Mock exams

Question 1

The FCA are currently pursuing a proven accusation of market abuse, what might cause them to discontinue their investigations?
AThe sum gained was less than £20,000 BThe defendant is a market maker CThe defendant is a private individual DCriminal proceedings are taking place

Answer 1

d

Question 2

All of the following need to be disclosed to a retail client before conducting investment business, EXCEPT:
AA durable copy of the relevant transactions BTerms of the agreement CInformation about fees and commissions DInformation about the firm

Answer 2

A

Question 3

What happens when a specific instruction from a client would prevent a firm from following its order execution policy when carrying out the transaction? The firm must:
ADecline to carry out the transaction BAsk the client to confirm the instruction in writing CCarry out the order as instructed DIgnore the instruction and follow its order execution policy

Answer 3

C

Question 4

Which of the following would not be able to take advantage of the FSCS?
AAn individual who has money held in a cash deposit account wrapped in an Individual Savings Account BAn authorised collective investment scheme investing in designated investments CA retail client dealing through an authorised intermediary DA small company with a qualifying insurance contract

Answer 4

B

Question 5

Someone in a call centre makes an unsolicited call to a retail client in the UK and then follows the call up in writing. Which action(s) is/are an example of a financial promotion?
AThe call only as it was real-time BThe follow-up letter as it was unsolicited CBoth as they were unsolicited DBoth irrespective of whether they were real-time, non-real-time, solicited or unsolicited

Answer 5

D

Question 6

Victoria, a sales representative in the authorised firm of which you are a manager, has a reputation for being less than wholly truthful when filling out her expenses claims. Victoria is also a member of the family that owns the firm, and her father is a director of the firm.
Steven, Victoria’s supervisor, approaches you for advice, carrying Victoria’s latest expenses claim in his hand. He shows you one figure on the claim which appears to have been altered from ‘£10’ to ‘£110’, and says that he isn’t sure what to do next.
Which is the most appropriate course of action for you to take?
AHave a quiet word with another of the supervisors of the firm, asking them what they would do in the circumstances BNothing - after all, it seems pretty clear that the expenses system in the firm is not properly implemented or controlled CRefer the matter to the compliance team, with a view to seeking senior management intervention DUse this as an opportunity to carry out root-and-branch reform of every internal control system of the firm

Answer 6

C

Question 7

Which of the following will NOT determine the payout of a money purchase occupational pension scheme?
AContributions into the plan BInvestment returns CCharges deducted DFinal salary of employee

Answer 7

D

Question 8

Under the principles of the Chartered Institute for Securities and Investment (CISI), CISI members are required to strive to uphold the highest personal standards, including rejecting short-term profits that may jeopardise the reputations of which of the following:
AThe member BThe member and their employer CThe member, their employer and the CISI DThe member, their employer, the industry and the CISI

Answer 8

D

Question 9

Good quality recordings of voice and electronic communications help firms and the FCA detect and deter inappropriate behaviour. The rule applies to telephone and electronic communication relating to client orders.
Which of the following is the best interpretation of this rule? Firms must take reasonable steps to ensure that relevant:
ACommunications do not take place electronically BConversations do not take place on telephones CConversations do not take place on mobile phones DConversations do not take place on individuals’ private mobile phones

Answer 9

D

Question 10

Ahmed has produced detailed terms and conditions for one of his long-standing and experienced clients. Knowing that the knowledge and experience of the client were excellent, Ahmed was able to save time by using many technical terms. Ahmed is also planning to use this document for a new retail client who has little understanding of the risks inherent to the product Ahmed intends to recommend. If he uses the document in this way, which of the Conduct Rules is Ahmed most likely to breach?
AYou must act with integrity BYou must be open and cooperative with the FCA, the PRA and other regulators CYou must observe proper standards of market conduct DYou must pay due regard to the interests of customers and treat them fairly

Answer 10

D

Question 11

Ephraim Hardacre has just joined the GAPA pension fund management firm, joining in the role of Chief Risk Officer.

Spencer Erminebridge has been a pension transfer specialist at GAPA pension fund management firm for the past eight years.

Which of the following statements is true?

AOnly Ephraim is performing a certification function BOnly Spencer is performing a senior manager function CBoth Ephraim and Spencer are performing certification functions DOnly Ephraim is performing a senior manager function

Answer 11

D

Question 12

According to the Conduct of Business Rules, in which of the following situations would an authorised firm need to assess whether an investment or service is appropriate for a client? When a firm:
AProvides advice on investments of a complex nature to an inexperienced client BArranges a deal in a warrant for a retail client who has responded to a direct offer CEngages in eligible counterparty business in relation to derivatives DManages a retail client’s portfolio on a discretionary basis

Answer 12

B

Question 13

The purpose of the Joint Money Laundering Steering Group (JMLSG) is:
ATo provide firms with guidance in respect of money laundering regulations BTo provide mandatory strategies on how to apply the money laundering regulations CTo specify to the courts the penalties for money laundering offences DTo instruct the FCA how to apply European money laundering legislation in the UK

Answer 13

A

Question 14

When will the Financial Ombudsman Service offer free assistance to a client?
AWhen an authorised firm is unable to maintain adequate capital requirement BWhen an eligible claimant is claiming compensation from an overseas authorised firm CWhen an authorised firm is unhappy with the response from the FCA after a request for authorisation DWhen an authorised firm is unable to deal with a complaint from an eligible complainant

Answer 14

D

Question 15

Which of the following best describes the Regulator’s principle-based approach to regulation?
ADetailed rules and guidelines that must be followed BFocus on outcomes with high level rules to help achieve this CEqual focus on both outcomes and individual rules DA purely guidance based approach

Answer 15

B

Question 16

If an authorised firm is conducting unauthorised regulated activities, this will be considered to be which ONE of the following?
AA criminal matter BA civil matter CA regulatory matter DA due diligence matter

Answer 16

A

Question 17

An authorised firm, acting on behalf of a client, has received an order to buy 5,000 shares in XYZ plc just before the market opens. The firm believes that the market will open with a sharp fall due to significant losses on the S&P 500 overnight. When should the firm execute the transaction?
AThe order should be executed as soon as possible at all times BThe transaction may be postponed, providing the firm has obtained permission from the client to delay the transaction CThe firm may delay execution if it believes it is in the best interests of the client DThe transaction must be executed as soon as the market opens

Answer 17

C

Question 18

Consider the following individuals:
Rita, a research analyst, knowingly passes inside information to her brother and encourages him to deal
Iris, the owner of a fast food restaurant, looks after criminal property until it appears to be legitimate
William, an asset manager, deals on investment research that was specifically produced for the firm’s clients
Which of the following is true?

Answer 18

B

Question 19

Which of the following statements relating to the legal relationships between financial advisors and their clients is FALSE?
AA multi-tied agent can work for two or three separate providers if she wishes BAn independent financial advisor acts as the agent of the client CThe COBS apply directly to both tied- and multi-tied agents DA tied agent acts as the agent of the provider

Answer 19

C

Question 20

Consider the following events:
Event 1: two authorised firms merge to create a larger entity;
Event 2: market intelligence suggests the general misselling of a particular investment;
Event 3: a whistleblower alleges misconduct of an employee of a member firm.
Which of the following is true?
AEvent 1 alone would be caught under the firm systematic framework BEvents 2 and 3 would lead to prosecution by the regulator CEvents 1 and 3 would lead to event-driven work by the regulator DEvent 2 alone would lead to event-driven work by the regulator

Answer 20

C

Question 21

Consider the following economic events:
Action 1: VAT is increased by 2.5%
Action 2: The money supply is reduced by 1%
Action 3: Interest rates are reduced by 0.5%
Action 4: Government expenditure on road and railway construction is increased by 20%
Which of the following statements is true?
AAll four actions are expansionary policies BActions 1 and 3 are both fiscal policies CActions 2 and 4 are both monetary policies DActions 3 and 4 are both expansionary policies

Answer 21

D

Question 22

Which of the following is NOT a valid justification for the encouragement, of the CISI and others, to financial services organisations to act ethically?
ATo boost long-term profits through sustainable actions BTo enhance employee retention through increased satisfaction CTo boost short-term profits through sustainable actions DTo enhance customer retention through increased satisfaction

Answer 22

C

Question 23

When considering the current account element of the balance of payments in the economy, which of the following would be true? It measures:
AFlows in relation to trade in goods and services and current transfers BFlows in relation to goods and services and overseas investments CFlows in relation to goods and services and overseas companies operating in the UK DFinancial service activity in the economy only

Answer 23

A

Question 24

Which of the following best describes Chinese walls? An arrangement that requires:
APaperwork held by a person in the course of carrying on one part of its business to be withheld from, or not to be used by, persons with or for whom it acts in the course of carrying on another part of its business BInformation held by a person in the course of carrying on one part of its business not to socialise with other persons with or for whom it acts in the course of carrying on another part of its business CInformation held by a person in the course of carrying on one part of its business to be withheld from, or not to be used by, persons with or for whom it acts in the course of carrying on another part of its business DInformation held by a person in the course of carrying on one part of its business not to talk to persons with or for whom it acts in the course of carrying on another part of its business

Answer 24

C

Question 25

A client asks for a copy of a trade confirmation for a trade that was carried out six years ago. Which would be a valid response to the client?
AThe firm is never required to provide copies of documentation BRecords are only kept for five years from the date of dispatch CRecords of trade confirmations are not kept by the firm DThe client should contact the FCA for a copy

Answer 25

B

Question 26

Which clients need to have the most comprehensive risk explanation provided to them?
AAn execution only retail client selling shares to the firm BAn execution only retail client selling warrants CA discretionary professional client engaged in derivatives DAn execution only retail client buying options

Answer 26

D

Question 27

When the Regulations Decision Committee issues a final notice to a firm at the end of the investigation procedure, which of the following is not included on a final notice?
AAny sanctions the regulators wish to impose BThe date the notice comes into effect CThe disciplinary action taken by the firm DAny other information deemed to be relevant

Answer 27

C

Question 28

Client A: An eligible counterparty is recategorised as an elective professional client.
Client B: A professional client is recategorised as an eligible counterparty.
Client C: A retail cleint is recategorised as an elective professional client.
Which of the following is true?

AIn opting for a new level of client, clients A and C have opted for more protection BBefore applying the new category of client, clients B and C will need to consent to lost protection CClients A and B will need to pass a quantitative test before recategorisation DClients A and C move client category only on their own initiative

Answer 28

B

Question 29

Which of the following is least likely to have an impact on a firm’s ethical culture?
AThe timeliness of its regulatory reporting BThe training and succession plans of the firm CThe remuneration of the firm’s managers and staff DThe geographical structure of the firm

Answer 29

A

Question 30

An IT consultant places an order to sell some shares that she owns. She then becomes aware of some inside information that would lead to the shares rising in value. What would the insider dealing legislation PREVENT her from doing?
ACalling her stockbroker and cancelling the sale order BPassing the information on to someone she is certain will not act on it CInforming her work colleagues of the information, if this would be in the normal course of her job DShe cancels the order after hearing a press release containing the information later that day.

