2CEXAM Mock Question

Licensing Examination Paper 3

16-Sep-19
19:43:01
1 Which of the following is not a derivative/ structural product of company A? Topic 1

A Shares of Company B. Company B is holding shares of Company A. Chapter 1

B A contract for difference with shares of Company A as the underlying instrument. Section 1

C Credit Default Swap of Company A's bonds. QID 835

D A cash settled derivative warrant of company A. Ans A Hot

Exp Answer A is not an structured product since the return of none of them is tied to the other in any way.
2 Which of the following people can trade stock options directly? Topic 1

A Type 1 licensed corporations Chapter 1

B People who hold rights to trade and have registered to be participants of options exchanges Section 4

C Shareholders of the Stock Exchange of Hong Kong Limited QID 2396

D Shareholders of Hong Kong Futures Exchange Limited Ans B Hot

Exp People who hold rights to trade and have registered to be participants of options exchanges can trade
stock options directly. Although market participants have to be type 1 licensed corporations, type 1
licensed corporations don't necessarily hold rights to trade and are registered as market participants.
3 Which of the following is the objective of creating the SFO? Topic 1

A To bridge with the laws governing securities in the PRC. Chapter 2

B To keep the SFC powers in check and maintain a moderately regulated market. Section 2

C To position the SFC as the sole regulator of the banking and securities industry. QID 742

D To provide a flexible, innovation friendly regulatory framework. Ans D Hot

Exp The objectives of the SFO are to provide a regulatory framework which:
(a) promotes a fair, orderly and transparent market;
(b) is flexible enough to cope with new products and other innovations, and further advances in
technological infrastructure;
(c) is administered by a regulator with sufficient powers and discretion whose operations are transparent
and who is accountable to the stakeholders through a system of adequate
checks and balances; and
(d) is on a par with international standards and compatible with international practices, but tailored to
meet local needs and circumstances.

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 4 The rules issued by the SFC, such as Client Securities Rules, are Topic 1

A Subsidiary legislation with the force of law Chapter 2

B Code of conduct Section 3

C Major legislation QID 847

D Guidelines without the force of law Ans A Hot

Exp These are some of the Major Subsidiary Legislation:

1.1 Securities and Futures (Financial Resources) Rules
1.2 Securities and Futures (Client Securities) Rules
1.3 Securities and Futures (Client Money) Rules
1.4 Securities and Futures (Keeping of Records) Rules
1.5 Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules
1.6 Securities and Futures (Accounts and Audit) Rules,
plus many others.
5 Which of the following descriptions about subsidiary legislations are correct? Topic 1
I. Subsidiary legislations are enacted by the Chief Executive of Hong Kong after consulting the advice of
the Legco
II. Subsidiary legislations are some laws made by a process of delegation from LegCo to other bodies.
III. Subsidiary legislations do not possess the force of law and are not enforceable.
IV. Subsidiary legislations possess the force of law and are enforceable.
A II, IV Chapter 2

B I, II, III Section 3

C II, III QID 123

D I, II, III, IV Ans A Hot

Exp The laws passed by the Legislative Council of the Hong Kong Special Administrative Region (“LegCo”)
are called ordinances. They are enacted by the Chief Executive of the
Hong Kong Special Administrative Region (“HKSAR”) with the advice of LegCo. Some laws are made by a
process of delegation from LegCo to other bodies, such delegation usually being done under an
ordinance. For example, the Securities and Futures Commission (“SFC”) has extensive powers to make
rules under the Securities and Futures Ordinance (“SFO”). This process is, in the case of the SFC,
generally required to be completed by a process of tabling in LegCo, which gives LegCo an opportunity to
review the subsidiary legislation before it becomes law.
6 Mr Ko is a representative of a licensed corporation, Kaohsiung Securities. Mr Ko has violated the code of Topic 1
conduct recently. What are the consequences of Mr Ko's actions?
A His license must be revoked automatically by the SFC. Chapter 2

B The SFC may initiate an investigation. The SFC will take in the consideration the severity of the matter and Section 4
other factors before revoking Mr Ko's license and imposing any sanctions.
C A violation of the code of conduct is a violation of the SFO, imprisonment is guaranteed. QID 740

D A violation of the code of conduct is not a problem, since the code of conduct is only applicable to Ans B Hot
register institutions.
Exp Breaches of the SFO and subsidiary legislation are legal offences and will be investigated by the SFC and
enforcement action taken; the SFC may refer serious cases to law enforcement agencies such as the
Commercial Crimes Bureau (“CCB”) of the Hong Kong Police Force or the Independent Commission
Against Corruption (“ICAC”) for investigation and action.

