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NZFMA Dealer Accreditation study materials
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NZFMA Dealer Accreditation practice questions

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Question 1Regulatory framework and FMA licensing regime

Under the Financial Markets Conduct Act 2013, which activity requires a market services licence from the FMA?

  1. Providing a discretionary investment management service to retail clients Correct answer.
  2. Selling insurance products as a registered financial adviser
  3. Preparing financial statements for a listed company
  4. Publishing general financial commentary in a newspaper

Explanation

Discretionary investment management services are a licensed market service under the FMCA, so a provider must hold an FMA licence and meet the associated conduct obligations. Accounting, general media commentary and most insurance distribution sit outside the licensed market services in that list.

Question 2Regulatory framework and FMA licensing regime

Which of the following is a class of market services licence under the Financial Markets Conduct Act 2013?

  1. Audit licence
  2. Clearing licence
  3. Settlement licence
  4. Custodian licence Correct answer.

Explanation

The FMCA licence classes include managers of managed investment schemes, DIMS, derivatives issuers, crowdfunding, peer-to-peer lending, financial advice, and custodians. Audit, settlement and clearing are not FMCA market services licence classes.

Question 3Regulatory framework and FMA licensing regime

What is the primary statutory purpose of the Financial Markets Authority under the FMCA?

  1. To guarantee returns for retail investors
  2. To operate the New Zealand stock exchange
  3. To promote confident and informed participation in financial markets Correct answer.
  4. To set monetary policy for New Zealand

Explanation

The FMCA states the FMA's main objective as promoting confident and informed participation in financial markets. It does not guarantee investment returns, set monetary policy, or run a trading venue.

Question 4Regulatory framework and FMA licensing regime

A dealer firm holds a licence and wants to add a new service to its existing authorisation. What is the appropriate first step under the FMA licensing regime?

  1. Begin offering the service and notify the FMA within 12 months
  2. Apply to the FMA to vary the licence before offering the new service Correct answer.
  3. Rely on the existing licence because it covers all financial services
  4. Ask the Companies Office to amend the firm's registration

Explanation

A licence authorises only the market services specified in it, so a firm must apply for a variation before providing an additional service. Providing an unauthorised service is a breach regardless of later notification.

Question 5Regulatory framework and FMA licensing regime

Which document sets out the standard conditions that apply to a class of market services licence?

  1. The standard conditions for that licence class published by the FMA Correct answer.
  2. The company's own constitution
  3. The Fair Trading Act
  4. The Reserve Bank Act

Explanation

The FMA publishes standard conditions for each licence class, and these conditions form part of the licence framework. A firm's constitution or unrelated statutes do not set licensing conditions.

Question 6Regulatory framework and FMA licensing regime

Which statement best describes the FMA's approach to enforcing the licensing regime?

  1. It prosecutes only where a consumer has already suffered a loss
  2. It delegates all enforcement to the Commerce Commission
  3. It can only issue warnings and has no power to take court action
  4. It uses a range of responses from guidance and monitoring through to civil and criminal action Correct answer.

Explanation

The FMA has a graduated toolkit covering guidance, monitoring, infringement and other remedies, and civil or criminal proceedings where warranted. Enforcement does not depend on proof of consumer loss, and the Commerce Commission is a separate regulator.

Question 7Regulatory framework and FMA licensing regime

A person wishes to provide a financial advice service to retail clients in New Zealand. What must they hold under the current regime?

  1. A trustee company licence
  2. A financial advice provider licence issued by the FMA Correct answer.
  3. A market operator licence
  4. A banking licence

Explanation

Providing financial advice to retail clients requires the financial advice provider to hold a licence from the FMA. Market operator, banking and trustee licences relate to entirely different activities.

Question 8Regulatory framework and FMA licensing regime

Which body hears appeals against certain FMA decisions under the financial markets legislation?

  1. The Reserve Bank Board
  2. The FMA's internal review panel
  3. The High Court of New Zealand Correct answer.
  4. The District Court

Explanation

Appeals against specified regulatory decisions are made to the High Court under the relevant financial markets legislation. The FMA does not sit in judgment on its own decisions, and the Reserve Bank Board has no such appellate role.

