R01 FCA powers, enforcement and market abuse: free practice questions

1. Question 1 of 5

   A business wants to carry on a regulated activity by way of business. What must it normally apply for?

   Option A: A Part 4A permission from the relevant regulatorOption B: Membership of the FOSOption C: A consumer credit licence from Trading StandardsOption D: A certificate from Companies House

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   The answer is A: A Part 4A permission from the relevant regulator

   Unless excluded or exempt, it must apply to the relevant regulator for Part 4A permission under FSMA. The PRA authorises deposit takers and insurers; the FCA authorises other firms.

   Why the other options are wrong

   B

   FOS coverage follows authorisation; it isn't the permission.

   C

   Consumer credit is now authorised by the FCA, not Trading Standards.

   D

   Company registration isn't authorisation to carry on regulated activities.

2. Question 2 of 5

   Which of these falls outside the FCA's regulatory scope?

   Option A: Advice on regulated mortgagesOption B: Advice on retail investmentsOption C: Consumer credit lending to individualsOption D: Occupational pension schemes

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   The answer is D: Occupational pension schemes

   Some financial services, such as occupational pension schemes (regulated by The Pensions Regulator), aren't regulated by the FCA. Arrangements like buy-to-let property clubs also fall outside its scope.

   Why the other options are wrong

   A

   Mortgage advice is FCA-regulated.

   B

   Investment advice is FCA-regulated.

   C

   Consumer credit is FCA-regulated.

3. Question 3 of 5

   What is a section 166 report?

   Option A: An insurer's annual solvency return made to the PRAOption B: A firm's half-yearly return of complaints to the FCAOption C: The FCA's annual report to Parliament on its objectivesOption D: A skilled person's report on aspects of a firm's compliance

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   The answer is D: A skilled person's report on aspects of a firm's compliance

   Under s.166 FSMA the FCA can require a skilled person to report on aspects of a firm's compliance, for diagnostic, monitoring, preventative or remedial purposes.

   Why the other options are wrong

   A

   Solvency returns are separate prudential reporting.

   B

   Complaints returns are separate regulatory reporting.

   C

   The annual report to Parliament isn't a s.166 report.

4. Question 4 of 5

   What is the purpose of an injunction obtained by the FCA?

   Option A: To wind up a firm that is insolvent or trading unlawfullyOption B: To compensate the victims of misconduct for their past lossesOption C: To fine a firm for breaches that have already happenedOption D: To stop a person continuing or repeating certain misconduct

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   The answer is D: To stop a person continuing or repeating certain misconduct

   Injunctions are forward-looking orders stopping misconduct such as unauthorised business, misleading statements, unlawful promotions or market abuse. Restitution orders deal with profits and losses.

   Why the other options are wrong

   A

   Winding-up is an insolvency order.

   B

   Compensation for past loss comes from restitution orders.

   C

   Fines are imposed through the disciplinary process.

5. Question 5 of 5

   A director tells a friend about an unannounced takeover before it's made public. Which type of market abuse is this?

   Option A: Misleading behaviour and distortionOption B: Manipulating devicesOption C: Unlawful disclosureOption D: Dissemination

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   The answer is C: Unlawful disclosure

   An insider improperly disclosing inside information to another person is unlawful disclosure. If the friend then trades on it, that would be insider dealing.

   Why the other options are wrong

   A

   Misleading behaviour creates false impressions of supply or demand.

   B

   Manipulating devices involves fictitious devices or deception in trading.

   D

   Dissemination is spreading false information, not true inside information.

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