Conduct of Business Quiz

Comprehensive quiz covering FCA Conduct of Business rules, client categorization, suitability requirements, financial promotions, and mortgage conduct standards.

Topics Covered: COBS rules, client categorization (retail, professional, eligible counterparty), independent vs restricted advice, execution-only business, financial promotions, suitability reports, cooling-off periods, MCOB requirements, and mortgage conduct standards.

This quiz is specifically designed for financial advisers, compliance professionals, mortgage advisors, and individuals preparing for regulatory compliance examinations.

Conduct of Business Quiz

1. What is the primary purpose of the FCA's Conduct of Business Sourcebook (COBS)?

A. To regulate how firms advertise and brand their products
B. To ensure the fair treatment of insurance policyholders
C. To ensure customers receive clear, accurate, and fair information
D. To supervise how banks maintain capital reserves

2. Which of the following client categories receives the highest level of investor protection under COBS?

A. Professional clients
B. Institutional investors
C. Eligible counterparties
D. Retail clients

3. What is the primary difference between independent and restricted advisers?

A. Restricted advisers can advise on every financial product but only from high street banks
B. Independent advisers must assess a sufficient range of diverse and relevant products
C. Independent advisers can only recommend products from their own firm's panel
D. Restricted advisers cannot offer pension advice at all

4. What is the definition of execution-only business under the FCA?

A. A sale made after giving full suitability advice
B. A transaction where the firm provides guidance but not recommendations
C. A transaction where the firm checks the product is appropriate for the client
D. A transaction executed on a client's specific instruction without giving advice

5. Which of the following is a requirement for financial promotions to retail clients?

A. They must mainly highlight potential gains to attract attention
B. They must be understandable by an average member of the target group
C. They must avoid mentioning the conduct regulator (FCA)
D. They must present past performance as the most prominent feature

6. What is the purpose of the appropriateness test in execution-only business?

A. To assess the client's budget and cash flow
B. To ensure the client is offered the cheapest possible product
C. To ensure the client has the necessary knowledge and experience to understand the risks
D. To guarantee the client receives maximum investor protection

7. Which of the following is a key requirement for past performance information in financial promotions?

A. It must be shown for less than one year to keep it relevant
B. It must be the boldest and most eye-catching part of the promotion
C. It must be omitted if promoting complex products
D. It must include a warning that past performance is not necessarily a reliable indicator of future results

8. What is the purpose of the suitability report required under COBS?

A. To provide a summary of the client's financial situation and the rationale for the advice given
B. To showcase the firm's business development strategy
C. To justify the adviser's commission arrangements
D. To guarantee the client's investments will be profitable

9. Which of the following is a key requirement for unsolicited financial promotions?

A. They can be at any time of day
B. They must never reference the FCA's name
C. They must only be made at an appropriate time of the day
D. They must focus on investment performance to entice clients

10. Which client category receives the lowest level of investor protection under COBS?

A. Retail clients
B. Eligible counterparties
C. Elective professional clients
D. Professional clients

11. What must an independent adviser assess when making recommendations?

A. Only products from providers the adviser has worked with before
B. A sufficient range of diverse and relevant market products
C. Exclusively products offering the highest commission rates
D. A narrow panel of pre-approved options set by the firm

12. Execution-only business is defined as:

A. A transaction where the adviser recommends a product but without paperwork
B. A transaction requiring the FCA's prior written approval
C. A transaction where the client gives specific instructions without receiving advice
D. A sale that automatically assumes the product is appropriate

13. In execution-only business, when is a firm required to conduct an appropriateness test?

A. For all retail client transactions, regardless of product type
B. Whenever a client declines to read the product literature
C. Only when dealing with complex products like derivatives
D. Never as execution-only means no checks are required

14. Since 2013, how must investment advisers typically charge for their services?

A. Solely through commissions from product providers
B. By taking a cut of any investment profits made
C. Through undisclosed mark-ups embedded in product costs
D. Via adviser charges agreed with the client