Question 9Regulatory framework and FMA licensing regime

A licensed dealer is considering outsourcing its client record-keeping to a third-party provider. How should the firm treat this under its licence obligations?

  1. Ignore it because record-keeping is not covered by licence conditions
  2. Assess and manage the outsourcing risk, since the licensee remains accountable for the outsourced function Correct answer.
  3. Transfer the licence obligation to the third-party provider automatically
  4. Treat the function as outside the licence because a third party performs it

Explanation

Outsourcing does not transfer regulatory responsibility: the licensee stays accountable and must manage the associated operational and compliance risks. The licence does not shift to the provider, and record-keeping is typically within licence conditions.

Question 10Regulatory framework and FMA licensing regime

Which of these is most consistent with the FMA's 'fair dealing' expectations for a licensed dealer?

  1. Acting with integrity and avoiding misleading or deceptive conduct toward clients Correct answer.
  2. Prioritising the firm's interests when conflicts arise
  3. Maximising revenue even where that requires ambiguous disclosure
  4. Disclosing only information that clients specifically request

Explanation

Fair dealing requires integrity and conduct that is not misleading or deceptive, with conflicts managed in the client's interest. Revenue maximisation, self-preference and purely reactive disclosure are inconsistent with those expectations.

Question 11Regulatory framework and FMA licensing regime

A dealer's compliance officer discovers a material breach of a licence condition. What is the most appropriate action under the regulatory framework?

  1. Wait until the annual report to disclose the breach
  2. Correct the issue quietly without informing the FMA
  3. Report the breach to the FMA promptly and remediate, in line with licence conditions Correct answer.
  4. Resign the licence immediately without notifying anyone

Explanation

Licence conditions typically require prompt notification of material breaches, together with remediation. Delaying to an annual report, silent correction or abrupt surrender without notice does not meet the notification obligation.

Question 12Regulatory framework and FMA licensing regime

What role does the FMA's licensing guide play for an applicant dealer?

  1. It sets the tax treatment of financial services income
  2. It replaces the need for a licence once the firm follows it
  3. It provides legally binding exemptions from the FMCA
  4. It explains the application process and the FMA's expectations for the licence class Correct answer.

Explanation

The licensing guide describes the application process, required information and the regulator's expectations. It is guidance rather than a substitute for a licence, a tax authority or a source of statutory exemptions.

Question 13Regulatory framework and FMA licensing regime

A dealer outsources its IT platform and the vendor suffers a prolonged outage affecting client order handling. What does the regulatory framework expect of the licensee?

  1. That client complaints be declined until the vendor is replaced
  2. That the outage is excused because it was outside the firm's control
  3. That it had adequate business continuity and oversight arrangements for the outsourced service Correct answer.
  4. That the vendor alone bears responsibility for client outcomes

Explanation

A licensee must maintain appropriate operational resilience and oversight of outsourced arrangements, including business continuity planning. Responsibility to clients is not shifted to the vendor, and an outage does not excuse the firm's obligations.

Question 14Regulatory framework and FMA licensing regime

Which of the following best describes the FMA's power to accept an enforceable undertaking from a licensee?

  1. It may accept an undertaking that has no legal effect
  2. It may accept a court-enforceable undertaking as an alternative to other enforcement action Correct answer.
  3. It may only accept undertakings from unlicensed persons
  4. It may impose an undertaking without the licensee's agreement

Explanation

Enforceable undertakings are given by the person concerned and are enforceable in court, often used instead of other enforcement steps. They are voluntary in origin but legally binding once accepted, and are not imposed unilaterally.

Question 15Regulatory framework and FMA licensing regime

A firm holds a licence to provide a DIMS to retail clients. A client asks it to also arrange custody of the client's assets. What should the firm check first?

