanged basis. It includes storage on PC but excludes internet sites unless they meet th requirement in relation to STORAGE AND RETRIEVAL

Question 48

IMPORTANT: In line with the FCA Conduct of Business Sourcebook, what method of information storage meets the requirements for a durable medium? A Wealth manager's website B Financial Times website C Email from an investment manager D Sales call between investment manager and client

Answer 48

C) A durable medium is paper, or any instrument which lets the recipient store the info so that they can access it for future reference for an appropriate time and on an unchanged basis.

Question 49

*IMPORTANT Q*: Where the conduct of business sourcebook requires information to be provided to a client, the firm is permitted to provide this by means of a website subject to which one of the following conditions? a) The client must specifically agree to this approach b) The client must be a market counterparty c) The firm must hold exempt status under the Data Protection Act d) The firm must be a non-MiFID firm

Answer 49

A, evidence needs to exist that client has regular access to the internet

Question 50

IMPORTANT Q: In order for a firm to treat customers fairly and meet the FCA's consumer outcomes, a client who wishes to make a complaint: a) Should not fave any unreasonable barriers b) Must receive a response within 7 days c) Will be eligable for fixed levels of compensation d) Must not be communicated with directly.

Answer 50

A

Question 51

IMPORTANT: What is the Retail Distribution Review (RDR) and who does it apply to (what clients)?

Answer 51

* Applies to retail clients *It says that firms making personal recommendations to retail clients must either be independent (owe duty of care to customer e.g. an investment manager) or restricted (owe duty of care to employer and restricted to only certain products or the whole market)

Question 52

Under the retail distribution review (RDR), financial advisers must complete CPD. Whatdoes the abbreviation CPD refer to? AContinuous personal development BContinuous psychological development CContinuous professional development DContinuous physical development

Answer 52

C

Question 53

Under the regime created by the retail distribution review, which of the following is TRUE? AAdvisers must only charge an up-front fee for advice BFees should be itemised, based on the product, and disclosed up-front CThe charge can be ongoing and based on a percentage of the funds invested DPayment of commissions that are already in place for previous advice must continue

Answer 53

C) 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 54

*IMPORTANT Q*: If a firm carrying on UK MiFID business receives an instruction to provide investment or ancillary services for a client through another UK MiFID firm or is subject to equivalent regulations, what can the firm rely on?WHO RETAINS RESPONSIBILITY FOR THE COMPLETENESS AND ACCURACY OF THE INFORMATION:the firm, 3rd party, both or depends on agreement?

Answer 54

* information relayed about the client to it by the third party firm, and * recommendations that have been provided by the third party firm. The third-party firm retains responsibility for the completeness and accuracy of client information, and the appropriateness of any recommendations which are provided. The firm takes responsibility for concluding the services or transactions

Question 55

IMPORTANT Q: Under FCA rules all financial promotions to a retail client are obliged to contain which one of the following items? a) Statement requesting future contact b) The firm's name c) Comparisons with different types of investments d) Past performance information

Answer 55

B

Question 56

In which of the following circumstances may an unauthorised firm make a financial promotion? It: A Is never permitted to make a financial promotion B Is permitted to make a financial promotion only if the content and inducement have been approved by an authorised person C Is permitted to make a financial promotion only if the content, but not the inducement, have been approved by an authorised person D Is always permitted to make a financial promotion

Answer 56

B

Question 57

IMPORTANT: A firm produces a circular to existing retail clients promoting an Individual Savings Account (ISA) product. What must this promotion contain? A A statement that the tax treatment of their ISA product is guaranteed until the next general election B A statement that tax treatment depends on individual circumstances and is subject to change C Information on how to obtain independent tax advice concerning the tax treatment for individuals buying their product D Details of any proposed changes to the tax rules concerning ISA's published by HMRC in the last year

Answer 57

B

Question 58

IMPORTANT Q: The rules on financial promotions apply to firms communicating or approving a financial promotion other than: a) A promotion for a non-investment insurance contract b) A promotion for an authorised collective investment scheme c) A stakeholder pension d) A endowment policy

Answer 58

A Others not applied to are: qualifying credit, a home purchase plan, home reversionn plan, a promotion for a non-investment insurance contract or the promotion of an unregulated CIA which it's not permitted to approve.

Question 59

IMPORTANT: what type of client/s do the financial promotion rules apply to?

Answer 59

Retail only as they are most vulnerable

Question 60

Important Q: An appointed representative of an insurance company wishes to make a financial promotion. Who is responsible for its content? a) Another authorised firm with specific permission to approve such promotions b) The appointed representative c) Approval is not required as its exempt d) The authorised insurance company

Answer 60

D) Techinically, a fin promotion communicated by an authorised rep is an exempt promotion and doesn't need approval but the authorised firm is responsiuble for the content and any actions of its authorised reps.

Question 61

IMPORTANT Q: In accordance with the Conduct of Business Sourcebook, a firm is not allowed to approve a financial promotion if: a) The firm is less than 12 months old b) The promotion is classed as real-time c) The firm only offers one class of product d) the promotion relates to a pension transfer

Answer 61

b) firms may not approve real-time promotions e.g. personal visits, telephone conversation or other interactive dialogue.

Question 62

IMPORTANT: With regard to the approval of a non-real time financial promotion, which of the following is true? A firm: ACan use any third party to approve the financial promotion but it remains the responsibility of the firm BCannot use a third party to approve the financial promotion CCan use any authorised third party to approve the financial promotion and the promotion remains the responsibility of the firm DCan use any authorised third party and the promotion becomes the responsibility of the third party

Answer 62

D In approving a financial promotion, the approving firm takes on the responsibility of the promotion.

Question 63

Under FCA regulations, which of the following is true of a written financial promotion? A A firm may not arrange for a third party to carry out theconfirmation exercise B A firm can arrange for a third party to carry out the confirmationexercise and the responsibility for the promotion lies with thethird party C A confirmation exercise is not required for a non-real timepromotion D A firm can arrange for a third party to carry out the confirmationexercise and the responsibility for the promotion remains withthe firm

Answer 63

D - CONFIRMATION IS NOT THE SAME AS APPROVAL. Approval would lead to theapproving firm taking on the responsibility. Confirmation, effectively proof reading, would leave theresponsibility with the original firm.

Question 64

When confirming whether a financial promotion complies with the financial promotionsregulations, which of the following is TRUE? A There is no need for authorised firms to confirm compliance B Confirmation of compliance must be made by a person withappropriate expertise C Confirmations of the promotions must be made by thecommunicating firm D Confirmations of the promotions must be made by somebodyother than the communicating firm to ensure no conflict ofinterest

Answer 64

B- Then If a firm is not authorised, they must get the promotion checked by an authorised firm.

Question 65

IMPORTANT: What is the purpose of the financial promotion rules?

Answer 65

To ensure that promotions are identified as such, and that they are fair, clear and not misleading.

Question 66

****IMPORTANT Q****: Which two of the Principles for Businesses are amplified by the financial promotion rules and communication?

Answer 66

The financial promotion rules are consistent with Principles 6 and 7 of the Principles for Businesses: * Principle 6 – a firm must pay due regard to the interests of its customers and TREAT THEM FAIRLY. * Principle 7 – a firm must pay due regard to the information needs of its clients and communicate information to them in a way which is CLEAR, FAIR AND NOT MISLEADING.

Question 67

The FCA rules on financial promotions expand which Principle for Businesses? A Market Conduct B Financial Prudence C Customers' Interests D Clients' Assets

Answer 67

C

Question 68

IMPORTANT Q: A financial promotion issued to retail clients is only required to give a balanced impression of short, medium and long-term prospects if: a)the investment term is 15 years or more b)The investment charges are front-end loaded c) A quoted yield is included d) Paste performance data is included

Answer 68

A quoted yield is included

Question 69

IMPORTANT Q: Where a financial promotion is issued to retail clients, the rules state that it must be presented in a way likely to be understood by: a) financial inexperienced adults b) the average member of the target group c) any reasonably educated person d)a typical existing customer

Answer 69

c) average member of the target group

Question 70

IMPORTANT Q: A firm is sending out a financial promotion to a group of retail clients. Under the COBS Financial promotion rules, it must: a) relate only to packaged products b) be cleary identifiable as a promotion c)relate only to products produced by the firm itself d)be sent to intermediaries for distribution

Answer 70

b

Question 71

IMPORTANT Q: If an unauthorised person communicates a promotion to gorups other than those for which limited approval has been received, then they: a)must include a warning within the communication b) must ask the recipient to acknowledge this restriction c) will commit an offence under the regulations d) will be liable for an consequential loss

Answer 71

c

Question 72

IMPORTANT: A person must NOT communicate a financial promotion unless:

Answer 72

-It is an authrosied person -The content has been approved by an authorised person.

Question 73

IMPORTANT: A firm that communicates a financial promotion produced by a third party would never be in breach of the rules if:

Answer 73

-It has established that an authorised firm has approved the promotion -It communicates the promotion only to those it was intended (e.g. purely targeting a high net worth people don't widely circulate) -The promotion is not ceased to be fair, clear and not misleading

Question 74

IMPORTANT Q: A financial promotion is issued by an FCA-authorised firm and includes a reference to the FCA but also refers to matters not regulated by the FCA. Which one of the following is most accurate: a) The promotion is not allowed b) the promotion is allowed, but no mention should be made of the FCA c) the promotion must not be communicated to retail clients d)the promotion must make it clear which matters are not regulated by the FCA

Answer 74

D

Question 75

IMPORTANT: What types of communication are subject to the fair, clear and not misleading communication rule?

Answer 75

Firms must ensure that all communications relating to designated investment business, including financial promotions, are fair, clear and not misleading.

Question 76

IMPORTANT Q: If ABC are appointed representative of firm XYZ, then: A) ABC's clients will all be classed as XYZ's market counterparty clients b) ABC must process all transactions onan execution-only basis c) XYZ is responsible for the compliance of ABC's financial promotions d) XYZ is not permitted to have any other appointed representatives.

Answer 76

C

Question 77

Important: Financial promotion approval rules:

Answer 77

Before a firm approves a financial promotion, it must confirm that it complies with relevant regulations. if financial promotion is communicated by a 3rd party (e.g. appointed representatives) it's not in breach if: -An authorised firm has approved the promotion -It communicates the promotion only to those it was intended -The promotion has not ceased to be fair, clear and not misleading.

Question 78

MEM & **IMPORTANT Q**: List the main exceptions to the financial promotion approval rules.

Answer 78

The financial promotion rules are disapplied in certain cases, notably for excluded communications. These are communications which: * are exempt under the Financial Promotion Order (FPO – an HM Treasury order which allows unauthorised persons to communicate specified types of promotion, or, in specified circumstances, without the communication having to be approved by an authorised firm), or * originate outside the UK and cannot have an effect within the UK, or * are overseas communication which meets the criteria for exemption under the FPO, or * are subject to (or exempted from) the TAKEOVER CODE or similar rules in another EEA state, or * are PERSONAL QUOTES OR ILLUSTRATION FORMS * are ONE-OFF promotions that are not cold calls (subject to certain conditions), or * are promotions about unregulated CISs which are permitted because they fall within one of the exemptions in FSMA 2000 (Promotion of Collective Investment Schemes (Exemptions) Order 2001).

Question 79

The financial promotion rules do not apply to marketing communications in respect ofwhich one of the following? A A predator company posting details of a takeover toshareholders B An authorised firm communicating details of derivativeinvestments to clients C An independent financial adviser communicating its services inrelation to pensions D An insurance company communicating a financial promotionregarding life policies

Answer 79

A - this is the takeover code

Question 80

What is a prospectus and what are the rules of financial promotions around this?

