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CeMAP Module 1 study materials
CeMAP Module 1 study resources

CeMAP Module 1 practice questions

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Question 1The financial services environment and the regulatory framework

What is the Financial Conduct Authority's strategic objective?

  1. Ensuring that relevant markets function well Correct answer.
  2. Promoting the safety and soundness of PRA-authorised firms
  3. Securing an appropriate degree of protection for consumers
  4. Maintaining price stability in the UK economy

Explanation

FSMA 2000, as amended, gives the FCA one strategic objective: ensuring that relevant markets function well. It is supported by three operational objectives covering consumer protection, market integrity and competition. Price stability is a matter for the Bank of England's Monetary Policy Committee, not the FCA.

Question 2The financial services environment and the regulatory framework

The Prudential Regulation Authority's general objective is best described as:

  1. protecting policyholders of general insurance contracts only
  2. ensuring that consumers are treated fairly by financial firms
  3. promoting the safety and soundness of the firms it regulates Correct answer.
  4. ensuring that relevant markets function well

Explanation

The PRA's general objective is to promote the safety and soundness of PRA-authorised persons, focusing on the harm that firm failure could cause to the UK financial system. It also has specific objectives relating to insurance policyholders and a secondary competition objective. Fair treatment of consumers is a conduct matter for the FCA.

Question 3The financial services environment and the regulatory framework

Under the Financial Services Compensation Scheme, the standard maximum compensation payable for an eligible deposit claim by one individual against a single authorised firm is:

  1. £170,000
  2. £85,000 Correct answer.
  3. £430,000
  4. £50,000

Explanation

Eligible deposits are protected up to £85,000 per eligible person per authorised firm. Where a deposit is held jointly by two people, the limit applies to each depositor, so a joint account can be protected up to £170,000. Temporary high balances above the limit can be protected for a limited period after certain life events.

Question 4The financial services environment and the regulatory framework

A firm's money laundering reporting officer suspects that a client is laundering the proceeds of drug trafficking. The suspicious activity report should be submitted to:

  1. the National Crime Agency Correct answer.
  2. the Financial Conduct Authority
  3. the Prudential Regulation Authority
  4. the Information Commissioner's Office

Explanation

Suspicious activity reports are submitted to the National Crime Agency, which hosts the UK Financial Intelligence Unit. The FCA and PRA are supervisors and expect firms to have effective systems, but they do not receive SARs. The firm must not tip off the client that a report has been made.

Question 5The financial services environment and the regulatory framework

Which body is the UK's independent regulator for data protection and information rights?

  1. The Competition and Markets Authority
  2. The Payment Systems Regulator
  3. The Financial Conduct Authority
  4. The Information Commissioner's Office Correct answer.

Explanation

The Information Commissioner's Office enforces the UK GDPR and the Data Protection Act 2018, and can impose fines and enforcement notices on data controllers. Financial regulators such as the FCA supervise prudential and conduct matters, not general data protection compliance. Firms may need to notify the ICO of certain personal data breaches.

Question 6The financial services environment and the regulatory framework

Responsibility for regulating consumer credit in the UK transferred to the Financial Conduct Authority on:

  1. 1 January 2020
  2. 1 April 2014 Correct answer.
  3. 1 April 2013
  4. 1 April 2016

Explanation

The FCA took over regulation of consumer credit from the Office of Fair Trading on 1 April 2014, bringing firms into the FSMA authorisation and supervision regime. Firms had to apply for interim permission and later full authorisation. Consumer credit conduct is now governed by CONC and related FCA rules.

Question 7The financial services environment and the regulatory framework

A UK high-street bank that accepts deposits and provides mortgages is best described as:

  1. an exempt person for all of its regulated activities
  2. a firm dual-regulated by the PRA and the FCA Correct answer.
  3. a firm regulated only by the PRA
  4. a firm regulated only by the FCA

Explanation

Banks, building societies and insurers are dual-regulated: the PRA is responsible for prudential soundness and the FCA for conduct and, for firms outside the PRA's remit, prudential matters. Exemptions under FSMA are narrow and do not apply to deposit-taking. A firm cannot hold only one regulator where both regimes apply.