  1. Whether the firm's auditor approves
  2. Whether custody is permitted under the Fair Trading Act
  3. Whether the client has signed a general waiver
  4. Whether providing a custodial service is within its licence or requires a separate authorisation Correct answer.

Explanation

Each market service must be authorised, and custody may require a separate licence class or a variation. Client waivers, the Fair Trading Act and auditor approval do not authorise an unlicensed service.

Question 16Regulatory framework and FMA licensing regime

Which statement reflects the FMA's expectation about governance of a licensed dealer?

  1. Governance is irrelevant once a licence is granted
  2. Board meetings are unnecessary for small licensees
  3. Directors and senior managers should have appropriate skills and oversight of compliance Correct answer.
  4. Only the compliance officer is responsible for conduct

Explanation

The FMA expects robust governance, with directors and senior managers possessing suitable skills and actively overseeing compliance and conduct. Responsibility is not confined to one officer, and licensing does not make governance optional.

Question 17Regulatory framework and FMA licensing regime

What is the effect of a licence condition requiring a firm to maintain a minimum level of capital or financial resources?

  1. It can be ignored where the firm is profitable
  2. It applies only during the first year of licensing
  3. It is merely a recommendation the firm may choose to follow
  4. It is a binding obligation and breach can attract regulatory action Correct answer.

Explanation

Conditions attached to a licence are binding, and failing to maintain required financial resources is a breach that can lead to regulatory action. They are not optional, time-limited, or waived by profitability.

Question 18Regulatory framework and FMA licensing regime

A firm wants to change its ownership structure substantially. Under the licensing regime, what should it consider?

  1. Nothing, because ownership changes are outside the regulator's interest
  2. Whether the new owners wish to keep the licence
  3. Only whether the Companies Office filing fee is paid
  4. Whether the change requires FMA notification or approval under its licence conditions Correct answer.

Explanation

Licence conditions commonly require notification or approval of changes in ownership or control, because they can affect fitness and capability. Company office filings and the owners' preferences do not address the regulatory requirement.

Question 19Regulatory framework and FMA licensing regime

Which of the following best describes the relationship between the FMCA and the FMA's licensing powers?

  1. The FMCA establishes the licensing regime and the FMA administers it Correct answer.
  2. The FMCA is guidance only and the FMA creates the law
  3. The FMA writes the FMCA and Parliament enforces it
  4. The Reserve Bank administers the FMCA licensing regime

Explanation

Parliament enacts the FMCA, which establishes the licensing framework, and the FMA administers and enforces that regime. The FMA does not legislate, the Act is not mere guidance, and the Reserve Bank does not administer FMCA licensing.

Question 20Regulatory framework and FMA licensing regime

A licensee's advertising makes a performance claim that cannot be substantiated. Which regulatory concern is most directly engaged?

  1. Non-payment of the licence fee
  2. Misleading or deceptive conduct in connection with a financial service Correct answer.
  3. Breach of the Reserve Bank's prudential standards
  4. Failure to comply with tax reporting

Explanation

Unsubstantiated performance claims risk being misleading or deceptive, which is a core fair dealing concern for licensed dealers. Prudential standards, tax reporting and licence fees are distinct obligations not engaged by advertising content.

Question 21Regulatory framework and FMA licensing regime

When the FMA considers whether an applicant is 'fit and proper' to hold a licence, which factor is most relevant?

  1. The honesty, integrity and competence of the people who will control the licensee Correct answer.
  2. The location of the applicant's office
  3. The applicant's marketing budget
  4. The number of staff the applicant employs

Explanation

Fit and proper assessment focuses on the honesty, integrity and competence of the people in control of the licensee, including their regulatory history. Budget, headcount and office location are not the substance of that test.

Question 22Regulatory framework and FMA licensing regime

A licensed dealer is unsure whether a proposed product structure falls within its licence. What is the most prudent regulatory approach?

  1. Ask a competitor how they interpret the licence
  2. Proceed and rely on the absence of a complaint
  3. Seek clarification from the FMA or obtain legal advice before proceeding Correct answer.
  4. Assume any financial product is covered by the licence

Explanation

Where scope is uncertain, the prudent course is to seek regulatory clarification or professional advice before acting. Proceeding on assumption, absence of complaints or a competitor's view risks unlicensed activity.

