CeMAP Module I 3

Question 1

What is the role of the Prudential Regulation Authority (PRA) in regulating building societies?

Accepted Answer

The PRA sets prudential standards for building societies including capital requirements, liquidity rules, and governance standards to ensure their financial soundness

Answer

The PRA does not regulate building societies

Answer

The PRA only handles complaints about building societies

Answer

The PRA sets the interest rates building societies can offer

Question 2

What are the key features of the UK's deposit protection scheme for mortgage borrowers who also hold savings?

Accepted Answer

The FSCS protects eligible deposits up to £85,000 per person per authorised firm, which includes savings held with a mortgage lender

Answer

There is no deposit protection for mortgage holders

Answer

Deposits are only protected up to £5,000

Answer

Protection only applies to current accounts

Question 3

What is a retail distribution review and how has it affected the mortgage advice market?

Accepted Answer

The RDR reformed how financial advice is paid for and qualification requirements, influencing standards across financial services including mortgage advice

Answer

It is a review of shop locations for mortgage brokers

Answer

It only affected investment advice

Answer

It reduced the number of mortgage products available

Question 4

What is the significance of the Bank of England's stress testing for mortgage affordability?

Accepted Answer

Stress tests assess whether borrowers can afford mortgage payments if interest rates rise significantly, protecting against future payment shock

Answer

Stress tests only apply to commercial loans

Answer

Stress tests determine the maximum house price a borrower can pay

Answer

The Bank of England directly stress-tests individual borrowers

Question 5

What is demutualisation and why is it relevant to the mortgage market?

Accepted Answer

It is the conversion of a mutual building society into a shareholder-owned company, which can change the organisation's priorities and product range

Answer

It is the process of a bank merging with another bank

Answer

It means a lender stopping all mortgage lending

Answer

It only applies to credit unions

Question 6

What are the Conduct Rules under SM&CR and how do they apply to mortgage advisers?

Accepted Answer

They are basic standards of behaviour applying to almost all employees of regulated firms, including honesty, due skill, and proper standards of market conduct

Answer

They only apply to senior managers

Answer

They set the interest rates advisers can recommend

Answer

They only apply during the first year of employment