Answer 80

Prospectus - a doc that gives enough info to investors so they can decide whether or not to buy their shares or bonds When advertising/fin promoting the issue you need to make it clear that it is not a prospectus but make clear where they can get hold of the prospectus & that the advert doesn't contradict the prospectus

Question 81

IMPORTANT: The COBS rules are dis-applied to which one of the following types of financial promotions? A) Communications subject to the Takeover Code B) Direct offer financial promotions c) Investments on which the client has requested communication d) Unwritten promotions

Answer 81

A) think the exceptions to fin promo rules

Question 82

IMPORTANT: A professional client receives a financial promotion. Which one of the following statements relating to this promotion is TRUE? A Promotions to professional clients must always be in writing and identifiable as such B The financial promotion rules do not apply to professional clients C The promotion need not be clearly identifiable as a financial promotion as it is being made to a professional client D As the client is either a retail client or a professional client the promotion does not need to be identifiable as such

Answer 82

C: because financial promotion rules only apply to retail clients, not professional

Question 83

*IMPORTANT Q*: A financial promotion for an overseas firms should explain: a) Any credit risks associated with the product b) Whether the firm has recevied UK regulatory approval c) If the underlying investment contains any forms of guarantee d) The extent to which the UK compensation scheme may apply

Answer 83

d) Firms aren't permitted to communicate or approve promotions for overseas firms unless the promotion explains whether and to what extent to which the UK compensation scheme arrangements will be available.

Question 84

Firm XYZ is an authorised person in the UK and communicates a promotion from Firm JKL, an authorised overseas person. Which of the following is TRUE? AThere would be no compensation cover BAs the promotion is being relayed through a UK firm the compensation scheme is available CThe extent to which the compensation will or will not be available must be stated DThe compensation cover follows home state rules

Answer 84

C - It's not compulsory to have a compensation scheme, but it's good to have as it gives clients more confidence if something were to go wrong.

Question 85

Who performs the regulatory check of a mail-shot sent by an appointed representative? A The compliance department of the appointing firm B The marketing department of the appointing firm C The overseer of the appointed representative who authorisedthe mail shot D The Financial Conduct Authority

Answer 85

A - A mail-shot is a non-real time financial promotion. The rules require each promotion to be signed off by compliance or another employee with sufficient knowledge to do so. (of an authrosied firm?)

Question 86

A fund manager sends out a mailshot blindly to several clients. The email containsinformation regarding the manager's products and his website. Which of the following is coveredunder the Distance Marketing Directive? A The email but not the website B The website but not the email C Neither the email nor the website D The email and the website

Answer 86

D - Since the email promotes the website, both would be covered under the directive. They are both communicating to clients from a distance.

Question 87

IMPORTANT: What is a prospectus advertisement?

Answer 87

Any type of communication (eg, TV, press, email, letter, text and brochure) which specifically promotes the offer to subscribe or acquire securities.

Question 88

*IMPORTANT Q*: All prospectus advertisements must contain a prominent statement that: a) No other prospectus will be issued b) the advertisment is required under Section 85 of the FSMA c) It is an advertisment not a prospectus d) The FCA has approved the advertisment

Answer 88

C) This should be a bold statement. INvestors should not subscribe to any transferable securities which it refers to ,except on the basis of information in the prospectus

Question 89

*IMPORTANT*: A bank advertises securities to the public. What must be included in this advertisement? A The name of the bank's complaints officer B Details of where investors can obtain the full prospectus C The address of the Financial Conduct Authority D Information on how to obtain a translation of the advertisement to any official EU language

Answer 89

B

Question 90

MEM no. of years & **IMPORTANT Q**: Firms must ensure that information including indications of past performance is such that (&how many years do you have to display of past performance?):

Answer 90

*the past performance is NOT THE MOST PROMINENT ELEMENT/FEATURE OF A PROMOTION * it COVERS AT LEAST THE IMMEDIATELY PRECEDING FIVE YEARS (or the whole period for which the investment has been offered, and/or the financial index has been established, and/or the service has been provided if this is less than five years); in any event, it must show complete 12-month periods * reference periods and relevant sources are clearly shown * there is a clear and prominent warning that the data and/or figures refer to the investment’s past performance and that past performance is not a reliable indicator of future results * if the figures are in a currency other than that of the EEA state in which the client is resident, that the currency is stated and there is a warning about the possible effects of currency fluctuations, and * if the performance is cited gross, that the effects of commissions, fees, tax and other charges are disclosed.

Question 91

When an FCA firm undertakes a promotion to a retail client, which is TRUE? A Past performance can only be given for products for whichthere is five year performance history B The past performance must be the most prominent feature C Past performance data is mandatory when promoting to retailclients D There must be a warning that any performance data is not areliable indicator of future performance

Answer 91

D - not A because it 1) didnt specify completing in 12 month periods and 2) for whole life of the investment if it isn't 5 years old.

Question 92

IMPORTANT: COBS 4.6 stipulates that the firms giving figures on past performance must: a) not make these the most prominent feature of the communication b) relate the figures to an investment or financial index c) Ensure that they cover at least the immediately preceding 3 years d) Disclose the effects of commissions, fees or other charges only if performance is quoted net

Answer 92

A B is for simulated, the period must be 5 years or life of investment, and D is future performance

Question 93

What is a simulated past performance?

Answer 93

firms give figures based on simulated (ie, notional, not having taken place in reality) past performance because the product or service does not have a track record

Question 94

IMPORTANT Q: A firm must ensure that the simulated past performance figures:

Answer 94

* relate to an investment or FINANCIAL INDEX * are based on the actual past performance of one or more investments and/or indices which are the same as, or underlie, the investments being simulated * meet the rules set out in relation to past performance (except for the statement that they relate to that investment’s past performance, since they do not), and * contain a prominent warning that they relate to simulated past performance and that past performance is not a reliable indicator of future performance.

Question 95

Firms must ensure that information containing an indication of the possible future performance of relevant business, a relevant investment, a structured deposit or a financial index:

Answer 95

* is not based on, or does not refer to, simulated past performance * is based on reasonable assumptions supported by objective data * if it is based on gross performance, discloses the effects of commissions, fees, tax and or other charges, and * contains a prominent warning that such forecasts are not reliable indicators of future performance.

Question 96

IMPORTANT Q: Which of the following is a non-real-time communication? a) Email b) Telephone conversation c) Cold-call d) Group presentation

Answer 96

A

Question 97

What is Unsolicited Real-Time Communications (Cold Calling)?

Answer 97

'Cold calling' is the common term that refers to the practice of authorised persons or exempt persons contacting people without a prior appointment with a view to communicating a financial promotion to them.

Question 98

*IMPORTANT Q*: When can cold calling be permitted? and not permitted?

Answer 98

Cold calls can be made to retail clients where there is an existing relationship and the client would envisgage receiving such a call, the call related to a generally marketable packaged product which is neither a HIGHER VOLATILITY FUND OR A LIFE POLICY LINKED TO SUCH A FUND. Or it can relate to a controlled actiivity relating to a limited range of investments including deposits and readily realisable investments but NOT warrants or generally marketable non-deared package products. So OIC ISAs can be cold called about. but not unregulated colective investment schemes, financial futures or warrants.

Question 99

An unsolicited real-time communication is simply an elaborate regulatory description of acold call, but what can be promoted via such a communication? A Readily realisable securities which include warrants B A personal pension C Higher volatility fund D Geared packaged products

Answer 99

B: A firm may only make a cold call in one of the following three circumstances: - The recipient of the cold call has an established existing client relationship with the firm andenvisages receiving cold calls - The cold call relates to a generally marketable product (which is not a higher volatility fund) - The cold call relates to activities where the only investments involved are readily realisablesecurities (other than warrants) and generally marketplace non-geared packaged products.

Question 100

Which of the following complies with COBS rule 4.8 on cold calls? Assume all calls areunsolicited by the client. A A call to a prospective client who would envisage a call werethey to become a client B A call that relates to a retail investment product, such as aninvestment trust share C A call to a retail client, where the investment being sold is ablue-chip stock D A call to a retail client, relating to a controlled activity in readilyrealisable securities

Answer 100

D - readily realisable, generally marketable product.

Question 101

What is a financial promotion?

Answer 101

An invitation or inducement to engage in investment activity, communicated by a person in the course of business (basically an advert of marketing)

Question 102

IMPORTANT Q: What is Churning?

Answer 102

'Churning' is the activity of over-dealing and/or trading more frequently for a client in order to generate additional fees and/or commissions for the firm. It is relevant where, for example, a firm manages a client’s portfolio on a discretionary basis.

Question 103

What is Switching?

Answer 103

'Switching' is the activity of selling one investment and replacing it with another to get more fees.

Question 104

IMPORTANT: What are the rules on churning and who they do they apply to?

Answer 104

In the context of assessing suitability, a series of transactions that look suitable in isolation may not be so if the recommendations and/or the trading decisions to make them are so frequent as to be detrimental to the client. Firms should bear in mind the client’s investment strategy when determining how frequently the firm should deal for them, including determining whether or not it is suitable to switch between packaged products.

Question 105

IMPORTANT: A client's portfolio is managed on a discretionary basis. A key risk to the client in these circumstances is that: A the FCA's Conduct of Business Rules will only apply on a limited basis B churning may take place C an assessment of suitability on the client's portfolio will not be required because the client will be a professional client D switching will always result in the payment of additional fees

Answer 105

B

Question 106

According to guidance in the FCA handbook which of the following would BEST indicatethat an investment manager of a client portfolio was engaged in churning? A Excessive activity in a client's portfolio containing shares B The investment manager acting in collusion with clients tosecure a dominant position over the supply of or demand foran investment C The sale or purchase of an investment from the portfolio wherethere is no change in beneficial interest or market risk D Excessive activity in a client's portfolio containing packagedproducts

Answer 106

A - Not D as excessive activity in a client's portfolio containing packaged products is switching.

Question 107

IMPORTANT: When should we apply the suitability rules?

Answer 107

-Acting as investment manager (discretionary services) -Personal recommendation (Advisory services) NOT EXECUTION ONLY.

Question 108

IMPORTANT: What are the purposes of the suitability rules for the client(s)?

Answer 108

The facts that the firm outght to reasonably be aware of in order: -To meet the client's investment objectives (PC & RC) -Client is able to bear financial risks (elective PC and RC) -Client has necessary knowledge and experience to understand those risks (RC) Applies to retail clients (MiFID&non-MiFID) and professional clients (MiFID only)

Question 109

To assess suitability for a retail client which one of the following, regarding the client, isthe first thing that a firm should obtain from the client? A Appetite for risk B Financial commitments C Knowledge and experience D Preferred investment types

Answer 109

C - Although all four might be considered for suitability, the first thing to be assessed would be the client'slevel of knowledge and experience as this would then lead in to the other areas (e.g. to understand risks)

Question 110

IMPORTANT: What happens when the client refuses a fact find for suitability rules?

Answer 110

It's not possible for firm to act in a discretionary capacity.

Question 111

IMPORTANT: What happens when the client refuses a fact find for suitability rules?

Answer 111

It's not possible for firm to act in a discretionary capacity.

Question 112

IMPORTANT: What are the exceptions to the requirement to provide a suitability report?

Answer 112

-if the personal recommendation is made by a FRIENDLY SOCIETY IN CONNECTION WITH A SMALL LIFE POLICY sold by it, with a premium not exceeding £50 a year or (if payable weekly) £1 a week -A regulated CIS where the firm is acting as investment manager; -The client is habitually resident outside the EEA; -Increases to a regular premium in an existing contract; and -An additional single contribution to a product where a single contribution has already been paid

Question 113

A financial adviser makes a personal recommendation on a retail investment product to a retail client. For which of the following reasons would the adviser NOT need to send out a suitability report? The recommendation relates to: ATransactions in a regulated CIS BThe surrender of a stakeholder pension CMaking withdrawals from a short-term annuity DA small life policy from a friendly society

Answer 113

D

Question 114

MEM & ***IMPORTANT Q***: When should the suitability report be provided in terms of timing, for: -Life policies -cash isas -personal pension schemes -any other case

Answer 114

* in connection with a life policy, before the contract is concluded – unless the necessary information is provided orally, or cover is required immediately (in which case the report must be provided in a durable medium immediately after the contract is concluded), or * in connection with CASH ISAs and a personal PENSION scheme or a stakeholder pension, if the cancellation rules apply, within 14 days of concluding the contract, or * in any other case, before the transaction is concluded unless the agreement is concluded using a distant marketing communication and if the client consents as soon as possible after the transaction is effected or executed.