Answer 30

A

Question 31

With regard to Senior Management Arrangements, Systems and Controls (SYSC), which of the following MUST a firm do?
AEstablish and maintain an internal audit function BAllocate responsibilities to specific named directors CMaintain a clear apportionment of significant responsibilities so that the firm can be adequately monitored DMaintain records for three years after any change in responsibilities

Answer 31

C

Question 32

The supervision of trading infrastructures both exchange traded and OTC is the responsibility of:
APRA BFCA CFRA DFOS

Answer 32

B

Question 33

ABC is a large multi-function investment bank; DEF is an independent financial advisor; GHI is a small upstart highstreet deposit-taker; JKL is a large property broker.
Which of the following is true?
AABC, as a large investment bank, will be dual regulated by both the Financial Conduct Authority and the Prudential Regulatory Authority BDEF, in giving retail advice, will be regulated by the Prudential Regulatory Authority alone CGHI, as a small deposit-taking firm, will not need regulating under FSMA 2000 DJKL, as a property broker, will be regulated by the Financial Conduct Authority alone

Answer 33

A

Question 34

Which of the following is a key feature of an interest in possession trust?
AThe beneficiary cannot draw from the trust until they are 18 years old BThe trustee has the power to appoint beneficiaries at their discretion CThe beneficiary of the income differs from the beneficiary of the assets DThe trustee has the power to distribute the assets at their discretion

Answer 34

C

Question 35

How does the FCA secure an appropriate degree of protection for consumers in the financial services?
ABy preventing all risk of loss to investors BBy considering different levels of investment and investor knowledge CBy having regard to economic and fiscal consequences to the UK DBy making it clear who has what responsibility in the FCA

Answer 35

B

Question 36

When comparing FCA and PRA in terms of prudential supervision which of the following is true? The FCA will concentrate on mitigating the impact of failure on:
AConsumers BThe financial system CBoth consumers and the financial system DNeither consumers nor the financial system

Answer 36

A

Question 37

For the purpose of the best execution rule, which one of the following is not an acceptable execution venue?
AAny over the counter arrangement BAny systematic internalisers CAny multilateral trading facility DAny regulated market

Answer 37

A

Question 38

Which of the following best reflects the powers granted under S165 of the Financial Services and Markets Act 2000 with regard to information gathering? The regulator:
AHas the power to request information specified in the handbook only BHas unlimited power to request information CMust specify on a case-by-case basis which information it requires in writing DMust appoint a third party to decide which information needs to be gathered

Answer 38

C

Question 39

Which of the following may be guilty of insider dealing as defined under the Criminal Justice Act?
AA director of a company performing the role of broker in his own company’s shares BAn employee dealing in his own company’s share because his chairman also dealt CAn external auditor makes a purchase based on the company accounts before they are signed off DThe wife of a director deals in company shares after the announcement of a dividend

Answer 39

C

Question 40

Which of the following is true in regard of the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC) in the FCA Handbook?
AFirms must take reasonable care to organise and control its affairs responsibly and effectively BFirm should vest responsibility for an effective and responsible organisation in specific named directors and senior managers CIt creates a common and binding platform of systems and controls for both scope and non-scope firms DThese arrangements, processes and mechanisms must be comprehensive and applied equally across affected firms

Answer 40

A

Question 41

Two firms offer services to a client. Firm A offers services in US trade bills and soybean options. Firm B offers services in US treasury bills and options on silver.
Which of the following is true?
AFirm A would not need to be authorised by the FCA for either product. Firm B would need to be authorised by the FCA for both products BBoth firms would need to be authorised by the FCA for the bills, but not for the options CFirm A would need to be authorised by the FCA for the US trade bills only and Firm B would need to be authorised by the FCA for both products DBoth firms would need to be authorised by the FCA for all of these products

Answer 41

A - Options on soybeans are not specified investments, so no authorisation is needed to provide services in those. Options on precious metals (including silver), however, are specified. Although debt instruments are generally considered specified investments, trade bills are specifically excluded from authorisation in the Regulated Activities Order.

Question 42

Which of the following is NOT a consequence of ignoring regulations?
AIncreased tax BDamage to reputation CLoss of staff DWithdrawal of authorisation

Answer 42

A

Question 43

[1048696] Which of the following adjustments to fiscal policy would allow the government to implement an expansionary fiscal stance?
AIncrease taxes BIncrease taxes and increase spending CIncrease spending financed by new borrowings DReduce spending and reduce borrowings

Answer 43

C

Question 44

Who is the Tax and Chancery Chamber of the Upper Tribunal set up by?
AFinancial Ombudsman Service BHis Majesty’s Treasury CFinancial Services Compensation Scheme DThe Ministry of Justice

Answer 44

D

Question 45

The requirement for a firm to provide adequate protection for a client’s assets is PRIMARILY there to:
APrevent the firm pooling clients’ assets in the same account BEnsure that clients’ assets are protected from liquidation in the case of the firm’s bankruptcy CPrevent the firm selling clients’ assets on a discretionary basis DEnsure that the assets of eligible counterparties are held separately from those of professional and retail clients

Answer 45

B

Question 46

If a client has provided insufficient information for a firm to assess suitability, which of the following is a firm, engaged in designated investment business, permitted to do?
ADeal on a non-advisory basis for the client on their instruction BProvide a personal recommendation on the information received CReport the client to the Financial Conduct Authority DProvide a personal recommendation following a risk warning

Answer 46

A

Question 47

Susanna Hoffs has been accused of helping her cousin to place some funds raised via selling stolen cars into a bank account.
Tommy Lawton has been accused of market abuse relating to an NYSE.liffe trade by the FCA.
Duncan Ferguson has been accused of providing funds to an animal rights group which hacks into the IT systems of medical research companies and changes records relating to animal experimentation.
Debbi Peterson has been accused of offering her clients paid-for investment advice relating to listed share transactions, despite the fact that she has not been authorised to do so.
Which of the four individuals has committed an offence for which the maximum prison term is FIVE years in prison?

ASusanna Hoffs BTommy Lawton CDuncan Ferguson DDebbi Peterson

Answer 47

C

Question 48

The term ‘chattels’ is used to describe:
AMoveable real property BTangible real property CMoveable personal property DImmovable real property

Answer 48

C

Question 49

Sam has taken out a secured loan from his bank. He has not been able to keep up with his payments on the loan. Which of the following is true?
AThe lender has a legal charge over Sam’s property and has the right to possess the property to get their money back BNo legal charge is taken by the lender on the loan CAn overdraft is usually a type of secured loan DStore cards are usually a type of secured loan

Answer 49

A

Question 50

In respect of financial promotions issued by appointed representatives, which of the following is responsible?
AIt is always the responsibility of the appointed representative BIt is always the responsibility of the firm CIt is the responsibility of both the appointed representative and the firm DIt is the responsibility of the generator, not the firm

Answer 50

B

Question 51

When performing non-advised sales, a firm must:
AAssess appropriateness for all designated investment business BDetermine whether a retail client has sufficient knowledge and experience when investing in derivatives CAssess whether any investment entered into meets the client’s objectives DAssess appropriateness only if the client requests it

Answer 51

B

Question 52

The shares in BYOH plc are listed on both the London and the New York Stock Exchanges. Its public reputation in the US falls sharply as does the share price. If the UK markets are slow to react to this, what could take advantage of the situation?
AStabilisation BAnticor CImmunisation DArbitrage

Answer 52

D - Many multinational companies have their shares traded on more than one stock market. Events affecting the shares in one place will affect the prices at which they are quoted on others, through arbitrage activity (‘arbitrage’ is activity which aims to take advantage of the different prices at which an asset might be traded on different markets; it has the effect of bringing those prices back into balance).

Question 53

Which of the following is a feature of the ‘ethical approach’, as opposed to the ‘compliance approach’, to seeking to improve corporate culture? AFear-driven culture BActing to the letter of the law CValues-driven culture DFocusing upon detection of ethical transgression

Answer 53

C

Question 54

According to the Conduct of Business Rules, when an appointed representative communicates a financial promotion, who ultimately bears responsibility for that communication?
AThe appointed representative communicating the promotion BThe authorised firm that approves the promotion CThe product provider if different from the approving authorised firm DThe person who confirms compliance of the financial promotion

Answer 54

B

Question 55

Which of the following is not a feature of a favourable ethical culture?
APersonal responsibility BAn awareness of the effect the firm’s actions have upon other stakeholders CManagement perceived as an elite and separate function DLinking remuneration to the creation of shareholder value

Answer 55

C

Question 56

Directions issued by the Financial Policy Committee to the PRA and FCA have what status?
AA legal obligation BA regulatory requirement CComply or explain why DGuidance and recommendation

Answer 56

C

Question 57

VSF plc is an investment bank that, amongst other things, offers structured products via intermediary firms to clients. One such structured product offers investors a guaranteed minimum 20% yield with a 75% capital guarantee, so long as the investment is held for a minimum of five years.
ABP Ltd is an advisory firm, concentrating primarily upon elderly investors. ABP Ltd has recently started selling VSF products, including the structured product mentioned above, and has also recently implemented a remuneration scheme for its sales staff offering to pay them a cash incentive worth 20% of all commission received from selling any VSF product for the next three months.
From the point of view of VSF plc, which of the following is the most ethically relevant consideration? The fact that ABP Ltd is:
AIncentivising its sales team to sell VSF products, rather than those of other investment banks BSelling products on a commission basis CSelling this particular structured product, given its investor base DEncouraging its sales team to sell this commission-based product by offering them a cash incentive risks commission bias

Answer 57

C

Question 58

When considering the ‘ethics vs. compliance’ approach to regulation, the ethical issue of ‘spirit of the law’ is paired with the compliance requirement of:
ALetter of the law BMandatory CFear-driven DDetection

Answer 58

A - Ethics is what you OUGHT to do, whereas compliance is what you HAVE to do.

Question 59

Which of the following is NOT a main reason for having a system of central banking in Europe?
AIt builds on existing competencies of the national central banks BMore appropriate given the large geographical euro area CMore appropriate for a multitude of different languages DA single central bank is more likely to favour one country over another

Answer 59

D

Question 60

J&J Law Partnership is being sued by a client for bad advice. Which of the following is TRUE?
AThe partners have no liability to the firm’s debts BThe firm is solely liable for its own debts CThe partners may have to sell personal property to pay off the firm’s debts DThe partnership is a separate legal entity to its partners

Answer 60

C

Question 61

To whom must the Money Laundering Reporting Officer report suspicious activities?
AFinancial Conduct Authority BFinancial Action Task Force CThe Board of Directors DNational Crime Agency

Answer 61

D

Question 62

A firm must assess the expertise of elective professional clients. This is known as:
AClient’s best interests rule BProcedural requirement CQuantitative test DQualitative test

Answer 62

D - To choose to become an elective professional client, for MiFID business the client must meet two tests - the quantitative and qualitative tests.

Question 63

Consider the following employees of an SMCR firm:
Fernand is an independent financial adviser with 20 years experience.
Martha has recently joined the firm as the chief risk officer.
Which of the following is true?
AMartha only performs a senior manager function BOnly Fernand needs to be an approved person CBoth are required to pass the relevant module of an appropriate exam DOnly Martha would need to pass a fit and proper assessment

Answer 63

A

Question 64

Which of the following is TRUE in respect of the principles of membership of the Chartered Institute for Securities and Investment’s Code of Conduct?
AThey provide guidance only to members BMembers must comply with the principles CMembers must comply with the principles only if there are no other regulatory requirements in the relevant area DMembers must only comply with the principles if the FCA agrees

Answer 64

B

Question 65

Which of the following statements is false with regards to whistleblowing?
AThe FCA encourages firms to consider adopting and communicating to workers appropriate internal procedures for handling workers’ concerns BThe FCA would regard as a serious matter any evidence that a firm had acted to the detriment of a worker because he or she had made a protected disclosure CEvidence that the firm is acting to the detriment of an employee would call into question the fitness and propriety of the firm DThe rules allow an employee to breach rules on client confidentiality at all times

Answer 65

D

Question 66

Dealing on which of the following would be classified as an offence under the insider dealing legislation?
AInside information when the person knows that it is inside information and knows that it is from an inside source BInside information when the person suspects that it is inside information and believes that it is from an inside source CInside information when the person knows that it is general information and believes that it is from an outside source DGenerally available information when the person knows that it is generally available information and knows that it is from an inside source

Answer 66

A

Question 67

Principle 6 of the Principles for Businesses is Customers’ Interests. Who is protected by this principle?
ARetail clients only BRetail clients and professional clients only CRetail clients and professional clients for their MiFiD business DRetail clients, professional clients and eligible counterparties

Answer 67

B

Question 68

Which of the following is the correct interaction between the FCA regulations on money laundering and the JMLSG guidelines?
AJMLSG guidelines are statutory, the regulations are guidance BThe regulations are statute, JMLSG guidelines are guidance CJMLSG guidelines overrule the regulations if money laundering is suspected DFirms cannot usually be disciplined for not following the regulations if they follow the JMLSG guidelines

Answer 68

D - The JMLSG guidelines provide an indication of what is expected of financial sector firms and, when tailored by a firm to its own risk base and business profile.

The law is prescribed by the proceeds of crime act (POCA), which has nothing to do with the FCA. Also, do not confuse the Money Laundering Regulations 2017 (MLR 2017), which is also law, with FCA regulations, which is not law. FCA money laundering regulations (contained in SYSC) provide admin provisions for firms at risk - ie, they tell them what controls they should use in order to reduce their risk exposure. SYSC are regulations, rather than the law, ie they are not statute.