Question 23Regulatory framework and FMA licensing regime

The FMA revokes or suspends a licence. Which statement best reflects the position of the former licensee?

  1. It must cease the licensed activity and may have appeal rights to the High Court Correct answer.
  2. It automatically keeps all client assets as compensation
  3. It may continue operating until a replacement licence is issued
  4. It can transfer the licence to an associate

Explanation

Once a licence is revoked or suspended, the licensed activity must stop, subject to any transitional arrangements, and specified decisions can be appealed to the High Court. Continuing to operate, retaining client assets or transferring the licence are not permissible.

Question 24Regulatory framework and FMA licensing regime

A dealer identifies a conflict between its own trading position and a client's order. Which approach best aligns with the regulatory framework?

  1. Disclose the conflict only after the client has suffered a loss
  2. Identify, disclose and manage the conflict so the client is not disadvantaged Correct answer.
  3. Execute the firm's own trade first because it employs the staff
  4. Rely on the client to detect the conflict

Explanation

Conflicts must be identified, disclosed and managed so that clients are not disadvantaged, which may include avoiding the conflict altogether. Self-preference, client-detection and after-the-fact disclosure are inconsistent with that standard.

Question 25Regulatory framework and FMA licensing regime

Which statement best captures the FMA's monitoring approach toward licensed dealers?

  1. It relies solely on annual audited accounts
  2. It delegates monitoring entirely to industry bodies
  3. It combines off-site data analysis with on-site visits and thematic reviews Correct answer.
  4. It monitors only after a client complaint is received

Explanation

The FMA uses a mix of off-site analysis, on-site inspections and thematic reviews to monitor licensees on an ongoing basis. Relying only on audited accounts, complaints or industry bodies would not meet that ongoing supervisory role.

Question 26Regulatory framework and FMA licensing regime

Under the Financial Markets Conduct Act 2013, which type of licence is required for a business that provides discretionary investment management services (DIMS) to retail clients in New Zealand?

  1. An Australian financial services licence recognised under the Trans-Tasman Mutual Recognition Act
  2. A derivatives issuer licence issued by the FMA
  3. A financial advice provider licence issued by the FMA
  4. A DIMS licence issued by the FMA Correct answer.

Explanation

Providing DIMS to retail clients is a licensed market service under the FMCA and requires a specific DIMS licence granted by the FMA. A financial advice provider licence covers giving regulated financial advice, not discretionary management, while a derivatives issuer licence applies to issuers of derivatives. Overseas licences do not automatically authorise DIMS in New Zealand.

Question 27Regulatory framework and FMA licensing regime

A licensed dealer holds a market services licence with a condition that it must maintain a minimum amount of net tangible assets. The firm's monthly calculation shows it has fallen below that minimum. What is the most appropriate immediate action under the FMA licensing regime?

  1. Notify the FMA promptly and provide a plan to restore compliance Correct answer.
  2. Wait until the next quarterly reporting cycle to disclose the shortfall
  3. Continue trading and treat the shortfall as an internal matter only
  4. Reduce the minimum capital condition by applying to vary the licence retrospectively

Explanation

A licence condition is a binding obligation, and the FMA expects licensees to self-report material breaches promptly. Waiting for a scheduled report or treating a capital shortfall as internal would breach the duty of candour and could lead to enforcement action. Retrospective variation is not available to cure a past breach.

Question 28Regulatory framework and FMA licensing regime

Which statement best describes the FMA's power to vary or cancel a market services licence under the Financial Markets Conduct Act 2013?