Question 8The financial services environment and the regulatory framework

Which FCA sourcebook contains the conduct of business rules for mortgage lending and home finance?

  1. MCOB Correct answer.
  2. ICOBS
  3. DISP
  4. COBS

Explanation

MCOB (Mortgages and Home Finance: Conduct of Business sourcebook) governs the sale and administration of regulated mortgage contracts and home finance transactions. COBS covers investment business, ICOBS covers insurance conduct, and DISP deals with complaints handling and redress.

Question 9The financial services environment and the regulatory framework

For a complaint referred to the Financial Ombudsman Service on or after 1 April 2026 about acts or omissions on or after 1 April 2019, what is the monetary award limit, excluding separately awarded interest and costs?

  1. £375,000
  2. £455,000 Correct answer.
  3. £150,000
  4. £85,000

Explanation

For the referral and event dates stated, the FOS monetary award limit is £455,000. Different limits apply to earlier referrals or earlier acts and omissions. Interest and costs can be awarded in addition to the monetary award limit; a recommendation to pay more is not itself a binding award above the limit.

Question 10The financial services environment and the regulatory framework

Under the FCA's complaint handling rules, a firm must send a final response to a complaint:

  1. within four weeks of receiving the complaint
  2. within three calendar months of receiving the complaint
  3. within fifteen business days of receiving the complaint
  4. within eight weeks of receiving the complaint Correct answer.

Explanation

DISP requires a final response, or a written holding response explaining when the firm will be in touch, within eight weeks of receiving the complaint. If the complaint is not resolved to the customer's satisfaction by then, the customer may refer it to the Financial Ombudsman Service. Fifteen business days is the timescale used for payment services complaints.

Question 11The financial services environment and the regulatory framework

Under the Payment Services Regulations, a payment services firm must normally provide a final response to a complaint within:

  1. three business days
  2. six months
  3. eight weeks
  4. fifteen business days Correct answer.

Explanation

The Payment Services Regulations require a final response within 15 business days of receiving the complaint. In exceptional circumstances the firm may issue a holding reply within that period and provide a final response within 35 business days. This shorter timescale distinguishes payment complaints from the eight-week DISP regime.

Question 12The financial services environment and the regulatory framework

Which of the following is one of the four consumer outcomes required by the Consumer Duty?

  1. consumer choice
  2. consumer loyalty
  3. consumer engagement
  4. consumer understanding Correct answer.

Explanation

The Consumer Duty is built around four outcomes: products and services, price and value, consumer understanding and consumer support. Each outcome requires firms to act in good faith and avoid causing foreseeable harm. Consumer choice, loyalty and engagement are not Consumer Duty outcomes.

Question 13The financial services environment and the regulatory framework

The Consumer Duty came into force for new and existing products and services that remain open to sale on:

  1. 1 January 2024
  2. 31 July 2023 Correct answer.
  3. 1 April 2023
  4. 31 July 2024

Explanation

The Consumer Duty applied to new and existing products and services open to sale from 31 July 2023. The rules were extended to closed products and services from 31 July 2024. Firms were expected to have implementation plans in place before the first deadline.

Question 14The financial services environment and the regulatory framework

Under the general prohibition in section 19 of FSMA 2000, a person may not carry on a regulated activity in the UK unless they:

  1. hold a consumer credit licence issued by the FCA
  2. are a member of a recognised trade association
  3. are authorised or exempt Correct answer.
  4. are registered with the Information Commissioner's Office

Explanation

Section 19 provides that no person may carry on a regulated activity in the UK unless they are an authorised person or an exempt person. Carrying on a regulated activity in breach is a criminal offence and can make agreements unenforceable. Appointed representatives operate under the authorisation of their principal firm.

Question 15The financial services environment and the regulatory framework

Which of the following is one of the FCA's threshold conditions that a firm must satisfy to be authorised?

  1. operating from a UK high-street branch
  2. having appropriate resources Correct answer.
  3. holding a minimum of £1 million in regulatory capital
  4. being a member of the Financial Ombudsman Service

Explanation

The threshold conditions include appropriate resources, suitability, business model, effective supervision, legal status and location of offices. They must be met at authorisation and on an ongoing basis. Capital requirements are set by prudential rules rather than by a single fixed threshold condition figure.