JMLSG (guidance) then advises firms on how best to implement the FCA’s money laundering regulations. Guidance is not ‘binding’. This means that it is not mandatory and the firm does not have to follow it. However, these guidance notes have been accepted by HMT, so in following them you could not be considered in breach of the FCA’s regulations. If the firm does not follow the guidance, this protection is lost.

Question 69

Which one of these is not an acceptable reason for a firm to fail to execute otherwise comparable orders sequentially?
AA retail client’s order was given priority over other clients BPrevailing market conditions made it impracticable CIt was in the interests of the client to delay execution DThe characteristics of the client’s order made it impracticable

Answer 69

A

Question 70

The main objective of the PDMR Regime is:
ATo ensure the LSE is perceived to be a fair and orderly market BTo prevent directors dealing in company shares CTo restrict directors from holding shares in competitor companies DTo ensure that confidence is maintained in foreign markets

Answer 70

A - The PDMR Regime does not prevent directors’ dealings, although it does attempt to restrict dealings during the closed periods (when there is a greater risk of insider dealing).

Question 71

Which of the following does not require FCA/PRA authorisation?
ASending dematerialised instructions in investments BRunning a collective investment scheme CDealing on behalf of others DWriting a newspaper column advising on investments

Answer 71

D - Newspapers have a specific exemption.

Question 72

Which of the following would breach conduct rule 1, acting with integrity?
AMisleading a client about the risks of an investment BFailing to explain the risks of an investment to a customer CFailing to disclose details of charges DRecommending an investment to a customer which may not be suitable

Answer 72

A

Question 73

Which of the following would the FCA not consider acts of misconduct subject to disciplinary proceedings?
AAn employee failing to comply with the firm’s own policy of independence BProviding false or misleading information to the FCA outside of an FCA investigation CActing in such a way as to cause another approved person to be in breach of the FCA rules DDealing ahead of the firm’s research where the research is intended for the firm’s use only

Answer 73

D - Research that is not intended for the clients of a firm is not covered by the FCA rules so would not be a breach.

Question 74

You have recently been appointed as CEO of a major corporation. At your first Board meeting you announce that you intend to create a formal ethics policy and change the company’s business practices in accordance with these policies. Your reasoning for doing this is backed up by well known research that indicates all of the following, EXCEPT:
AAn ethics policy is a hallmark of a well managed organisation and will boost the company’s profitability accordingly BAn ethics policy will likely lead to enhanced customer and employee retention CIf an ethics policy is not formalised it may lead to an erosion of business reputation and brand awareness DAn ethics policy gives you an opportunity to get further news coverage and enhance your own credibility as the new CEO

Answer 74

D

Question 75

In which of the following situations would it be acceptable for a firm not to verify the identification of a new client?
AThe client was represented by an existing customer BThe cheque presented by the client is in their own name and drawn on a UK bank account CThe transaction is for €25,000 DThe employee does not believe a suspicious transaction is taking place

Answer 75

B - According to the Money Laundering Regulations, identification procedures are also not required if the person is listed in the Money Laundering Directive and if the transaction is one-off and with a financial institution which is part of the FATF.

Question 76

In a dual regulated firm what procedure must be followed if an approved person is to have approval withdrawn?
AOnly the regulator that granted the person approval may with draw it BEither regulator may withdraw approval for any approved person CEither regulator may withdraw approval from a person who is carrying on a senior manager function in connection with a dual-regulated firm DEither regulator may withdraw approval from a person who is carrying on a senior manager function in connection with a dual-regulated firm, regardless of which regulator gave approval. However it must consult with the other regulator first

Answer 76

D - Either regulator may withdraw approval from a person who is carrying on a senior manager function in connection with a dual-regulated firm, regardless of which regulator gave approval. However it must consult with the other regulator first.

Question 77

Who of the following is/are the stakeholder(s) of Principle 8 contained within the CISI Code of Conduct?
AFirm, self BSociety, colleagues CClients, profession DRegulator, firm

Answer 77

B - Principle 8: Speak Up and Listen Up – to be active in speaking up and encouraging others to do so by listening up, promoting a safe environment for all and recognising the responsibilities you have to the communities in which you operate.

Question 78

In which of the following scenarios would it be appropriate to conduct the objective test in respect of money laundering?
AHenry, a financial advisor, has a client whom he knows is engaged in extortion. He is asked to set up an investment account on his client’s behalf using the funds raised BMartin, who works for a high-street bank, sets up a deposit account for his brother. Martin knows that his brother’s funds were generated through theft CJake, a shop keeper, receives a large sum of money from a client in payment for a long outstanding debt. Jake immediately places this on deposit in his company bank account DPhilip, a hedge fund manager, receives a one off investment from a client whom he knows to be engaged in criminal activities

Answer 78

C - The objective test looks at whether a reasonable person would have known or been suspicious in the same situation. When there is evidence or knowledge that an offence is being committed, there is no need for the test - this reflects the situations Henry, Martin and Philip find themselves in. In the scenario with Jake, however, there is no evidence that this is money laundering, but the large deposit would have reflected an unusual pattern and should be investigated by the bank holding the company bank account.

Question 79

John is employed as a MLRO by a fund management firm and is awaiting the final FCA confirmation of his approved person status. Ethel is employed as a customer relationship executive with a fund management firm and has received certification of fitness and propriety from her firm. Franklin, as the head of the equity trading desk, has overall responsibility for that area and has been approved by the FCA. Which of the following statements is true?
AAll three employees are in a position to carry out their job roles in full without supervision BOnly Ethel would be exempt from obligations under the Conduct Rules CFranklin and John alone are considered senior management functions DIt is fine for John to carry out his job for up to three months whilst waiting for FCA approval, so long as he is constantly supervised

Answer 79

C

Question 80

When an FCA firm undertakes a promotion to a retail client, which is TRUE?
APast performance can only be given for products for which there is five year performance history BThe past performance must be the most prominent feature CPast performance data is mandatory when promoting to retail clients DThere must be a warning that any performance data is not a reliable indicator of future performance

Answer 80

D

Question 81

Which of the following is the best description of the aim of the capital requirements directive (CRD)? To ensure that:
AFirms have adequate financial resources to meet their prudential needs BAuthorised firms have the same resources as home state firms CAuthorised firms have the same resources as host state firms DFirms have resources over €743,000

Answer 81

A

Question 82

Gertrude Humphery has just joined the ACE Investment Firm, joining in the role of Client Assets Oversight Officer. Reginald Madeley has been the head of the equities trading desk at ACE Investment Firm for the past five years. Which of the following statements are true?
ANeither Gertrude nor Reginald are performing senior manager functions BOnly Reginald is performing a certification function COnly Gertrude is performing a senior manager function DBoth Gertrude and Reginald are performing senior manager functions

Answer 82

A - Client assets oversight function and head of the equities trading desk are likely to be certification functions. Although it is possible that the head of a significant business area is given SMF status, this was not an option given to us in the question.

Question 83

Which of the following is correct regarding the right of the FCA to request information from an authorised firm?
AThere is no limit on the information that can be requested BThe FCA can state the form in which information needs to be provided CThe firm has the right to specify the information it will provide DAny request for information must be made in writing

Answer 83

D

Question 84

Which of the following market participants might have a defence against the accusation of market abuse?
AAn adviser who passed on a rumour about a potential takeover to a client in the belief that it was true. It wasn’t and the client lost a lot of money BAn adviser who stated that an investment was low risk when it was medium risk when recommending it to a low risk investor. The investor subsequently made a lot of money from the investment CA private investor who spread rumours about the stock that he already held in order to inflate the price before selling it DA fund manager making a large purchase in a particular stock to inflate the closing price of the stock

Answer 84

A

Question 85

Which of the following is true about the information to be provided by a firm to clients before providing services?
ARetail clients would receive more information than professional clients BProfessional clients would receive the same information as retail clients CRetail clients only must be provided with this information DA firm needs to provide this information to a professional client only if the client requests it

Answer 85

A

Question 86

In relation to the insider dealing legislation, which of the following individuals would be considered to be an insider?
AAn employee who bought shares in the company after he heard that the chairman had purchased shares BA shareholder who purchased shares following receipt of published financial statements CThe human resources director who purchases shares after being appointed to the position DThe audit partner who sells shares after reading the audit report prior to publication of the financial statements

Answer 86

D

Question 87

An employee reports a suspicion to the MLRO. Which of the following best describes what happens next? The employee:
AInvestigates the suspicion and keeps the MLRO informed BCeases to perform business with the client immediately CNotifies the client as soon as reasonably practicable that they are under investigation DHas no further responsibility to pursue this suspicion under law

Answer 87

D

Question 88

Which of the following is a breach of the ‘Integrity’ Conduct Rule?
AFailure to explain the risks of a derivative to a retail client BMisleading a client about a transaction CNot sending out a client agreement to an eligible counterparty DTrading on inside information

Answer 88

B

Question 89

When confirming whether a financial promotion complies with the financial promotions regulations which of the following is TRUE?
AThere is no need for authorised firms to confirm compliance BConfirmation of compliance must be made by a person with appropriate expertise CConfirmations of the promotions must be made by the communicating firm DConfirmations of the promotions must not be made by the communicating firm

Answer 89

B

Question 90

A broker is at lunch with an operations manager who tells him about a group of IT developers that have worked out a method to access other companies’ information before it is made public.
Some time later, one of the IT developers contacts the broker and asks him to place an order on a company that is about to disclose information to the market. According to Chartered Institute for Securities and Investment’s code of conduct, what should the broker do?
AAccept and execute the order as it is unsolicited BDo not accept the order CDo not proceed, and inform their supervisor DAccept the order and wait until the information is made public before executing

Answer 90

C

Question 91

Ethical behaviour is that which is open, honest, transparent and fair. In this context ‘open’ is best described as:
AEveryone whom your action or decision involves is fully aware of it, or will be made aware of it BIt complies with applicable law and/or regulation CIt is clear to all parties involved what is happening DThe action/decision is fair to everyone in it or affected by it

Answer 91

A - ‘It complies with applicable law and/or regulation’ describes Honesty
‘It is clear to all parties involved what is happening’ describes Transparency
‘The action/decision is fair to everyone in it or affected by it’ describes Fairness
A simple test is to ask yourself whether you would be happy to appear in the media in connection with the behaviour!

Question 92

At which of the following stages of the financial lifecycle model are households most likely to experience falling levels of disposable income?
ASingle young adulthood BYoung couple, no children CEmpty-nesters DParents with dependent children

Answer 92

D

Question 93

When a decision notice is referred to the Tax and Chancery Chamber of the Upper Tribunal, a full re-hearing is given to the matter that gave rise to the referral. What evidence may be considered at the re-hearing?
AOnly evidence available to the FCA at the time the FCA took its decision BAny evidence relating to the decision whether or not it was available to the FCA at the time of the decision COnly evidence relating to a breach of the FCA’s conduct of business rules DAny evidence relating to the breach of the Financial Services and Markets Act 2000 or the FCA’s conduct of business rules

Answer 93

B

Question 94

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 94

D

Question 95

In which of the following situations would money held by a firm need to be given adequate protection according to the client money rules?
AMoney handed back to the client BMoney due and payable to the firm CMoney held in the client’s account in the firm’s name at an approved bank DMoney handed to a representative of the client where no service was provided

Answer 95

C - Money held by a firm on behalf of the client is client money. If the money is due and payable to the firm, it is not client money. If the firm discharges fiduciary duty, it is not client money. The other two choices are examples of a discharge of fiduciary duty.

Question 96

With respect to all designated investment business, when do the suitability rules apply?
ATo all clients if the firm is acting as investment manager BTo retail clients and professional clients when providing personal recommendations and acting as an investment manager CTo retail clients and professional clients where acting as an investment manager DTo retail clients only where making personal recommendations and acting as investment managers

Answer 96

D - In respect of all designated investment business, the suitability rules only apply to retails clients.
Suitability rules do apply to professional clients, but in respect of MiFID business only.

Question 97

Under the individual accountability regime, which of the following is a conduct rule applying to certified persons?
AAct with due skill, care and diligence BCombat financial crime CDeliver the best possible result to clients DCommunicate information in a way which is clear, fair and not misleading

Answer 97

A

Question 98

An elderly couple have £110,000 invested in a joint savings account with a PRA authorised bank. Assuming that they are eligible claimants, what is the maximum claim possible for this couple under the Financial Services Compensation Scheme (FSCS)?
A£85,000 B£99,000 C£110,000 D£170,000

Answer 98

C - The FSCS limit is £85,000 per person per institution. In this case, each is entitled to up to £85,000. Since the amount in the account is only £110,000 the maximum claim is £110,000.