  1. The FMA may vary or cancel a licence only on the recommendation of the Minister of Commerce
  2. The FMA may vary or cancel a licence only after a court conviction for a financial markets offence
  3. The FMA may vary or cancel a licence in accordance with the grounds and procedures set out in the FMCA Correct answer.
  4. The FMA may vary or cancel a licence only with the licensee's written consent

Explanation

The FMCA provides the FMA with statutory powers to vary or cancel licences on specified grounds, following the procedures in the Act. These powers are not dependent on the licensee's consent or a prior court conviction, and they are exercised by the FMA rather than on ministerial recommendation.

Question 29Regulatory framework and FMA licensing regime

A licensed dealer is designing its internal complaints process. Which approach best aligns with the FMA's expectations for a fair dealing and client-focused licence holder?

  1. Refer all complaints directly to the FMA without attempting internal resolution
  2. Require complaints to be made in writing within 5 working days of the issue arising
  3. Handle complaints informally without keeping records to reduce administrative burden
  4. Establish a clear, accessible complaints process with defined timeframes and record-keeping Correct answer.

Explanation

The FMA expects licensed dealers to have transparent and accessible complaints handling arrangements, including clear timeframes and proper records. Imposing short written-only deadlines or handling complaints informally undermines fairness, while referring all complaints to the FMA is not consistent with an effective internal process.

Question 30Regulatory framework and FMA licensing regime

A licensed dealer is wholly owned by an overseas parent. The parent proposes to appoint a new chief executive for the New Zealand subsidiary who has no previous experience in New Zealand's financial markets. How should the dealer treat this under the FMA licensing regime?

  1. The dealer should assess the appointment against the fit and proper standard and notify the FMA if required by its licence conditions Correct answer.
  2. The appointment requires prior approval from the FMA in all circumstances
  3. The appointment may proceed without notification because it is an internal management matter
  4. The appointment is prohibited unless the individual holds a New Zealand financial advice provider licence

Explanation

Licensees must ensure that directors and senior managers are fit and proper, and licence conditions often require notification of changes in senior personnel. The FMA does not approve every appointment, and a financial advice provider licence is not a prerequisite for a chief executive role. Treating the matter as purely internal ignores the regulatory expectation.

Question 31Financial Markets Conduct Act 2013 and fair dealing

Under the Financial Markets Conduct Act 2013, which conduct in relation to a financial product is expressly prohibited by the fair dealing provisions dealing with misleading or deceptive conduct?

  1. Conduct that merely produces a lower return than a competitor's product
  2. Conduct that is misleading or deceptive or likely to mislead or deceive in relation to a financial product or financial service Correct answer.
  3. Conduct that offers a discount to wholesale investors only
  4. Conduct that changes an interest rate without prior written notice

Explanation

The fair dealing provisions prohibit a person from engaging in conduct, in trade, that is misleading or deceptive or likely to mislead or deceive in relation to a financial product or financial service. The test focuses on the impression created, not on whether anyone actually relied on it. Price, return or notice issues are governed by other rules and are not themselves the misleading conduct prohibition.

Question 32Financial Markets Conduct Act 2013 and fair dealing

The fair dealing prohibitions in the Financial Markets Conduct Act 2013 apply to conduct engaged in by a person in which context?

  1. Only conduct occurring on a licensed exchange's trading platform
  2. Only conduct by entities holding a market services licence
  3. Conduct in trade, in relation to financial products or financial services Correct answer.
  4. Only conduct involving retail investors resident in New Zealand

Explanation

The fair dealing provisions are framed around conduct 'in trade' in relation to financial products or financial services, so they are not confined to licensed market participants or to a particular trading venue. This broad framing captures issuers, advisers, dealers and others acting in trade. Investor residency is not the trigger for the prohibition.

Question 33Financial Markets Conduct Act 2013 and fair dealing

A dealer makes false statements about a financial product's risks in a promotional email. Which fair dealing prohibition is most directly engaged?

  1. The prohibition on offering unsolicited credit
  2. The prohibition on insider trading
  3. The prohibition on misleading or deceptive conduct Correct answer.
  4. The prohibition on operating an unregistered managed investment scheme

Explanation

False statements about a product's risks in a promotion are a classic example of misleading or deceptive conduct in relation to a financial product. Insider trading concerns trading while in possession of material non-public information, and the other options concern unrelated regulatory regimes. The key is that the representation creates a misleading impression about the product.