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 7 According to the SFO, an intermediary could mean Topic 1
I. A Registered Institution
II. A Licensed Corporation
III. A Trust Company
IV. An Authorised Financial Institution
A I, II, III Chapter 2

B I, II Section 4

C II, III, IV QID 189

D I, II, III, IV Ans B Hot

Exp Only corporations may become intermediaries. A corporation that obtains a licence will be regarded as a
“licensed corporation” unless it is an AFI, in which case it will be regarded as a “registered institution”.
Together they are referred to as “intermediaries”. The distinction between the licensing of corporations
and the registration of AFIs is reviewed in further detail in section 1 of Topic 4.
8 Are Registered Institutions bound by the code of conduct? Topic 1

A No Chapter 2

B Yes Section 4

C Depending on the type of regulated activity QID 1663

D Depending on the experience and competence of the management Ans B Hot

Exp Registered Institutions need to adhere to the Code of Conduct.

9 Which of the following description about the single licence regime is correct? Topic 1

A A single licence regime means that one licence will automatically enable to holder to undertake all of the Chapter 2
regulated activities.
B A single licence regime means that one licence can undertake one or more of the regulated activities. Section 5

C A single licence regime means that the staff of a licence holder is not required to apply for a licence. QID 188

D A single licence regime means that an intermediary needs no licence from the SFC if it is a bank. Ans B Hot

Exp Although there are ten types of regulated activity, the SFC will grant to a person only one licence (or
registration) which will enable the holder to undertake one or more of the ten regulated activities. This is
normally referred to as the “single licence regime”.

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 10 The objectives of the SFO are to provide a regulatory framework with which of the following Topic 1
characteristics?
I. Promotes a fair, orderly and transparent market.
II. Is flexible enough to cope with new products and other innovations, and further advances in
technological infrastructure.
III. Is administered by a regulator with sufficient powers and discretion whose operations are transparent
and who is accountable to the stakeholders through a system of adequate checks and balance.
IV. Is a system that can satisfy PRC mainland legal standards, being compatible with PRC mainland laws
and practices and meet local needs.
A I, II, III Chapter 2

B II, III Section 6

C II, III, IV QID 171

D I, II, III, IV Ans A Hot

Exp The objectives of the SFO are to provide a regulatory framework which:
(a) promotes a fair, orderly and transparent market;
(b) is flexible enough to cope with new products and other innovations, and further advances in
technological infrastructure;
(c) is administered by a regulator with sufficient powers and discretion whose operations are transparent
and who is accountable to the stakeholders through a system of adequate
checks and balances.
11 Although there are ten types of regulated activity, the SFC will grant to a person only one licence (or Topic 1
registration) which will enable the holder to undertake one or more of the ten regulated activities. This is
normally referred to as the
A Independent Licence Regime Chapter 2

B Repeated Licence Regime Section 15

C Single Licence Regime QID 187

D Dual Track Regime Ans C Hot

Exp Although there are ten types of regulated activity, the SFC will grant to a person only one licence (or
registration) which will enable the holder to undertake one or more of the ten regulated activities. This is
normally referred to as the “single licence regime”.
12 Which of the following descriptions about the single license regime is correct? Topic 1

A The SFC will grant to a person only one license (or registration) which will enable the holder to undertake Chapter 2
one or more of the 10 regulated activities; hence it is referred to as a single license.
B Market parties are only required to register with apply to only one institution, the SFC, for the license; Section 15
hence it is referred to as a "single license" regime.
C The SFC will grant to an institution only one licence (or registration) which will enable the holder to QID 186
undertake one or more of the 10 regulated activities; hence it is referred to as a single license.
D Market parties are only required to register with the SFC or apply for the license once and the license will Ans A Hot
be valid permanently’ hence it is referred to as a single license.
Exp Although there are ten types of regulated activity, the SFC will grant to a person only one licence (or
registration) which will enable the holder to undertake one or more of the ten regulated activities. This is
normally referred to as the “single licence regime”.

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 13 British Construction Bank is an AFI regulated by the HKMA. Which of the following entities is responsible Topic 1
for supervising the regulated activities it conducts under the SFO?
A SFC Chapter 2

B HKMA Section 18

C Jointly supervised by SFC and HKMA QID 33

D Neither the SFC nor the HKMA Ans C Hot

Exp The HKMA and the SFC must work closely together in relation to any SFC-regulated activities that are
carried out by registered
institutions. To this end, a memorandum of understanding (“MOU”) has been signed between the two
regulators, setting out their roles and responsibilities so as to minimise overlaps under the regulatory
regime.
14 A person engaging in any activity regulated by the SFO, which includes asset management, will need to Topic 1
be licensed by the
A SFC Chapter 2

B HKMA Section 18

C SEHK QID 341

D HKEX Ans A Hot

Exp Any person that wish to conduct a regulated activity must be licensed by the SFC.
15 Which of the following descriptions about intermediaries are correct? Topic 1
I. Licensed Corporations are licensed by and supervised by the SFC.
II. Authorised Financial Institutions must register with the SFC in order to conduct regulated activities.
III. Registered Institutions need to comply with some of the codes and guidelines issued by the SFC.
IV. Registered Institutions need to be registered with the company registry.
A I, II, III, IV Chapter 2