Question 99

A financial adviser has resigned from Dearham Advisors to begin a new job at Expert Consultancy. He wishes to take with him some information that he produced while working at Dearham Advisors. Which of the following would LEAST likely breach any ETHICAL codes, if he were to take it with him?
AIncomplete research conducted by the FA whilst at Dearham Advisors into investment funds BA list of the FA’s top ten clients whilst at Dearham Advisors CExpertise gained by the FA in taxation whilst at Dearham Advisors DData on potential clients collected by the FA whilst at Dearham Advisors

Answer 99

C

Question 100

A company enters into a contract to provide cleaning services for a client over 5 years. The Memorandum and Articles of the company only give the company powers to build aircraft. Which of the following is TRUE?
AThe company lacks the capacity to contract and therefore the contract is void BThe contract is legally binding for both parties CThe contract is enforceable by the company only DContract law precedes the company’s constitution and therefore the contract is valid

Answer 100

A - Nowadays companies tend to have widely drafted powers in their ‘Mem and Arts’.

Question 101

The FCA is granted the power to enforce their rules and sanction and discipline those who do not follow them. Which of the following would the FCA not seek disciplinary action for?
AFailure to get a financial promotion approved BNot following FCA guidelines CNot following FCA rules DNot following FCA principles

Answer 101

B

Question 102

The Act bestows responsibility for a new Threshold Condition on the PRA; namely Business to
be Conducted in a Prudent Manner. This new Threshold Condition amended which of the following
pre-existing threshold conditions?
AAdequate resources BSuitability CLocation of offices DLegal status

Answer 102

A

Question 103

Bobby is considering a pension and, due to his market experience, is tempted by a self-invested personal pension (SIPP). However, Bobby is concerned as to the genuine flexibility of these pensions and whether the tax advantages of a SIPP are the equivalent to those in a regular pension scheme. You, as Bobby’s advisor, make the following statements:
Statement 1: “If you go for a deferred SIPP, you will have unlimited ability to trade, within the lifetime allowance, in the allowable investments.”
Statement 2: “The tax benefits of a SIPP are identical to those of a regular pension scheme, and you will pay no tax on the income and gain within the pension account.”
Statement 3: “It is not possible to withdraw a tax-free lump sum from the pension at or after 55 years old, which marks a difference to standard personal pensions.”
Statement 4: “A scheme administrator will be needed to make sure the requirements for tax approval are met.”
Which of these four statements are true?
AStatements 1, 3 and 4 BStatements 1 and 4 CStatements 2 and 4 DAll four statements

Answer 103

C - In a deferred SIPP, the investor is restricted in the investment choices, as most or all of the pension assets must be held in insured pension funds, with some direct access to mutual funds. The tax benefits of a SIPP are identical to other personal pensions, including the ability to withdraw a lump sum of 25% at retirement.

Question 104

What is the purpose of the FCA’s risk-based approach to regulation? To:
AAddress threats to the FCA’s objectives BStandardise the processes under which firms conduct their business CAllow the FCA to enforce its rules through a disciplinary regime DDirect firms in their money laundering procedures

Answer 104

A - The risk-based approach to regulation helps the FCA determine the level of supervision that should be directed at a firm based on the risk each firm poses to their statutory objectives. The risk-based approach to regulation assesses both the impact of the risk occurring and the probability of its occurrence.

Question 105

Under which of the following circumstances do the COBS not require a firm to enter into a client agreement for MiFID business with a professional client?
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 firm is an insurance firm that is issuing a life policy as principal

Answer 105

D - The COBS are explicit in saying that MiFID business requires a client agreement for all customers, unless the firm is an insurance firm issuing a life policy as principal.

Question 106

Robert, an equity analyst with an authorised firm, is accused of market abuse under the Market Abuse Regulation (MAR) as a result of the following transactions:
Transaction 1: Robert, acting alone, spread a rumour to the effect that a hostile takeover bid was about to be launched for a German-listed company, making himself a profit of £50,000.
Transaction 2: In collusion with Herbert, a UK person acting on behalf of a Finnish bank, Robert arranged an over-the-counter swap transaction and then put out misleading press announcements relating to the trade, earning a profit of £100,000 to be split equally between the two.
Which of the following statements are correct?
AThe FCA will prosecute Robert for market abuse in transaction 1, whilst the Crown Prosecution Service will prosecute both Robert and Herbert for market abuse in transaction 2 BSince Herbert is working on behalf of a non-UK firm, it is not possible for the FCA to refer Transaction 2 to the Regulatory Decisions Committee - the FCA would need to pass the case to the Finnish regulator instead CThe FCA must seek dispensation from FATF before taking any action against Herbert DNeither transaction will be held to account within the Crown Court

Answer 106

D - Sections 401 and 402 of FSMA2000 give the power to the FCA to prosecute for insider dealing under CJA93 in the Crown Court, not the Crown Prosecution Service. However, this question specifically refers to market abuse, not insider dealing. Therefore, as market abuse is not a crime (it is a civil offence), neither Robert nor Herbert will be ‘prosecuted’ anywhere, and the Crown Court does not get involved. The fact that Herbert works for a non-UK firm is irrelevant, and the Financial Action Task Force is also irrelevant to this question.

Question 107

Which of the following would not be considered an inducement by the FCA, if received by a firm from a person other than the client (or someone acting on behalf of the client)?
APortfolio measurement services BExecution management systems CTickets to the Royal Ballet DResearch paid for seperately by the firm

Answer 107

D - Under MiFID II rules, research is not an inducement if firms fund the research themselves, or via a separate research payment account.

Question 108

What best describes the guidance notes from the Money Laundering Steering Group?
ABreaching them carries a penalty of six months imprisonment and an unlimited fine BThey must be implemented by authorised firms CThey provide an indication of how firms should interpret the laws on money laundering DBreaching them carries a penalty of an unlimited fine

Answer 108

C

Question 109

Firm A is a large multi-function investment bank; Firm B is an independent financial advisor; Firm C is a small upstart highstreet deposit-taker; Firm D is a large property broker.
Which of the following is true?
AFirm A, as an investment firm, will be regulated by the Financial Conduct Authority alone BFirm B, in giving retail advice, will be a dual regulated firm CFirm C, as a small firm, will be regulated by the Financial Conduct Authority alone DFirm D, as a property broker, will be regulated by neither the Prudential Regulatory Authority nor the Financial Conduct Authority

Answer 109

D - Firm A is a large investment bank. This will categorise it as a systemic firm requiring dual regulation. Intermediaries, such and brokers and advisors, are regulated by the FCA. Deposit-takers (regardless of size) will be dual regulated. As property is not a specified investment, property brokers (firms that act as an intermediary between buyers and sellers of real estate) are not part of the regulated financial services.

Question 110

Harry has been sent by his FCA-authorised firm on a one-year assignment as a project manager in a developing country in Africa. Although high commodities prices are leading to a rapid increase in the living standards of the country, and consequently development of financial markets, the country’s legal infrastructure has not kept pace. In particular, insider trading laws have not yet been developed within that country.
Whilst in an official meeting with some national government officials, Harry receives a tipoff of the imminent takeover of one of the country’s largest locally-listed mining companies. The takeover is expected to be carried out at a significant premium to the current share price due to local laws restricting the ability of new entrants to enter the country’s mining industry.
Which is Harry’s most ethical approach to take, upon hearing this exciting news?
AHarry must be careful not to get his firm or his firm’s clients involved in any transaction regarding the mining company on the basis of the news. However, Harry is free to take a position in the shares himself BThere is no ethical issue here as insider trading laws do not exist in this African country CHarry must be sensitive to differing ethical judgements in different cultures around the world - therefore it is impossible to give Harry advice without knowing more about the local culture of the African country DSince Harry has received material inside information on the takeover bid, he should not act, or cause others to act, upon that information

Answer 110

D

Question 111

Under European legislation of the financial services industry, which country’s regulator is responsible for the client information disclosure rules of a firm with multiple offices around the region?
AHome regulator BHost regulator CShared between home and host regulator DNeither regulator

Answer 111

B - As a broad rule of thumb you can say all rules are governed by the home state regulator except the COBS.
The regulator governing the COBS is dependent on how the activities are provided (i.e. local branch to local client = local (host) rules; cross-border selling = home state rules).
The information disclosure rules are part of the COBS and as the firm has multiple offices we assume local branch to local client, so host state rules is the best answer.
Note: shared responsibility suggests real-time co-ordination between regulators, and this occurs infrequently - it is too inflexible and time consuming.

Question 112

Which of the following is not true regarding the types of notices that can be issued by the Regulatory Decisions Committee (RDC)?
AA warning notice sets out the action the regulator is intending to take BA notice of discontinuance is issued where proceedings set out in a warning notice or a decision notice are being discontinued COn the issuance of a decision notice the recipient has the right to appeal to the Upper Tribunal within 36 days DA final notice sets out the action the regulator has decided to take and the date from which it takes effect

Answer 112

C

Question 113

Which of the following is the best way to describe the role of ethical standards and behaviour within a regulatory framework?
AEthics may be taken into account when designing a rules-based decision making framework BEthics have no place in a regulatory framework CEthics can be used to enhance the more rigid structures of a legislative framework and produce enhanced outcomes for all stakeholders DEthics can be used to enhance the more rigid structures of a legislative framework and produce enhanced outcomes for the most important stakeholders

Answer 113

C - Regulatory authorities across the world are now looking at what a firm OUGHT to have done as well as what it HAD to do.

Question 114

You are a senior manager in a department of a large group which has recently recruited a number of staff, including those with ‘certified person’ status. You have just learned that one of these newly recruited ‘certified persons,’ Sanders, was known to have been involved in an unresolved incident. Sanders, who at the time ran a family investment trust, was involved in an investigation by your bank into what appeared to be off-market trades, which were always executed to the benefit of Sanders. The investigation was never satisfactorily concluded and a number of unanswered questions remained. What concerns you is that Sanders failed to mention any of this in his interview or personal history form, which he completed on joining. Despite this, he is meeting all of the high financial expectations of him, when he was hired. Which of the following is the most ethical course of action?
ANothing, he has already been approved by the FCA, so they are clearly confident in his fitness and propriety BHave a meeting with him to discuss the incident and add the information to his records. As long as he continues to perform well there is no need for further action CCheck the paperwork produced when Sanders was being considered for certified person status to see if it was mentioned there. If it was not, have a meeting with him to discuss the incident and inform the FCA DBegin procedures to terminate his employment as failure to disclose such pertinent information is a serious breach of honesty and integrity

Answer 114

D

Question 115

What must a firm do if it considers, on the basis of information received, that a particular product is not appropriate for a client? It must:
ARefuse to proceed with the transaction BAdvise the client of an alternative product (if any) that is appropriate CObtain an indemnity from the client before proceeding with the transaction DWarn the client that, in its view, the product is not appropriate

Answer 115

D

Question 116

Which of the following would not 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 DAdvising a client to sell when the firm’s analyst rated the stock highly

Answer 116

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 117

Effective codes of corporate ethics are encouraged by many financial market regulators across the world, including the FCA. Indeed, there are many benefits to stakeholders in the financial marketplace that are held to accrue from such effective ethical codes. Which of the following is not one of these commonly-accepted benefits?
AIncreased penalties for those that break these codes BEnhanced investor confidence in the marketplace CBetter protection for all clients and customers DA more sustainable financial services industry

Answer 117

A

Question 118

In the event of a firm being unable to execute a client limit order immediately, the firm must make that order public in all but which of the following situations?
AThe order relates to an investment that trades on a regulated market BThe order is for a volume below the normal market size of the investment CThe firm has a larger order for the same security that they wish to execute first DThe client has informed the firm that they do not wish the trade to be made public

Answer 118

D

Question 119

Money laundering relates to:
ACash that has come from a criminal source BCash and assets from a criminal source CCash from a criminal source in the UK DCash and assets from a criminal source in the UK

Answer 119

B

Question 120

Which of the following is TRUE of the Money Laundering Regulations 2017?
AAll firms subject to the regulations must appoint a Money Laundering Reporting Officer BA firm cannot be prosecuted under the regulations if a clear audit trail has been documented CRecords of customer identification must be kept for three years after the person ceases to be a customer DDisciplinary sanctions under the regulations are determined by the FCA

Answer 120

A

Question 121

Which of the following statements relating to the fight against terrorism is FALSE?
AThe definition of terrorism includes action to disrupt, or interfere with, an electronic system BTerrorists and their activities are always financed via laundered money from previous criminal offences CUnder the Terrorism Act 2000, the maximum penalty for failure to report the provision of funds for terrorist activities is five years DThe Counter Terrorism Act 2008 gives enhanced powers to Her Majesty’s Treasury to impose directions on financial firms

Answer 121

B - Terrorists are often funded via laundered money, raised from criminal actions. However, some terrorist actions are funded via legitimate funds too.

