Chapter 6

Question 1

How many subject books does the PRA rulebook contain?

Answer 1

5 + glossary

Question 2

How many , are what are the subject blocks for the FCA Handbook?

Answer 2

9 + Glossary. 1. High Level Standards. 2. Prudential Standards. 3. Business Standards (day-to-day). 4. Regulatory Processes. 5. Redress (handling complains and compensation). 6. Specialist Sourcebooks. 7. Listing, Prospectus and Disclosure. 8. Handbook Guides. 9. Regulatory Guides.

Question 3

Under the High Level Standards, what are the Threshold Conditions (COND)?

Answer 3

1. Location in UK. 2. Capable of being supervised. 3. Appropriate resources. 4. Suitability (fit and proper). 5. Business model must be sound, in interest of customers and integrity of financial system.

Question 4

Under the High Level Standards, what are the Principles for Busines (PRN)

Answer 4

General statement of obligations for all authorised firms.

Question 5

Under the High Level Standards, what Systems and Controls (SYSC3) should a firm have in place? (9)

Answer 5

1. C – Compliance function
   
   2. R – Reporting lines & delegation
   3. A – Assessment of risks
   4. M – Management information
   5. B – Business remuneration strategy
   6. R – Record keeping
   7. R – Recruitment checks (honesty & competence)
   8. R – Resilience & continuity (business continuity in disaster)
   9. M – Monitoring systems & controls

Question 6

Other Systems and Controls might include?

Answer 6

SMART-F
S – Structure & Systems
Firms must have adequate systems, controls, and organisational structure.
M – Mapped Responsibilities
Senior managers’ duties must be clearly written and understood.
A – Accountable Individuals
Specific people hold prescribed responsibilities under SM&CR.
R – Risk-Proportionate Controls
Controls must match the firm’s size, nature, and risk exposure.
T – Tell-Tale (Whistleblowing)
Staff must have safe ways to report misconduct or breaches.
F – Fair Disclosure (GEN rules)
Firms must display FCA authorisation correctly and follow disclosure rules.

Question 7

Under the High Level Standards, when can the FCA stop or limit the trading of an asset? (3)

Answer 7

1. When price has significantly fallen in one day. 2. Evidence of unusual or improper trading. 3. Rumors or false information

Question 8

When must an FCA authorised firm state its status?

Answer 8

Only when legally required to do so by the FCA. (letters and emails sent to clients) (Can also put it on business cards)

Question 9

When can the ‘Key Facts’ logo be used?

Answer 9

Only in documents prescribed by the FCA for use with customers

Question 10

What are the rules regarding an unauthorised person cover for a senior management?

Answer 10

They can cover for a maximum of 12 weeks if the absence is temporary or unforseen. FCA must be notified.

Question 11

What application fee for applying to become regulated

Answer 11

£2,500, and goes higher for firms seeking more permissions beyond advising and arranging.

Question 12

How much does it cost to apply for a variation of permission?

Answer 12

£250 if it does not cause firm to fall into a new fee block. 50% of new application costs if falling into a new fee block

Question 13

What is the capital requirement for medium and small investment firms?

Answer 13

Medium: Not holding client money, AUM under 1.2B. Minimum capital is 75k, or 25% fixed overheads. Small: Minimum requirement is 20k, or 5% of income.

Question 14

What are the capital requirements for Friendly Societies?

Answer 14

Must have capital that exceeds their liabilities.

Question 15

What are the capital requirements for Insurers?

Answer 15

16% of annual premiums, or 23% of claims incurred. Whichever is greater.

Question 16

How is capital categorised with regards to capital requirements?

Answer 16

3 tiers definded by quality of capital. More permenant and loss absorbent capital being in tier 1

Question 17

How often must firms report their capital requirement to the FCA?

Answer 17

Every 6 months or 3 months.

Question 18

What does COBS stand for, and what does it set out?

Answer 18

Conduct of Business Standards, sets out how staff should deal with customers

Question 19

How does the ICOBS seperate insurance products?

Answer 19

Pure Protection (Term assurance, income protection, critical illness). General Insurance (Car, travel). PPI

Question 20

What must intermediaries do before offering advice to clients?

