CII CF6 2025-26 > 1. Regulatory Framework > Flashcards

1. Regulatory Framework Flashcards

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1
Q

What are the three bodies responsible for statutory regulation under the Financial Services Act 2012?

A
  • Financial Policy Committee (FPC)
  • Prudential Regulation Authority (PRA)
  • Financial Conduct Authority (FCA)
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2
Q

What is the primary objective of the Financial Policy Committee (FPC)?

A

To identify, monitor and take action to remove or reduce systemic risks to the stability of the financial system

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3
Q

What are the statutory objectives of the Prudential Regulation Authority (PRA)?

A
  • Promotion of the safety and soundness of firms
  • Contributing to the securing of an appropriate degree of protection for policyholders

The PRA is part of the Bank of England and is operationally independent.

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4
Q

What is the strategic objective of the Financial Conduct Authority (FCA)?

A

To make sure the relevant markets function well

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5
Q

List the three operational objectives of the FCA.

A
  • Consumer protection
  • Market integrity
  • Fair market competition

These objectives guide the FCA in regulating financial services and protecting consumers.

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6
Q

What does the Consumer protection objective require the FCA to do?

A

Secure an appropriate degree of protection for consumers

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7
Q

What is included in the Integrity objective of the FCA?

A
  • Soundness of the financial system
  • Prevention of financial crime
  • Market abuse protection
  • Orderly operation of financial markets
  • Transparency of price formation
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8
Q

What does the Competition objective of the FCA promote?

A

Effective competition in the interests of consumers

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9
Q

What is the Mortgage Charter aimed at?

A

Helping customers who may be struggling to meet their mortgage repayments

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10
Q

What are the Principles for Businesses (PRIN)?

A
  • Integrity
  • Skill, care and diligence
  • Management and control
  • Financial prudence
  • Market conduct
  • Customers’ interests
  • Communications with clients
  • Conflicts of interest
  • Customers: relationships of trust
  • Clients’ assets
  • Relations with regulators
  • Consumer Duty
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11
Q

What is the Consumer Duty introduced by the FCA?

A

A requirement for firms to act to deliver good outcomes for retail customers

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12
Q

Fill in the blank: It is a criminal offence to carry on a regulated activity unless _______.

A

authorised or exempt

Regulated activities include mortgage lending, accepting deposits, and advising on investments.

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13
Q

Name the bodies that are exempt from the authorisation requirements.

A
  • The Bank of England
  • The European Central Bank
  • Central banks of the European Economic Area
  • Local authorities
  • Various government bodies
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14
Q

What are appointed representatives in the context of financial advice?

A

Firms exempt with a contract to advise on an authorised person’s products

They are ‘tied’ to the product provider, who is responsible for the advice given.

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15
Q

What are the three parts of the Senior Managers and Certification Regime (SM&CR)?

A
  • Senior Managers Regime
  • Certification Regime
  • Rules of Conduct
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16
Q

The Senior Managers Regime applies to which individuals?

A

Persons performing senior roles in a firm

These roles are specified by the PRA and FCA.

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17
Q

What is the consequence of lacking governance controls under the Senior Managers Regime?

A

Disciplinary action may be imposed

The regime includes provisions for criminal offences like ‘reckless misconduct’.

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18
Q

List the roles covered by the Senior Managers Regime.

A
  • Head of key business area
  • Group entity senior manager
  • Significant responsibility function

These roles are critical for the safety and soundness of the firm.

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19
Q

What is required for each senior manager under the SM&CR?

A

A statement of responsibilities

This should detail their responsibilities and be complemented by their CV and job description.

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20
Q

What does the Certification Regime apply to?

A

Individuals not carrying out SMFs but capable of causing significant harm

Firms must assess and certify the fitness of these individuals annually.

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21
Q

Under the SM&CR, who is excluded from the regime?

A

Senior persons in purely administrative roles

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22
Q

In a direct authorisation, who is responsible for compliance with MCOB?

A

The firm itself

Compliance services from a network do not absolve the firm from responsibility.

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23
Q

What is the role of an appointed representative in mortgage advice?

A

Compliance responsibility lies with the principal(firm)

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24
Q

What are home reversion plans classified as?

A

Not mortgages; involve the sale of property to a finance provider

Providers cannot be described as ‘lenders’.