Question 16The financial services environment and the regulatory framework

Under the Senior Managers and Certification Regime, a person appointed to a senior management function must:

  1. complete the FCA's approved person exam before starting work
  2. be approved by the FCA or PRA before taking up the role Correct answer.
  3. hold a relevant professional qualification recognised by the FCA for that role
  4. be certified annually by their firm as fit and proper

Explanation

Senior managers must be approved by the relevant regulator before they start the role, and their responsibilities are recorded in a statement of responsibilities. Certification by the firm applies to certification staff rather than to senior managers. There is no single prescribed qualification or exam for senior manager approval.

Question 17The financial services environment and the regulatory framework

FCA Principle for Businesses 7 requires a firm to:

  1. arrange adequate protection for clients' assets where the firm is responsible for them
  2. pay due regard to the information needs of clients and communicate in a clear, fair and not misleading way Correct answer.
  3. conduct its business with integrity and with due skill, care and diligence at all times
  4. take reasonable care to organise and control its affairs responsibly and with adequate risk management systems

Explanation

Principle 7 deals with communications with clients: a firm must pay due regard to their information needs and communicate information in a way that is clear, fair and not misleading. Integrity is Principle 1 and skill, care and diligence is Principle 2. Organising and controlling affairs is Principle 3, and client assets protection is Principle 10.

Question 18The financial services environment and the regulatory framework

A firm is onboarding a client who has been identified as a politically exposed person. Under the Money Laundering Regulations 2017 the firm must:

  1. apply standard due diligence but monitor the account more closely
  2. apply enhanced due diligence and obtain senior management approval Correct answer.
  3. refuse to act for the client unless the FCA gives its written consent
  4. report the client to the FCA before any business is transacted

Explanation

Where a client or beneficial owner is a politically exposed person, the regulations require enhanced customer due diligence, senior management approval for the relationship, establishment of source of funds and wealth, and enhanced ongoing monitoring. Being a PEP does not itself prevent the firm acting. A suspicious activity report is only needed where there is suspicion of money laundering.

Question 19The financial services environment and the regulatory framework

Under the UK GDPR, a data controller must respond to a valid subject access request without undue delay and in any event within:

  1. 14 days
  2. one month Correct answer.
  3. 40 days
  4. three months

Explanation

A controller must respond to a subject access request within one month of receipt, although this can be extended by up to two further months where the request is complex. The response is normally free of charge. Forty days was the timescale under the old Data Protection Act 1998.

Question 20The financial services environment and the regulatory framework

A firm sends a final response to a complaint which does not satisfy the customer. The customer may refer the complaint to the Financial Ombudsman Service within:

  1. 28 days of the date of the final response
  2. twelve months from the date on which the complaint was first made
  3. six months from the date of the final response Correct answer.
  4. three months of the date of the final response

Explanation

The customer has six months from the date of the firm's final response to refer the complaint to the ombudsman, provided the final response told them so. Separately, the ombudsman can generally consider complaints about events within the last six years, or three years from when the customer should reasonably have known about the problem. Missing the six-month deadline can remove the right to refer.

Question 21The financial services environment and the regulatory framework

Under the Certification Regime, a firm must:

  1. issue each certified employee with a statement of responsibilities approved by the regulator
  2. notify the FCA of each certification within five business days
  3. assess and certify relevant employees as fit and proper at least once every 12 months Correct answer.
  4. obtain FCA approval for every employee who deals with retail clients

Explanation

The Certification Regime is firm-based: the firm must assess the fitness and propriety of certification staff at least annually and issue a certificate. Regulatory approval is reserved for senior managers, not certification staff. Statements of responsibilities apply to senior managers rather than to certified employees.

