Free CISI UK Financial Regulation practice questions

Not quite. The answer is A.

A firm becomes an authorised person when the FCA or the PRA grants it permission to carry on particular regulated activities, known as a Part 4A permission. Holding that permission allows the firm to carry on the activities specified in it without breaching the general prohibition. An appointed representative is exempt rather than authorised, since it acts under a contract with an authorised principal who takes responsibility for its regulated activity. Investment exchanges are recognised rather than authorised, and the bodies listed in the Treasury exemption order, such as central banks and local authorities, are exempt from the need for permission.

Not quite. The answer is C.

The suitability rules apply when a firm makes a personal recommendation relating to designated investments, when it manages investments on behalf of a retail client and when it manages the assets of an occupational, stakeholder or personal pension scheme. Managing a retail client's investments under a mandate therefore sits squarely inside the rules. Arranging deals in warrants for retail clients responding to a direct offer financial promotion triggers the appropriateness rules for non-advised business instead. An order executed at the client's own initiative in a non-complex instrument is the execution-only case, where the firm need neither assess appropriateness nor assess suitability. Communicating a financial promotion engages the requirement for communications to be fair, clear and not misleading, which is a separate part of the sourcebook.

Not quite. The answer is C.

Where satisfactory verification of identity cannot be obtained, the business relationship should not go ahead, and the firm should also consider whether the failure itself gives grounds for a report to the National Crime Agency. Enhanced due diligence belongs to the situations of higher risk set out in the regulations, such as dealings with a politically exposed person or a high-risk third country, and it is a way of continuing a relationship rather than a reason to decline one. Simplified due diligence runs in the opposite direction and is available only for lower-risk cases such as listed companies and UK public authorities. Reliance on identification checks carried out by other regulated firms is permitted by the guidance, but it presupposes checks that have actually succeeded somewhere. An unverified customer leaves nothing on which any of those measures can rest.

Not quite. The answer is D.

The Act gives consumers statutory rights when they contract for goods, digital content or services, and it gives them statutory remedies where those rights are breached. The remedies are therefore what the Act gives consumers beside the rights themselves. Unfair terms in consumer contracts are the subject of the reform in the second part of the Act, not something given to consumers. Investigatory powers for consumer law enforcers sit among the general provisions in the third part and are given to enforcers, not to consumers. Contracts for the supply of services describe where the statutory rights arise, not what the Act gives.

Not quite. The answer is B.

The regime was introduced after the banking crisis to build an accountability framework focused on senior management, and the Senior Managers Regime places personal responsibility on the most senior individuals for the parts of the business they run. Each senior manager has a statement of responsibilities setting out the aspects of the affairs of the firm that person is responsible for managing. A senior manager is guilty of misconduct only where the regulator can show a failure to take reasonable steps to prevent a breach, so accountability for every breach overstates the duty. Obtaining a regulatory reference from previous employers is a step the firm must take before it applies for approval rather than the purpose of the regime. Assessing honesty, integrity, competence, capability and financial soundness is what the fit and proper test consists of.

Not quite. The answer is C.

A client agreement is the written basic agreement setting out the essential rights and obligations of the firm and the client, and its terms must reach the client in good time before the client is bound by it or before investment services begin, whichever is earlier. Providing them that early is what allows the client to weigh those rights and obligations while there is still a choice about entering the relationship. Information on the nature and risks of a service and its investments is given for a different reason, which is to support investment decisions taken on an informed basis. An appropriateness assessment is a judgement the firm makes about the client and is not an outcome the agreement terms are meant to deliver. Disclosure of costs, charges and execution venues supports comparison of the dealing service and sits outside the purpose of the agreement itself.

Not quite. The answer is C.

The price stabilising rules in the Market Conduct Sourcebook allow a stabilising manager and its agents to support the price of a new issue by buying in the secondary market for a limited period after issue. Conformity with those rules is itself the defence against allegations of insider dealing or price manipulation. Consent from the issuer has no bearing on the availability of that protection, which depends on how the support operation is conducted. The rules require disclosure to investors considering the stabilised security and restrict the operation to a set period, rather than any advance clearance by the regulator. The control of information rules are a separate defence, covering statements made on limited information held behind information barriers.

Not quite. The answer is D.

The Consumer Awareness Rules require firms to publish summary details of their internal process for resolving complaints and of the right of eligible complainants to take an unresolved complaint to the Financial Ombudsman Service. Those summary details must be supplied in writing on request at any time and whenever a complaint is acknowledged. The complaints return is data reported to the Financial Conduct Authority rather than material handed to a complainant. A summary resolution communication is used only where a complaint has been resolved by the close of the third business day after receipt. The Financial Ombudsman Service leaflet accompanies the final response or the written response that follows the eight week deadline.

Not quite. The answer is A.

HM Revenue & Customs is the primary revenue raising agency in the UK and has agreed with the FCA and the PRA that the three bodies will share information and expertise. The stated aim of that agreement is to improve their understanding of banks and of how banks respond to regulatory, tax and other changes. It also helps them identify significant issues undermining their objectives and act on those issues more quickly and on a more coordinated basis. HM Treasury is the department responsible for public finance and economic policy and for the financial services sector, and the FCA reports to it, but the information sharing agreement about banks and tax is with the revenue authority. The Bank of England works with HM Treasury and with other central banks to secure monetary and financial stability rather than under this agreement. The Competition and Markets Authority investigates mergers and enforces consumer protection legislation, and it is not a financial services body at all.

Not quite. The answer is C.

The periodic reporting rules place the duty on the firm providing investment management services, so the investment manager must send periodic statements to both retail and professional clients unless another party already provides them. The bank that holds client money owes duties under the client assets rules and has no reporting duty of this kind. A custodian safeguards assets and registers legal title, which is a different function from reporting on the management of a portfolio. The firm executing an order owes the confirmation duty for that transaction rather than the periodic reporting duty for the portfolio.