Question 122

Assuming the velocity and the total number of transactions stay constant, what would be the effect of a 1% increase in the money supply according to the Fisher equation?
A1% inflation B2% inflation CNo change in prices DCannot be determined

Answer 122

A - The Fisher equation is MV=PT. If V and T stay constant, and M goes up, P must also go up by the same level.

Question 123

If a client has their portfolio managed by a unauthorised firm, when does the contract become null and void?
AAs soon as the FCA becomes aware BAt the discretion of the courts COnce suitability has been assessed for the client and the advice is deemed to be unsuitable DAt the discretion of the client

Answer 123

D

Question 124

Mina puts money into trust, to be held in trust for twenty years for the benefit of her two ten-year-old grandchildren. Which of the following trusts would allow the trustees to decide how to invest or use the money and any interest it earns to benefit the grandchildren?
ABare trust BInterest in possession trust CPower of appointment trust DDiscretionary trust

Answer 124

D - A discretionary trust is where the trustees chose when (if) and to whom they distribute the assets (where there will be no absolute vested interest). An interest in possession trust would give the remaindermen absolute vested interest, after the life interest has ceased to benefit. The bare trust gives the beneficiaries the ability to access the assets whenever they wish once they have reached 18 years old. In a powers of appointment trust where the trustees choose whom they appoint as beneficiaries (at which point they gain absolute vested interest).

Question 125

A trader at a stockbroking firm has mis-marked the valuation of his open positions in order to hide the losses that he has accumulated over the last two months. This has been possible as the profit and loss reporting system has been replaced with a new system which allows staff to manually input the settlement price of illiquid positions. The head of the trading desk, who commissioned the new system, has now discovered this cover up. In terms of the conduct rules, which rule has the manager possibly breached?
AAct with integrity BTake reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively CTake reasonable steps to ensure that the business of the firm for which you are responsible complies with the regulatory system DObserve proper standards of market conduct

Answer 125

B -

Question 126

Which of the following items is not included within the Insider Dealing legislation contained within Part V of the Criminal Justice Act 1993?
AGilts issued by the Debt Management Office BAIM listed shares CCrude oil futures traded on ICE DEquity warrants traded on the LSE

Answer 126

C

Question 127

You are a financial advisor for a high net worth individual and are made aware of a tax avoidance scheme by a reliable colleague. However, after further investigations you begin to have concerns. The scheme is legal but under review by Revenue and Customs. The London Stock Exchange has also expressed their concerns and recommended that advisors should not get involved, as the scheme involves traded equities.
One of your clients has heard about the scheme elsewhere and asks for your opinion. As an investment advisor, it is your role to recommend tax efficient solutions to clients and this scheme is commonplace. Your dilemma is compounded by the fact that this recommendation fits the client’s mandate and is therefore well within any suitability assessment.
With reference to the CISI code of conduct, which of the following is the most ETHICAL response to the client?
ADeny all knowledge of the scheme. BTell your client that the scheme is unsuitable, if not illegal, and recommend another investment. CExplain the scheme to your client and express your concerns. If the client wishes to proceed, decline to act on their behalf, even at the risk of losing future business. DExplain the scheme to your client and express your concerns. If the client wishes to proceed, go ahead with the trade.

Answer 127

C

Question 128

A firm has implemented the following:
Event 1: A succession plan for the compliance officer.
Event 2: Greater scope for the review of the responsibilities of executive directors by non-executive directors.
Which of the following is/are true?
AEvent 1 is part of the role of the remuneration committee BEvent 2 would reduce the need for approved persons within the firm CEvents 1 and 2 are likely to increase the operational risk of the firm DEvents 1 and 2 are likely to decrease the business risk of the firm

Answer 128

D

Question 129

Which of the following always comes under ‘compulsory jurisdiction’ of the Financial Ombudsman Service?
APlastic cards, including credit card transactions BMortgages CGeneral insurance DPension provisions

Answer 129

D

Question 130

A client has money deposited in a PRA-authorised firm. The firm has been prosecuted for fraudulent activities and, as a consequence, is closed down. From whom can the client claim?
AFinancial Ombudsman Service BFinancial Conduct Authority CThe Prudential Regulation Authority DFinancial Services Compensation Scheme

Answer 130

D

Question 131

Seb, a homeowner for many years, currently has a standard variable rate mortgage with a bank that he is beginning to find difficulty in servicing each month. He comes to you for some advice as to what to do to lower his mortgage costs. Which of the following is most likely to be the simplest way to lower the monthly costs?
ASell his home and buy something smaller with a smaller mortgage BTake in a rent paying lodger CRemortgage his existing home DSell his home, repay the mortgage with the proceeds and then buy the home back at a lower rate

Answer 131

C

Question 132

Which of the following is not a ‘safe harbour’ to an accusation of market abuse? Compliance with
AThe FCA remuneration code BRules regarding company share buy-back schemes CThe Takeover Code DStabilisation rules

Answer 132

A

Question 133

Which of the following investors would be committing an offence under the insider dealing legislation in the Criminal Justice Act 1993?
AMartin deals on inside information regarding barley options that he received from his brother, an investment manager, making a profit from the transaction BAngela buys CFDs on a particular company’s shares based on inside information provided by her friend, a research analyst, making a loss from the transaction CHolpar Ltd deals in a rival’s shares based on inside information received from an inside source, gaining a profit DTorpenhow Plc sells a large holding of an oil company’s shares based on inside information they received from an inside source, preventing a large loss

Answer 133

B

Question 134

Which of the following investors would be committing an offence under the insider dealing legislation in the Criminal Justice Act 1993?
AMartin deals on inside information regarding barley options that he received from his brother, an investment manager, making a profit from the transaction BAngela buys CFDs on a particular company’s shares based on inside information provided by her friend, a research analyst, making a loss from the transaction CHolpar Ltd deals in a rival’s shares based on inside information received from an inside source, gaining a profit DTorpenhow Plc sells a large holding of an oil company’s shares based on inside information they received from an inside source, preventing a large loss

Answer 134

B

Question 135

The PRA’s objective is to promote the safety and soundness of regulated firms. What does this mean?
ATo ensure that no person comes to harm when visiting a branch of a PRA firm BTo prevent the failure of PRA firms through the provision of a Bank of England guarantee CTo minimise the adverse impact on the market should a PRA firm fail DTo ensure that real, personal and virtual infrastructure is resilient to significant, but possible, stresses

Answer 135

C

Question 136

Which of the following applies to a UK firm dealing in shares with an eligible counterparty?
AIt is a fully regulated activity and must comply with all conduct of business rules BIt is an eligible counterparty business and therefore has limited exposure to the conduct of business rules CAlthough the firm is UK based, the location of the client will affect whether the conduct of business rules apply DShare dealing is an exempt activity under the conduct of business rules

Answer 136

B

Question 137

The FCA is least likely to use the powers of intervention where:
Athe product has lost money Bthe product is being sold outside the target market Cthe product may be considered inherently flawed Dthe product has been inappropriately marketed

Answer 137

A

Question 138

The term FULL EMPLOYMENT means which of the following?
AEveryone has a job all the time BUnemployment levels are high CUnemployment levels are low DAll government employees have a job

Answer 138

C

Question 139

The sourcebook ‘Senior Management Arrangements, Systems and Controls’ requires records to be retained by the firm regarding the apportionment of senior management responsibilities. Which of the following statements is true in relation to this requirement? Records must be retained for:
AThree years from the appointment in senior management role BSix years from the appointment in senior management role CThree years from any change in senior management responsibilities DSix years from any change in senior management responsibilities

Answer 139

D - Note that Senior Management Arrangements, Systems and Controls (SYSC) is found in Block 1 of the Handbook - High Level Standards.

Question 140

Rachel Brown, a director of FCA authorised CEA Ltd, has been accused of failing to implement the money laundering requirements within her firm. Mo Marley has been accused of providing misleading evidence to FCA enforcement officers engaged in a surveillance enquiry. Brooke Chaplen has been accused of offering to enter into funeral plan contracts, despite the fact that she has not been authorised to do so. Toni Duggan has been accused of passing on information relating to a hostile takeover bid to her friends, and encouraging them to deal based on that inside information.
Which of the four individuals has committed an offence for which the maximum prison term is SEVEN years in prison?
ARachel Brown BMo Marley CBrooke Chaplen DToni Duggan

Answer 140

D - Rachel Brown is accused of failing to implement the money laundering regulations - this has a maximum prison term of 2 years.
Mo Marley is accused of misleading FCA enforcement officers - this also has a maximum prison term of 2 years.
Brooke Chaplen is accused of breaching the general prohibition - this also has a maximum prison term of 2 years.
Toni Duggan is accused of insider dealing - this has a maximum prison term of 7 years under the Criminal Justice Act 1993.

Question 141

When may a firm deal away from its order execution policy?
AAfter giving 24 hours’ notice to the client BIt must follow the policy at all times to ensure the best result is achieved CThe policy is guidance and dealing away does not constitute a breach DIf it executes on specific client instructions to do so

Answer 141

D

Question 142

Which of the following is most likely to be TRUE in respect of designated investment exchanges?
AThey are based overseas or are international in character BThey have a UK membership structure CThe FCA is required to ensure that they provide fair prices DThey can be accessed from the UK

Answer 142

A - Designated investment exchanges differ from Recognised Overseas Investment Exchanges because they are not exempt persons and they are also not required to be authorised. This is because they are not accessible from the UK.

Question 143

Which one of the following falls outside of the compulsory jurisdiction of the Financial Ombudsman Service?
AManaging investments in UK and US securities BAccepting deposits in foreign currency savings and current accounts CAdvising on home finance schemes DAdvising on decreasing term assurance

Answer 143

B - The compulsory jurisdiction applies to regulated activities in specified investments which exclude foreign currency.

Question 144

With which of the following are all staff bound by the Conduct Rules required to comply?
AYou must take reasonable steps to ensure that the business of the firm for which you are responsible complies with relevant requirements and standards of the regulatory system BYou must observe proper standards of market conduct CYou must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively DYou must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively

Answer 144

B - Conduct rule 5 (observe proper standards of market conduct) applies to both certified and senior manager functions. The other three options provided are senior manager conduct rules.

Question 145

You work as a currency strategist at a major bank. Which of the following scenarios is most likely to lead you to the conclusion to buy UK sterling?
AThe UK’s current account deficit is being financed by rising debt BA recent announcement that the economy is likely to move towards recession CThe UK’s unemployment figures are higher than expected DThe Bank of England are concerned with deflationary pressures and have announced a new low interest rate

Answer 145

A - The increase in borrowing is likely to increase borrowing costs and push up interest rates thus making sterling more attractive to foreign investors. This may result in sterling increasing in value as the demand for the currency increases.

