LIBF CeMAP (Certificate in Mortgage Advice and Practice) — All Questions

FCA rules on whistleblowing encourage staff who have concerns about wrongdoing in their firm to:

• a.Raise concerns through the firm's internal channels and, if needed, directly with the regulator, with protection from detriment✓
• b.Say nothing to avoid trouble
• c.Post the concern on social media first
• d.Report the matter to the borrower's estate agent and to the seller's solicitor before raising it internally within the firm

The FCA's whistleblowing regime requires larger firms to have internal channels and a whistleblowers' champion, and protects staff who raise concerns in good faith. Workers can also report directly to the FCA or PRA; the Public Interest Disclosure Act 1998 protects them from detriment.

The regime that prohibits insider dealing and market manipulation in relation to financial instruments is broadly known as:

• a.The pre-action protocol
• b.The market abuse regime✓
• c.The Consumer Duty
• d.The threshold conditions

The market abuse regime (under the retained UK Market Abuse Regulation) prohibits insider dealing, unlawful disclosure of inside information and market manipulation. It is more relevant to investment markets than day-to-day mortgage advice, but it forms part of the broader regulatory framework.

Where a firm breaches FCA rules, the FCA's enforcement powers include:

• a.Ordering the borrower to move house
• b.Registering the property at HM Land Registry in the firm's own name until the regulatory breach has been fully remedied
• c.Imposing financial penalties, issuing public censures and withdrawing authorisation✓
• d.Setting the Bank of England Bank Rate

The FCA can take enforcement action including unlimited financial penalties, public censure, requiring restitution, varying or cancelling permissions, and banning individuals. These powers back up the Principles and detailed rules.

Under section 166 of FSMA 2000, the FCA may require a firm to commission a report from a:

• a.Property surveyor
• b.Member of the public
• c.A local estate agent, who inspects the firm's premises and reports on the market value of the properties it has lent against
• d.Skilled person, on a specified area of the firm's business, at the firm's expense✓

A section 166 'skilled person' report lets the FCA require an independent expert to examine an aspect of a firm's business (such as systems, past business or governance), usually at the firm's cost. It is a key supervisory tool.

Within the FCA Handbook, MCOB, ICOBS and COBS are examples of:

• a.High Level Standards such as the Principles for Businesses and the senior-management systems-and-controls requirements
• b.Redress schemes
• c.Business Standards (conduct) sourcebooks✓
• d.Threshold conditions

The FCA Handbook is arranged in blocks. High Level Standards include PRIN and SYSC; the Business Standards block contains conduct sourcebooks such as MCOB (mortgages), ICOBS (insurance) and COBS (investments). Redress includes DISP and the compensation rules.

The FCA's single strategic objective under FSMA 2000 is to:

• a.Guarantee continued house-price growth so that borrowers taking out mortgages never fall into negative equity during the term
• b.Maximise bank profits
• c.Set all interest rates
• d.Ensure that the relevant markets function well✓

The FCA's strategic objective is to ensure that the relevant financial markets function well. This is supported by its three operational objectives: consumer protection, market integrity and effective competition in the interests of consumers (FSMA 2000 ss.1B-1E).

The FCA's competition operational objective is concerned with:

• a.Eliminating all competition between lenders
• b.Setting a single national mortgage rate
• c.Guaranteeing every authorised firm an equal share of the market so that no single lender can ever dominate mortgage lending
• d.Promoting effective competition in the interests of consumers✓

One of the FCA's three operational objectives is to promote effective competition in the interests of consumers - for example through clear disclosure and low barriers to switching - alongside consumer protection and market integrity.

The FCA's 'market integrity' objective is aimed at:

• a.Ensuring lenders always make a profit
• b.Protecting and enhancing the integrity of the UK financial system, including its soundness and resilience✓
• c.Fixing property prices
• d.Restricting the total number of authorised mortgage advisers so that each remaining adviser can earn a reasonable living

The market integrity objective is about protecting and enhancing the integrity of the UK financial system - including its soundness, stability, resilience and the prevention of financial crime and market abuse. It sits alongside consumer protection and competition.

Under the Money Laundering Regulations 2017, enhanced due diligence must be applied when a customer is, for example:

• a.Any customer aged over 60
• b.A politically exposed person (PEP), or in another higher-risk situation✓
• c.A first-time buyer with a small deposit who is borrowing a high proportion of the property's value under a shared-ownership scheme
• d.A UK resident on a modest salary

Enhanced due diligence (EDD) is required in higher-risk situations - for instance dealing with a politically exposed person, a high-risk third country, or unusually complex or opaque transactions. EDD involves additional identity checks and closer scrutiny of the source of funds.