15. The ban on commission for investment advice was introduced to prevent:

A. Firms from offering execution-only services
B. Advisers from being influenced by provider incentives
C. The FCA from setting minimum adviser fees
D. Clients from paying VAT on advice

16. A suitability report must include:

A. A summary of the client's needs and the rationale for the recommendation
B. Evidence that the chosen product will outperform the market
C. The adviser's personal investment portfolio
D. Every product the adviser considered but rejected

17. When must a suitability report be provided to the client?

A. Only if the client makes a written request
B. After the cooling-off period has ended
C. Annually, as part of an account statement
D. At the same time as the personal recommendation

18. What is the primary purpose of a cooling-off period?

A. To allow firms time to allocate the investment internally
B. To give clients time to reconsider a purchase without penalty
C. To comply with tax reporting obligations
D. To allow products to mature before withdrawal

19. For most retail financial products, the standard cooling-off period is:

A. 30 days
B. 14 days
C. 10 days
D. 7 days

20. What must a firm disclose to clients before providing services?

A. Predicted annual growth rates for their portfolio
B. Its FCA registration number only
C. Its charges, conflicts of interest, and complaints procedure
D. The qualifications of staff members

21. The FCA's enforcement powers include:

A. Imposing fines and banning individuals from the industry
B. Controlling the Bank of England's base rate
C. Offering compensation directly to investors
D. Amending Acts of Parliament

22. The Financial Ombudsman Service can:

A. Suspend a firm's FCA authorisation
B. Award compensation to consumers for poor advice
C. Prosecute firms for criminal offences
D. Set maximum adviser charging rates

23. Under FCA rules, a complaint is defined as:

A. Any oral or written expression of dissatisfaction about a financial service
B. Only written complaints submitted via official forms
C. Issues raised only by retail clients
D. Formal lawsuits filed in court

24. The maximum time limit for providing a final response to most complaints is:

A. 12 weeks, unless the client escalates to the Ombudsman
B. 6 months, in line with statutory limitation periods
C. 4 weeks, extended only for complex cases
D. 8 weeks

25. How long must firms typically retain records of retail client transactions?

A. 7 years for all types of client transactions
B. 5 years
C. 1 year, unless the client is a retail investor
D. 3 years for standard investment products

26. What is the primary purpose of the FCA's Mortgages and Home Finance: Conduct of Business sourcebook?

A. To set marketing quotas for mortgage lenders to ensure competition
B. To require lenders to prioritise products with the lowest headline rate
C. To ensure fair treatment of customers in mortgage transactions
D. To allow lenders to approve mortgages without credit verification

27. What is the definition of a regulated mortgage contract under MCOB?

A. A contract where the borrower can choose to skip repayments without penalty
B. A contract where the borrower's repayment obligation is secured on land used as a dwelling
C. A contract where the lender requires offering of specialist appointments
D. A contract where the property is always a buy-to-let investment

28. What is the primary purpose of the European Standardised Information Sheet under MCOB?

A. To provide the borrower with the lender's marketing brochure
B. To serve as a credit score report for the borrower
C. To confirm mortgage funds have been released to the seller
D. To disclose standardised mortgage information before an application is submitted

29. What is the minimum reflection period that must be granted to a borrower after a mortgage offer is made?

A. 7 days
B. 10 days
C. 3 days including weekends
D. Until the property survey is complete

30. What is the primary requirement for lenders under MCOB's responsible lending rules?

A. They must offer the mortgage product with the lowest arrangement fee
B. They must prevent cases of mortgage prisoners
C. They must ensure the borrower has a credible repayment strategy for interest-only mortgages
D. They must only provide products from their own in-house range

31. What is the key requirement for lenders when dealing with borrowers in arrears under MCOB?

A. They must try to reach an agreement on how to repay the arrears
B. They must increase the interest rate to recover losses faster
C. They must initiate repossession proceedings if a payment is missed
D. They must restrict the borrower's ability to refinance