Question 34Financial Markets Conduct Act 2013 and fair dealing

Which statement best describes the prohibition on false or misleading representations under the fair dealing provisions of the Financial Markets Conduct Act 2013?

  1. It applies only to written representations in a product disclosure statement
  2. It applies only where an investor can prove financial loss
  3. It applies only to representations made by licensed dealers
  4. It applies to representations about the nature, characteristics, suitability or quantity of financial products or services Correct answer.

Explanation

The false or misleading representations prohibition targets representations about matters such as the nature, characteristics, suitability for purpose or quantity of financial products or services. It is not confined to disclosure statements, to licensed dealers or to cases where loss is proven. The focus is on the making of the false or misleading representation in trade.

Question 35Financial Markets Conduct Act 2013 and fair dealing

A dealer's advertisement states that an investment is 'capital guaranteed' when no guarantee exists. Which fair dealing prohibition is engaged?

  1. The prohibition on false or misleading representations Correct answer.
  2. The prohibition on providing custodial services without a licence
  3. The prohibition on insider trading
  4. The prohibition on market manipulation

Explanation

A claim that an investment is capital guaranteed when no guarantee exists is a false or misleading representation about the nature or characteristics of the product. Market manipulation concerns distorting the market price or trading volume, which is not what is described. Custodial licensing and insider trading are separate regimes.

Question 36Financial Markets Conduct Act 2013 and fair dealing

The fair dealing provisions of the Financial Markets Conduct Act 2013 are enforced by which regulator?

  1. The Reserve Bank of New Zealand
  2. The Financial Markets Authority Correct answer.
  3. The Commerce Commission alone
  4. The Ministry of Business, Innovation and Employment

Explanation

The Financial Markets Authority is the principal regulator for the fair dealing provisions under the Financial Markets Conduct Act 2013. The Reserve Bank has a prudential role for banks and insurers, and the Commerce Commission enforces the Fair Trading Act. The Ministry of Business, Innovation and Employment is a policy ministry rather than the market conduct regulator.

Question 37Financial Markets Conduct Act 2013 and fair dealing

Which of the following is a recognised purpose of the fair dealing provisions in the Financial Markets Conduct Act 2013?

  1. To guarantee investors a minimum investment return
  2. To set the official cash rate
  3. To promote fair, efficient and transparent financial markets and confident participation Correct answer.
  4. To replace the Companies Act 1993 entirely

Explanation

The FMC Act's purposes include promoting fair, efficient and transparent financial markets and promoting confident and informed participation in those markets. The Act does not guarantee investment returns, set monetary policy, or replace the Companies Act. The fair dealing provisions support market integrity and investor confidence.

Question 38Financial Markets Conduct Act 2013 and fair dealing

A dealer tells a client that a product is 'suitable for retirees seeking certainty' when the product carries significant market risk. Which fair dealing prohibition is most directly engaged?

  1. The prohibition on breach of a disclosure obligation for a takeover notice
  2. The prohibition on operating a financial markets infrastructure
  3. The prohibition on insider trading
  4. The prohibition on representations about suitability for a purpose Correct answer.

Explanation

The false or misleading representations prohibition expressly covers representations about suitability for a purpose. Describing a high-risk product as suitable for retirees seeking certainty creates a misleading impression about suitability. The other options concern unrelated regimes such as insider trading, market infrastructure and takeover disclosures.

Question 39Financial Markets Conduct Act 2013 and fair dealing

Which statement correctly describes the relationship between the fair dealing provisions and the Fair Trading Act 2013?

  1. The Fair Trading Act 2013 repealed the fair dealing provisions
  2. The fair dealing provisions and the Fair Trading Act 2013 can both apply to the same conduct Correct answer.
  3. The Fair Trading Act 2013 applies only to goods and never to financial services
  4. The fair dealing provisions apply only where the Fair Trading Act 2013 does not

Explanation

The fair dealing provisions and the Fair Trading Act 2013 contain overlapping but distinct prohibitions, and the same conduct can contravene both. The FMC Act does not displace the Fair Trading Act, nor does the Fair Trading Act exclude financial services. Regulators may coordinate where conduct falls under both regimes.

