1
Q
A
2
Q
What must a firm apply for to carry out a regulated financial services activity?
A
authorisation from the FCA
Unless exempt from authorisation, firms must seek approval to operate legally.
3
Q
True or false: It is an offence to carry out a regulated activity without authorisation.
A
TRUE
A breach may be a criminal offence under the Financial Services and Markets Act 2000.
4
Q
What can an individual or business do if they are refused authorisation by the FCA?
A
appeal to the Upper Tribunal
The Upper Tribunal reviews the appeal and decides upon the case.
5
Q
List some things a business should do before applying for FCA authorisation.
A
- Match the financial service to an FCA regulated activity
- Check threshold conditions for authorisation
- Ensure systems and controls meet FCA conditions
- Verify employee qualifications
- Define senior management functions
- Prepare a business plan
These steps help ensure compliance with FCA requirements.
6
Q
What is the role of the PRA in financial services?
A
Authorising and regulating banks, insurers, and large financial service organisations for financial stability
The PRA focuses on the financial soundness of these institutions.
7
Q
What is the role of the FCA in financial services?
A
Authorising and regulating organisations for conduct and prudential regulation
This includes smaller firms like financial and insurance intermediaries.
8
Q
Name the regulated activities related to banking.
A
- Accepting deposits
- Issuing electronic money
These activities are essential for banking operations.
9
Q
What are the regulated activities for insurers?
A
- Effecting or carrying out contracts of insurance as principal
- Assisting in the administration and performance of a contract of insurance
These activities ensure proper insurance practices.
10
Q
List the regulated activities of an investment intermediary.
A
- Advising on investments
- Providing basic advice on stakeholder products
- Arranging deals in investments
- Managing investments
- Dealing in investments
- Safeguarding and administering investments
These activities cover a wide range of investment services.
11
Q
What does home finance include as regulated activities?
A
- Advising on home finance activities
- Arranging home finance activities
- Entering into and/or administering a home finance activity
- Agreeing to do most of the above activities
Home finance activities are crucial for mortgage and related services.
12
Q
What is a scheme operator responsible for?
A
Establishing, operating, or winding-up collective investment schemes and/or stakeholder pension schemes
This role is vital for managing investment schemes.
13
Q
List the regulated investments mentioned.
A
- Deposits
- Electronic money
- Rights under a contract of insurance
- Shares
- Government and public securities
- Certificates representing certain securities
- Units in a collective investment scheme
- Rights under a personal/stakeholder pension scheme
- Options, futures, and contracts for differences
- Life insurance policies
- Non-investment insurance contracts
- Rights under regulated mortgage contracts
- Rights under a home reversion plan
- Rights under a home purchase plan
- Regulated sale and rent back agreements
- Rights under a credit/consumer hire agreement
These investments are subject to regulatory oversight.
14
Q
What is the FCA’s responsibility under the Money Laundering Regulations 2017?
A
Registration of firms and licensing of consumer credit activities
This includes activities like issuing credit cards and lending money.
15
Q
An individual or business is exempt from authorisation requirements if they have a contract with an authorised person. What is this individual or business called?
A
appointed representative (AR)
The principal firm takes full responsibility for the AR’s actions.
16
Q
What must principal firms do regarding their appointed representatives (ARs)?
A
- Apply enhanced oversight
- Assess competence and capability
- Monitor risks to consumers
- Review AR activities annually
- Terminate AR relationships when necessary
These rules help ensure market integrity and consumer protection.
17
Q
True or false: Principal firms must notify the FCA 30 days in advance of any new appointments of ARs.
A
TRUE
This requirement ensures regulatory oversight of AR relationships.
18
Q
What is the term for professional firms that do not need authorisation for regulated activities incidental to their professional services?
A
exempt professional firms (EPFs)
These firms are listed separately on the Financial Services Register.
19
Q
Which types of firms need FCA authorisation to advise on life policies or arrange investments?
A
authorised professional firms (APFs)
This includes solicitors and accountants who wish to provide such advice.
20
Q
Name three designated professional bodies (DPBs) mentioned.
A
- Three law societies
- Four accountancy bodies
- Institute of Actuaries
These bodies are involved in the regulation of professional firms.
