CeMAP UK Financial Services Regulation 2 — Questions and Answers
Question 1: What are the FCA's three operational objectives?
- Profitability, growth, and market share
- Consumer protection, market integrity, and promoting competition (Correct answer)
- Lending standards, deposit protection, and fraud prevention
- Banking supervision, insurance regulation, and investment oversight
Correct answer: Consumer protection, market integrity, and promoting competition
The FCA's three operational objectives are securing appropriate consumer protection, protecting and enhancing market integrity, and promoting effective competition.
Under the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012), the FCA has three operational objectives: (1) securing an appropriate degree of protection for consumers; (2) protecting and enhancing the integrity of the UK financial system; and (3) promoting effective competition in the interests of consumers. These sit alongside a strategic objective to ensure markets function well. The FCA pursues these through authorisation, supervision, enforcement, and rule-making. The PRA separately handles prudential regulation of banks, building societies, and insurers.
Question 2: What is the role of the Financial Ombudsman Service (FOS) in mortgage complaints?
- To prosecute mortgage fraud
- To resolve disputes between consumers and financial firms when the firm's internal complaints process has not achieved a satisfactory outcome (Correct answer)
- To set interest rates for mortgage products
- To approve new mortgage products before launch
Correct answer: To resolve disputes between consumers and financial firms when the firm's internal complaints process has not achieved a satisfactory outcome
The FOS provides an independent dispute resolution service for consumers who remain dissatisfied after completing the firm's internal complaints procedure.
The Financial Ombudsman Service is an independent body that resolves disputes between consumers and financial firms. For mortgage complaints, a consumer must first complain to the firm, which has 8 weeks to resolve it. If unsatisfied, the consumer can refer to FOS within 6 months of the firm's final response. FOS can make binding awards up to £415,000 (as of April 2024). Decisions are based on what is fair and reasonable in all circumstances. Common mortgage complaints include mis-selling, arrears handling, early repayment charges, and valuation issues. FOS decisions are binding on the firm but the consumer can still pursue court action if they disagree.
Question 3: What is the Prudential Regulation Authority (PRA) and how does it relate to mortgage lenders?
- It sets mortgage interest rates
- It is responsible for the prudential supervision of banks, building societies, and insurers to promote financial stability (Correct answer)
- It handles consumer complaints about mortgages
- It licenses mortgage brokers
Correct answer: It is responsible for the prudential supervision of banks, building societies, and insurers to promote financial stability
The PRA, part of the Bank of England, supervises banks, building societies, and large insurers to ensure they are financially sound — this includes major mortgage lenders.
The Prudential Regulation Authority is part of the Bank of England, created by the Financial Services Act 2012. It supervises approximately 1,500 firms including banks, building societies, credit unions, and major insurers. For mortgage lenders, the PRA sets capital requirements, conducts stress tests, and monitors financial resilience. This dual-regulation model means a bank offering mortgages is supervised by the PRA for its financial soundness and by the FCA for its conduct towards consumers. The PRA's general objective is promoting the safety and soundness of the firms it regulates, with a secondary objective of facilitating effective competition.
Question 4: What is the Senior Managers and Certification Regime (SM&CR) and how does it affect mortgage firms?
- It is a qualification requirement for mortgage advisers
- It holds senior individuals in financial firms personally accountable for their responsibilities and requires firms to certify the fitness of certain employees (Correct answer)
- It is an automated system for approving mortgage applications
- It sets salary caps for senior managers in banks
Correct answer: It holds senior individuals in financial firms personally accountable for their responsibilities and requires firms to certify the fitness of certain employees
SM&CR makes senior managers personally accountable for their areas of responsibility and requires firms to assess and certify the fitness and propriety of key staff.
The Senior Managers and Certification Regime replaced the Approved Persons Regime. It applies to all FCA-regulated firms in three tiers: Core, Enhanced, and Limited. Senior Managers must be FCA-approved, have clear Statements of Responsibilities, and can be held personally liable for failings in their area. The Certification Regime requires firms to annually certify that certain employees (including mortgage advisers) are fit and proper. The Conduct Rules apply to almost all employees, setting minimum standards of behaviour. For mortgage firms, this means clear accountability for advice quality, complaints handling, and compliance with MCOB rules.
Question 5: What is the purpose of the Financial Services Compensation Scheme (FSCS) in relation to mortgages?
- It compensates borrowers if their interest rate rises
- It provides compensation if a regulated firm fails and cannot meet claims for bad advice, including mortgage mis-selling (Correct answer)
- It guarantees all mortgage applications will be approved
- It pays the mortgage if the borrower loses their job
Correct answer: It provides compensation if a regulated firm fails and cannot meet claims for bad advice, including mortgage mis-selling
FSCS is the UK's statutory compensation scheme — it can pay compensation if an authorised firm goes bust and owes money due to mis-selling or bad advice, including mortgage advice.
The Financial Services Compensation Scheme is funded by levies on authorised firms. If a regulated firm becomes insolvent and cannot pay claims, FSCS steps in. For mortgage advice claims (classified as investment intermediation), FSCS can pay up to £85,000 per person per firm. This covers losses from negligent advice — for example, if a firm recommended an unsuitable mortgage and went bust before the consumer could claim. FSCS also covers deposits (£85,000), insurance (unlimited for compulsory insurance), and investments (£85,000). It is a last resort — consumers should first seek redress from the firm or FOS.
Question 6: What are the FCA's requirements for mortgage advisers regarding Continuing Professional Development (CPD)?
- No CPD is required after initial qualification
- Advisers must complete a minimum of 35 hours of CPD per year, of which at least 21 must be structured (Correct answer)
- CPD is only required every 5 years at requalification
- Only 5 hours of CPD per year is needed
Correct answer: Advisers must complete a minimum of 35 hours of CPD per year, of which at least 21 must be structured
The FCA requires mortgage advisers to maintain competence through at least 35 hours of CPD annually, with a minimum of 21 hours being structured learning.
Under the FCA's Training and Competence sourcebook (TC), mortgage advisers must complete a minimum of 35 hours of CPD per year. At least 21 hours must be structured — meaning formal training with clear learning objectives, such as courses, workshops, or structured e-learning. The remaining 14 hours can be unstructured, including reading industry publications, attending conferences, or informal learning. CPD must be relevant to the adviser's role and cover regulatory updates, product knowledge, and market developments. Firms must maintain records and verify compliance. Failure to meet CPD requirements can result in the adviser losing their certification under SM&CR.
CeMAP UK Financial Services Regulation 2
What are the FCA's three operational objectives?