Question 40Financial Markets Conduct Act 2013 and fair dealing

A dealer spreads a false rumour about a listed issuer to move the share price before selling its own holding. Which fair dealing prohibition is most directly engaged?

  1. The prohibition on providing a financial advice service without a licence
  2. The prohibition on false or misleading representations about the nature of a product
  3. The prohibition on offering financial products without a disclosure document
  4. The prohibition on market manipulation Correct answer.

Explanation

Conduct that creates a false or misleading appearance of active trading or affects the market price through artificial means constitutes market manipulation. Spreading a false rumour to move the price before selling fits that prohibition. The other options concern product representations, disclosure and advice licensing rather than distorting the market.

Question 41Financial Markets Conduct Act 2013 and fair dealing

Which conduct is prohibited as market manipulation under the Financial Markets Conduct Act 2013?

  1. Entering into transactions that create a false or misleading appearance of active trading in a financial product Correct answer.
  2. Publishing audited financial statements that show a loss
  3. Publishing an honest research report that recommends selling a stock
  4. Declining to trade because of an internal compliance restriction

Explanation

Market manipulation includes entering into transactions or placing orders that create a false or misleading appearance of active trading or that set an artificial price. Honest research, a decision not to trade for compliance reasons, and accurate financial reporting are not manipulation. The prohibition targets conduct that distorts the market's appearance or price.

Question 42Financial Markets Conduct Act 2013 and fair dealing

A dealer makes a representation about a financial product that is literally true but, through omission of a material fact, creates an overall misleading impression. How is this treated under the fair dealing provisions?

  1. It is permitted only if the product disclosure statement contains the omitted fact elsewhere
  2. It is permitted because omissions are outside the fair dealing provisions
  3. It can be misleading or deceptive conduct because the overall impression matters Correct answer.
  4. It is permitted because every stated fact is accurate

Explanation

The misleading or deceptive conduct prohibition looks at the overall impression created, so a literally true statement can still mislead if a material fact is omitted. The presence of information elsewhere does not automatically cure a misleading promotional impression. The provisions are not confined to positive misstatements.

Question 43Financial Markets Conduct Act 2013 and fair dealing

Which statement about the prohibition on misleading or deceptive conduct is correct?

  1. A person must have suffered loss before the prohibition is breached
  2. The prohibition applies only to statements made orally
  3. Intent to mislead is an essential element of the prohibition
  4. It is irrelevant whether the conduct actually deceived any particular investor Correct answer.

Explanation

The prohibition is concerned with conduct that is misleading or deceptive or likely to mislead or deceive; it is not necessary to show that a particular investor was actually deceived. Intention to mislead is not an essential element, and proof of loss is not required to establish a breach. The prohibition is not limited to oral statements.

Question 44Financial Markets Conduct Act 2013 and fair dealing

A dealer tells a client that a bond is 'government guaranteed' when it is issued by a private company. The client relies on this and invests. Which fair dealing prohibition is most directly engaged?

  1. The prohibition on false or misleading representations about the nature of a financial product Correct answer.
  2. The prohibition on failing to keep proper client money records
  3. The prohibition on insider trading
  4. The prohibition on operating a licensed market without authorisation

Explanation

A false claim that a private bond is government guaranteed misrepresents the nature and characteristics of the financial product. That falls squarely within the false or misleading representations prohibition. Insider trading, market licensing and client money record-keeping are separate obligations not engaged by this misstatement.

Question 45Financial Markets Conduct Act 2013 and fair dealing

Which of the following best explains why the fair dealing provisions target conduct that is 'likely to mislead or deceive' rather than only conduct that actually did so?