Question 146

In order to create a favourable ethical culture within an organisation all of the following are necessary except:
AFinding and blaming the perpetrators of errors and mistakes BDifferences of opinion and competition between staff CA degree of personal responsibility allowing staff to take appropriate risks DAn ability to absorb and adapt to change

Answer 146

A

Question 147

Which of the following would NOT be covered by the insider dealing legislation?
AFTSE index option BUnits in a unit trust CDebenture DFTSE futures contract

Answer 147

B

Question 148

Once the FCA has issued a warning notice under the powers granted under s387 of the Financial Services and Markets Act 2000, in which of the following circumstances can the FCA decide to discontinue any further action?
ANever BOnly on intervention by the Treasury CAt any time by issuing an oral notice of discontinuance DAt any time by issuing a written notice of discontinuance

Answer 148

D

Question 149

For which one of these financial instruments is a firm required to assess appropriateness?
AMoney market instruments BShares traded on a regulated market CSecuritised debt embedding a derivative DUnits in a UCITS scheme

Answer 149

C

Question 150

A chairman has access to price sensitive information about his company’s shares. In which of the following circumstances could a director in the company trade?
AThe director would follow the PDMR rules BThe director would need permission from the FCA CThe director would not be permitted to trade DOnly if the director can prove they do not have any material price sensitive information

Answer 150

A

Question 151

During a PRA review of a systemic firm, the following observations are made:
Observation one: the firm’s management are aware of the risks that they face and have ensured that controls are in place to mitigate these;
Observation two: although a large firm with access to significant capital resources, there is little liquidity in those resources;
Observation three: the firm is one of many subsidiary authorised firms controlled by an unauthorised firm.
Which of the following is true?
AObservations one and three show the firm is both operationally and structurally sound, whereas observation two shows that the firm may be financially unsound BObservation one shows that the firm is operationally sound, whereas observations two and three may show the firm is financially and structurally unsound CObservations one and three show that the firm is structurally sound, and observation two shows that the firm is financially sound DObservation one will be reported to the Financial Conduct Authority, as management and control fall under its remit, while observations two and three show that the firm may be financially and operationally unsound

Answer 151

B - Observation one looks at the management and control of a systemic firm. This is the responsibility of the PRA and focuses on operational soundness. The observation is a positive one. Observation two looks at the financial strength of the firm. Having sufficient capital is good, but inadequate liquidity may call into question the firm’s soundness. Observation three looks at the structure of the company. Being the subsidiary of an unauthorised firm linked to other authorised firms creates a complex structure. This would need further investigation to assess the soundness of the group as a whole.

Question 152

Which of the following statements relating to the legal relationships between financial advisors and their clients is FALSE?
AAn independent financial advisor acts as the agent of the provider BA tied agent acts as the agent of the provider CA multi-tied agent can work for two or three separate providers if she wishes DAn independent financial advisor can work for as many different clients as he wishes

Answer 152

A

Question 153

Who of the following is/are the stakeholder(s) of Principle 6 contained within the CISI Code of Conduct?
AClients, market participants, regulator BClients, profession, market participants CSociety, colleagues DSelf, clients, regulators, colleagues, market participants, firms, profession, society

Answer 153

B - Principle 6: Aware of Capabilities – to decline to act on any matter about which you are not competent or qualified unless you have access to such advice or assistance to carry out the work in a professional manner, taking into account the nature of the individual mandates given by your customers and counterparties.

Question 154

Which of the following is NOT a stated purpose of Senior Management Arrangements, Systems and Controls (SYSC)?
AEncouraging directors and senior managers to take responsibility for their firm’s arrangements on matters likely to be of interest to the FCA BTo take reasonable care to organise and control its affairs with adequate risk management systems CTo vest responsibility for effective and responsible organisation in specific directors and senior managers DTo establish effective procedures of risk assessment which identify the risks referring to a firm’s activities, processes and systems

Answer 154

D - This is a very difficult question that effectively tests the wording of the FCA sourcebook.
Although establishing effective procedures of risk assessment which identify the risks referring to a firm’s activities, processes and systems is part of SYSC, it is not a stated purpose.

Question 155

Consider the following firms.
Firm A is an appointed representative of a life company, giving advice on life company bonds Firm B is an accountancy firm regularly giving advice on pension contracts for a fee
With regard to FCA rules, only:
AFirm A requires membership of a designated professional body BFirm B would not require authorised status from the FCA CFirm A is considered an exempt person under FSMA 2000 DFirm B is not bound by the FCA conduct of business rules

Answer 155

The correct answer is: C - Firm A is considered an exempt person under FSMA 2000
Explanation
Appointed representatives of authorised firms are exempt from authorisation.
Accountants that are members of an appropriate designated professional body are considered exempt from authorisation for regulated activities where those activities are incidental and not separately remunerated. In the question, the accountancy firm is giving regular advice for a fee, so is not considered exempt and would require authorisation.

Question 156

Consider the following actions by the FCA.
Action 1: The FCA imposes a financial penalty on a regulated person
Action 2: An investigation is discontinued by the FCA
Action 3: The FCA enforcement officers launch an investigation of an authorised firm
Which of the following is true?
AAll three actions would become public information and available on the FCA website BAction 1 would require the Regulatory Decisions Committee to issue a statutory notice CThe person being investigated would have received statutory notices before actions 2 and 3 DAction 3 will lead to prosecution by the FCA

Answer 156

The correct answer is: B - Action 1 would require the Regulatory Decisions Committee to issue a statutory notice
Explanation
Action 1 is an act of discipline by the FCA and would require the issuance of a statutory notice. In this case a decision notice. On becoming final, the decision notice would usually be published by the FCA. Action 2 could occur anytime during the investigation, even before any statutory notices have been issued, and will result in the issuance of a discontinuance notice. However, this is not a statutory notice. Action 3 occurs before the RDC gets involved. It is part of the information gathering process and leads to the issuance of notices. An investigation could lead to many results: possibly prosecution, but not necessarily. It may lead to fines, varying of authorisation or even a notice of discontinuance.

Question 157

In terms of the Disclosure and Transparency Rules a list of ‘insiders’ has to be produced. All of the following information must be recorded EXCEPT?
AThe identity of those having access to the information BThe reason they are on the list CThe date and reason why someone no longer has access to the information DThe date the list was created

Answer 157

The correct answer is: C - The date and reason why someone no longer has access to the information
Explanation
The date someone no longer has access to the information is recorded but not why

Question 158

Lee, a financial adviser for firm A, discloses to Martin, a financial adviser for firm B, that he has a client that continually complains about the service provided by firm A.
The client is also a client of firm B and Martin uses this information to win the total business of this client by restructuring the client agreement. After a little while, Martin’s manager discovers that this is the case.
Which of the following is the most ETHICAL response by the manager?
ACongratulate Martin on winning the new business BExpress your concerns to Martin about his behaviour, but take no further action CContact the client and inform her of the circumstances of her agreement with the firm DContact firm A and apologise for the behaviour of Martin

Answer 158

The correct answer is: C - Contact the client and inform her of the circumstances of her agreement with the firm
Explanation
One of the key concepts in ethics is to put the client first, as well as being open, honest, transparent and fair. The best approach is to inform the client of the way her business was won and allow her to decide on whether this affects the relationship of trust with Martin.

Question 159

Which of the following is not a feature of the FCA’s principles-based approach to money laundering in their Senior Management Arrangements, Systems and Controls (SYSC) Sourcebook? Firms should:
AEstablish and maintain effective systems and controls for compliance with JMLSG BBe able to identify, assess, monitor and manage money laundering risk CEstablish measures to ensure that money laundering risk is taken into account in their day-to-day operation DDelegate overall responsibility for the establishment and maintenance of effective anti-money laundering systems and controls to the MLRO

Answer 159

The correct answer is: A - Establish and maintain effective systems and controls for compliance with JMLSG
Explanation
Although adherence to the JMLSG guidance is taken into consideration by the FCA in any investigation, it is not a requirement of SYSC that firms do so.

Question 160

The PRA has developed a risk framework. Which one of the following is not one of the elements of the PRA’s risk framework?
AThe potential impact that a firm could have on financial stability in the event of its failure BAn initial assessment of both the impact of various risks were they to crystallise and the probability of them doing so CHow the external context in which a firm operates might affect the viability of the firm DMitigating factors including a firm’s management and governance and its risk management controls.

Answer 160

The correct answer is: B - An initial assessment of both the impact of various risks were they to crystallise and the probability of them doing so
Explanation
The PRA risk framework captures three key elements:

The potential impact that a firm could have on financial stability in the UK, both by the way it carries on its business and in the event of failure.
How the external context in which a firm operates, and the business risks it faces (together, its risk context) might affect the viability of the firm.
Mitigating factors including: a firm’s management and governance and its risk management and controls (operational mitigation); its financial strength, specifically capital and liquidity (financial mitigation) and its resolvability (structural mitigation).

Question 161

Which of the following is NOT true of the Financial Conduct Authority?
AIn its role of ensuring that consumers get the products and services that meet their needs, the FCA will oversee the Money and Pensions Service and the Financial Ombudsman Service BTo ensure markets and financial systems are sound, stable and resilient the FCA will supervise both exchange-traded markets and over-the-counter markets CTo ensure firms compete effectively the FCA will ensure there are no unreasonable barriers for new firms entering the market and will consider new regulation to promote this competition DTo ensure the safety and soundness of firms the FCA will use an advanced risk-responsive operational framework to create a common framework across sectors

Answer 161

The correct answer is: D - To ensure the safety and soundness of firms the FCA will use an advanced risk-responsive operational framework to create a common framework across sectors
Explanation
It is not an FCA objective to ensure the safety and soundness of firms. This is the objective of the PRA.

Question 162

For those firms whose prudential supervision is conducted by the Prudential Regulatory Authority (PRA), which of the following is NOT true?
AThe PRA will set a minimum amount of capital for the firms to hold BThe firms will need to judge the adequacy of their own capital positions in a prudent manner CFirms should base their capital held on the minimum level stated by the regulator DThe Financial Policy Committee will take a view on the capital held in aggregate by the banking system

Answer 162

The correct answer is: C - Firms should base their capital held on the minimum level stated by the regulator
Explanation
Although the PRA will set a minimum level of capital that a firm should hold, the firm itself will need to judge how adequate their resources are rather than rely on the minimum set.

Question 163

A government may wish to keep its budget in balance but still increase aggregate monetary demand by relying on what economic effect?
AStabilisation BBalanced Budget Multiplier CTrade Deficit Reducer DPSNCR

Answer 163

The correct answer is: B - Balanced Budget Multiplier
Explanation
The balanced budget multiplier is due to the fact that the government spends all the money individuals pay in tax which would otherwise have been saved.

Question 164

Ted Sagar has been accused of asking for a substantial bribe in order to facilitate the awarding of a contract to provide IT services for his firm.
Neville Southall has been accused of hiding money raised via distributing forged bank notes in a refuse bin at the rear of his aunt’s garden.
Bobby Mimms has been accused of selling tip-sheets via her website to investors across the UK, despite the fact that she has not been authorised to do so.
Gordon West has been accused of telling his friend Nigel Martyn that the bank West works for has made a report concerning suspicions of Martyn to the MLRO.
Which of the four individuals has committed an offence for which the maximum prison term is TWO years in prison?

ATed Sagar and Bobby Mimms BNeville Southall and Nigel Martyn CBobby Mimms and Gordon West DGordon West and Neville Southall

Answer 164

The correct answer is: C - Bobby Mimms and Gordon West
Explanation
Ted Sagar is accused of bribery - this has a maximum prison term of 10 years under the Bribery Act 2010. Neville Southall is accused of concealing the proceeds of crime - this has a maximum prison term of 14 years. Bobby Mimms is accused of breaching the general prohibition - this has a maximum prison term of 2 years. Gordon West is accused of tipping off a criminal laundering criminal funds - this has a maximum prison term of 2 years.

Question 165

Jim is a non-executive director of the firm.
Bob is a company accountant and the major shareholder in the firm.
Who would need to be certified as they hold a senior management function?
ABoth Jim and Bob BJim CBob DNeither would be regarded as holding a significant function

Answer 165

The correct answer is: B - Jim
Explanation
Jim is a non-executive director and it is listed as a significant function. The fact that Bob is a major shareholder is an indication that it is most likely going to be a distracter. If he was the chief financial officer then he would be regarded as a significant influence function.

Question 166

A firm processes orders for its clients. MiFID rules expressly state that the firm must achieve best execution. When processing own account trades alongside client orders, the firm must do which of the following?
AIt is required that the execution policy must clearly state the effect of this type of trade in achieving best execution BIt has been disclosed to each client whose order is to be aggregated that the effect of aggregation may work to its disadvantage in relation to a particular order CAll of these trades are required to be kept separate from other trades DThe client has agreed in writing to a warning that aggregation is unlikely to work to the disadvantage of any relevant client

Answer 166

The correct answer is: B - It has been disclosed to each client whose order is to be aggregated that the effect of aggregation may work to its disadvantage in relation to a particular order
Explanation
The FCA’s general principles require regulated firms to implement procedures and arrangements which provide for the prompt, fair and expeditious execution of customers’ orders, relative to the trading interests of the firm.
As an example of the implementation of this guidance, one well-known brokerage states that it ‘does not undertake to carry out (a customer’s) order or a transaction for its own account in aggregation with another client order, unless it has satisfied the following conditions:
- It is unlikely that the aggregation of orders and transactions will work overall to the disadvantage of any client whose order is to be aggregated;
- It has been disclosed to each client whose order is to be aggregated that the effect of aggregation may work to its disadvantage in relation to a particular order;
- It has established and effectively implemented an order allocation policy. This policy should provide in sufficiently precise terms for the fair allocation of aggregated orders and transactions, including how the volume and price of orders determines allocations and the treatment of partial executions.’

