Chapter Seven: Core Regulatory Principles and Rules

Question 1

What is Section 19 (S.19) under the Financial Services and Markets Act (FMSA)?

Answer 1

This is referred to as the ‘General Prohibition’.

It refers to an authorisation breach where someone is carrying out a regulated activity without the required permissions.

Question 2

What is the maximum penalty for an authorisation breach under S.19?

Answer 2

2 years in prison and an unlimited fine.

Question 3

When does grandfathering not apply?

Answer 3

When authorisation for activities has not been previously regulated by the FSA.

Question 4

What are the regulated activities that require authorisation?

Answer 4

1. Banking
2. Home finance
3. Insurance
4. Pension Scheme Operator
5. Investment Intermediary
6. Insurance Intermediary
7. Investment Management
8. Credit related Tasks

Question 5

Who is responsible for the actions of an Appointed Representative?

Answer 5

The Authorised Person (Principal) who appointed them.

Question 6

What are the three types of Appointed Representative?

Answer 6

1. Introducer
2. Tied Agent
3. Full Appointed Representative

Question 7

What are the two types of registrations that a Designated Professional Body (DPB) can use?

Answer 7

Exempt or Authorised

Question 8

For which regulated activities do Designated Professional Bodies (DPB) member firms not require authorisation from the FCA?

Answer 8

Activities that are purely incidental to their professional services.

Question 9

What regulatory body would a new Insurance Firm apply to for authorisation?

Answer 9

PRA

Question 10

What regulatory body would a Financial Intermediary apply to for authorisation?

Answer 10

FCA

Question 11

What would a Scope of Permission Notice contain?

Answer 11

Details of the firms authorisation including which activities they are allowed to undertake and what, if any limitations are applied.

Question 12

For what period of time could a person within a firm undertake controlled activities without needing the approval of the FCA?

Answer 12

12 weeks per year.

Question 13

If a firm is changing from a partnership to a limited company, can it transfer its authorisation?

Answer 13

No, it must reapply as a new firm.

Question 14

What are the key aims of the SMCR?

Answer 14

To encourage staff of all levels to take personal responsibility for actions and to ensure firms and staff can understand and demonstrate where responsibility lies.

Question 15

If a portfolio loses 80% of its value, is the client entitled to compensation from her adviser?

Answer 15

Not solely for the loss of value but, they may be entitled to recompense if the advice was in breach of the FSMA/FCA rules.

Question 16

What are the five significant influence functions which can only be performed by approved persons?

Answer 16

1. Governing functions
2. Required functions
3. Systems and control functions
4. Significant management functions
5. Customer dealing functions

Question 17

What jobs roles fall under ‘Executive Functions’ under the SMCR ?

Answer 17

1. Chief exec
2. Chief finance
3. Chief risk
4. Head of audit
5. Head of key business area

Question 18

Which job roles fall into Oversight as part of the new SM and CR

Answer 18

1. Chairman
2. Chair of risk committee
3. Chair of audit committee
4. Chair of remuneration committee
5. Senior independent director
6. Head of overseas branch

Question 19

Under the SMCR, what does a firm need to do?

Answer 19

1. Ensure each senior manager has a statement of responsibilities
2. Introduce a firm responsibilities map
3. Ensure all senior managers are pre-approved before carrying out their roles
4. Ensure each is assessed for Fitness & Propriety

Question 20

How do material risk takers need to be certified under the SMCR?

Answer 20

1. Assessed for Fitness & Propriety
2. Issue a certificate
3. Have a process in place to assess annually

Question 21

What are the 3 classifications of firms under SMCR?

Answer 21

1. Limited Scope
2. Core Firms
3. Enhanced Firms

Question 22

What types of firms are considered to be ‘enhanced’ under SMCR?

Answer 22

1. IFPRU (Investment Firms Prudential Regime) typically providers of Collective Investment Schemes
2. Large CASS (Clients Assets Sourcebook) meaning whoever holds client assets including Discretionary Fund Managers
3. Asset managers holding £50 billion plus
4. Intermediary firms with £35 million or more in revenue per annum
5. Credit lenders who earn over £100 million or more in revenue per annum
6. Mortgage lenders with 10,000 or more mortgages outstanding (who aren’t banks)

Question 23

How long should training records be kept for?

Answer 23

3 years for non MiFID firms
5 years for MiFID firms
Indefinitely for pension transfer

Question 24

How long must complaints be retained for?

Answer 24

3 years for non MIFID firms

5 years for MIFID firms

Question 25

What are the time limits on complaints to Financial Ombudsmen FOS?

Answer 25

6 months of the date of the final outcome from the firm or 3 years after the complainant knew they had cause for complaint or 6 years after the event

Question 26

If a retail client wants to make a complaint, who should this be to first?

Answer 26

First complaint should be to the firm. If the firm does not resolve this issue in a way the client deems satisfactory, then they may escalate the complaint to the Financial Ombudsmen (FOS).

Question 27

Who are exempt from being an 'eligible claimant' under FSCS?

Answer 27

``` Overseas Financial Institutions Pension and Retirement Funds Government Institutions Regional and Local Authorities Large Companies and Partnerships Alternative Investment Funds Large Mutual Funds ```

Question 28

What are the limits for deposits under the FSCS?

Answer 28

100% of the first £85,000 invested per person, per firm.

Question 29

What are the limits for investments under the FSCS?

Answer 29

100% of the first £85,000 invested per person, per firm.

Question 30

What are the limits for long term insurance under the FSCS?

Answer 30

From Providers - 100% of the claim with no limit. | From Intermediaries - 90% (some 100%) with no limit.

Question 31

What are the limits for general insurance under the FSCS?

Answer 31

100% of valid claims or unexpired premiums for compulsory insurance. 90% for non-compulsory insurance.

Question 32

What are the limits for home finance under the FSCS?

Answer 32

100% of the first £85,000.