Question 115

IMPORTANT: A firm makes a personal recommendation in connection with a life policy, where this cover is required immediately. When must a suitability report be provided? a) Before the contract is concluded b) Immediately after the contract is concluded c) Within 14 days of concluding the contract d) As soon as possible after the transaction is concluded

Answer 115

B: in connection with a life policy, before the contract is concluded – unless the necessary information is provided orally, or cover is required immediately (in which case the report must be provided in a durable medium immediately after the contract is concluded),

Question 116

After completing the sale of a personal pension to a retail client, the advisory firm must follow up with which of the following? AA suitability report within 14 calendar days BCancellation rights after 14 calendar days CA suitability report within 7 calendar days DCancellation rights after 30 calendar days

Answer 116

A - remember timing of suitability report for pension plan - 14 cal days. Cancellation rights need to be told at the point of sale.

Question 117

IMPORTANT: Which client(s) should a suitability report be created for?

Answer 117

Retail clients

Question 118

IMPORTANT: A firm must provide a client with a suitability report if it makes a personal recommendation. This applies to any investment advice to acquire or sell any investment including:

Answer 118

equities derivatives structured products, and unregulated collective investments.

Question 119

IMPORTANT Q: How is the suitability assessment different for Professional Clients&Elective Professional Clients compared to Retail clients? IS A FIRM ALLOWED TO ASSUME THAT A PER SE PROFESSIONAL CLIENT OR AN ELECTIVE PROFESSIONAL CLIENT CAN BEAR INVESTMENT RISKS CONSISTENT WITH THEIR OBJECTIVES?

Answer 119

A firm is entitled to assume that a professional client (per se and elective professional clients) in UK MiFID has the necessary experience and knowledge in that area. A firm is entitled to assume that a per se professional client is able to financially bear any related investment risks consistent with their investment objectives. A firm, however, is not permitted to make this same assumption for elective professional clients.

Question 120

IMPORTANT Q: Who are 'per se' professional clients?

Answer 120

-Authorised/Regulated firms -Central Bank -Government -Supranational -Large Undertaking -Other institutional investors

Question 121

MEM & IMPORTANT: How is a company labelled as a 'large undertaking', criteria? (MiFID and non-MiFID)

Answer 121

MiFID: 2/3 of: Balance sheet: EUR 20m Net turnover: EUR 40m Own funds: EUR 2m Non-MiFID: 2/3 of: Balance sheet: 12.5m Net turnover: 25m Avr no. 250 employees

Question 122

IMPORTANT: What is an elective professional client?

Answer 122

A retail client that has opted up. Needs to pass the qualative and quantative tests.

Question 123

What is an insistent client?

Answer 123

1. The firm has given the client a personal recommendation 2. The client decides to enter into a transaction which is different from that recommended by the firm in the personal recommendation, and 3. The client wishes the firm to facilitate the transaction.

Question 124

What information should be communicated to an Insistent Client?

Answer 124

* that the firm has not recommended the transaction and that it will not be in accordance with the firm’s personal recommendation * the reasons why the transaction will not be in accordance with the firm’s personal recommendation * the risks of the transaction proposed by the insistent client, and * the reasons why the firm did not recommend that transaction to the client. Then the firm should obtain an acknowledgement from the insistent client that: * the transaction is not in accordance with the firm’s personal recommendation, * the transaction is being carried out at the request of the client.

Question 125

IMPORTANT: what kind of business do you apply a appropriateness test to?

Answer 125

Execution only business for COMPLEX instruments only (e.g. derivatives and structured products & warrants)

Question 126

IMPORTANT: What client(s) do you test appropriateness for?

Answer 126

Professional and retail (MiFID and non-MiFID) and retail direct offers.

Question 127

IMPORTANT: Summary of when you do suitability or appropriateness

Answer 127

1. Does service provide management services: Y, suitability applies. N: 2. Is the investment a complex product? N: Neither suitability or appropriateness, Y: 3. is the product promoted through a direct offer? No: Appropriateness applies, Y: 4. Is the investment for a retail client? Y: Appropriateness applies, N: Neither

Question 128

IMPORTANT: In assessing the appropriateness of an investment for a client, a firm must: A understand the risk appetite of the client B fully disclose all charges associated with the investment C determine the client’s understanding of the investment D clarify where an investor’s funding has come from

Answer 128

C

Question 129

A firm engaging in a transaction triggered the COBS requirement to display proof ofappropriateness for the transaction because the client: A Was resident outside the UK B Engaged in execution only trades C Requested it D Had been categorised as a professional client

Answer 129

B - Appropriateness is for non-advised trades and protects both professional and retail clients. The mostlikely factor to trigger the requirement to assess appropriateness is the execution only service,specifically when relating to a complex product.

Question 130

If providing execution only services in a non-complex product, the only information a firmrequires is the client's: A Name and address B Financial situation C Experience and expertise D Investment objectives

Answer 130

A B-D reflect the rule on suitability and appropriateness, and this situation is execution only of NON-COMPLEX products, so neither are needed. Therefore we only need client's name and address.

Question 131

*IMPORTANT*: What is a direct offer? What must it provoide info about?

Answer 131

A financial promotion that contains a method of response for the client to invest ina product (e.g. an application form). Info: -The firm and its services -Safekeeping of client investments and money -Costs and charges

Question 132

IMPORTANT: Which of the following details must be included in direct offer promotions?: a) An explanation that any tax treatment will depends on each client's individual circumstances b) The effects of commissions, fees, tax and other carges c) A prominent warning that such forecasts are not reliable indicators or future performance d) Prescribed information about the safekeeping of client investments and money

Answer 132

D) Info included: -The firm and its services -Safekeeping of client investments and money -Costs and charges effects on commissions fees, taxes etc relate to future performance, and statements about forecasting relate to simulated past performance

Question 133

IMPORTANT Q: An authorised firm is providing execution-only services tor etail clients in relation to warrants. However, the firm has doubts as to the appropropiateness of the deal for a particular retail client. Which of the following best describes how the firm should proceed? a) There's a requirement for appropriateness to be assessed for any execution-only business b) The firm must warn the client before proceeding c) The firm must reject the order d) The firm can proceed regardless because the transaction relates to warrants

Answer 133

B

Question 134

IMPORTANT Q: A direct offer promotion must contain a statement which indicates that: a) The offer has been finalised and is awaiting regulatory approval b) The issuer is a registered comapny with limited liability c) A prospectus has been published and is available d) A independent lawyer has approved its publication

Answer 134

C)

Question 135

IMPORTANT Q: A firm will always be required to assess appropriateness for an execution-only sale of a financial instrument which: a) Invests across a range of funds b) Could involve a liability higher than the purchase price c) Invests in shares listed in a third-country markets d) Is a holding in a UCITS fund

Answer 135

B. If certain conditions ar emet, firms don't have to assess appropriateness for execution-only non-complex fin instruments. An instrument however cannot be considered non-complex if it could involve the client in a liabilty greater than the cost of aquiring it.

Question 136

IMPORTANT Q: When do firms not have to take an appropriateness assessment?

Answer 136

* the service is EXECUTION-ONLY, or for the receipt and transmission of client orders, in relation to particular financial instruments (below, this does meant there are fin instruments that you do for exec-only though), and is at the client’s initiative, and * the client has been clearly informed that the firm is not required to do so in this particular case, and the client will therefore not get the benefit of the protection afforded under the rules on assessing suitability, or * the firm complies with its obligations regarding conflicts of interest. (In addition, it should also be remembered that Principle 8 of the Principles for Businesses states that ‘a firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client’.) The types of the financial instruments that don't need an assessment of appropriateness are: * shares listed on a regulated market or an equivalent third country market * money market instruments, bonds or other forms of securitised debt (provided they do not have embedded derivatives) * holdings in UCITS funds, and * other investments meeting a definition of non-complex investments -not a derivative

Question 137

IMPORTANT Q: A firm was required to assess the appropriateness of a client when dealing with a recent transaction. This was because the client: a) Was classed as a politically exposed person b) Bought gov bonds c) Chose an execution-only service for a non-UCITs fund d) Was an employee of the firm

Answer 137

C

Question 138

In the course of MiFID business, in which one of these situations does the rule of appropriateness apply to a firm? A Giving a personal recommendation to a client B Acting as investment manager for a client C Arranging a swap transaction for a client without giving any advice D Appropriateness has been assessed on behalf of the firm by another MiFID investment firm

Answer 138

C - non-advisory and complex

Question 139

If the client has engaged in a series of similar transactions in the past, do they need an appropriate test again?

Answer 139

Firms do not need to reassess appropriateness each time, if a client is engaged in a series of similar transactions or services, but the firm must do so before beginning to provide a new service. If a client was engaged in a course of dealings of this type before 2007, the firm may assume that the client has the necessary experience and knowledge to understand the risks. (Note this does not mean, however, that the other criteria may necessarily be deemed to have been met.)

Question 140

*IMPORTANT Q*: What are Key Investor Information Documents (KIIDs), who issues them? What must it include? WHAT IS THE MAIN PURPOSE? KIIDS ARE PRODUCED FOR WHICH TYPE OF PRODUCT?

Answer 140

Authorised fund managers (AFMs) who manage UCITS schemes must produce a key investor information document (KIID). The KIID must be fair, clear and not misleading, and be consistent with relevant parts of the scheme’s prospectus. It must include appropriate information about the essential characteristics of the UCITS scheme to be provided to investors, enabling investors to reasonably understand the nature and risks of the investment product being offered to them and, therefore, MAKE WELL-INFORMED INVESTMENT DECISIONS

Question 141

What information should the firm provide on the KIIDs in respect to the elements of the UCITS scheme?

Answer 141

a. identification of the scheme b. a short description of its investment objectives and investment policy c. a presentation of past performance, or where relevant, performance scenarios d. costs and associated charges, and e. a risk and reward profile of the investment, including appropriate guidance and warnings in relation to the risks associated with the scheme’s investments.

Question 142

*MEM& IMPORTANT*: For who should be produce: 1) A KID 2) A KIID 3) A KFD

Answer 142

1) PRIIPs products e.g. collective investment schemes but also other ’packaged’ investment products (PRIIPS) offered by banks or insurance companies: investment funds, insurance-based investment products, retail structured securities, structured term deposits 2) UCITS (Units IN collective inv schemes, so the individual units 3) Non-PRIIPS e.g. ISAs and packaged product includes life policies and personal pension schemes

Question 143

Which of the following would ALWAYS be contained within the key information document? A A description of the firm and its services B A description of the terms and features of a product C A statement of whether the firm is agent or principal D A meaningful benchmark against which performance can bematched

Answer 143

B - It's a PRODUCT disclosure document

Question 144

IMPORTANT: In accordance with COBS rules, where a firm sells a cash ISA product, the firm must normally: a) process the business on an execution-only basis b) Issue a key features document c) Produce a two-stage suitability report d) Provide information on the firm's investment policy when requested by the client

Answer 144

B

Question 145

What's the definition of independent advice?

Answer 145

Independent advice is defined in the FCA Handbook as ‘a personal recommendation to a retail client concerning a retail investment product where the personal recommendation provided meets the requirements of the rule on independent advice’. If a firm holds itself out as providing independent advice then that firm must ensure that it assesses a sufficient range of products available on the market, not just a small set.

Question 146

Which one of these statements is false in relation to a firm which holds itself out as givingindependent advice on packaged products? A It must require the client to pay for its advice with an up-frontfee B Its scope of advice may cover the whole market C It must offer the client the opportunity to pay for its advice withan up-front fee D Its scope of advice may cover the whole of a sector of themarket

Answer 146

A - Not the only option. You can also 'pay as you go' (over the life of the investment instead).

