UK Financial Regulation Flashcards
7 cards from real CEMAP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 UK Financial Regulation flashcards as text
Under MCOB 11, what affordability assessment must a mortgage lender carry out before making a mortgage offer?
Answer: A stress test to verify the borrower can afford repayments if interest rates rise
MCOB 11 requires lenders to stress-test affordability, typically at a rate 3% above the reversion rate, to ensure borrowers can still afford payments if rates increase.
Which EU-derived directive, implemented in the UK in 2016, introduced new rules for mortgage advice and the European Standardised Information Sheet (ESIS)?
Answer: The Mortgage Credit Directive (MCD)
The Mortgage Credit Directive (MCD), implemented via the Mortgage Credit Directive Order 2016, standardised mortgage disclosure across Europe and introduced the ESIS.
A mortgage adviser refers a client to a solicitor in exchange for an undisclosed referral fee. Which regulatory requirement does this breach?
Answer: The requirement to disclose material conflicts of interest
Firms must disclose any material conflicts of interest, including referral fee arrangements, so clients can make informed decisions about the advice they receive.
What is the primary purpose of the Financial Services Compensation Scheme (FSCS) in relation to mortgage advice?
Answer: To compensate consumers when an authorised firm is unable to pay claims against it
The FSCS pays compensation to eligible claimants when an FCA-authorised firm cannot pay claims, with mortgage advice claims covered up to £85,000.
Under the Money Laundering Regulations 2017, when must a mortgage firm conduct Enhanced Due Diligence (EDD)?
Answer: When a customer or transaction presents a higher risk of money laundering
EDD must be applied in higher-risk scenarios, such as politically exposed persons (PEPs), complex ownership structures, or transactions from high-risk jurisdictions.
Which of the following is NOT a prescribed activity requiring FCA authorisation under the Financial Services and Markets Act 2000?
Answer: Providing a valuation on a mortgaged property
Property valuation for mortgage purposes is not a regulated activity under FSMA 2000; it is carried out by RICS-qualified surveyors under a separate professional framework.
What is the purpose of the FCA's 'fit and proper' test applied to individuals seeking authorisation?
Answer: To ensure individuals have appropriate honesty, integrity, competence, and financial soundness
The fit and proper test assesses honesty and integrity, competence and capability, and financial soundness to ensure regulated individuals are suitable to perform their roles.