Question 22The financial services environment and the regulatory framework

Under the Senior Managers and Certification Regime, the duty of responsibility requires a senior manager to:

  1. report every breach of the firm's regulatory obligations directly to HM Treasury
  2. personally handle every complaint arising in the area of the business for which they are responsible
  3. take reasonable steps to avoid a breach by the firm in the area of the business they are responsible for Correct answer.
  4. guarantee that no regulatory breach occurs anywhere in the firm for the whole of their tenure in the role

Explanation

Where a firm contravenes a relevant requirement, the senior manager responsible for the area can be held accountable if they failed to take reasonable steps to prevent the contravention. For enhanced (banking) firms this is reinforced by a presumption that the senior manager did not take such steps unless they can show otherwise. The duty is one of reasonable steps, not a guarantee of compliance.

Question 23The financial services environment and the regulatory framework

Section 21 of FSMA 2000 restricts financial promotions. Which statement about the restriction is correct?

  1. it must be made or approved by an authorised person, unless an exemption applies Correct answer.
  2. it applies only to communications that are addressed to retail clients rather than to businesses
  3. it applies only to television, radio and other broadcast advertisements aimed at consumers
  4. it applies only to firms that are authorised by the PRA rather than by the FCA

Explanation

Section 21 prohibits communicating an invitation or inducement to engage in investment activity in the course of business unless the communicator is an authorised person or the content is approved by one, subject to exemptions in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The restriction is media-neutral and is not limited by the type of audience, although exemption categories such as certified high net worth and sophisticated investors exist. Breach of section 21 is a criminal offence and can affect enforceability.

Question 24The financial services environment and the regulatory framework

Which of the following is a regulated mortgage contract?

  1. A loan to an individual secured by a first charge on the home they live in Correct answer.
  2. A loan to an individual secured by a charge over their investment portfolio
  3. A loan to an individual secured by a first charge on a flat that is let to tenants
  4. A loan to a limited company secured by a first legal charge on land in the UK

Explanation

A regulated mortgage contract is credit provided to an individual, secured by a first legal charge on land in the UK, at least 40% of which is occupied by the borrower or a close family member as their home. Lending to a company falls outside the definition. A property wholly let to tenants is not occupied by the borrower, so a buy-to-let loan of that kind is not a regulated mortgage contract.

Question 25The financial services environment and the regulatory framework

The Financial Policy Committee of the Bank of England is responsible for:

  1. identifying and reducing systemic risks to the UK financial system Correct answer.
  2. authorising and supervising individual banks and insurance companies on a day-to-day basis
  3. protecting eligible deposits up to £85,000 per person per firm
  4. resolving complaints made by consumers against financial firms

Explanation

The FPC takes a macroprudential view, identifying and acting on risks to the financial system as a whole, such as excessive credit growth or asset price imbalances. Day-to-day supervision of individual firms is carried out by the PRA and FCA. Complaints and deposit protection are handled by the Financial Ombudsman Service and the Financial Services Compensation Scheme respectively.

Question 26The financial services environment and the regulatory framework

The Financial Conduct Authority has three operational objectives. Which of the following is one of them?

  1. Setting the Bank of England base rate
  2. Protecting consumers Correct answer.
  3. Managing the UK's foreign exchange reserves
  4. Maintaining financial stability in the UK

Explanation

Under FSMA 2000 the FCA has a strategic objective (ensuring relevant markets function well) and three operational objectives: consumer protection, integrity of the UK financial system, and competition. Financial stability sits with the Financial Policy Committee and base rate setting with the Monetary Policy Committee, both within the Bank of England.

Question 27The financial services environment and the regulatory framework

Which body has a statutory duty to provide free and impartial money guidance and debt advice in the UK?

  1. The Money and Pensions Service Correct answer.
  2. The Financial Conduct Authority
  3. The Prudential Regulation Authority
  4. The Financial Ombudsman Service

Explanation

The Financial Guidance and Claims Act 2018 gives the Money and Pensions Service (MaPS) objectives that include improving financial capability and providing free and impartial money guidance and debt advice. The FCA and PRA are regulators, while the Ombudsman resolves individual disputes.

Question 28The financial services environment and the regulatory framework

Under the Financial Services Compensation Scheme, what is the maximum amount protected for an eligible deposit held with a single authorised firm?