Question 147

IMPORTANT Q: What is restricted advice? A firm that provides restricted advice on a retail investment products must what?

Answer 147

Advice that does not meet the standard set for independent advice, will come in many different forms. The key FCA requirement is in a firm’s disclosure to clients. In its written disclosure, a firm that provides restricted advice must explain the nature of the restriction. Looking at a small set of products.

Question 148

IMPORTANT: What are KIDs? Who do they apply to?

Answer 148

Key information documents (KIDs), simple documents giving key facts to investors in a clear and understandable manner covering not only collective investment schemes but also other ’packaged’ investment products (PRIIPS) offered by banks or insurance companies. Apply to Retail clients.

Question 149

**IMPORTANT Q**: A financial advisor has recommended a cash deposit individual savings account (ISA), a life policy and a personal pension scheme to a client. For which of these must a key features document be produced?

Answer 149

All 3. FCA's definition of packaged product includes life policies and personal pension schemes. All are non-PRIIP packaged products.

Question 150

IMPORTANT Q: When tracking investment business, cancellation rights must be provided to which class(es) of customer? a) Retail b) Retail and professional c) Retail and eligible counterparties d) Retail, professional and eligible counterparties

Answer 150

A

Question 151

MEM & IMPORTANT Q: Cancellation periods for different products (Generally vs life&pension products), when does the cancellation period start?

Answer 151

*Generally 14 days (such as cash deposit Individual Savings Accounts (ISAs), non-life and pensions products (advised, non-distance contracts) , non-life and pensions products (distance contracts) * life and pension products – 30 calendar days The cancellation period starts from the day the contract concludes or client receives the contractual info.

Question 152

Which of the following best describes the cancellation period offered to a client of the firm? AShould be offered on all products BOptional on all products CCompulsory for certain products DAlways a maximum of 14 days

Answer 152

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

Question 153

What must the firm tell consumers about in relation to cancellation?

Answer 153

* the existence of the cancellation/withdrawal right * its duration * the conditions for exercising it (including information on any amount the consumer may have to pay) * what happens if they do not exercise it, and * practical details of how to exercise it, including the address to which they must send any notification.

Question 154

IMPORTANT: What are some types of conflict of interests that might arise between a firm and a client?

Answer 154

* realising a financial gain, or avoiding a financial loss, at the expense of a client * having an interest in the outcome of a service or transaction that is distinct from the client’s interest * having an incentive to favour one client over others * carrying on the same business as the client, and * receiving inducements from someone other than the client, which are over and above the standard commission or fee.

Question 155

Important Q: Which one of the following best describes a conflicts of interest policy? a) It means a firm is not tied to any one product b) It ensures employees act with an appropriate level of independence c) It determines that each counterparty is liable for its own behaviour d) It is operated by collective investment schemes to maintain arm's length dealing

Answer 155

B) A firm is required to pay due regard to the interests of client in situations of potential conflict. A Conflicts of interest policy requires the employee to disregard any material interest or conflict of interest whien advising or dealing for a client.

Question 156

Chinese walls have been breached and one particular employee has received sensitiveinformation with regards to a firm takeover. What should the firm do? A Send the employee on a holiday until the takeover iscompleted B Allow the employee to deal, ignoring what he knows C Restrict the employee from advising clients if related to thetarget company D Discipline the employee and consider removing their approvedperson status

Answer 156

C - A is silly B - need manage the conflict and B would be too risky D- A breach of these is not necessarily the fault of the employee, so discipline would be inappropriate

Question 157

According to COBS, a firm must take reasonable steps to manage any conflicts of interest with respect to independent research in which of the following cases? A Market-making in good faith B Executing an unsolicited client order C Where there has been a reasonable opportunity for clients to act upon the research D The firm is making a recommendation to a client

Answer 157

D-All the others are reasons why the firm might be interacting with the market irrespective of research.

Question 158

Which of the following would not be an acceptable method of managing a conflict ofinterest? A Ensuring that employees abided by the firm's personal accountdealing policy B Ensuring that employees abided by a written conflicts ofinterest policy C Implementing and monitoring Chinese walls D Ensuring that client trades are executed first when a conflictarises

Answer 158

D -Executing client trades first would not necessarily ensure their fair treatment

Question 159

IMPORTANT: State four steps firms could take to prevent or manage conflicts of interest.

Answer 159

* maintain and operate effective organisational and administrative arrangements, designed to prevent conflicts of interest from adversely affecting the interests of their clients * for those producing externally facing investment research, have appropriate information systems and controls in place, and barriers to stop information from these research activities from flowing to the rest of the firm’s business (maybe Chinese Wall) * if a conflict arises, disclose the interest to the client before undertaking business for the client. The disclosure must be in a durable medium and be in sufficient detail to allow the client to make an informed decision as to the provision of the service. (Note that disclosure alone is insufficient to meet the rules; the firm’s arrangements should be designed to prevent conflicts arising in the first place) * prepare, maintain and implement an effective conflicts policy * provide retail clients and potential retail clients with a description of the conflict of interest policy * keep records of those of its activities where a conflict has arisen.

Question 160

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? ADisclose relevant details in a durable medium to the client, allowing the client to decide BDisclose relevant details orally to the client, allowing the client to decide CManage the conflict and continue to deal DRefuse to deal for the client

Answer 160

C) if a conflict arises, the firm must manage it. However, if they cannot manage it, disclose the interest to the client before undertaking business for the client. The disclosure must be in a durable medium (so email is good) and be in sufficient detail to allow the client to make an informed decision as to the provision of the service.

Question 161

IMPORTANT: In accordance with the SYSC rules on conflicts of interests, where a conflict arises, which of the following must the firm do as a MINIMUM requirement? A Telephone the client and inform them of the conflict of interest B Email the client and inform them of the conflict of interest C Telephone the client, give them sufficient information and ask the client to decide how to proceed D Email the client with sufficient information and ask the client to decide how to proceed

Answer 161

D) if a conflict arises, the firm must manage it. However, if they cannot manage it, disclose the interest to the client before undertaking business for the client. The disclosure must be in a durable medium (so email is good) and be in sufficient detail to allow the client to make an informed decision as to the provision of the service.

Question 162

Which of the following is least likely to give rise to a conflict of interest? AAdvising a client to sell when the firm has a client wanting to buy BEncouraging a client to buy when a firm has gone short CAdvising a client to buy when the firm has a long over-exposure DEncouraging a client to sell when the firm's analyst rated the stock highly

Answer 162

B) A firm that had gone short would be hoping for prices to fall. Encouraging a client to buy would not assist the firm in any way; it suggests that the firm has properly ignored its own position in giving advice.

Question 163

Which of the following is TRUE in respect of the conflicts of interest policy? AThe rules protect retail clients alone from the conflicts that could arise between clients of the same firm BIt requires firms to maintain effective and administrative arrangements CWhere a firm is part of a group, the policy should take account any potential conflicts arising from that group DThe conflicts policy should be provided in full to retail clients

Answer 163

C) 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 164

IMPORTANT Q: When a firm prepares its conflicts of interest policy, it is required to pay particular attention to: a) ease of updating procedures b)records help solely in electronic format c)staff performing more than one role d) swift escalation of internal disputes

Answer 164

c) for example investment research and advice, propriety trading, portfolio management and corporate financial business

Question 165

Which ONE of the following is TRUE regarding the conflicts of interest rules in theConduct of Business sourcebook? A The policy can be in writing or delivered orally B It must state how the firm will use Chinese walls to manageconflicts C The policy must specify procedures for managing the conflicts D It has to identify all existing conflicts

Answer 165

C - Not D because also POTENTIAL conflicts

Question 166

IMPORTANT: Are chinese walls mandatory or not?

Answer 166

Non-mandatory

Question 167

What is a Chinese Wall?

Answer 167

This is the term given to arrangements whereby information held by an employee in one part of the business is withheld from (or, if this is not possible, at least not used by) the people with or for whom they act in another part of the business. Good way of controlling conflicts of interests.

Question 168

When should a firm disclose the conflicts with a client?

Answer 168

Under MiFID II, the disclosure of a conflict to a client must be as a last resort in that the firm is not able to prevent or manage the conflict appropriately – disclosure must not be the preferred option.

Question 169

*IMPORTANT Q*: Things a firm needs to do to avoid conflicts of interest when conducting Investment Research: "Where firms produce investment research, the rules against trading ahead of publication are waived where a trade instruction is:"

Answer 169

* financial analysts and other relevant persons, who know the likely timing or content of investment research which is not yet publicly available or available to clients and which cannot be inferred from information that is available, do not undertake personal transactions, or trade for others, until the recipient of the investment research HAS HAD A REASONABLE OPPORTUNITY TO ACT ON IT. There are certain exceptions, for example, the receipt of an instruction from an EXECUTION-ONLY client or a market maker acting in good faith. * in any event, they do not undertake personal account transactions in the investments to which the research relates, without prior approval from the firm’s compliance or legal department and then only in exceptional circumstances * the firm and any person involved in the production of research do not accept inducements from those with a material interest in the subject matter of the research * they do not promise issuers favourable research coverage * if draft investment research includes a recommendation or target price, no one other than financial analysts may review the draft, other than for the purpose of verifying compliance with the firm’s legal obligations.

Question 170

IMPORTANT: Financial firms which prepare research recommendations have to comply with detailed standards in relation to presentation and disclosure in order to ensure that: A conflicts of interests cannot arise B disclosures of interests are appropriately managed C past performance figures are not distorted D such recommendations are fairly presented

Answer 170

D

Question 171

What is non-independent research?

Answer 171

is not presented as objective or independent, and is accordingly considered as marketing communication. This research would, therefore, not comply with the conditions to ensure that it is independent. In this case, research is treated as a financial promotion and the rules of COBS 4 apply. Additionally, the research must include the following aspects: * it is clearly identified as a marketing communication, and * it contains a clear and prominent statement that it has not been prepared in accordance with the requirements for the independence of investment research and that it is not subject to the prohibitions on dealing ahead that apply to investment research.

Question 172

Which of the following would not be a valid exception to the rule prohibiting the frontrunning of investment research? AThe research is for the firm's own use BAn associate of the firm carries out the trade and Chinesewalls prevented any knowledge of the research CThe firm fulfils an unsolicited client order DThe research is for eligible counterparties only

Answer 172

D If the research is not meant for anyone but the firm, then front-running rules do not apply. If a Chinese wall is in place, so that an associate trades and has no knowledge of the research; this isacceptable. The front running rules apply to all clients and therefore protect market counterparties.

Question 173

IMPORTANT: What payments are permitted under the inducements rules?

Answer 173

Any payment as prohibited, unless expressly permitted.

Question 174

Who to the rules on inducements apply to?

Answer 174

Firms carrying on designated investment business which is MiFID business as well as non-MiFID business. The rules only apply to professional clients and retail clients; therefore, investment firms undertaking ECP business will not be subject to the detailed inducement provisions.

Question 175

IMPORTANT: Inducement rules apply to firms undertaking business with which of the following classes of client? a) Retail and professional clients only b) Retail and elective eligible counterparty clients only c) Professional and eligible counterparty clients only d) Retail, professional and eligible counterparty clients

Answer 175

A

Question 176

Which of the following represents an acceptable inducement under COBS? A Membership fees to professional bodies B Management fees C Office administration software D Travel expenses

Answer 176

B - Allowable services are those that would be directly relevant to customers.

Question 177

In relation to providing investments, the rule on inducements in the Conduct of Businessrules, which ONE of the following is TRUE? A The rules apply only when conducting business with retailclients B The rule does not prohibit the firm from paying an inducementto the client C The rule prohibits any non-monetary benefit, no matter howminor it may appear to be D The inducement must not be disclosed to the client until afterthe service is provided

Answer 177

B - The rule ""A firm must not pay to, or accept from, a person other than the client, any fee, commissionor non-monetary benefit"" allows payment to, and from, the client. Not A is it applies to all customers Not C has minor non-monitory benefits e.g. food and drink at a meeting is ok Not D as disclosure should be made before providing the service.