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25
For a mortgage to be a **regulated mortgage contract**, what criteria must apply?
* Credit provided to an individual or trustees * Secured by a mortgage on land in the UK * Not a limited payment second charge bridging loan, etc.
26
What is the definition of a **high net worth individual** according to the FCA?
* Annual net income of no less than £300,000 * Net assets of no less than £3m * Obligations guaranteed by a person with equivalent income or assets ## Footnote This classification allows for execution-only mortgage sales under certain conditions.
27
What is an **execution-only sale**?
A sale where advice is not provided unless specific conditions are met ## Footnote Conditions include non-interactive processes or customer rejection of advice.
28
What are the **MCOB rules** designed to reinforce?
FCA Principles
29
What is an **early repayment charge**?
Charge applied when a loan is repaid before the end of its term
30
What is a **lifetime mortgage**?
A product for older customers where repayment is deferred until death or long-term care ## Footnote Previously known as equity release mortgages.
31
What is a **home reversion plan**?
Selling part or all of a property to a finance provider while becoming a tenant ## Footnote This is a niche product offered by a few specialist providers.
32
What does **Principle 12** require firms to do regarding retail customers?
Act to deliver good outcomes for retail customers
33
What must customers be given the opportunity to do before entering into a mortgage contract?
Make an informed decision ## Footnote This includes considering the illustration and the offer.
34
What is regarded as **undue pressure** in the context of mortgage contracts?
Presenting the illustration, offer, and mortgage deed at the same time and asking to sign ## Footnote This does not allow customers to make an informed decision.
35
What are the **six outcomes** set by the Financial Conduct Authority regarding customer treatment?
* Fair treatment of customers * Transparency * Responsiveness * Consistency * Accountability * Continuous improvement
36
For electronic communication about a regulated mortgage contract, firms must ensure that information is _______.
Secure ## Footnote This includes handling information in accordance with data protection legislation.
37
What must firms demonstrate regarding the **authenticity and integrity** of electronic communications?
Can be verified ## Footnote This includes date and time verification, considering business risks.
38
What must firms provide if a customer requests it during electronic communication?
A paper copy of the terms and conditions
39
What types of promotions do MCOB rules apply to?
* Advertisements * Telephone calls * Personal visits * Presentations to groups
40
True or false: MCOB rules apply to letters and illustrations sent to just one customer.
FALSE ## Footnote The rules do not apply to simple promotions containing only basic information.
41
What are **real-time credit promotions**?
* Personal visits * Telephone conversations * Interactive dialogue ## Footnote These involve direct interaction with the customer.
42
What must non-real time credit promotions ensure?
* Do not call at unsocial hours * Make the purpose clear * Identify themselves and the firm * Check customer consent to proceed
43
What is required for a firm to claim to provide advice from the **whole market**?
Consider a sufficiently large number of contracts generally available ## Footnote They must also be independent of any lender.
44
What must lenders provide as soon as it becomes clear a customer is considering entering into a mortgage?
Key messages - this includes the firm's name, contact details, and level of service.
45
What does **Principle 9** state regarding suitability of advice?
A firm must take reasonable care to ensure suitability ## Footnote This applies to both sale and variation of regulated mortgage contracts.
46
What factors must be considered to determine if a mortgage contract is **suitable**?
* Customer's affordability * Appropriateness to needs * Most suitable option available ## Footnote If no suitable contract exists, no recommendation can be made.
47
What must a firm explain regarding **affordability**?
* Current interest rates may increase * Customer's circumstances might change
48
What is an example of an **unanticipated economic shock**?
The aftermath of the Autumn Statement in 2022 ## Footnote This led many lenders to suspend lending temporarily.
49
What must be recorded if a customer rejects all recommendations?
The change to providing information on an execution-only basis
50
What is the purpose of the **European Standardised Information Sheet (ESIS)**?
Help customers make comparisons between products ## Footnote It must be clear, fair, and not misleading.
51
What must the offer document contain after a mortgage application is accepted?
* Validity period of the offer * Consequences of not entering the contract * Interest rate change effects
52
What must be confirmed once the mortgage contract has started?
* Amount of first payment * Amount of subsequent payments * Method of payment collection
53
What must be confirmed regarding the **first payment** required for a mortgage?
The amount of the first payment required
54
What are the **subsequent payments** that need to be confirmed if they differ?