FCA rules require a mortgage firm to keep records of the advice it gives and the reasons for its recommendations. A key purpose of this is to:

• a.Increase the firm's marketing budget
• b.Demonstrate suitability and provide an audit trail if the advice is later questioned✓
• c.Set the customer's council tax band
• d.Register the mortgage and the accompanying legal charge at HM Land Registry within the deadline set out in the loan agreement

Record-keeping requirements (under MCOB and SYSC) mean firms must retain evidence of the customer's needs, the recommendation and why it was suitable. This supports the Consumer Duty, allows supervision, and provides an audit trail if a complaint or claim arises later.

A firm must manage conflicts of interest fairly. An example of a potential conflict in mortgage advice is:

• a.An adviser being paid a much larger procuration fee for recommending one particular lender✓
• b.An adviser checking the customer's identity
• c.An adviser explaining the ESIS
• d.An adviser assessing the customer's income and committed expenditure in order to carry out the required affordability check

A conflict of interest arises where the adviser's own interest (for example a higher commission or procuration fee from a particular lender) could influence the advice against the customer's interests. Firms must identify, manage and, where necessary, disclose such conflicts, consistent with the Consumer Duty and Principle 8.

MCOB and the Consumer Duty require that the way a mortgage adviser is remunerated must:

• a.Be set by the borrower
• b.Be paid only in cash
• c.Always be hidden from the customer, since disclosing how the adviser is paid might discourage the customer from proceeding
• d.Not incentivise the adviser to act against the customer's interests, and relevant fees must be disclosed✓

Remuneration and incentives must not encourage advisers to recommend unsuitable products or otherwise harm customers, and the basis of remuneration (including any customer-paid fees) must be disclosed at the outset. Poorly designed incentives are a recognised driver of mis-selling.

Under the Senior Managers Regime, each Senior Manager must have a document setting out the areas of the business for which they are personally responsible. This document is the:

• a.Mortgage deed
• b.European Standardised Information Sheet
• c.Land certificate
• d.Statement of Responsibilities✓

Each Senior Manager must have a Statement of Responsibilities describing what they are accountable for. Larger firms must also maintain a 'Responsibilities Map'. These support individual accountability under the SM&CR.

Authorised firms submit regulatory returns and data to the FCA through its data-collection platform, which is called:

• a.The Land Register
• b.The Financial Ombudsman Service case-management system, through which firms file both their regulatory returns and complaint data
• c.The ESIS portal
• d.RegData (which replaced the earlier Gabriel system)✓

Firms must submit periodic regulatory returns to the FCA. These are filed through RegData, which replaced the previous 'Gabriel' system. Accurate and timely regulatory reporting is a supervisory requirement.

The FCA's DISP rules require firms not only to resolve individual complaints but also to:

• a.Refuse to record any complaints
• b.Analyse the root causes of complaints and take action to prevent recurrence✓
• c.Refer every complaint straight to the police for investigation, whether or not any criminal conduct is actually suspected
• d.Publish customers' personal details

DISP requires firms to identify and remedy any recurring or systemic problems - carrying out 'root cause' analysis - so that lessons from complaints improve future outcomes. Firms must also report complaints data to the FCA.

The 'duty of responsibility' under the SM&CR means that a Senior Manager can be held accountable if:

• a.House prices fall
• b.A regulatory breach occurs in their area of responsibility and they did not take reasonable steps to prevent it✓
• c.A rival firm is fined
• d.Any customer complains about the level of interest rates, even where the firm has fully complied with all of the relevant rules

Under the duty of responsibility, a Senior Manager can face action if a breach occurs in the area they are responsible for and they failed to take the steps a reasonable person in their position would have taken to prevent it. This sharpens individual accountability.

The FCA has powers to intervene in relation to specific products where they may cause consumer harm. These are known as its:

• a.Deposit-taking powers
• b.Product intervention powers✓
• c.Conveyancing powers
• d.Land-charge powers

The FCA has product intervention powers under FSMA (as amended) allowing it to restrict or ban the sale of products, or particular features, that risk consumer harm - for example by making temporary product intervention rules. This is part of its more forward-looking, preventive approach.

A person who carries on regulated mortgage activities without authorisation or exemption commits:

• a.A civil matter dealt with by HM Land Registry
• b.A minor administrative slip with no real consequences, provided the firm applies for authorisation shortly after it is discovered
• c.A breach that only the FOS can address
• d.A criminal offence, and may face prosecution as well as their agreements being unenforceable✓

Breaching the general prohibition (FSMA 2000 s.19) is a criminal offence punishable by fine and/or imprisonment, and resulting agreements are generally unenforceable against the customer. This deters unauthorised business.