32. What is the key requirement for lenders when providing equity release advice under MCOB?

A. They must ensure the loan is repaid within five years
B. They must guarantee that the loan will be the cheapest on the market
C. They must provide equity release only to borrowers under 85
D. They must hold a specialist qualification in equity release

33. What must lenders consider when assessing responsible lending?

A. The property's susceptibility to mould
B. The borrower's ability to repay
C. The popularity of the location with estate agents
D. Whether the borrower has applied with multiple lenders

34. Which of these is not a valid execution-only customer category?

A. High-net-worth individuals
B. Business borrowers
C. First-time buyers
D. Mortgage professionals

35. What is required for lifetime mortgage advice?

A. No specific qualifications if you have over 10 years' experience
B. Specialist equity release qualification
C. CEMAP or equivalent
D. A banking licence approved by the PRA

36. How must early repayment charges be calculated?

A. On any mortgage overpayment
B. As a percentage of the property's current market value
C. As a multiple of the monthly interest payment
D. Based on the lender's actual costs

37. What must lenders do before repossessing a property?

A. Wait a fixed minimum of 12 months after arrears begin
B. Offer to refinance the mortgage at a higher rate
C. Exhaust other reasonable measures
D. Sell overleveraged debt

38. Which activity is permitted under MCOB's arrears rules?

A. Offering a payment holiday without assessing affordability
B. Charging reasonable admin costs
C. Applying daily penalty interest
D. Threatening repossession on a missed payment

39. What is required when recommending mortgage products?

A. Suitability for customer needs
B. Selecting the lender's preferred product
C. Always choosing the cheapest interest rate
D. Matching the adviser's sales target

40. What special requirement applies to equity release advisers under MCOB?

A. They must work exclusively for one provider
B. They must provide execution-only advice on request
C. They must hold a specialist equity release qualification
D. They must be licensed by the local authority

41. How often must lenders contact interest-only mortgage borrowers about their repayment strategy?

A. Once every five years, then annually when 5 years remaining on the term
B. Every year
C. Every five years
D. At least once during the mortgage term

42. What must be disclosed in the initial contact with a mortgage customer?

A. The adviser's commission split
B. Details of the compensation scheme
C. Marketing budget for the lender
D. Fees charged by competitor lenders

43. What is the maximum permitted early repayment charge under MCOB?

A. 10% of the total property value
B. No statutory cap
C. 5% of the outstanding balance
D. A reasonable approximation of the lender's actual costs

44. Which of these customers must be given advice rather than execution-only service?

A. Right-to-Buy purchasers
B. Those porting a mortgage
C. Those applying for a new product
D. Company directors with buy-to-let mortgages

45. What is the purpose of the APRC disclosure?

A. To show the lender's year-end profits
B. To show the total interest rate including fees
C. To calculate adviser bonus entitlement
D. To display monthly cost for the mortgage

46. Which activity is permitted under MCOB's arrears rules?

A. Charging unlimited daily penalties
B. Initiating repossession without notice
C. Charging reasonable admin costs
D. Separating arrears from the overall mortgage balance

47. What must be disclosed about adviser remuneration?

A. Exact commission amount per lender
B. General information about the fees charged
C. Monthly salary and bonuses
D. Historic fees for comparison

48. The European Standardised Information Sheet must be provided:

A. In good time before signing
B. Only after completion
C. With the lender's annual financial report
D. Within 30 days of application

49. What must be verified for interest-only mortgages?

A. A credible, documented repayment strategy
B. That future house price growth will clear the balance
C. If the borrower can switch to repayment at any time
D.If an automatic remortgage will be available at term end

50. When recommending mortgage products, what must be prioritised?

A. The lowest initial interest rate
B. The lender's retention rate
C. Suitability to the customer's needs and circumstances
D. The cheapest product