  1. £170,000
  2. £50,000
  3. £85,000 Correct answer.
  4. £430,000

Explanation

The FSCS protects eligible deposits up to £85,000 per eligible person per authorised firm, so a jointly held account is protected up to £170,000 in total. The £430,000 figure relates to the maximum award the Financial Ombudsman Service can require a firm to pay, not to deposit protection.

Question 29The financial services environment and the regulatory framework

A firm identifies a transaction that it suspects involves money laundering. To which body must the firm submit a suspicious activity report?

  1. The Prudential Regulation Authority
  2. The National Crime Agency Correct answer.
  3. The Financial Conduct Authority
  4. The Home Office

Explanation

The Proceeds of Crime Act 2002 and the Money Laundering Regulations require suspicions of money laundering to be reported to the National Crime Agency, which acts as the UK's Financial Intelligence Unit. Other bodies such as the FCA receive other regulatory notifications but not suspicious activity reports.

Question 30The financial services environment and the regulatory framework

The Prudential Regulation Authority's general objective is to:

  1. ensure that relevant markets function well
  2. promote the safety and soundness of firms it regulates Correct answer.
  3. secure an appropriate degree of protection for consumers
  4. maintain stability of the UK financial system

Explanation

The PRA's general objective is promoting the safety and soundness of PRA-authorised persons, supported by a secondary objective on international competitiveness and growth and an insurance-specific objective on policyholder protection. Consumer protection and market function are FCA objectives, and financial stability is the FPC's remit.

Question 31The financial services environment and the regulatory framework

Under the UK GDPR, a data controller must notify the Information Commissioner's Office of a personal data breach within what period, where the breach is likely to result in a risk to individuals' rights and freedoms?

  1. One month of becoming aware of the breach
  2. 24 hours of becoming aware of the breach
  3. 72 hours of becoming aware of the breach Correct answer.
  4. 5 working days of becoming aware of the breach

Explanation

Article 33 of the UK GDPR requires notification to the ICO without undue delay and, where feasible, within 72 hours of becoming aware of a breach that is likely to pose a risk to individuals' rights and freedoms. Where the risk is high, the controller must also inform affected individuals without undue delay.

Question 32The financial services environment and the regulatory framework

Under the Money Laundering Regulations, how long must a firm retain records of customer due diligence and transactions after the business relationship ends?

  1. Four years
  2. Five years Correct answer.
  3. Three years
  4. Ten years

Explanation

The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 require records of customer due diligence and transactions to be kept for five years after the end of the relationship or the completion of the transaction. Records may need to be kept longer where requested by a supervisory authority or required for legal proceedings.

Question 33The financial services environment and the regulatory framework

Which statement about the Financial Ombudsman Service is correct?

  1. It is funded directly by the Prudential Regulation Authority
  2. It charges consumers a case fee whenever a complaint is upheld
  3. It deals only with complaints made about high-street banks
  4. It is free to consumers and paid for by a levy on firms Correct answer.

Explanation

The Financial Ombudsman Service is free to complainants and is funded through a general levy on regulated firms plus case fees charged to firms. Firms are liable for the case fee, not consumers, so the cost of using the service never falls on the complainant.

Question 34The financial services environment and the regulatory framework

A mortgage intermediary appoints a self-employed adviser as an appointed representative. Who is responsible to the FCA for the adviser's regulated activity?

  1. The principal firm that appointed the representative Correct answer.
  2. The appointed representative, who must be separately authorised
  3. The Financial Conduct Authority, which directly authorises representatives
  4. The Financial Services Compensation Scheme

Explanation

Under section 39 of FSMA 2000 an appointed representative may carry on regulated activities without its own authorisation because the principal firm accepts responsibility for those activities. The principal must ensure the representative and its staff comply with the FCA rules that apply to the regulated business.

Question 35The financial services environment and the regulatory framework

Under the Mortgage Credit Directive, a consumer who enters into a mortgage credit agreement generally has how long to exercise a right of withdrawal?

  1. Three months
  2. 30 calendar days
  3. 7 calendar days
  4. 14 calendar days Correct answer.

Explanation

The Mortgage Credit Directive gives the consumer a right of withdrawal exercisable within 14 calendar days, and the European Standardised Information Sheet must disclose it. Certain agreement types are excluded from the right, which is why the question refers to agreements generally.