A landlord takes out a loan, secured on a property, purely as a business investment to let to unconnected tenants. This 'pure' buy-to-let mortgage is generally:

• a.Always a regulated mortgage contract falling within MCOB, because the loan is secured by a legal charge over residential land
• b.Regulated only by HM Land Registry
• c.Banned
• d.Outside the FCA's regulated-mortgage regime (a business, not a consumer, transaction)✓

Most buy-to-let lending to professional/business landlords is not a regulated mortgage contract and falls outside MCOB, because the property is not occupied by the borrower or a related person. Many lenders nonetheless apply voluntary standards, and 'consumer buy-to-let' is separately regulated.

An 'accidental landlord' who did not enter into a buy-to-let for business purposes (for example someone letting an inherited home) may be dealt with under the:

• a.Consumer buy-to-let (CBTL) regime introduced by the Mortgage Credit Directive✓
• b.The standard security regime that applies to heritable property purchased and let out to tenants in Scotland by an individual
• c.Land Charges regime
• d.Bribery Act 2010

The Mortgage Credit Directive created a distinct 'consumer buy-to-let' regime for borrowers who are not acting mainly for business purposes. CBTL firms must register with the FCA and follow specific conduct requirements, giving these consumers extra protection.

An unauthorised business wishes to issue a financial promotion about a mortgage-related product. Lawfully, the promotion must generally be:

• a.Approved by the local council
• b.Approved by HM Land Registry
• c.Approved by an authorised person with the relevant permission, unless an exemption applies✓
• d.Approved by the borrower's own solicitor, who confirms in writing that the promotion is clear, fair and not misleading

Under FSMA 2000 s.21, an unauthorised person's financial promotion must be approved by an authorised firm (which must hold the appropriate promotion-approval permission) unless an exemption applies. Issuing an unapproved, non-exempt promotion is a criminal offence.

The FCA's guidance that helps firms decide whether their activities fall within the scope of regulation (the regulatory 'perimeter') is called:

• a.The title register held at HM Land Registry, which records who owns the land and the mortgages and burdens affecting it
• b.The ESIS
• c.The Perimeter Guidance Manual (PERG)✓
• d.The mortgage deed

The Perimeter Guidance Manual (PERG) helps firms work out whether what they do amounts to a regulated activity requiring authorisation. Getting the perimeter question wrong risks breaching the general prohibition, so PERG is an important reference.

The essential difference between the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) is that:

• a.The FOS resolves disputes with firms that are still trading, while the FSCS pays compensation when an authorised firm has failed✓
• b.They are two names for the same body
• c.The FOS pays out only when firms are insolvent
• d.The FSCS settles day-to-day disputes with firms that are still solvent, while the FOS pays compensation only once a firm has failed

The FOS is the free dispute-resolution service for complaints against firms that are still in business; the FSCS is the compensation scheme of last resort that pays eligible claimants when an authorised firm has become insolvent and cannot meet claims. Candidates must not confuse the two.

Principle 1 of the FCA's Principles for Businesses requires that a firm must:

• a.Register all clients with the ICO
• b.Maximise procuration fees
• c.Lend only on a repayment basis
• d.Conduct its business with integrity✓

Principle 1 is that a firm must conduct its business with integrity. Along with the other Principles (such as skill/care/diligence, financial prudence, and customers' interests), it sets the fundamental standards expected of all authorised firms.

Under the Consumer Duty, Principle 12 requires a firm to:

• a.Act to deliver good outcomes for retail customers✓
• b.Maximise shareholder returns above all else
• c.Treat retail and wholesale clients in exactly the same way, applying identical disclosure and suitability standards to each
• d.Advise only first-time buyers

Principle 12 - the Consumer Duty principle - requires firms to act to deliver good outcomes for retail customers. It applies instead of Principles 6 and 7 for business within its scope and sets a higher standard than the earlier TCF framework.

Under the UK GDPR, where a personal data breach is likely to result in a risk to individuals' rights and freedoms, the firm must generally notify the ICO:

• a.Never
• b.Within one year
• c.Only if a customer specifically complains that their data has been lost, and then only after the firm's own investigation is complete
• d.Without undue delay and, where feasible, within 72 hours of becoming aware of it✓

The UK GDPR requires firms to report a notifiable personal data breach to the ICO without undue delay and, where feasible, within 72 hours of becoming aware of it. Where the risk to individuals is high, the affected individuals must also be told.