21
Q
True or false: Local authorities are exempt from authorisation.
A
TRUE
Various government bodies, including the Bank of England, are also exempt.
22
Q
What are authorised firms responsible for?
A
- Conduct of all employees
- Compliance with FCA requirements
- Advice given by representatives
They must ensure compliance to avoid liability for breaches.
23
Q
What must all authorised firms have in place to manage risks?
A
systems and controls
These vary according to the type of business and include rules on having sufficient capital.
24
Q
What is the maximum duration an individual can perform significant management functions without approval?
A
twelve weeks
This is allowed to cover for illness and holidays.
25
What is the role of a **Compliance Officer** in an authorised firm?
Ensure compliance with regulations and rules
## Footnote
Usually supported by a Compliance Department.
26
What is the definition of **independent advisers**?
Advisers that provide unbiased and unrestricted advice
## Footnote
They can recommend all types of retail investment products from all firms.
27
What must independent advisers assess to meet client needs?
A sufficient range of relevant products
## Footnote
These must be diverse in type and issuer.
28
What is the difference between **restricted advisers** and independent advisers?
Restricted advisers can only recommend certain products or providers
## Footnote
They must clearly explain the nature of the restriction.
29
What is **restricted advice** defined as?
A personal recommendation to a retail client that is not independent advice
## Footnote
This includes basic advice and simplified advice.
30
What do **single-tied advisers** do?
Recommend products from only one provider
## Footnote
They may recommend different types of products but all from the same provider.
31
What is the role of **multi-tied advisers**?
Arrange ties with multiple product providers
## Footnote
They offer a wider range of products than single-tied advisers.
32
What must firms providing **restricted advice** disclose to clients?
The nature of the restriction
## Footnote
This must be communicated clearly in all client interactions.
33
What is the maximum annual management charge for medium-term stakeholder products?
1.5% of the value of the plan/pension
## Footnote
This reduces to 1% after ten years.
34
What must a financial adviser provide to a retail client on first contact?
* Regulatory status
* Details of services
* Payment details
* Regulatory body
* Complaint procedures
* FSCS coverage
## Footnote
This information must be fair, clear, and not misleading.
35
What is the rule regarding **remuneration** for advisers giving advice on pensions, investments, or annuities?
They cannot be paid a commission from product providers
## Footnote
They must charge a fee for the advice given.
36
What is the term for the practice of recommending a solution that is not suitable for a client's needs?
shoehorning
## Footnote
This is considered bad advice.
37
What are the **FCA Principles for Businesses**?
* Integrity
* Skill, care and diligence
* Management and control
* Financial prudence
* Market conduct
* Customers' interests
* Communications with clients
* Conflicts of interest
* Customers: relationships of trust
* Clients' assets
* Relations with regulators
* Consumer Duty
## Footnote
These principles outline the fundamental obligations of all authorised firms.
38
True or false: The **FCA Principles** take precedence over FCA Rules in case of conflict.
TRUE
## Footnote
All authorised firms must comply with the Principles at all times.
39
What is the **Consumer Duty** in relation to FCA Principles?
A firm must act to deliver good outcomes for retail customers
## Footnote
This Principle replaces Principles 6 and 7 for retail customers.
40
What must a firm do if it becomes aware of a breach of the **FCA Principles**?
Inform the FCA and implement remedial action
## Footnote
Compliance officers are responsible for this action.
41
What is the **Approved Persons Regime**?
A regulatory scheme for Appointed Representatives and some exempt firms
## Footnote
It predates SM&CR and is crucial for regulated activities.
42
Define the term **authorised person**.
The business that carries on regulated activities
## Footnote
This could be a company, partnership, or sole trader.
43
Define the term **approved person**.
The individual approved to carry out controlled functions
## Footnote
This includes senior persons or those advising customers on investments.
44
What is the **customer function (CF30)**?
Advising on investments and related functions
## Footnote
It includes dealing and arranging deals in investments.
45
What are the **Statements of Principle for Approved Persons**?
* Integrity
* Skill, care and diligence
* Market conduct
* Open and cooperative
* Organisation and control
* Skill, care and diligence in managing
* Compliance
## Footnote
These principles apply to individuals performing controlled functions.
