Chapter 2 - FSMA 200 and FSA 2012

Question 1

What is the name given to the approval granted by the FCA for a firm to undertake specific regulated activities?

Answer 1

Part 4A permission.

Part 4A permission is given by the FCA and, once granted, the firm becomes an authorised person. As an authorised person, the firm can carry on regulated activities without breaching the general prohibition and committing a criminal act.

Question 2

A firm’s application for Financial Conduct Authority (FCA) authorisation was rejected. Under what circumstances, if any, will the application fee be refunded?

Answer 2

Never.

A firm’s application fee for authorisation by the FCA and/or the Prudential Regulation Authority (PRA) is not refundable under any circumstances.

Question 3

Who does the Financial Conduct Authority (FCA) expect should normally be appointed to the role of ‘whistleblowing champion’ in a large bank?

Answer 3

A non-executive director.

The rules on whistleblowing require banks with assets over £250 million to appoint an individual of sufficient seniority as their whistleblowing champion. The FCA expects most banks to appoint a non-executive director or a senior manager if a bank does not have a non-executive director.

Question 4

Which one of the following is specifically excluded from the need to be authorised under FSMA 2000?

Answer 4

Overseas persons.

Overseas persons are one of a number of categories specifically excluded from the need for authorisation under FSMA 2000.

Question 5

Which one of the following Acts provides protection for employees who blow the whistle?

Answer 5

Public Interest Disclosure Act 1998.

The Public Interest Disclosure Act 1998 (PIDA) provides protection for employees making disclosures, against victimisation by their employers.

Question 6

What is a direct consequence of the regulator giving Part 4A permission?

Answer 6

Authorisation is granted.

When the regulator grants Part 4A permission, the firm becomes an authorised person and can carry on the specified regulated activities.

Question 7

Which one of the following is specifically excluded from the need to be authorised under FSMA 2000?

Answer 7

Employee share schemes.

There are a number of categories of exclusion from the need for authorisation, one of which is employee share schemes. Establishing or running a stakeholder pension scheme, arranging home purchase plans and managing Lloyd’s underwriting syndicates are all specified activities that require authorisation.

Question 8

Which one of the following statutory notices gives the recipient the right to make representations to the FCA?

Answer 8

Warning notice.

Warning notices give the recipient details about the action the FCA proposes to take and the right to make representations to the FCA. Decision notices give details of the action that the FCA has decided to take, but leave room for appeal by the recipient. Final notices are issued after the opportunity to appeal. Supervisory notices give the recipient details regarding the action the FCA proposes to take or has taken.

Question 9

Which one of the following measures is most likely to be used by the FCA where a firm no longer meets its threshold conditions?

Answer 9

Variation of Part 4A permission.

Where a firm is no longer able to meet the threshold conditions in relation to one or more of its regulated activities, the FCA would be likely to issue a variation of Part 4A permission to limit its ability to perform regulated activities to those areas where it still meets the threshold conditions. A financial penalty, public censure and prohibition may be applied as well - but this will depend upon whether any other rule contravention occurred..

Question 10

Which FCA supervisory tool is designed to respond when the UK financial system or firms have harmed customers?

Answer 10

Remedy.

Of the four supervisory tools relating to risk, the remedy tool is designed to respond to crystallised risks (harm)..

Question 11

Giving investment advice in the money column of a national newspaper is:

Answer 11

An excluded activity under FSMA 2000.

There is a particular exclusion from the regulated activity of ‘advising on investments’, in relation to newspapers and other media. If a newspaper includes investment advice, and that advice is not the principal purpose of the newspaper, then it is excluded from the regulated activity of ‘advising on investments’.

Question 12

If an adviser carries on regulated activities while unauthorised, what can happen to a contract entered into by a client?

Answer 12

It is voidable at the discretion of the client.

Any agreement made by a person in contravention of the general prohibition is unenforceable by that person against the other party. The other party is entitled to recover any money or property transferred under the agreement and compensation for any loss suffered.

Question 13

Pillar 1 proactive supervision of a ‘fixed portfolio’ firm will ordinarily take place over what time cycle?

Answer 13

12 to 36 months.

For fixed portfolio impacted firms, Pillar 1 proactive supervision ordinarily comprises a 12 to 36-month cycle, covering firm meetings, reviews of management information, an annual strategy meeting and other proactive firm work.

Question 14

If a firm has allowed a controlled function to be carried out without prior approval, what redress does a private person have under Section 71 of FSMA?

Answer 14

They can sue the firm for damages if they suffer loss.

If an individual carries out a controlled function without prior approval, a private person can sue a firm for damages.

Question 15

Which one of the following measures would the FCA consider using as disciplinary action?

Answer 15

Publishing a public censure on a firm.

Question 16

What power does the FCA have under s.165 of FSMA 2000?

Answer 16

Require information about an authorised person.

Under Section 165 of FSMA 2000, the FCA is given wide-ranging powers to require information. These powers extend to authorised persons, persons connected with authorised persons, RCHs and RIEs.

Question 17

What is the regulatory status of a trustee or personal representative carrying out regulated activities for which they are separately remunerated?

Answer 17

They are required to be authorised.