Question 178

How can a UK and/or EU-regulated firm pay for research?

Answer 178

If it pays for it using one of two methods: 1. directly from its own resources, or 2. from a research payment account controlled by the firm funded by a specific charge to its clients.

Question 179

Which of the following statements complies with the inducements rules? AWhen a fee is paid that is of low monetary value it does not have to consider the best interests of the client BCustody costs, settlement and exchange fees, and legal fees are not permissible CIn the case of non-MiFID business commission disclosure is never required DAn acceptable commission is one that has been paid to a client

Answer 179

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 180

According to the inducement provisions stated by the FCA, which of the following is not an appropriate payment by the firm? ACustody fees paid by the firm to a third party on behalf of the client BNon-monetary benefits paid to a third party that do not impair compliance with the firm's duty to the client, enhance the quality of service and are properly disclosed CA third party providing general office equipment used for word processing and accountancy in the normal running of the firm's activities DParticipation in conferences, seminars and other training events on the benefits and features of a specific financial instrument or an investment service

Answer 180

C - General office equipment is specifically prohibited by FCA regulations.The inducement must be for the client and it must not be something that the firm would normally expect to pay, such as office equipment or office rent.

Question 181

IMPORTANT Q: Where an EU regulated firm sets up a research payment account to comply with the inducement rules, the acount must be: a) Held with a specialist bank b) Funded by a specific client charge c) Declared to the FCA d) Audited on a quarterly basis

Answer 181

b) EU reg firm only receives research it paid for from its own resources or form a research payment account controlled by the firm funded by a specific charge to its clients.

Question 182

What is the Research Payment Account (RPA)?

Answer 182

The RPA must only be funded by a specific research charge to clients, agreed with clients, developed by the firm as its research budget for the purpose of establishing the amount needed for third party research in respect of investment services provided to its clients. The RPA must only be used to pay for research, and not goods and/or services that do not fall into the definition of research.

Question 183

IMPORTANT: What type of client(s) are the best execution rules aimed at?

Answer 183

Professional clients and retail.

Question 184

IMPORTANT: What is the purpose of the best execution requirements?

Answer 184

The best execution rules under COBS require firms (MiFID and non-MiFID firms) to execute orders on the terms which are most favourable to their client. Broadly, they apply if a firm owes contractual or agency obligations to its client and is acting on behalf of that client.

Question 185

IMPORTANT: What should a best execution policy include?

Answer 185

1. Prescribed information (for retail clients) -A list of execution venues -Factors that will affect the firms choice of venues -Warning about specific client instructions 2. Written two-way agreement (all clients) -monitored and reviewed annually -Notify clients of any material changes

Question 186

IMPORTANT: What are the best execution factors and the best execution criteria?

Answer 186

Factors: Price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of an order. Criteria: 1. Client categorization 2. Type of order (limit eg. order 1000 shares at 240 or market order (buy 1000 shares)) 3. Type of financial instrument being traded 4. Characteristics of execution venues (how liquid is it?)

Question 187

Best execution reporting, how often? What does it show?

Answer 187

The firm has to publish annually its performance related to best execution using both quantitative and qualitative data. This has to be broken down into the top five venues used with subcategories of client categorisation and then financial instruments with a description as to how best execution has been achieved.

Question 188

For the purpose of the best execution rule, which one of the following is not an acceptableexecution venue? A Any over the counter arrangement B Any systematic internalisers C Any multilateral trading facility D Any regulated market

Answer 188

B

Question 189

Although a client provides a firm with specific instructions, the firm executes the trade inaccordance with their own trade execution policy. What must the firm do? A Advise the client by close of business on the next businessday, stating the reasons for its action B Issue the client with a disclaimer C Report itself to the FCA, as it is potentially in breach ofregulations D Provide the client with a copy of their trade execution policy assoon as reasonably possible

Answer 189

C - If a client gives specific instruction, the firm is obliged to act on them, and in doing so is deemed tohave achieved 'best execution', otherwise it's in breach. Should only tell the client if it's unable to execute (e.g. the exchange has crashed)

Question 190

In relation to the best execution rules in the conduct of business sourcebook, is itacceptable for a firm to charge different amounts for conducting the same trade on TWO differentexecution venues? A Yes - provided disclosure is made to the client B Yes - provided the difference between the charges representsdifferences in trading costs on the execution venues C No - it is never acceptable D No - it is not acceptable when there is only a choice of twovenues

Answer 190

B - The COBs state that the firm must not structure its charges or its commissions in such a way as todiscriminate unfairly between execution venues. Also, just because one may have a higher likihood of execution e.g. but higher costs. Different ppros and cons.

Question 191

Which one of the following conduct rules applies to all persons captured by the SM&CR regime? You must: A Take reasonable steps to ensure the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system B Take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively C Disclose appropriately any information of which the FCA or PRA would reasonably expect notice D Observe proper standards of market conduct

Answer 191

D

Question 192

IMPORTANT: A firm receives an order from Client A to buy some shares and also receives an order from Client B to sell some shares. In which case, if either, are the firm's resulting actions NORMALLY subject to the FCA's COBS 'best possible result' requirements? A Neither B Client A only C Client B only D Both

Answer 192

D

Question 193

What is an execution venue?

Answer 193

Execution venue means a regulated market (e.g. LSE), an MTF, an OTF, a systematic internaliser, or a market maker or other liquidity provider or an entity that performs a similar function in a third country to the functions performed by any of the foregoing.

Question 194

*IMPORTANT*: What is an order execution policy?

Answer 194

To enable them to obtain, and to demonstrate to clients how they seek to obtain, the best possible results for their clients.

Question 195

What should a firm do if they receive a specific instruction from a client?

Answer 195

They must execute as instructed. even if an alternative means executing the order would have given a better result.

Question 196

IMPORTANT: What must the firm do when a specific instruction from a client would prevent a firm fromfollowing its order execution policy when carrying out the transaction? A Decline to carry out the transaction B Ask the client to confirm the instruction in writing C Carry out the order as instructed D Ignore the instruction and follow its order execution policy

Answer 196

C

Question 197

IMPORTANT: In what 2 circumstances might a firm might breach the client order handling rules and not be able to promptly record and allocate orders sequentially?

Answer 197

1. Interests of the client (Could be in their favour to delay) 2. Material difficulty (problem with the exchange)

Question 198

IMPORTANT Q: Croxeth Investment Bank places an aggregated order embracing both clients and an own transaction. The order cannot be satisfied in full. Presuming inclusion of the firm's order did not bring about more favourable terms, which of the following best describes the way the order should be allocated? a) Proportionately to the clients and the firm b) To clients first, and only then to the firm c) The firm first, and only then to the clients d) In any way that the firm choose

Answer 198

b

Question 199

What is a Client Limit Order?

Answer 199

Specific instruction from you to us to buy or sell a financial instrument at a specified price limit or better

Question 200

IMPORTANT Q: What must a firm do if they receive a client limit order but cannot execute immediately? What are the exceptions to this rule?

Answer 200

Make the limit order public (in a manner easily accessible to other market participants). This should be done immediately, so that it can be executed as soon as possible. Exceptions: 1. Client expressly instructs otherwise 2. The limit order is greater than normal market size (huge, so could distort the markets)

Question 201

2 x A broker is unable to execute a client order due to a trading halt on the exchange. This has led to the client order being postponed. In which of the following situations would the broker have to notify the client? If the order: AWas based on a specific client instruction BCame from an eligible counterparty CWas based on a specific order execution policy DCame from a retail client

Answer 201

D) A firm may promote or postpone a client order in certain situations. Those situations could include market conditions, like a trading halt. In these cases, the retail client must be notified. Not A) because it doesn't necessarily have to be a SPECIFIC client order, it can be a limit order too.

Question 202

IMPORTANT: 3 e.g's of trades don't require request to do a personal account dealing?

Answer 202

1. Funds independent managed so no control over things bought and sold in that fund (managed on my behalf) 2. Shares of certain classes of fund e.g. regulated CISs (removed from decision making on these too) 3. Life policies

Question 203

IMPORTANT Q: The COBS rules on dealing and managing apply generally to all authorised firms, with the exception of rules relating to: a) Best execution b) Personal account dealing c) Record keeping, client orders and transactions d) Recording telephone conversations and electronic communications

Answer 203

B

Question 204

IMPORTANT: What is the purpose of the personal account dealing rules?

Answer 204

Arrangements to prevent inappropriate dealings which: -Are prohibited under the Market Abuse Regulation (MAR) -Involve misuse or disclosure of confidential client information -Conflict with the firm's obligations to the client

Question 205

IMPORTANT Q: A transaction was exempted from the rules on personal account dealing because it: a) Involved a life policy b) Involved shares valued at less than £250 c) Was carried out by a part-time employee d) Was carried out by a board director

Answer 205

A

Question 206

IMPORTANT: Under the personal account dealing rules, which of the following must a firm ensure when placing a personal deal? A It does not conflict with the interests of its clients B Client deals are placed first C Clients are informed of the personal deal only D Clients are informed and agree to the personal deal

Answer 206

A

Question 207

IMPORTANT: What is trade confirmation information?

Answer 207

* the identification of the firm * the name and/or designation of the client * the trading day and time * the type of order (ie, limit order/market order/client-specific instructions) * the venue where the transaction was executed * the financial instrument * the buy/sell indicator * the nature of the order if other than buy/sell (ie, exercise of an option) * the unit price * the total consideration * total of the commissions, expenses and any mark up/down applied to the transaction * rate of exchange where the transaction involves the conversion of funds from one currency to another in order to settle the transaction in the client’s base currency, and * the client’s responsibility in respect of settlement of the transaction.

Question 208

Which of the following is true of trail commissions? ATrail commissions of any sort are not allowed BTrail commission must continue if further advice is given CIf the advice leads to a switch of life policy, any trail commission must continue DIf the advice leads to a reduction

Answer 208

A)A trail commissions are fees paid to financial advisors every year that an investment is owned. Trailing commissions are paid in order for a financial advisor to have an incentive to review a client's investment holdings and provide advice.

Question 209

MEM & IMPORTANT Q: After executing a purchase order, when is a written statement confirmation normally expected to be dispatched?

Answer 209

For a retail client, a notice should be sent asap, but no later than 1 business day.

Question 210

MEM & IMPORTANT Q: When a retail trade confirmation is received from a 3rd party, within what time period must the firm pass it on?

Answer 210

For retail clients, no later than the business day following receipt

Question 211

MEM & IMPORTANT Q: A firm, under MiFID rules, must retain copies of trade confirmations issued to clients for what period? What about for non-MiFID?

Answer 211

At least 5 years from date of dispatch for MiFID and at least 3 years for non-MiFID

Question 212

When must confirmation of a transaction be dispatched to a retail client? A Immediately B No later than the end of that business day C No later than the end of the next business day D As soon as reasonably practicable

Answer 212

C. T+1

Question 213

On which of the following trading platforms is an exchange trade reported automaticallyand published immediately? A CREST B SEAQ C NEX D SETS

Answer 213

D -Reporting and publication are automatic and immediate respectively on SETS CREST is a clearing house (not Euroclear)

Question 214

MEM & ***IMPORTANT Q***: When must written portfolio statements from investment managers normally be sent to private customers?

Answer 214

-At least every 3 months -If they include derivatives/leveraged portfolio: every month - If a client receives deal-by-deal confirmations and there's no high risk investments involved, then can be every 12 months.

Question 215

IMPORTANT: The 2 different rules covered in CASS and what kind of business they cover

Answer 215

-Custody and client money rules: both MiFID. Custody = non-MIFID too and client money = opt in non-MiFID

Question 216

IMPORTANT: Where a £1,000 cheque paid to a firm comprises £900 of client money and £100 to pay the firm's fees, under what circumstances would this cheque be treated as client money? A Only if it was paid from a UK account B Only if the fees are in lieu of commission C Only if the fees are in addition to commission D Always

Answer 216

D

Question 217

MEM & IMPORTANT: Who and what are exempt from the CASS rules?