  1. To protect investors before harm occurs and to reflect the tendency of the conduct Correct answer.
  2. Because actual deception is impossible to prove in financial markets
  3. Because the Act only applies to prospective investors
  4. Because the regulator prefers to avoid evidence-based cases

Explanation

The 'likely to mislead or deceive' formulation allows intervention based on the tendency of conduct to mislead, protecting investors before harm crystallises. It does not mean actual deception is impossible to prove, nor does it limit the Act to prospective investors. The standard reflects a preventive, conduct-focused approach.

Question 46Financial Markets Conduct Act 2013 and fair dealing

A dealer advises a client to roll over a fixed-term investment into a similar product just before maturity, without disclosing that the rollover triggers a new lock-in period and a reduced rate. Which fair dealing concern arises?

  1. Breach of the issuer's continuous disclosure obligations
  2. Misleading or deceptive conduct arising from a material omission in the recommendation Correct answer.
  3. Insider trading arising from the timing of the rollover
  4. Market manipulation arising from the rollover transaction

Explanation

A recommendation that omits material facts about a new lock-in period and a reduced rate can create a misleading impression and engage the misleading or deceptive conduct prohibition. The issue is the quality and completeness of the information given to the client. Insider trading, market manipulation and continuous disclosure concern different matters.

Question 47Financial Markets Conduct Act 2013 and fair dealing

Which statement about the prohibition on false or misleading representations is correct?

  1. It applies only to representations about price
  2. It applies only where the representation is in writing
  3. It applies to representations made in trade about financial products or services, whether express or implied Correct answer.
  4. It applies only to representations made to wholesale investors

Explanation

The prohibition covers false or misleading representations made in trade about financial products or services, and it can capture implied as well as express representations. It is not limited to price, to written form, or to wholesale investors. The focus is on the misleading character of the representation.

Question 48Financial Markets Conduct Act 2013 and fair dealing

A dealer firm discovers that a junior staff member has been making exaggerated claims about product performance to clients. Which response best reflects the firm's obligations under the fair dealing regime?

  1. Take steps to stop the conduct and correct any misleading impression created, and consider whether the conduct must be reported Correct answer.
  2. Wait until a client complains before acting
  3. Refer the matter to the Commerce Commission as the primary conduct regulator
  4. Continue the conduct but add a disclaimer to future marketing materials only

Explanation

A firm should act promptly to stop misleading conduct, correct the misleading impression and consider reporting obligations to the Financial Markets Authority. A disclaimer in future materials does not remedy past misleading claims. Waiting for a complaint or referring the matter to the Commerce Commission as the primary regulator does not discharge the firm's responsibilities.

Question 49Financial Markets Conduct Act 2013 and fair dealing

Which of the following is the best example of conduct that creates a false or misleading appearance of active trading?

  1. A dealer publishing a research note recommending a stock
  2. A dealer placing buy and sell orders in the same product with no genuine change in beneficial ownership to create the appearance of volume Correct answer.
  3. A dealer executing a large genuine client order in the ordinary course of business
  4. A dealer declining to quote a price in a volatile market

Explanation

Wash trading, where orders are entered with no genuine change in beneficial ownership to create apparent volume, is a classic form of conduct creating a false or misleading appearance of active trading. Genuine client orders, honest research and a decision not to quote are ordinary market conduct. The prohibition targets artificial appearance rather than genuine trading activity.

Question 50Financial Markets Conduct Act 2013 and fair dealing

Which statement correctly describes the territorial application of the fair dealing provisions?

  1. They apply only to conduct occurring wholly within New Zealand
  2. They can apply to conduct outside New Zealand where it has the required connection to New Zealand financial markets Correct answer.
  3. They apply only to New Zealand-incorporated entities
  4. They apply only to conduct involving New Zealand dollars

Explanation

The FMC Act's fair dealing provisions can have extraterritorial reach where conduct outside New Zealand has the required connection to New Zealand financial markets or products. The provisions are not confined to conduct occurring wholly in New Zealand, to New Zealand-incorporated entities or to New Zealand-dollar transactions. The connecting factors in the Act determine application.