Question 167

With regard to the Data Protection Act 2018, which of the following is a data protection principle?
AData kept in electronic form only is subject to the Act BData must be stored in a secure manner CData must be processed within the European Economic Area DData must be kept for no longer than is necessary

Answer 167

The correct answer is: D - Data must be kept for no longer than is necessary
Explanation
This is stated in the fifth principle of data protection.

Question 168

When an appointed representative is communicating a promotion to retail clients, and making appointments, which of the following is not required?
AThe detailed risks of the investment BWhether the client wishes to continue CThe caller’s name DA contact point to cancel the appointment

Answer 168

The correct answer is: A - The detailed risks of the investment
Explanation
The detailed risks of the investment can be discussed at a later date.

Question 169

The Financial Ombudsman offers voluntary jurisdiction as well as compulsory. Which one of the following may be covered by the voluntary jurisdiction?
AProviding payments on plastic cards BProviding execution only services on securities CSafeguarding and the administration of client assets DProviding regulated mortgage services as a building society

Answer 169

The correct answer is: A - Providing payments on plastic cards
Explanation
Providing payments on plastic cards is subject to voluntary jurisdiction. Providing mortgages is also voluntary if it were offered by a non-FCA authorised firm. A building society is FCA authorised and therefore subject to compulsory jurisdiction.

Question 170

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 170

The correct answer is: C - The extent to which the compensation will or will not be available must be stated
Explanation
Where a firm communicates or approves a financial promotion on behalf of an overseas person, the financial promotion must make clear which firm has communicated or approved it and (where relevant) must explain:
That the rules for the protection of investors will not apply

The extent to which the UK compensation scheme arrangements will be available (and if they will not, that fact), and

If the communicator wishes to do so, the details of any overseas compensation and/or the deposit protection scheme applicable.

The firm must not communicate and/or approve the promotion unless it has no doubt that the overseas firm will deal with its UK clients honestly and reliably.

Question 171

Consider the following roles at an authorised firm.
Michael supervises Brian who gives advice on pension products to retail clients
Pauline supervises Alan who executes trades in shares and bonds for retail clients
In respect of the two supervisors only and according to the Training and Competency Sourcebook:
APauline must have 3 years experience BOnly Michael must have passed an appropriate exam COnly Pauline must be competent to perform the role DOnly Michael must have appropriate coaching and assessment skills

Answer 171

The correct answer is: B - Only Michael must have passed an appropriate exam
Explanation
Although Pauline may have to sit an appropriate exam (this if for the firm to decide), Michael MUST. The sourcebook states, “If the employee is advising on packaged products to retail customers the firm must ensure that the supervisor has passed an appropriate examination.” Both Michael and Pauline must be competent and have appropriate coaching and assessment skills. There is no minimum experience requirement to become a supervisor.

Note: both the employees being supervised would need an appropriate qualification under T&C.

Question 172

Jane, Bill and Tom own a property as joint tenants. Under which situation will Tom become sole owner of the property?
AJane is declared bankrupt soon after Bill’s death BBill dies, then Jane and Tom decide to marry CBill purchases Jane’s share of the property. Bill then dies, leaving 50% of his estate to his daughter and 50% to Tom DJane is declared mentally incapable before Bill dies

Answer 172

The correct answer is: A - Jane is declared bankrupt soon after Bill’s death
Explanation
Under joint tenancy the two or more joint owners jointly own the entire property. They do not have separately identifiable shares in the property that they can sell or give away. When one of the joint owners dies, the property is then jointly owned by the surviving joint tenant(s). (If you know your medieval history, it is like a tontine system.) The number of joint tenants reduces over time as a result of the death, bankruptcy, etc., of the individuals involved, until you are left with a single surviving joint tenant who now owns the entire property outright.
Under tenancy in common the two or more tenants in common each have an identifiable share of the property (e.g. three individuals owning in the proportions 30%/30%/40%) that they can sell or give away. Thus, potentially, the number of tenants in common can increase if a share is given or sold to two or more new owners.

Question 173

All of the following types of Designated Investment Business carried out for a retail client are covered by the Training and Competency rules EXCEPT
AArranging BDealing CManaging DOverseeing on a day-to-day basis

Answer 173

The correct answer is: A - Arranging
Explanation
The TC rules apply to those advising, dealing, managing, or overseeing for retail clients

Question 174

In relation to the best execution rules in the conduct of business sourcebook, is it acceptable for a firm to charge different amounts for conducting the same trade on TWO different execution venues?
AYes - provided disclosure is made to the client BYes - provided the difference between the charges represents differences in trading costs on the execution venues CNo - it is never acceptable DNo - it is not acceptable when there is only a choice of two venues

Answer 174

The correct answer is: B - Yes - provided the difference between the charges represents differences in trading costs on the execution venues
Explanation
The COBs state that the firm must not structure its charges or its commissions in such a way as to discriminate unfairly between execution venues.

Question 175

Which of the following statements is not a possible defence against being accused of the civil offence of market abuse? The accused was acting:
AIn accordance with the FCA’s price stabilisation rules BWithout being trained properly in using the trading systems of the firm CWith reasonable grounds for believing that her actions did not constitute market abuse DIn accordance with the conduct of business rules

Answer 175

The correct answer is: B - Without being trained properly in using the trading systems of the firm
Explanation
According to the Money Laundering Regulations 2017, not being trained is a possible defence against the criminal offence of money laundering; however, it is not a defence against accusations of market abuse.

Question 176

With regard to POCA and the Money Laundering Regulations which of the following statements is FALSE?
AMary performs a certification function and suspects, but is not wholly sure, that Jim in another department is involved in money laundering; failure to report would constitute an offence BGeoff, in dealings with a clients, informs them that he cannot proceed with business as a suspicion of money laundering has been filed on their account. This is punishable with a prison sentence of up to two years CMichael, when processing and accepting client money, knows that the money has come from criminal activity. This is punishable with a prison sentence of up to five years DPeter suspects a money laundering activity and does not make a disclosure as soon as practicable. This is punishable with a prison sentence of up to five years

Answer 176

The correct answer is: C - Michael, when processing and accepting client money, knows that the money has come from criminal activity. This is punishable with a prison sentence of up to five years
Explanation
The offence Michael could be guilty of is assisting. This is punishable with a maximum penalty of 14 years and not five. Failure to report a suspicion could result in a five-year prison sentence. The penalty for tipping off (Geoff) is a maximum of 2 years in prison.

Question 177

The Training and Competency (T&C) rules impose requirements on staff of authorised firms to pass an ‘appropriate examination’ before they can carry out which of the following activities?
AActing as a broker fund advisor BGiving basic advice on retail investment products CRunning the annual ‘Grand National’ sweepstake in the office DArranging a term life insurance policy

Answer 177

The correct answer is: A - Acting as a broker fund advisor
Explanation
The other roles for which examinations are required are performing certain advising and dealing activities; advising on syndicate participation at Lloyd’s; acting as a pension transfer specialist.

Question 178

You are compliance manager of ABC llp. DEF llp has recently formed a partnership with ABC, and the lead partner of DEF has become the CEO of the joint partnership. You have become concerned that some of the recommendations made by DEF to its clients prior to the agreement with ABC were not suitable for their retail clients. An agreement has been reached between the partners of ABC and DEF to keep individual responsibility for pre-partnership actions.
Which of the following would not be an ethically appropriate course of action?
AContact the FCA to discuss your concerns BDiscuss your concerns with the lead partner of DEF llp CCommission an independent review of the suitability of DEF’s recommendations DOrder an internal review of the suitability of all pre-partnership recommendations

Answer 178

The correct answer is: B - Discuss your concerns with the lead partner of DEF llp
Explanation
Even though an agreement has been made to keep pre-partnership actions separate responsibilities, there is the matter of reputational risk through association. An investigation is appropriate, either internal or external, and the FCA can provide assistance on these matters.

Question 179

The PRA has determine a minimum regulatory capital level for firms and a buffer on top of this. Pillar 1 of the requirements provide protection against all of the following specified risks EXCEPT:
ACredit BOperational CMarket DSettlement

Answer 179

The correct answer is: D - Settlement
Explanation
Settlement risk is not specified and is a subset of credit.

Question 180

A firm has received a decision notice from the FCA regarding a variation of Part 4A permission. They are not happy with the action that the FCA have decided to take. What can they do about it?
ATake the decision to the House of Lords in order to overturn the decision BNothing. In matters of Part 4A permission the FCA’s decision is final CAppeal to the Tax and Chancery Chamber of the Upper Tribunal DThis is a point of law and must be taken up in the Court of Appeal

Answer 180

The correct answer is: C - Appeal to the Tax and Chancery Chamber of the Upper Tribunal
Explanation
A firm has the right of appeal any decision by the FCA with the Tax and Chancery Chamber of the Upper Tribunal.

Question 181

The Pensions Regulator does which of the following?
ARegulates private personal pensions BAuthorises pension schemes and the firms that run them CApproves senior manager functions of pension schemes DEncourages high standards in the running of pension schemes

Answer 181

The correct answer is: D - Encourages high standards in the running of pension schemes
Explanation
The Pensions Regulator (TPR) is the UK regulator of work-based pension schemes. It works with trustees, employers, pension specialists and business advisers to protect members’ benefits and encourage high standards in the running of pension schemes.

The FCA and PRA authorise firms and approve individuals.

Question 182

Which of the following investors would be committing an offence under the insider dealing legislation in the Criminal Justice Act 1993?
AMartin deals on inside information regarding barley options that he received from his brother, an investment manager, making a profit from the transaction BAngela buys CFDs on a particular company’s shares based on inside information provided by her friend, a research analyst, making a loss from the transaction CHolpar Ltd deals in a rival’s shares based on inside information received from an inside source, gaining a profit DTorpenhow Plc sells a large holding of an oil company’s shares based on inside information they received from an inside source, preventing a large loss

Answer 182

The correct answer is: B - Angela buys CFDs on a particular company’s shares based on inside information provided by her friend, a research analyst, making a loss from the transaction
Explanation
Martin’s trade is in wheat options. Commodity options are not covered by the CJA. It is also not possible for a company to commit an offence under the legislation. This leaves only Angela, who despite making a loss does commit an offence under the CJA.

Question 183

The Australian Securities Exchange allows UK authorised firms direct membership to their trading facilities. This is regulated by which of the following?
ALondon Stock Exchange BFinancial Conduct Authority CBank of England DAFCA

Answer 183

The correct answer is: B - Financial Conduct Authority
Explanation
Recognised Overseas Investment Exchanges, in contrast, are based outside the UK, but carry on regulated activities within the UK (for example, by offering electronic trading facilities to members in this country) and, to this extent, are regulated and supervised by the FCA. They do not have physical UK operations (except some support representation), so they are necessarily electronic marketplaces. They include the National Association of Securities Dealers Automated Quotations (NASDAQ), established in the US, and the Australian Securities Exchange (ASX).

Question 184

Which of the following are eligible complainants and are able to approach the Financial Ombudsman Service?
AA professional client now reclassified as a retail client BA charity with an annual income of £250,000 CAn eligible counterparty DThe International Monetary Fund

Answer 184

The correct answer is: B - A charity with an annual income of £250,000
Explanation
The Financial Ombudsman Service is a free dispute resolution service for private individuals and any organisation with less than £1 million.

Question 185

The FCA discovers that a firm has been conducting business in an area for which it has insufficient risk provisions in place. What is the FCA’s MOST LIKELY response?
APrivate warning BVariation of authorisation CProhibition DRemoval of authorisation

Answer 185

The correct answer is: B - Variation of authorisation
Explanation
The FCA is likely to vary permission in this case.
Removal of authorisation is typically for repeated or significant breaches of regulation or processes around regulation (i.e. timely and accurate submission of returns).
Prohibition is something used for individuals.
Private warnings are used where action is considered by the regulator, but insufficient evidence is available.