Answer 217

Who?: -ICVC and UCITS schemes (they have their own rules) -Incoming EEA firms (other than insurers) (use COBS instead) -BCD (banking consolidation directive) credit institution (banks have their own rules) What?: -Coins held for value of the metal -money held for delivery versus payment (DvP) (e.g. if i put in 1000 shares at £2.10 with broker and I pay £2100 immediately+execution fees then they are holding onto that money for 2 days before they hand over to pay for shares) MAX 3 DAYS BEFORE HAVING TO SEGREGATE. -Money due and payable to the firm (if holding money on behalf of client and client owes them)

Question 218

If a firm is holding money belonging to clients, which of the following is a reason for thefirm to be exempt from the CASS 7 client money rules? A The money is coins held for the value of their metal B If the money is held in a central bank C The money is interest paid by a Financial Conduct Authorityauthorised firm D If the money is being held in a money market deposit account

Answer 218

A - Exemptions: -Coins held for value of the metal -money held for delivery versus payment (DvP) (e.g. if i put in 1000 shares at £2.10 with broker and I pay £2100 immediately+execution fees then they are holding onto that money for 2 days before they hand over to pay for shares) MAX 3 DAYS BEFORE HAVING TO SEGREGATE. -Money due and payable to the firm (if holding money on behalf of client and client owes them)

Question 219

Firms holding client money or investments for retail clients, professional clients and ECPs must provide all of the following information, EXCEPT: A The investments/money may be held by a third party on thefirm’s behalf B Where investments are held overseas, the extent to whichoverseas laws will apply C A summary of steps the firm has taken to protect the client'smoney and/or investments D That the firm will guarantee any losses should the third partybecome insolvent

Answer 219

D - a firm need to illustrate how it will guard against losses and explain what will happen if thethrid party becomes insolvent, there is no requirement for them to guarantee any losses.

Question 220

IMPORTANT: If a shortfall is detected during a reconciliation of client assets (CASS) what should the firm do and by when?

Answer 220

Correct by the close of business on the day of reconciliation

Question 221

Which of the following is true of internal reconciliations of clients' assets? A Reconciliation must be performed by firms at the end of everybusiness day B Any shortfall must be corrected by the firm within 48 hours ofdiscovery C Any excess discovered can be retained in the client moneyaccount D If a firm cannot comply with the requirements on reconciliationit must notify the FCA

Answer 221

D - Not B, as it should be by EOD.

Question 222

*IMPORTANT*: What is the purpose of the client money segregation and trust rules?

Answer 222

These requirements ensure that firms take adequate steps to protect those client assets for which they are responsible. CASS applies directly in respect of activities conducted with or for all categories of client, ie, retail clients, professional clients and ECPs.

Question 223

MEM & IMPORTANT Q: The CASS rules only apply to money held in connection with a delivery vs payment (DvP) transaction if payment is still outstanding after what specified number of business days?

Answer 223

3

Question 224

IMPORTANT Q: The FCAs rules in the CASS do not normally apply in which one of the following situations? a) An incoming EEA firm holding client money within its passported activities b) A firm authorised before 2008 c) An authroised firm that only holds portfolios for professional clients d) An authorised firm holding clients' investments that are registered overseas

Answer 224

A

Question 225

IMPORTANT: What are the reconciliation requirements for safe custody investments and client money? How often should be done?

Answer 225

Firms must keep all appropriate records and accounts necessary to enable the firm at any time and without delay to be able to distinguish all the safe custody assets held for all of its clients, and to be able to evidence their segregation from the firm’s own assets. -Internal reconciliations should be carried out as is necessary between the safe custody asset records of each client and the safe custody assets records held by the firm and any third parties. -External reconciliations are intended to ensure the accuracy of a firm’s internal records and accounts and those of any third parties through whom those safe custody assets are held. External reconciliations should be carried out as often as necessary.

Question 226

What does External Reconciliations mean?

Answer 226

Cross-checking the internal client money accounts against the records of third parties (for example, banks) with whom client money is held. Firms must perform external reconciliations as often as is necessary and as soon as reasonably practicable after the date to which the reconciliation relates.

Question 227

IMPORTANT Q: What is the principal purpose of a CASS resolution pack?

Answer 227

To enable the timely return of client assets to the firm's clients in the event of insolvency

Question 228

IMPORTANT Q: A CASS resolution pack is intended to allow information to be retrieved within what MAXIMUM period?

Answer 228

48 hours

Question 229

MEM & IMPORTANT: Enhancing the CASS regime. 3 ways:

Answer 229

1. CASS Audit 2.Right of use (Rehypothecation - possible for firms to use client assets as collateral for a loan) 3. CASS Resolution pack (specific docs and info relating to client money & assets, must be made available on request)

Question 230

IMPORTANT: What is a mandate account?

Answer 230

Where a client gives a firm control over their assets and liabilities (e.g. a direct debit or permission for bank to pay of credit card once a month)

Question 231

MEM & IMPORTANT: How often must a CASS audit be done?

Answer 231

Annually and submit to FCA within 4 months of audit.

Question 232

**MEM & IMPORTANT**: time limits for record keeping (including cancellation notices/records) a) from date of dispatch for different businesses b) pensions (e.g. personal pension scheme) and life assurance/policies c) pension transfers & opt outs and additional voluntary contributions (work place pensions e.g.) d)Telephone communications

Answer 232

a) 3 years for non-MiFID, 5 years for MiFID b) 5 years c) Indefinitely d) 5 years from creation of record

Question 233

IMPORTANT: rule of thumb, when should we keep a record from?

Answer 233

1. Does the client receive the information? No: From creation of the record (e.g. broker gets record from exchange, not client) Yes: 2. Does it create a contract/relationship? No: From dispatch (e.g. confirmation of transaction) Yes: To the end of the contrat/relationship

Question 234

IMPORTANT Q: The CASS rules are applied in which scenario? a) Coins held for the value of their metal b) Discretionary investment management c) Money due to the firm d) Money held for a DvP transaction

Answer 234

B

Question 235

IMPORTANT Q: In order for CASS auditors to effectively carry out their mandatory annual audit on firms holding client assets, info they require will normally include: a) the relevent technical expertise of the board members b) the role played by any third party administrators c) the extent of relevent competition in the market place d) associated insurance policies they have in place

Answer 235

b. The auditor must understand the firm's business models, included nature of services it provides, what sort of transactions it does and how they are settled, any inter-group relationships and the role played by any third party administrator or custodian.

Question 236

IMPORTANT Q: A CASS auditor who discovers during an audit that a firm is permitted to hold client assets, but claims on to do so, must: a) Obtain evidence that this is the case b) Produce a reasonable assurance client assets report c) Obtain an exemption from the FCA d) Produce a limited assurance client assets report

Answer 236

D

Question 237

IMPORTANT Q When carrying out a reasonable assurance Client Assets Report the auditor must take into account: A any potential conflicts of interests of individual board members B the firm's own risk assessment C all aspects of the firm's IT infrastructure D the composition of the firm's board

Answer 237

B

Question 238

IMPORTANT Q: A financial promotion issued to retail clients is only required to give a balanced impression of short, medium and long-term prospects if: a)the investment temr is 15 years or more b)The investment charges are front-end loaded c) A quoted yield is included d) Paste performance data is included

Answer 238

A quoted yield is included

Question 239

IMPORTANT Q: When a firm prepares its conflicts of interest policy, it is required to pay particular attention to: a) ease of updating procedures b)records help solely in electronic format c)staff performing more than one role d) swift escalation of internal disputes

Answer 239

c) for exampel investment research and advice, propriety trading, portfolio management and corporate financial business

Question 240

IMPORTANT Q: When a firm holds itself out to be independent and makes a personal recomendation to a retail client ot buy a packaged product, its scope must be which of the following? a) the whole of the market b) restricted to other companies within the same group c) restricted to a single product provider d) restricted to a small selection of product providers

Answer 240

If it holds itself out as being 'independent' . then its selection must be suffientially wude to satisfy the client's best interest rule and the clear, fair and not misleading rule. The whole of the market owuld obviously satisfy this.

Question 241

IMPORTANT: When is a firm permitted to undertake an unsolicited communication with a retail client?

Answer 241

* the recipient has an existing client relationship with the firm and would envisage, or would expect to receive such a call, or * the call relates to a generally marketable packaged product, which is neither a higher-volatility fund, nor a life policy linked to such a fund, or * it relates to a controlled activity relating to a limited range of investments, including deposits and readily realisable investments other than warrants or generally marketable non-geared packaged products.

Question 242

IMPORTANT Q: Under which one of the following circumstances would money received from a client be excluded from the client money rules? a) It is reserved by the firm for future fees not yet known b) It is accounted for as being owed to the client c) It is owed to the firm in the form of fees outstanding d) It is paid by cheque to the client but not yet cleared by the bank

Answer 242

C) there are a number of circumstances when the client money rules don't apply, for example, where money becomes due and payable to the firm.

Question 243

IMPORTANT Q: The rule son recording telephone and electronic communcations were introduced primarily to address what type of activity? a) Appropriateness b) Conflicts of Interest c) Market Abuse d) Suitability

Answer 243

C

Question 244

IMPORTANT Q: The rules on financial promotions apply to firms communicating or approving a financial promotion other than: a) A promotion for a non-investment insurance contract b) A promotion for an authorised collective investment scheme c) A stakeholder pension d) A endowment policy

Answer 244

A Others not applied to are: qualifying credit, a home purchase plan, home reversionn plan, a promotion for a non-investment insurance contract or the promotion of an unregulated CIA which it's not permitted to approve.

Question 245

IMPORTANT Q: A MiFID firm is relying on information about a client received from another MiFID firm. In these circumstances, the information provided: a) Will only be valid for a max of 90 days b) Should be given in writing c) Must be checked with the client d) cannot form part of the compliance audit trail

Answer 245

B

Question 246

IMPORTANT Q: The external auditor's annual report on the systems and controls of a firm which holds client assets must be sent to the FCA within what MAXIMUM period? a) 1 month b) 2 months c) 3 months d) 4 months

Answer 246

D) 4 months from completion

Question 247

IMPORTANT Q: In accordance with the Conduct of Business Sourcebook, a firm is not allowed to approve a financial promotion if: a) The firm is less than 12 months old b) The promotion is classed as real-time c) The firm only offers one class of product d) the promotion relates to a pension transfer

Answer 247

b) firms may not approve real-time promotions e.g. personal visits, telephone conversation or other interactive dialogue.

Question 248

IMPORTANT Q: Where a firm holds client investments for an eligible counterparty, disclosure must be made of any: a) currency fluctuations b) Liens C) Churning d) Detriment value

Answer 248

B) must provied info if the money or investments are subject to any security interest , lien or riht of set-off, full details of this fact and the terms of it. ( A lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation )

Question 249

IMPORTANT Q: When tracking investment business, cancellation rights must be provided to which class(es) of customer? a) Retail b) Retail and professional c) Retail and eligible counterparties d) Retail, professional and eligible counterparties

Answer 249

A

Question 250

IMPORTANT Q: A firm was required to assess the appropriateness of a client when dealing with a recent transaction. This was because the client: a) Was classed as a politically exposed person b) Bought gov bonds c) Chose an execution-only service for a non-UCITs fund d) Was an employee of the firm

Answer 250

C

Question 251

IMPORTANT Q: A key condition which must be met for a benefit to be designated as minor non-monetary under the inducements rules is that:

Answer 251

It can enhance the service provided.

Question 252

Important Q: In respect of the sale of which one of the following products must the cancellation records be retained indefinitely? a) Mortgage-linked endowments b) Free-standing AVCs c) OEICs d) Friendly society savings plans

Answer 252

B) the record-keeping retention period for cancellation records is: -Indefinitely for pension transfers, opt-outs or FSAVCs -At least 5 years in relation to a life policy pension contract, personal pension scheme or stakeholder pension scheme -At least 3 years for anything else

Question 253

MEM & IMPORTANT: How long voice or electronic communication recordings be kept for?