Trustees or personal representatives carrying out regulated activities for which they are separately remunerated require authorisation. There is an exclusion under FSMA 2000 from the need for authorisation if the person carrying on a regulated activity is a trustee or personal representative and not receiving remuneration for providing investment services.

Question 18

How will the Directory, created by the Financial Conduct Authority (FCA), help regulated firms?

Answer 18

By enabling them to cross-check staff references

The Directory helps firms to cross-check references, make their staff known to customers, and to make it more difficult for unsuitable individuals to work in the industry.

Question 19

Which of the regulators’ supervisory tools is designed to assess the cause, extent and development of potential harm?

Answer 19

Diagnose.

Of the four supervisory tools relating to risk, the diagnose tool is designed to assess and measure potential harm.

Question 20

Which one of the following measures might the FCA take as remedial action rather than disciplinary action?

Answer 20

Cancelling the firm’s Part 4A permission.

The measures available to the FCA to use where it considers it necessary to take protective or remedial action include: issuing a private warning; varying or cancelling a firm’s Part 4A permission; withdrawing regulatory approval to perform a senior management function; and prohibiting an individual from performing a particular role in relation to a regulated activity. There are three possible forms of disciplinary sanction: public statements of misconduct; public censures; and financial penalties.

Question 21

Which one of the following activities is regulated in accordance with FSMA 2000 [Regulated Activities Order]?

Answer 21

Writing tip sheets.

Newspapers and broadcasters have a specific exemption, as do providers of factual share price information. However, if the principal purpose of a publication was the provision of investment advice, ie, tip sheets, then authorisation would be required.

Question 22

Which one of the following criteria for the fit and proper test is a person disqualified as a director most likely to fail?

Answer 22

Honesty, integrity and reputation.

Under the fit and proper test criteria for honesty, integrity and reputation, the FCA would have regard to whether a person has been disqualified as a director.

Question 23

What type of notice is normally the first statutory notice giving details of disciplinary action that the FCA proposes to take?

Answer 23

Warning notice.

Once the FCA becomes aware of a problem, a warning notice is issued giving the recipient details about the action that the FCA proposes to take and the right to make representations. Once disciplinary action has been decided the Regulatory Decisions Committee (RDC) would issue a decision notice. A supervisory notice is only issued in extreme circumstances and gives the recipient details regarding the action the FCA has taken, or proposes to take. A notice of discontinuance is where the FCA discontinues its initially planned disciplinary action.

Question 24

An exclusion from the need for authorisation under the FSMA 2000 Regulated Activities Order applies to which specific category of individual?

Answer 24

Trustees.

There is an exclusion from the need for authorisation if the person carrying out the regulated activity is acting as the representative of another party. This covers trustees, nominees and personal representatives.

Question 25

For which type of product must a financial adviser be fully qualified before giving advice, even under supervision?

Answer 25

Securities.

An individual must have attained the full qualification before commencing certain activities, even under supervision. These include advising on or dealing in securities.

Question 26

Which one of the following pieces of information is given in a decision notice issued by the FCA?

Answer 26

Right of appeal by the recipient.

A decision notice gives details of the action that the FCA has decided to take but leaves room for appeal by the recipient. The effective date and terms of the final action will come later. A decision not to proceed is a ‘notice of discontinuance’.

Question 27

An individual deals as principal in debentures, warrants and futures. For which of these products is this classed as a regulated activity?

Answer 27

Debentures, warrants and futures.

Dealing in investments as principal is classed as a regulated activity but only if it applies to certain specified investments, which include securities (such as shares, debentures and warrants) and contractually-based investments (such as options, futures, CFDs and life policies).

Question 28

Before submitting a candidate’s application for approval under the Senior Managers & Certification Regime (SMCR), firms must try to obtain a regulatory reference from all the candidate’s employers over what specific period?

Answer 28

6 years.

Prior to Form A being submitted to the regulators, a firm must, under the SMCR, take all reasonable steps to obtain a ‘regulatory reference’ from a candidate’s current employer and anyone who has been a candidate’s employer for the past six years.

Question 29

One of the prescribed situations which could cause the FCA to withdraw a firm’s Part 4A permission would be where:

Answer 29

The firm’s regulated activities have come to an end.

The Part 4A permission granted to the firm by the FCA can be withdrawn on the FCA’s own initiative where the FCA has very serious concerns about the firm or the way it does business, or where the firm’s regulated activities have come to an end and it has not applied for cancellation of its Part 4A permission.

Question 30

A client has purchased a National Savings & Investments (NS&I) bond, depositary receipts and local authority loan stock. Which of these are specified investments under the Regulated Activities Order?

Answer 30

Depositary receipts and loan stock only.

Specified investments under the Regulated Activities Order include local authority loan stock and depositary receipts, but specifically exclude National Savings & Investments deposits and products.

Question 31

Under FSMA 2000, what is the maximum penalty for carrying out regulated activities without being authorised?

Answer 31

Two years’ imprisonment and an unlimited fine.

Question 32

A primary role of the Regulatory Decisions Committee (RDC) is to:

Answer 32

Adjudicate as to whether statutory notices should be issued.

The RDC is relatively independent of the FCA, with only its chairman an FCA employee. As its name suggests, it decides whether to issue statutory notices and takes the final decisions in areas such as whether or not to discipline and the appropriate sanction.