46
What is required of an approved person under **Rule 1**?
Act with integrity
## Footnote
This is a fundamental requirement for carrying out accountable functions.
47
What does **Rule 2** require from an approved person?
Act with due skill, care and diligence
## Footnote
This applies to all aspects of their accountable functions.
48
What does **Rule 3** state regarding communication with regulators?
Be open and cooperative with the FCA, PRA, and other regulators
## Footnote
This includes disclosing relevant information.
49
What does **Rule 4** require regarding customer interests?
Pay due regard to the interests of customers and treat them fairly
## Footnote
This is essential for maintaining trust and compliance.
50
What does **Rule 5** emphasize about market conduct?
Observe proper standards of market conduct
## Footnote
This includes avoiding manipulation of benchmarks or markets.
51
What is the focus of **Rule 6**?
Deliver good outcomes for retail customers
## Footnote
This rule aims to ensure services are valuable and usable.
52
What is the **Fit and Proper test (FIT)**?
Assessment of an individual's honesty, integrity, and reputation
## Footnote
This applies to senior management or certified positions.
53
What is the **Fit and Proper test (FIT)** for employees and senior personnel?
* Honesty, integrity and reputation
* Competence and capability
* Financial soundness
## Footnote
Individuals in senior management or certified positions must meet these criteria to be considered fit and proper for their function.
54
What does the **FCA** base its judgment on regarding an individual's **honesty, integrity, and reputation**?
* Criminal proceedings
* Civil proceedings
* Disciplinary proceedings
* Employment record
* Past dealings with regulators
## Footnote
These factors are assessed to determine an individual's suitability for their role.
55
Individuals must demonstrate **competence and capability** by meeting the FCA's requirements for _______.
training and competence
## Footnote
They must also show suitability for their role through experience and training.
56
What actions may the **FCA** take if an individual neglects their regulatory responsibilities?
* Financial penalties
* Loss of job
* Curtailment of future employment prospects
## Footnote
These actions are consequences of failing to uphold regulatory responsibilities.
57
What must a firm do if it believes someone is no longer **fit and proper**?
* Take appropriate action
* Inform the FCA immediately
## Footnote
For example, if an adviser misappropriates client money, the firm must dismiss them and notify the FCA.
58
The **FCA** requires that the fair treatment of customers is evident at all levels within firms; this includes _______.
* Complaints handling
* Treatment of customers by staff
## Footnote
Fair treatment must be addressed at all stages of customer dealings.
59
List the **six positive consumer outcomes** firms should strive to deliver for fair treatment.
* Outcome 1: Confidence in fair treatment
* Outcome 2: Products designed for consumer needs
* Outcome 3: Clear information provided
* Outcome 4: Suitable advice given
* Outcome 5: Products perform as expected
* Outcome 6: No unreasonable post-sale barriers
## Footnote
These outcomes ensure that customers are treated fairly throughout their interactions with firms.
60
In a financially inclusive society, all individuals have access to _______.
useful and affordable financial products and services
## Footnote
This includes access to financial planning products that provide peace of mind and protect against hardship.
61
True or false: The **Consumer Duty** aims to improve consumer outcomes by ensuring that firms consider the needs of retail clients.
TRUE
## Footnote
The Consumer Duty sets a higher standard of care across all retail markets.
62
What is the **Consumer Principle** under the Consumer Duty?
Principle 12 requires firms to 'act to deliver good outcomes for retail customers'
## Footnote
This principle emphasizes putting customers' interests at the heart of business activities.
63
List the **four outcomes** provided by the Consumer Duty that firms must focus on.
* Governance of products and services
* Price and value
* Customer understanding
* Customer support
## Footnote
These outcomes set clear expectations for firms' conduct in their relationships with consumers.
64
Firms should assess the effectiveness of their actions to enable rather than _______ consumer outcomes.
hinder
## Footnote
This approach ensures that firms facilitate positive consumer experiences.
65
The rules of the Consumer Duty have applied to new and existing products or services since _______.
31 July 2023
## Footnote
Closed products and services will be subject to these rules starting 31 July 2024.