Answer 253

5 years

Question 254

IMPORTANT: Firms often need to rely on information provided by other organisations. If the information is from a non-MiFID firm, we can rely on the information if:

Answer 254

1. The information is in writing 2. The non-MiFID firm is independent 3. The non-MiFID firm is competent

Question 255

IMPORTANT: Which client(s) receive transaction confirmations?

Answer 255

All clients (RC, PC and ECP)

Question 256

MEM & IMPORTANT: Timing of transaction confirmation

Answer 256

T+1 (no later than the next business day)

Question 257

IMPORTANT: Exceptions for transaction confirmation for MiFID and non-MiFID

Answer 257

MiFID: No exceptions Non-MiFID: If requested by client

Question 258

MEM & IMPORTANT: What are the rules that apply to retail clients only?

Answer 258

-Financial promotion rules -PRODUCT DISCLOSURE RULES: KIDs, KIIDs and KFDs -Suitability REPORT

Question 259

When considering the rule on product information to be disclosed before providing services, to whom would the firm need to make these disclosures? ARetail clients only BRetail clients and professional clients CAll clients and counterparties DProfessional clients only

Answer 259

A -PRODUCT DISCLOSURE RULES: KIDs, KIIDs and KFDs

Question 260

IMPORTANT: Where a firm has service a cancellation notice for a personal pension scheme, for what minimum period, if any, must the records normally be retained? A) 3 years B) 5 years C) 10 years D) Indefinitely

Answer 260

B: Think record keeping periods

Question 261

IMPORTANT: Claire is advising a customer on a particular investment. If she works for ACE advisers, which is an appointed representative of an investment company, who is the customer seemed to be the client of? A) Claire only B) ACE only C) The investment company only D) ACE and the investment company jointly

Answer 261

D) Client's of a firm's appointed representative or tied agent are also regarded as clients of the firm (they are ultimately responsible)

Question 262

IMPORTANT: PIB ltd has requested that a firm treats it as an elective eligible counterparty (ECP). If the firm begins to worry that PIC is making some poor decisions, which, if any, of the following options are open to it? a) It has no options as a PIB has asked to be treated as an ECP b) It can decide to treat PIB as a profession client only c) It can decide to treat PIB as a retail client only d) It can decide to treat PIC as a professional client or retail client

Answer 262

D) It can opt down clients to any level

Question 263

In relation to MiFID business, eligible counterparty status exists in relation to: A Designated investment business only B Any regulated activity C Eligible counterparty business only D Any business agreed between the firm and the client

Answer 263

C) Not A because ECP's are only just dealing.

Question 264

IMPORTANT: What type of communications are telephone cold calls classified as? a) Approved b) Unsolicited real-time c) Non-real-time d) Direct offer

Answer 264

B

Question 265

IMPORTANT: When is a firm required to disclose any dealing comission arrangements to new customers? a) On completion of the first transaction in designated investment business b) Only when it signs a customer agreement c) Prir to conducting any designated investment business d) When the firm sends out the first valuation

Answer 265

C

Question 266

IMPORTANT: The communication of a financial promotion which has not been issued by or approved by an authorised firm: a) Is an offence under FSMA b) Is permitted when it is made by an appointed representative c) In contrary to COBS 6 d) Is an offence under the Financial Services Act 2012

Answer 266

A Appointed representatives abide by COBS, fin promos are covered by COBS 4

Question 267

IMPORTANT: In which of the following situations must a UK firm provide clients with details of the steps they would need to take if they wanted to obtain compensation? a) In all situations b) For MiFID business only c) If the client asks for it d) Only for non-MiFID business

Answer 267

C

Question 268

IMPORTANT: In relation to derivatives, which of the disclosure requirements that need to be made to MiFID retail clients also need to be made to non-MiFID retail clients? a) All of them b) The firm, its services, costs and associated charges only c) Guidance on and warnings of the risks associates with investments and those in respect of the firms' investment strategies only d) Why the methodologies it uses for assessing risk that a customer is willing to take are fit for purpose and what level of risk has been designated for the client only

Answer 268

A) think: derivatives are complex so a lot needs to be explained

Question 269

IMPORTANT: How do the COBS rules relating to investment research and personal account dealing apply to UK firms? a) They will apply regardless of where they are operating b) They will only apply if they are operating in the UK c) They will only apply if firms are based in the UK but are operating in other EU countries d)They will only apply if firms are based in the UK but operating outside the EU

Answer 269

A) this aspect of COBS applies to UK firms regardless of where they are conducting business

Question 270

MEM & IMPORTANT: COBS things that apply to: Retail clients only, Retail&Professional Clients (customers) and All 3

Answer 270

Retail: Promotions, Suitability Report, KFDs/KIDs/KIIDs All: Categorisation, COI, research, personal account dealing, reporting rules, CASS Customers: Inducements, paid for research, suitability rules, appropriateness, best execution rules, order execution policy, client order handling, aggregation, limit orders

Question 271

A firm has received several execution only client orders for purchases in Company A. The firm also has an order to purchase shares in that company. Which ONE of the following statements is FALSE in respect of the execution of these orders? A The firm may aggregate the orders if it is unlikely that the aggregation will work to the disadvantage of any client B The firm can only rely on aggregation if the orders cannot be executed sequentially C If aggregation occurs, the firm must disclose to the client that the effect of aggregation may work to their disadvantage D The firm should aggregate the trade if it is in the client's best interests

Answer 271

B

Question 272

Which ONE of the following needs to be included in a firm's order execution policy? AStandard settlement instructions BCosts and charges CPrices DExecution venues

Answer 272

D

Question 273

IMPORTANT: Which of the following must be disclosed to a retail client when holding designated investments or client money subject to MiFID? A The name or names of nominee companies used B Details of any banks used to hold or transmit client money C Details of any investor compensation scheme applicable D Details of the national law applicable

Answer 273

C

Question 274

IMPORTANT: Which of the following payments are permitted to a third party on behalf of a client, by an introducer of business? A Payments made only from and to a bank outside the EEA related to the volume of business introduced B Fees which are necessary for the provision of the service - such as custody fees C Subscriptions to information services from overseas where the payments are not disclosed to the client D Allocations of gold bullion held by a custodian bank in New York where the client is informed only that such payments are made but not their value

Answer 274

B

Question 275

\IMPORTANT: authorised firm holds client money and is subject to the MiFID client money rules. A retail client must be informed: A of the firm's obligations under the CASS rules B of the due diligence in selecting a third party custodian C what will happen in the event of a change of Financial Services Compensation Scheme limits D what will happen if the third party that holds its funds becomes insolvent

Answer 275

D

Question 276

IMPORTANT: For retail clients, periodic reports must contain prescribed information, which includes: A the firm's name B the firm's VAT number C a summary of the performance of various stock markets D the portfolio benchmarked against an appropriate index

Answer 276

A

Question 277

IMPORTANT: With respect to clients, what is the general purpose of the provision of information rules within FCA's COBS? A To provide information about the financial circumstances of the client B To enable the client to assess the performance of the firm C To provide information about costs and associated charges D To list the historical investment performance of the firm

Answer 277

B

Question 278

IMPORTANT: In which of the following circumstances is a client agreement required when non-MiFID designated investment business is supplied? A To a Retail Client B To a Professional Client C To an Eligible Counterparty D To all customers

Answer 278

A

Question 279

In which of the following circumstances would it be permissible to not give a client a clientagreement? A Retail and professional clients with regard to advisory MiFIDbusiness B Retail clients wanting advisory services regarding non-MiFIDbusiness C Retail clients paying for advice only with no resultant deals D Retail clients for all designated investment business

Answer 279

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

Question 280

2 x The FCA guidance on electronic communication with a client states that a firm should do all of the following, except: ABe able to demonstrate that the client wishes to communicate using this type of media BIf entering an agreement, make it clear to the client that a contractual relationship has legal consequences CHave in place arrangements to ensure secure transmission and receipt of the communication DBe able to demonstrate that it made it clear to the client that instructions communicated in this manner may not be acted upon immediately

Answer 280

D

Question 281

A fund manager is providing a discretionary management service to their clients. Halfway through their normal reporting period, the manager makes a large investment for the fund. When do they have to notify the client of the details of this purchase? AImmediately BAt the end of the year CIn the trade confirmation DIn the periodic statement

Answer 281

D

Question 282

Which of the following is client money? AA transaction fee due to the firm BMoney held by an approved bank CSettlement charge due to the firm DMoney held in excess to a client's obligations

Answer 282

D ) Any money 'due to the firm' is not client money. Approved banks do not need to treat money deposited with them as client money. Where a firm sells assets held as security against client obligations, the amount equal to the obligation is the firm's money. However, anything in excess of this obligation has to be returned to the client or treated as client money.

Question 283

A financial adviser makes a personal recommendation on a retail investment product to a retail client. For which of the following reasons would the adviser NOT need to send out a suitability report? The recommendation relates to: ATransactions in a regulated CIS BThe surrender of a stakeholder pension CMaking withdrawals from a short-term annuity DA small life policy from a friendly society

Question 284

A financial adviser makes a personal recommendation on a retail investment product to a retail client. For which of the following reasons would the adviser NOT need to send out a suitability report? The recommendation relates to: ATransactions in a regulated CIS BThe surrender of a stakeholder pension CMaking withdrawals from a short-term annuity DA small life policy from a friendly society

Answer 284

D

Question 285

A firm is required to organise and control their affairs responsibly and effectively, and the FCA sets down high-level competence requirements for them to achieve this. Which of the following sourcebooks contained within the FCA Handbook outline these requirements for ALL firms? ASenior Management Arrangements, Systems and Controls BCode of Market Conduct CTraining and Competence DFit and Proper Test for Approved Persons

Answer 285

A The Senior Management Arrangements, Systems and Controls sets out the requirements for ALL firms. Training and Competence Sourcebook sets out further requirements for RETAIL firms only. The Fit and Proper Test applies to approved persons. Firms are also required to apply this to Certification Function. All of the above form part of governance, ie, how a firm is managed and controlled. The clue in the question was 'organise and control' Market conduct is not part of governance. See Principles for Business

Question 286

The UK Disclosure and Transparency Rules detail how to calculate an interest in company in order to discover if a notification is required. When the holdings of a married couple are automatically aggregated, this due to them being considered: AConnected parties BA concert party CWorking parties DAn occlusive group

Answer 286

A) Connected parties are automatically joined because due to their relationship, they have an interest in each other's shares. Connected parties include spouses, children that are minors and family-owned businesses.

Question 287

Under the retail distribution review (RDR), financial advisers must complete CPD. Whatdoes the abbreviation CPD refer to? AContinuous personal development BContinuous psychological development CContinuous professional development DContinuous physical development

Answer 287

C

Question 288

A retail client who is habitually resident overseas does not wish to be sent a basicagreement letter for insurance business. The firm should: A Report them to the FCA B Send them the client agreement regardless C Not send them a client agreement D Not do business with them

Answer 288

C - Effecting insurance contracts is an exception to the rule requiring retail clients to be sent a clientagreement. The location of the client is irrelevant

Question 289

Which execution only client is MOST LIKELY to need to have the most comprehensiverisk explanation provided to them? A A retail client selling shares to the firm B A retail client selling warrants C A professional client engaged in derivatives D A retail client buying options

Answer 289

D - options are the most complex and retail obviously needs most explaining.

Question 290

IMPORTANT: What must the firm do when a specific instruction from a client would prevent a firm fromfollowing its order execution policy when carrying out the transaction? A Decline to carry out the transaction B Ask the client to confirm the instruction in writing C Carry out the order as instructed D Ignore the instruction and follow its order execution policy

Answer 290

C

Question 291

2x Which of the following would be considered a retail investment product, but not apackaged product? A Regulated collective investment scheme B Shares in an investment trust C Stakeholder pension D Life insurance policy

Answer 291

B - Packaged products include investment trust savings schemes, but not shares in investment trusts.Other investments that are considered retail investment products and not packaged products includeunregulated collective investment schemes and structured products.