The amount of subsequent payments if different ## Footnote This ensures the customer understands their payment obligations.
55
What should be confirmed about the **method of payment collection** for a mortgage?
The method of payment collection
56
What must be confirmed regarding **insurance** in connection with the mortgage?
Whether any insurance has been purchased, first and subsequent premiums, and collection method ## Footnote This includes whether premiums are collected with the mortgage payment or separately.
57
What types of mortgage repayment structures must be confirmed?
* Interest only * Repayment * Combination
58
What should the customer be informed about if they **fall into arrears**?
Who to inform within the lending company and what steps may be taken
59
What do MCOB 8 and 9 set down rules for?
Equity release products ## Footnote These products allow individuals to use home equity to raise cash.
60
What are the two generic categories of **equity release products**?
* Lifetime mortgages * Home reversion plans ## Footnote These categories define how equity can be accessed.
61
What is a **lifetime mortgage**?
A mortgage enabling older borrowers to release equity, typically repaid from the estate after death ## Footnote Interest can be rolled up and added to the cumulative debt.
62
What age group is typically eligible for a **lifetime mortgage**?
Customers over 55 years of age ## Footnote This age restriction is a key feature of lifetime mortgages.
63
What happens to the mortgage repayment in a **lifetime mortgage** while the customer occupies the property?
* No instalment repayments of capital due * No payment of interest on capital due * Interest payments may become due ## Footnote Full or partial repayment of capital is not due while the customer occupies the property.
64
What is a **home reversion plan**?
A contract where part of the property is sold to the finance provider, allowing the occupant to stay for life ## Footnote The occupant has a right of occupation until they vacate the property.
65
What is required for a **reversion occupier** under a home reversion plan?
Entitlement to occupy at least 40% of the land as a dwelling ## Footnote This ensures the occupant has a significant interest in the property.
66
Under what conditions does the entitlement to occupy end in a **home reversion plan**?
* Resident of a care home * Death of the occupier * End of a specified period of at least 20 years ## Footnote These conditions define the termination of the arrangement.
67
What does **APR** stand for in lending products?
Annual Percentage Rate ## Footnote The APR is used to compare the cost of similar lending products.
68
The **APR** takes into account which of the following?
* Rate of interest charged * Setting up charges * Insurance premiums required by the firm
69
True or false: The **APR** includes charges incurred during the mortgage term.
FALSE ## Footnote Charges like early repayment charges are excluded, but predetermined redemption fees at the end of the term are included.
70
What is the purpose of the **APRC**?
To measure the annual cost of borrowing for mortgages ## Footnote The APRC includes all additional expenses and discounts.
71
Before granting a mortgage loan, lenders must assess the customer's ability to _______.
repay it ## Footnote This includes inquiries into income, outgoings, and other resources.
72
What must lenders ensure regarding the products they provide?
* Suitability * Affordability
73
Firms must not impose **excessive charges** on customers. Which charges must be disclosed?
* Early repayment charges * Arrears charges ## Footnote Charges must reflect the actual costs incurred by the firm.
74
A firm must provide a current information sheet on mortgage payment difficulties within _______ days of becoming aware of arrears.
15 ## Footnote This ensures customers are informed about their options.
75
What must firms do to ensure staff maintain their **competence**?
* Identify development needs * Provide necessary training ## Footnote Firms are responsible for ensuring staff remain competent.
76
What are the requirements for a firm's **recruitment policies**?
* Assess recruit's competence * Check references and qualifications * Check gaps in employment
77
What must all mortgage advisers pass to attain competence?
* Certificate in Mortgage Advice (CII) * Certificate in Mortgage Advice and Practice (CeMAP) ## Footnote Additional qualifications are required for advisers dealing with lifetime mortgages.
78
Intermediaries must have **professional indemnity (PI)** insurance unless they meet certain conditions. What are these conditions?
* Guarantee from an authorized person with net tangible assets over £10m * Subsidiary of a bank or similar institution ## Footnote PI insurance covers negligence and dishonesty of staff.
79
What is the maximum award the **FOS** can require a firm to make for complaints referred on or after 1st April 2025?
£445,000 ## Footnote This amount applies to actions or omissions on or after 1st April 2019.
80
Client money must be held in a separate _______ account.
client bank ## Footnote This ensures proper handling of funds received from clients.
81
True or false: Interest on the client bank account belongs to the firm unless otherwise agreed.
FALSE ## Footnote Interest belongs to the customer unless there is an agreement stating otherwise.
CII CF6 2025-26
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