Question 36The financial services environment and the regulatory framework

A mortgage advice firm holds a client's money briefly before forwarding it to a lender. Under the FCA's client money rules, the firm must:

  1. retain the money until the client asks for it to be returned
  2. hold the money in a segregated client bank account Correct answer.
  3. treat the money as belonging to the firm until completion
  4. pay the money into the firm's own business bank account and record it as a liability

Explanation

The client money rules in CASS require client money to be segregated from the firm's own money and held in a client bank account with an approved bank. Segregation is designed to ensure the money is returned to clients if the firm becomes insolvent.

Question 37The financial services environment and the regulatory framework

A consumer is dissatisfied with how the Financial Conduct Authority has dealt with a complaint made about the FCA itself. To which body can the complaint be escalated?

  1. The Payment Systems Regulator
  2. The Prudential Regulation Authority
  3. The Complaints Commissioner Correct answer.
  4. The Financial Ombudsman Service

Explanation

The Complaints Commissioner is an independent office that considers complaints about the conduct of the FCA and the Payment Systems Regulator where the complainant remains dissatisfied. The Financial Ombudsman Service deals with complaints against authorised firms, not against the regulators.

Question 38The financial services environment and the regulatory framework

A borrower makes a written request under section 77 of the Consumer Credit Act 1974 for a copy of a regulated credit agreement. Within what period must the lender provide the copy to avoid being unable to enforce the agreement while the default continues?

  1. 12 working days Correct answer.
  2. 28 days
  3. 31 days
  4. 7 working days

Explanation

Section 77 requires the creditor to supply the copy within 12 working days of the request; while the failure continues the creditor cannot enforce the agreement, and after one month an offence is committed. The 12 working day period is prescribed by regulations made under the Act.

Question 39The financial services environment and the regulatory framework

Which statement about the FCA's role in competition law is correct?

  1. It has no competition law role; only the CMA may act
  2. It may apply competition law concurrently with the CMA Correct answer.
  3. Its competition powers apply only to consumer credit
  4. It may act only with the CMA's consent in each case

Explanation

The FCA is a concurrent competition authority under the Enterprise Act 2002, meaning it can investigate and enforce the competition law prohibitions in relation to financial services alongside the Competition and Markets Authority. It also has a competition objective, but those powers are not limited to consumer credit.

Question 40The financial services environment and the regulatory framework

FCA guidance on vulnerable customers requires firms to:

  1. exclude vulnerable customers from buying certain products
  2. identify and meet the needs of vulnerable customers Correct answer.
  3. refer all vulnerable customers to a specialist debt adviser
  4. charge vulnerable customers a lower fee for advice

Explanation

The FCA's guidance expects firms to understand the needs of customers in vulnerable circumstances, ensure staff have the skills to respond, take practical action and monitor whether outcomes are as good as for other customers. This supports the fair treatment requirements that sit alongside the Consumer Duty.

Question 41The FCA and PRA, the Handbook and regulated activities

Which of the following is a statutory objective of the FCA?

  1. Guaranteeing that authorised firms avoid insolvency
  2. Promoting the safety and soundness of authorised firms
  3. Maintaining monetary stability in the United Kingdom
  4. Securing an appropriate degree of protection for consumers Correct answer.

Explanation

FSMA 2000 gives the FCA a strategic objective together with operational objectives, one of which is securing an appropriate degree of protection for consumers. The FCA also has integrity, competition and international standards objectives.

Question 42The FCA and PRA, the Handbook and regulated activities

The PRA's statutory objectives are best described as:

  1. Consumer protection and market integrity
  2. Competition and promoting effective market functioning
  3. Monetary stability and orderly financial markets
  4. Safety and soundness and policyholder protection Correct answer.

Explanation

The PRA has a general objective to promote the safety and soundness of PRA-authorised persons and an insurance objective relating to the protection of policyholders. It also has a secondary objective to facilitate international competitiveness and growth.