Question 292

Which of the following are not protected by the conduct of business rules sourcebook? APersonal recommendations to a professional client BPension transfers for retail client CProviding discretionary managed services for a professionalclient DProperty purchases by a retail client

Answer 292

D - The purchase of property is not classed as a designated investment business. Pension transfers can be ckassed as a packaged product which is a dis inv.

Question 293

Which of the following are not protected by the conduct of business rules sourcebook? APersonal recommendations to a professional client BPension transfers for retail client CProviding discretionary managed services for a professionalclient DProperty purchases by a retail client

Answer 293

D - The purchase of property is not classed as a designated investment business. Pension transfers can be ckassed as a packaged product which is a dis inv.

Question 294

According to guidance in the FCA handbook which of the following would BEST indicatethat an investment manager of a client portfolio was engaged in churning? A Excessive activity in a client's portfolio containing shares B The investment manager acting in collusion with clients tosecure a dominant position over the supply of or demand foran investment C The sale or purchase of an investment from the portfolio wherethere is no change in beneficial interest or market risk D Excessive activity in a client's portfolio containing packagedproducts

Answer 294

A - Not D as excessive activity in a client's portfolio containing packaged products is switching.

Question 295

In relation to an authorised firm placing reliance on others for information, which of thefollowing is not a qualifying criteria? A Information must be in writing B The information provider must be independent of the subjectmatter C The information provider must be based in the UK D The third party is competent to provide the information

Answer 295

C

Question 296

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 FAbefore doing business? A Scope and range of advice in a durable medium B Range of advice in a durable medium, as the scope is notrelevant given that the client wants advice on pensions only C Scope and range of advice in a durable medium, only if theadvisor is independent D Scope only of advice in a durable medium, if the pension is astakeholder product

Answer 296

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

Question 297

A per se professional client asks an authorised firm for it to be categorised as a retailclient for extra protection for MiFID business. Which is TRUE about the firm's response? A A report of market manipulation should be madeIMMEDIATELY to the FCA B Re-categorisation is possible without telling the client C The firm would enter into a written agreement regarding re-categorisation D Although the firm must do it, they can wait until the client hassigned a risk warning

Answer 297

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

Question 298

If client A is advised by firm B on his investments, and then client A asks firm C to executea trade for him, then firm C should keep a recording of the conversation between whom? A Between A and C covering the instruction to execute the trade B Between C and the administration department that processesthe trade C Between C and the floor trader who executes the trade D Between Firm C's financial analysts, to avoid any potentialconflicts of interest

Answer 298

A - Weird Q that seems too simple but this is correct

Question 299

When a firm communicates initially with a retail client, COBS requires it to provide'appropriate information', which includes all of the following except: A The firm's name and address B A statement that it is FCA authorised or regulated C The name and status of the person they can contact D Who to refer complaints to if they cannot be resolved by thefirm

Answer 299

D - come later.

Question 300

According to the conduct of business rules and in relation to MiFID business, a firm musthave in place a client agreement when it carries on: A Designated investment business for a retail client only B Eligible counterparty business C Any regulated activity for a retail client and a professional clientonly D Designated investment business for a retail client and MiFIDbusiness for a professional client

Answer 300

D

Question 301

An existing client approaches their firm and requests that they give him a lower level ofprotection. Which of the following would be appropriate action for the firm to take? The firm must: A Offer this level of protection based on specific clientinstructions B Only offer this level of protection if the client in question isalready deemed a professional client C Not offer this level of protection as if it were appropriate to doso it would have categorised the client as such already D First assess the client and then, if necessary, warn them of theadditional risks

Answer 301

D - A lower level of protection would involve a client asking for 'elective' status - or to opt up to the next category of client. This requires assessment by the firm involved before a decision is made.

Question 302

If an independent financial adviser (IFA) passes on the business of a client to a life assurance company, which of the following would be true? The life assurance company: A Can rely on the information about the client provided by the IFA B Is responsible for assessing the suitability of clients referred to them by an IFA C Must assess appropriateness and the IFA must assess suitability D Would only assess suitability for execution only trades

Answer 302

A

Question 303

Why is a commodity derivatives dealer classified as a per se professional client? A. Commodity derivatives are MiFID financial instruments B. The activity is conducted by way of business C. The dealer is an investment firm D. The dealer is unable to qualify as a retail client

Answer 303

B - Clients that are investment firms are, by default, classified as per se professional clients. The dealer does not have to ‘qualify’ for re-classification to retail client;

Question 304

In relation to non-MiFID business, which of the following retail clients may be suitable for reclassification as an elective professional client? A. A newly appointed trustee of a trust exceeding €500,000 B. A client to whom the firm regularly sends financial promotions for non-mainstream investment opportunities C. A client who has recently inherited a sizeable portfolio D. The spouse of one of the firm’s investment managers

Answer 304

B - For non-MiFID business, clients whom the firm assesses as capable of making their own investment decisions can be reclassified as elective professional clients. If a firm considers a client sufficiently sophisticated that the firm is able to promote non-mainstream investments to them, that client is likely to satisfy the qualitative assessment for an elective professional client.

Question 305

Which of the following is a retail investment product? A. Home income plan B. Occupational pension scheme C. Unit in a collective investment scheme D. Commodity derivative

Answer 305

C - a retail investment product is a package product. C is definitely a CIS.

Question 306

Why must a suitability report be issued within 14 days of concluding a personal pension scheme? A. To allow the client the opportunity to consider the recommendations before the end of the cancellation period B. To allow the pension scheme provider to establish the scheme C. To enable the client to compare the costs of the scheme with others D. Because this is a MiFID requirement

Answer 306

A - because the actual statutory cooling-off period afforded to life and pension products, which is 30 days so issuing suitability report within 14 days gives them plenty of time.

Question 307

Which of the following is EXEMPT from the financial promotion rules? A. A promotion to a professional client B. The promotion of non-MiFID business to a retail client C. The promotion of packaged products to a UK-domiciled retail client D. One-off promotions of non-MiFID business that are not cold calls

Answer 307

D A isn't an exemption, promo rules just simply don't apply to professional clients

Question 308

The three categories of products for which Key Features Documents (KFDs) must be provided to clients are packaged products, cash-based individual savings accounts (ISAs) and: A. deposit accounts B. cash-based child trust funds (CTFs) C. conventional annuities D. wrap accounts

Answer 308

B

Question 309

The rules requiring charges to be included in a direct offer promotion to retail clients can be waived if: A. the product is considered to be low risk B. the product has previously been promoted C. the charges are included in another document that the client needs to refer to in order to respond to the offer D. the charges are below a threshold level which is assessed each year in line with the retail price index

Answer 309

C - they have to be somewhere!

Question 310

MiFID firms may accept payments or non-monetary benefits from a third party only if: A. the client is a professional client B. the amount is below that specified in the firm’s conflicts of interest policy C. the payment is recorded, and details provided to the client on request D. the payment enhances the quality of service and is disclosed to the client

Answer 310

D

Question 311

What is the purpose of an order execution policy? A. It enables firms to obtain the best possible results for their clients B. It tells clients exactly how their trades will be dealt C. It lets clients know the precise venue on which their order will be executed D. It ensures the client will always get the best price

Answer 311

A Not B because it's an exact, otherwise it'd be no differeniation between clients.

Question 312

What is the MAIN purpose of the client money rules? A. To compensate clients if an authorised firm becomes insolvent B. To ensure client money benefits from the best possible rate of returns C. To segregate and protect client money from a firm’s own money D. To prevent clients from encashing client money before the due date

Answer 312

C, compensating clients (A) easily is A reason but not the main (and obvious) reason

Question 313

A firm must hold client money accounts in trust with a bank to ensure that: A. the firm cannot use client money to repay its own creditors B. the bank is able to maintain its regulatory status as designated trustee C. no loss will be borne by the client money accounts should the bank become insolvent D. the bank is able to retain the client money should the firm become insolvent

Answer 313

A (in case of liquidation or otherwise)

Question 314

When a firm gives permission to an employee to undertake a personal account transaction it must: A. promptly notify the FCA B. promptly notify the employee C. receive prompt notification that the transaction has been conducted D. obtain permission from the FCA

Answer 314

C They've got to keep records of tall transactions that they've granted permission to. No need to inform FCA.

Question 315

The rules on personal account dealing do not apply to which of the following? A. Options B. Overseas markets C. Life policies D. Initial public offerings (IPOs)

Answer 315

C - packaged product out of their control.

Question 316

Which of the following is required to be included in a notice to clients with the details of the deal? A. The venue where the transaction was executed B. The name of the dealer who executed the trade C. The number of trades outstanding D. The client’s name and date of birth

Answer 316

A - clue is 'details of the deal'. While the client’s name in answer D is required, their date of birth is not.

Question 317

Who, under the Training and Competence rules, is responsible for setting out the standards of competence for employees of authorised firms? A Her Majesty's Treasury, via the Financial Services and Markets Act 2000 B The Financial Conduct Authority C The Financial Standards Board D The authorised firm

Answer 317

D - It is ultimately up to the firm to define precise job roles and standards of competence and to conduct a proper assessment of competence and provide training etc.

Question 318

Which of the following is NOT a purpose of the FCA Directory? A To ensure customers can establish the identity of those individuals selling or providing advice on financial products B To help firms to cross-check employee references and make it more difficult for unsuitable people to work in the industry C To support the FCA and law enforcement agencies in monitoring the market, building intelligence and targeting interventions D To ensure customers have independent contact points in case of the need to cancel an appointment made on a cold call

Answer 318

D - that should be made clear on the call.

Question 319

What information must always be included in a firm's order execution policy for retail clients? A The process the firm uses to specify relative importance of the execution factors B The exchange that the transaction will definitely be traded on C The price that the firm will get for the transaction D The foreign exchange rate that will be used in the transaction

Answer 319

A - not B because it can provide the range of possible venues. . Price and FX rate won't be known until done.

Question 320

A technology firm has decided to sell its shares to the public using the internet. Which of the following rules would govern this offer? A AIM rules for companies B Promotions rules C Listing rules D Exchange rules

Answer 320

B - Normally a company offering new shares would be subject to the UK Listing Authority's rules. In this case, however, as this offer is being communicated via the internet, financial promotion rules will apply. I guess the other three aren't on the syllabus!

Question 321

When must a firm gather more information from the client in order to assess appropriateness? A Information already held by the firm was provided by the client and the firm knows it is complete B Information already held by the firm was provided by the client and the firm is aware it is out of date C Information already held by the firm was from previous transactions with the client D Information is not held by the firm but can be inferred from previous experience with the client

Answer 321

B - Not C or D- A firm may satisfy itself that a client's knowledge alone is sufficient for them to understand the risk involved in a product or service and Where reasonable, a firm may infer knowledge from experience.

Question 322

An authorised firm communicates a financial promotion on a specific product containing past performance figures. Which of the following is true? A Where the product does not have five years performance, the firm is not permitted to show past performance B A clear and prominent warning must assure investors the past performance is a reliable indicator of future performance C The past performance figures must be cited as gross and exclude the impact of fees and commissions D A warning about the effects of currency fluctuations must be included, if the figures are in a currency other than the client's domestic currency

Answer 322

D - Not A because if less than five years then the whole period for which the investment has been offered,

Question 323

Which of these would be exempt from the financial promotions rules? A Communications made by an authorised firm B Communications by a government C Communications in relation to a placing D Communications in relation to a listing

Answer 323

B

Question 324

Which of these is true in relation to comparisons provided in a promotion for a MiFID investment? A A distinction must be made between absolute and proportional differences B The source of the data must be stated C The comparison must explain that the results depend on the individual circumstances of each client D The rules are most stringent for qualifying credit, home purchase plans or home reversion plans

Answer 324

B Not C - If comparisons are made, they must be meaningful and presented in a fair and balanced way. Not D - The rules do not apply for qualifying credit, home purchase plans or home reversion plans.