66
Name three **applications of AI** in financial services.
* Client communication
* Risk management and fraud detection
* Automated portfolio management
## Footnote
AI enhances efficiency, personalization, and accuracy in financial services.
67
What is **conduct risk**?
The risk of not delivering fair customer outcomes due to conduct standards
## Footnote
It can arise at both individual and company levels.
68
List the **three main causes of conduct risk** according to the FCA.
* Inherent factors
* Structures and behaviour
* Environmental factors
## Footnote
These factors influence firm and consumer decisions.
69
True or false: The FCA expects senior managers to ensure fair treatment of customers is central to the firm's behaviour.
TRUE
## Footnote
Senior managers are responsible for managing the business and ensuring customer-centric practices.
70
What does **MI** stand for in the context of management?
Management Information
## Footnote
MI is essential for senior managers to assess the firm's approach to customers.
71
Fill in the blank: The **CII Code of Ethics** requires members to treat people fairly regardless of their _______.
age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion and belief, sex and sexual orientation
## Footnote
This reflects the professional and ethical standards in the financial services industry.
72
What are the **training and competence (TC)** rules designed to ensure?
* Employees are competent for their work
* Proper supervision is in place
## Footnote
Competence must be regularly reviewed and appropriate to the business.
73
What must a firm consider when **recruiting** individuals to deal with retail clients?
* Knowledge and skills of the individual
* Current role
* Previous activities and training
## Footnote
This ensures that employees are qualified to provide advice.
74
What is the duration for keeping training records for **MiFID firms**?
Five years
## Footnote
Records must be kept for at least three years for non-MiFID firms.
75
What is the **threshold requirement** for advising on investment products?
Level 4 professional exam standards
## Footnote
This includes the CII's Diploma in Regulated Financial Planning.
76
What is the **Markets in Financial Instruments Directive (MiFID I)**?
EU legislation effective from November 1, 2007
## Footnote
It introduced extensive requirements on firms regarding conduct of business and internal organization.
77
What does **MiFID II** aim to improve?
The functioning of financial markets
## Footnote
MiFID II took effect in January 2018 and revised the previous MiFID regulation.
78
What is the **Markets in Financial Instruments Directive II (MiFID II)** designed to improve?
The functioning of financial markets and strengthen investor protection
## Footnote
MiFID II took effect in January 2018 and revised the previous MiFID regulation.
79
What are **Article 3 MiFID exempt firms**?
Firms that provide any investment service other than reception and transmission of orders or investment advice
## Footnote
These firms may be exempt from MiFID requirements.
80
What are the main areas of requirements for **retail investment firms** under MiFID II?
* Disclosure of costs and charges
* Product governance
* Describing advice services
* Structured deposits
* Suitability
* Recording conversations
* Inducements
## Footnote
These areas outline the obligations of firms providing investment services to clients.
81
Under MiFID II, what must firms provide regarding **costs and charges**?
Indications of expected costs pre-sale and actual costs post-sale on at least an annual basis
## Footnote
Costs should be expressed both as a cash amount and as a percentage.
82
What does **product governance** require advisers to consider?
Rules around information sharing between advisers and providers
## Footnote
Advisers must gather information from manufacturers and provide feedback on product performance.
83
What is the MiFID II concept of **independent investment advice**?
Firms must assess a sufficient range of relevant products that are diverse enough to meet client investment objectives
## Footnote
This generally means advising on all types of financial instruments and retail investment products.
84
What must firms do when recommending a **MiFID financial instrument**?
Follow suitability rules and provide a suitability report
## Footnote
Periodic assessments of suitability must be conducted at least annually.
85
What is required regarding **recording conversations** for MiFID firms?
All telephone conversations must be recorded, and electronic conversations must be kept
## Footnote
Article 3 retail financial advisers can choose to record or make contemporaneous notes.
86
What does MiFID II introduce regarding **inducements** for independent investment advice?
Inducement bans apply to both independent and non-independent advice
## Footnote
Firms may only accept certain minor non-monetary benefits, excluding 'sporting and cultural events'.
CII CF1 2025-26
flashcards
Decks in class (13)
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