Question 43The FCA and PRA, the Handbook and regulated activities

Under the General Prohibition, a person may carry on a regulated activity in the UK only if they are:

  1. A member of a recognised investment exchange
  2. Registered with the Financial Ombudsman Service
  3. Party to a written client agreement
  4. An authorised person or an exempt person Correct answer.

Explanation

Section 19 FSMA prohibits anyone from carrying on a regulated activity in the UK by way of business unless they are an authorised person or an exempt person. Breaching the prohibition is a criminal offence and can make related agreements unenforceable.

Question 44The FCA and PRA, the Handbook and regulated activities

An activity is a regulated activity under FSMA only where it involves:

  1. A specified activity, a specified investment and a client agreement
  2. A specified activity, a specified investment and by way of business Correct answer.
  3. A specified activity, FCA registration and payment of annual fees
  4. A specified investment, a UK listing and business carried on for profit

Explanation

A regulated activity requires a specified activity carried on in relation to a specified investment, by way of business in the UK. All of these elements must be present before the activity falls within the regulatory perimeter.

Question 45The FCA and PRA, the Handbook and regulated activities

A client asks a firm to arrange the purchase of a unit in a unit trust. In regulated activity terms, the unit is:

  1. A designated professional investment
  2. An exempt product
  3. A specified investment Correct answer.
  4. A non-regulated security

Explanation

Units in a unit trust are specified investments under the Regulated Activities Order, so arranging or advising on them is a regulated activity. Physical assets such as property, cars and collectables fall outside the Order.

Question 46The FCA and PRA, the Handbook and regulated activities

An FCA-authorised firm that advises on investments now wants to accept deposits from retail customers. What is required?

  1. Approval from the Bank of England's Monetary Policy Committee
  2. Nothing further, because FCA authorisation already covers every regulated activity
  3. PRA authorisation as well, as accepting deposits is a PRA-regulated activity Correct answer.
  4. Only notification to the Financial Ombudsman Service

Explanation

Accepting deposits is a PRA-regulated activity, so the firm needs authorisation from the PRA as well as permission from the FCA for the activity. The FCA remains the conduct regulator for the rest of the firm's business.

Question 47The FCA and PRA, the Handbook and regulated activities

An appointed representative can carry on regulated activities on behalf of its principal only where:

  1. The representative has been approved by the Prudential Regulation Authority
  2. The client has consented in writing to the representative arrangement
  3. The representative holds its own permission under Part 4A of FSMA
  4. A written contract with the principal covering those activities Correct answer.

Explanation

Under section 39 FSMA an appointed representative must have a written contract with an authorised principal that accepts responsibility for its regulated activities. The principal is then answerable to the regulator for that business.

Question 48The FCA and PRA, the Handbook and regulated activities

Which list correctly states the FCA's Threshold Conditions?

  1. Business plan, fee levels, training records and audit history
  2. Legal status, location, supervision, resources and suitability Correct answer.
  3. Advertising spend, brand strength, complaints volumes and staffing
  4. Shareholder returns, market share, profitability and growth

Explanation

The Threshold Conditions are legal status, location of offices, effective supervision, appropriate resources and suitability. A firm must satisfy them when authorised and continue to satisfy them afterwards.

Question 49The FCA and PRA, the Handbook and regulated activities

Which Principles for Businesses requires a firm to pay due regard to the interests of its customers and treat them fairly?

  1. Principle 9
  2. Principle 6 Correct answer.
  3. Principle 3
  4. Principle 11

Explanation

Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly. The eleven Principles are high-level rules applying to all authorised firms and a breach can lead to enforcement action.

Question 50The FCA and PRA, the Handbook and regulated activities

A firm is reading a passage in the FCA Handbook that explains how the FCA interprets a particular rule. What status does that passage have?

  1. It has the same binding force as the rule itself
  2. It is a statutory instrument with legal force
  3. It is a rule that applies only to small firms
  4. It is guidance and is not itself a rule Correct answer.

Explanation

The Handbook contains rules, guidance and evidential provisions. Guidance explains how the FCA interprets a rule or expects it to be applied, but it does not itself impose a binding obligation.