Answer 20

1. Supply Initial Disclosure and ToB. 2. Provide list of insurers they work with. 3. Advise client whether they represent the client or insurer.4. Do a ‘demands and needs statement’

Question 21

When is a cancellation notice not needed for life policies and annuities? 5

Answer 21

1. Traded life policies. 2. Life policies for 6 months or less. 3. Policies where the customers resides outside of the UK. 4. Policies issued to corporate bodies. 5. Pure protection for trustees of pension scheme

Question 22

What are the cancellation periods for general insurance, pure protection and PPI

Answer 22

PPI: 30 days. Pure Protection: 30 days. General Insurance: 14 days (No required if contract is less than 1 months)

Question 23

Who does the MCOB apply to? (4)

Answer 23

Lenders, Administrators, Arrangers and Advisors

Question 24

What are the 3 levels of MCOB authorisation?

Answer 24

1. Direct Authorisation. 2. Authorised Representative (AR) (Firm is connected to an authorised firm). 3. Introducer Status. Firm passes on leads, no authorisation required

Question 25

What are 3 examples of regulated contracts, and 1 example of an unregulated contract under the MCOB?

Answer 25

1. Lender provides credit to an individual. 2. Obligation is secured by legal first mortgage. 3. At least 40% of the property is being used as dwelling by borrower. No regulated: Commercial mortgages.

Question 26

What is the difference between information and advice?

Answer 26

Information is accurate and neutral facts. Advice involves giving an opinion on the merits of a specific product

Question 27

What are the regulations for SRB Mortgages? (7)

Answer 27

1. Customer must have tenancy of at least 5 years. 2. Firms must check the customer can afford the deal. 3. Firms must make sure customer has checked their benefits entitlement. 4. Cooling off period of 14 days. 5. No cold calling or promotional leaflets. 6. No use of emotive terms in promotional literature. 7. Independant valuation

Question 28

What did the MMR do?

Answer 28

The Mortgage Market Review introduced regulations to make it less likely borrowers would get into negative equity.

Question 29

What Mortgage Credit Derivatives regulations did the MCOB adopt? (4)

Answer 29

1. Must be a minimum 7 day reflection period after binding mortgage offer. 2. European Standardised Information Sheet (ESIS) replaced the KFI. 3. Recird info for 3 years and Must tell customers they can ask for commission information. 4. Mortgage advisors needs level 3 qualification.

Question 30

Who do CASS rules not apply to? (3)

Answer 30

Life offices, friendly societies or banks

Question 31

What are the CASS regulations? (4)

Answer 31

Client Asset and Client Money Regulations: 1. Client money must be held in a seperate bank account. 2. Interest on this money belongs to the client. 3. Client money reconciliation must be done at intervals no less than 25 days. 4. Discrepencies must be corrected by the end of the day.

Question 32

What firms are required to complete a Client Money Asset Return?

Answer 32

Medium and large firms (Over 1m client money, or 10m assets). CMAR must be completed via RegData every month

Question 33

What are the 4 labels that can be used on ESG investment funds?

Answer 33

1. Sustainability Focus. 2. Sustainsbility Improvers. 3. Sustainability Impact. 4. Sustainability Mixed Goals

Question 34

What are the rules regarding Sustainability labels? 5

Answer 34

1. Must have permission from FCA. 2. Must be reviewed every 12 months. 3. 70% of investments must be working towards sustainability objective. 4. The words 'Sustainable/ability' or 'Impact' cannot be used in the fund does not have the label. 5. Customer disclosures should be no more than 2 x A4, and clearly show sustainability goal.

Question 35

When does the FCA not need to inform the subject of an investigation?

Answer 35

Insider trading, market abuse, misleading information

Question 36

Who does the Consumer Credit Act 1974 apply to?

Answer 36

Any firm providing advice on obtaining credit or repaying debt (building societies exempt)

Question 37

What are the most important provisions of the Consumer Credit Act 1964?

Answer 37

1: Must be licensed to offer products or goods on credit Advise on Debt issues also need license 2: Introduced APR- true cost. 3: Borrower given access to info held on him/and all relevant info 4: Intro cooling off time: starts when signed or received (14 days). For mortgages, customers must receive agreement 7 days before they are asked to sign it, and be given 7 days after (5 days for other loans)

Question 38

How did the Consumer Credit Act 2006 modify the 1974 Act?

Answer 38

1. Changed definition of individual to include partnerships of 3 or less, and unincorporated association. 2. Financial ombudsman and Court can vary agreement if deemed it is unfair. 3. £25k limit replaced by £25k exemption if loan is for purpose of business.

Question 39

What enhanced protections does peer-to-peer lending have?

Answer 39

1. Assessment of investors knowledge. 2. Minimum information requirements to investors. 3. Stronger rules on wind-down plans for P2P platforms. 4. Restricted marketing of platforms.

Question 40

What’s Finmar and what does it concern itself with?

Answer 40

Financial stability and market confidence Concerned with short selling