Question 186

Under FCA regulations, which of the following is true of a non-real time financial promotion?
AA firm may not arrange for a third party to carry out the confirmation exercise BA firm can arrange for a third party to carry out the confirmation exercise and the responsibility for the promotion lies with the third party CA confirmation exercise is not required for a non-real time promotion DA firm can arrange for a third party to carry out the confirmation exercise and the responsibility for the promotion remains with the firm

Answer 186

The correct answer is: D - A firm can arrange for a third party to carry out the confirmation exercise and the responsibility for the promotion remains with the firm
Explanation
Notice that there is a difference between confirmation and approval. Approval would lead to the approving firm taking on the responsibility. Confirmation, effectively proof reading, would leave the responsibility with the original firm.

Question 187

Records must be kept in relation to complaints. Which of the following does not need to be included?
AThe name of the complainant BDetails of correspondence between the firm and the complainant CThe name of the person handling the complaint DDetails of any redress offered by the firm

Answer 187

The correct answer is: C - The name of the person handling the complaint
Explanation
The name of the person handling the complaint does not need to be included, although it is likely to be visible in any correspondence. In addition to the information included in the answers a firm must also include the nature or substance of the complaint.

Question 188

In relation to MiFID business, how many transactions per quarter (over the previous four quarters) must a client have carried out in order to be treated as an elective professional client?
A50 B25 C10 D5

Answer 188

The correct answer is: C - 10
Explanation
One of the criteria in the quantitative test is average frequency of transaction of ten per quarter.

Question 189

When an authorised firm is considering its behaviour on the markets in light of avoiding the creation of a false market, which of the following is true of the Code of Market Conduct contained within the FCA Handbook?
AIt contains legislation on market abuse BIt contains evidence of compliant and non-compliant behaviour in relation to market abuse CBreach of the code automatically constitutes market abuse DIt is published by the Treasury

Answer 189

The correct answer is: B - It contains evidence of compliant and non-compliant behaviour in relation to market abuse
Explanation
The code contains guidance written by the FCA that has the same authority as an evidential provision. Breach does not automatically constitute an offence but compliance with the Code is evidence of compliance with the Market Abuse Directive.

Question 190

You are a senior manager in a profit-making firm that provides finance to local developments that are aimed at helping the community. A new project comes your way that, if successful, could prove very beneficial to the community and enhance your firm’s reputation through its involvement. However, the project is complex and would require a great deal of analysis before you would be ready to commit your firm to providing services. Although there is a public body that could reimburse the cost of this analysis, its estimate of daily costs are half of what your firm’s internal costs are. You are made aware that the public body regularly meets this problem and has made it clear, albeit informally, that it is happy for companies, such as yours, to over-state the number of days claimed for, to bring the two costs in line. After all, it is for a cause that will benefit all in the community.
Which of the following is the most ETHICAL approach? Investigate the project and:
AClaim reimbursement from the public authority, over-stating the number of days it took BClaim reimbursement from the public authority, stating the correct number of days, and using the expenses to reduce the overall cost of the analysis to the firm CRefuse to claim any expenses from a public body whose principles are clearly unethical DClaim reimbursement from the public authority, stating the correct number of days, and give the expenses to a local charity

Answer 190

The correct answer is: B - Claim reimbursement from the public authority, stating the correct number of days, and using the expenses to reduce the overall cost of the analysis to the firm
Explanation
The project could potentially benefit the community greatly and your involvement could greatly enhance your firm’s reputation. It could also be good for business through the provision of finance for the project. Although it has been suggested that over-stating the number of days is common practice, doing so puts the firm’s reputation at risk were it ever to be discovered. Taking advantage of what is officially offered by the public body would not be considered unethical, so there is no need to give any expenses received from the authority to a local charity.

Question 191

The FCA wants to see firms achieve three broad outcomes that satisfy their operational objectives. Which of the following is one of those outcomes?
AConsumers get standardised financial services and products from firms that seek to maximise profit BFirms compete aggressively with market share at the heart of how they run their business CFirms should be a proactive force for enabling the right outcomes for consumers and market participants DMarkets and financial systems are sound, stable and resilient with transparent pricing information

Answer 191

The correct answer is: D - Markets and financial systems are sound, stable and resilient with transparent pricing information
Explanation
The three outcomes are:

Consumers get financial services and products that meet their needs from firms they can trust - not standardised products
Firms compete effectively with the interests of their customers and the integrity of the market at the heart of how they run their business.
Markets and financial systems are sound, stable and resilient with transparent pricing information
“Firms should be a proactive force for enabling the right outcomes for consumers and market participants” sounds credible, but this is a description of the FCA.

Question 192

A discretionary manager reads an internal memo created for another department about the potential positive performance of a company’s share price. She wishes to use this information to deal for clients, but also for her own account. Which of the following would be the most ETHICAL approach? She should:
ADeal for her clients and then deal for herself BDeal for clients but not for herself CNot deal for either her clients or herself DDeal for her clients and herself at the same time to ensure the same price is achieved for both trades

Answer 192

The correct answer is: C - Not deal for either her clients or herself
Explanation
The memo was not intended for the manager, so there has been a failure in the control of information procedures, such as Chinese walls, of the firm. It would be unethical for the manager to use this information to influence her dealing.

Question 193

The FCA helps to oversee an independent consumer financial education body. This body has a mandate to raise levels of financial capability across the UK, and to improve the ability of consumers to manage their money, make informed financial decisions and avoid financial difficulty. What is this body called?
AConsumer Financial Education Body BFinancial Capability Society CConsumer Protection Agency DMoney and Pensions Service

Answer 193

The correct answer is: D - Money and Pensions Service
Explanation
Financial capability issues are handled by the Money and Pensions Service. In partnership with the government, the FCA, the financial services industry, employers’ organisations, consumer organisations and the not-for-profit sector, the Money and Pensions Service is working to improve the financial capability of people in the UK.

Question 194

Which of the following statements is TRUE in respect of the Code of Market Conduct?
AIt contains guidance on the interpretation of market abuse BIt contains the law on market abuse CIt is found in the City Code DIt is written by the Treasury

Answer 194

The correct answer is: A - It contains guidance on the interpretation of market abuse
Explanation
S119 of FSMA requires that the FCA produces a guidance on the offence of market abuse (s118).
The FCA has met this requirement by producing the ‘Code of Market Conduct’ which is contained within the FCA Handbook.

Question 195

Which of the following statements is TRUE in respect of the Code of Market Conduct?
AIt contains guidance on the interpretation of market abuse BIt contains the law on market abuse CIt is found in the City Code DIt is written by the Treasury

Answer 195

The correct answer is: A - It contains guidance on the interpretation of market abuse
Explanation
S119 of FSMA requires that the FCA produces a guidance on the offence of market abuse (s118).
The FCA has met this requirement by producing the ‘Code of Market Conduct’ which is contained within the FCA Handbook.

Question 196

When an individual creates a misleading impression about an investment in order to induce the disposal of a holding of that investment, a valid defence would be a belief that:
AThe information was not price sensitive BThe conduct would not creat an impression that would be misleading CThe actions would not induce dealing DThe conduct was in the best interests of the client

Answer 196

The correct answer is: B - The conduct would not creat an impression that would be misleading
Explanation
S90 of FMSA 2012 sets out defences against the offence of misleading impressions. These include a reasonable belief that the impression would not be misleading.

Question 197

The Financial Ombudsman Service was created in order to adjudicate where the client is dissatisfied with the response to a complaint in which of the following types of cases?
AAn eligible counterparty is unhappy with the outcome of a trade BA retired person loses Euro 150,000 to a Spanish company in a property scam CA wealthy individual receives poor advice from his IFA, losing £30,000 DA trustee of a trust with assets of £10m is misled into investing into a risky structured product

Answer 197

The correct answer is: C - A wealthy individual receives poor advice from his IFA, losing £30,000
Explanation
The FOS is there to handle arbitration of complaints involving relatively low-level, typical transactions of UK clients of UK authorised firms. The fact that the client in C is a wealthy individual is not relevant – private individuals are eligible complainants, regardless of how wealthy they are. Eligible counterparties are not eligible complainants; don’t fall into the examiner’s ‘trap’ of mixing up similar-sounding names. Finally, a trust must have assets of less than £5m to be an eligible complainant.

Question 198

Clive works in the settlement department of a large investment bank. He has been there for a year and has impressed his managers with his work. He is currently permitted to process settlement instructions for up to £2 million.
On one particular day, he is the only member of staff in the settlements office - all other members are benefiting from an away day. Towards the end of the day he receives an instruction to process a settlement instruction for £2.1 million.
Clive tries to find a manager to authorise this, but is unable to do so, and to leave it could cost the firm 10% of the value of the trade. Clive decides it is in the best interests of the firm to process the trade.
The next business day this is discovered by a director, who knows the motivation behind the action was in the interests of the firm.
Which of the following is the most ETHICAL response by the director?
ADo nothing. The action saved the firm a lot of money BInvestigate why Clive was left on his own without any access to more senior members CGive Clive an informal warning and ask the head of settlements to investigate how this occurred DGive both Clive and the head of settlements an informal warning and consider withdrawing away days

Answer 198

The correct answer is: D - Give both Clive and the head of settlements an informal warning and consider withdrawing away days
Explanation
There is obviously something wrong with the organisation of this department - Clive should never have been left on his own. This needs to be investigated and put right. One solution would be to withdraw the away days, ensuring all who can be on site, are on site. Another part of the problem is that the head of settlements should have ensured that this could not happen. Regardless of the failings of the controls within the firm, Clive acted beyond his authorised capacity. The best response is the harshest.

Question 199

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 199

The correct answer is: C - Manage the conflict and continue to deal
Explanation
Where a firm identifies a conflict of interest they must manage it. Only if they are unable to manage the conflict are they required to disclose it.

Question 200

The Data Protection Act states that data controllers:
AMust be used to process personal data on behalf of a ‘data processor’ BMust ensure the processing of personal data complies with all requirements CMay only process personal data on the instruction from the data processor DMust never erase personal data relating to data subjects

Answer 200

The correct answer is: B - Must ensure the processing of personal data complies with all requirements
Explanation
Data processors process personal data on behalf of data controllers and must only process personal data on the instruction of the data controller, or where the processor is complying with a legal obligation. A data controller must implement appropriate measures to ensure that the processing of personal data complies with the requirements, being able to evidence these measures to others, including the Information Commissioner. Data controllers must erase personal data on request (and subject to certain conditions being met).

Question 201

According to the provisions under Senior Management Arrangements, Systems and Controls in the Regulator’s Handbook, the responsibilities of directors must be:
AClearly and appropriately apportioned BReviewed by external auditors on an annual basis CRecorded and the records kept for three years from when the responsibilities change DClear, fair and not misleading

Answer 201

The correct answer is: A - Clearly and appropriately apportioned
Explanation
A firm must take reasonable care to maintain a clear and appropriate apportionment of significant responsibilities among its directors and senior managers. The records must be kept for six years.

Question 202

Responsibility for overseeing the Financial Services Compensation Scheme is with:
AThe FCA alone BThe FCA and PRA jointly CThe PRA alone DThe FRA and FCA jointly

Answer 202

he correct answer is: B - The FCA and PRA jointly
Explanation
The FCA and PRA jointly oversee the Financial Services Compensation Scheme.

Question 203

Which of the following gives the FCA the power to prosecute insider dealing offences?
AFinancial Services and Markets Act 2000 BCriminal Justice Act 1993 CThe Proceeds of Crime Act 2002 DCompanies Act 2006

Answer 203

The correct answer is: A - Financial Services and Markets Act 2000
Explanation
The offence is contained within the CJA 1993, however the ability of the FCA to prosecute comes from FSMA 2000.

Question 204

The FCA also has a primary market function to determine the eligibility of companies for trading. For which companies do the FCA perform this function?
AAll public limited companies BAll companies wishing to trade on LSE markets CCompanies wishing to be listed on the LSE Official List only DFinancial companies wishing to be listed on the LSE Official List only

Answer 204

The correct answer is: C - Companies wishing to be listed on the LSE Official List only
Explanation
The LSE operates two levels of entry into the market, namely the Official List and the Alternative Investment Market (AIM). The FCA determines which companies are eligible to join the Official List, and writes and enforces the listing rules that apply to these companies. The LSE determines which companies are eligible to join the AIM, and writes and enforces the AIM rules that apply to these companies.