B I, III, IV Section 18

C II, III, IV QID 27

D I, II, III Ans D Hot

Exp Under the SFO and the Banking Ordinance, authorised financial institutions (“AFIs”), which are regulated
by the HKMA and include banks, have to be registered with the SFC as registered institutions if they wish
to carry out an SFC-regulated activity. As the frontline regulator of AFIs is the HKMA, the latter takes the
leading role in vetting applications for such registration and in supervising their SFC-regulated activities,
including carrying out
on-site inspections. The HKMA applies all SFC criteria, such as the “fit and proper” criteria, in supervising
AFIs registered with the SFC.
16 Which entity is the frontline regulator of registered institution that conducts regulated activity as defined Topic 1
by the SFO?
A SFC Chapter 2

B HKMA Section 18

C SEHK QID 28

D HKEX Ans B Hot

Exp As the frontline regulator of AFIs is the HKMA, the latter takes the leading role in vetting applications for
such registration and in supervising their SFC-regulated activities, including carrying out on-site
inspections.

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 17 Which of the following descriptions about Authorised Financial Topic 1
Institutions (AFI) are true?
I. All Registered Institutions are banks.
II. If the AFIs are conducting the regulated activities as defined by the SFO, the AFIs should register with
the SFC.
III. SFC is responsible for licensing AFIs for all businesses
IV. The HKMA may refer cases of suspected malpractice by registered institutions in respect of the SFC-
regulated activities to the SFC
A I, IV Chapter 2

B II, III, IV Section 18

C I, II, III QID 29

D II, IV Ans D Hot

Exp Under the SFO and the Banking Ordinance, authorised financial institutions (“AFIs”), which are regulated
by the HKMA and include banks, have to be registered with the SFC as registered institutions if they wish
to carry out an SFC-regulated activity. The HKMA may refer cases of suspected malpractice by registered
institutions in respect of the SFC-regulated activities to the SFC, which may directly review those
institutions.
18 Which of the following is the regulator of Registered Institutions? Topic 1

A SFC Chapter 2

B Financial Secretary Section 18

C Banking Commissioner QID 30

D HKMA Ans D Hot

Exp As the frontline regulator of AFIs is the HKMA, the latter takes the leading role in vetting applications for
such registration and in supervising their SFC-regulated activities, including carrying out
on-site inspections. The HKMA applies all SFC criteria, such as the “fit and proper” criteria, in supervising
AFIs registered with the SFC.
19 If an AFI wishes to conduct regulated activities as defined by the SFO, which of the following entities Topic 1
should it approach for it to be licensed or registered?
A HKMA Chapter 2

B HKEX Section 18

C The Chief Executive QID 228

D The SFC Ans D Hot

Exp AFIs (including banks) that are authorised and regulated by the HKMA and conduct the SFC regulated
activities must be registered with the SFC as “Registered Institutions”, such status having been set up as
a special category because of the special features of AFIs.

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 20 British Construction Bank is an authorised financial institution. Amid the downfall of the Hong Kong Topic 1
banking sector, it would like to sell fund products of other companies to clients to generate revenue.
Where should British Construction Bank apply for a license?
A Register with the SFC and supervised by the HKMA. Chapter 2

B Apply for a license with the SFC and supervised by the SFC. Section 18

C Apply for a license with the HKMA and supervised by the SFC. QID 26

D Register with the HKMA and supervised by the HKMA. Ans A Hot

Exp Under the SFO and the Banking Ordinance, authorised financial institutions (“AFIs”), which are regulated
by the HKMA and include banks, have to be registered with the SFC as registered institutions if they wish
to carry out an SFC-regulated activity. As the frontline regulator of AFIs is the HKMA, the latter takes the
leading role in vetting applications for such registration and in supervising their SFC-regulated activities,
including carrying out
on-site inspections. The HKMA applies all SFC criteria, such as the “fit and proper” criteria, in supervising
AFIs registered with the SFC.
21 Which of the following descriptions are correct? Topic 1
I. All banks in Hong Kong are supervised by the SFC.
II. Some of the activities conducted by registered institutions are regulated by the SFO.
III. A memorandum of understanding (“MOU”) has been signed between the SFC and the HKMA to
minimize regulatory overlaps.
IV. The Commissioner of Insurance is a civil servant and the head of the Office of Commissioner of
Insurance
A I, IV Chapter 2

B II, III Section 18

C II, III, IV QID 32

D I, II, III, IV Ans C Hot

Exp Under the SFO and the Banking Ordinance, authorised financial institutions (“AFIs”), which are regulated
by the HKMA and include banks, have to be registered with the SFC as registered institutions if they wish
to carry out an SFC-regulated activity. Clearly, the HKMA and the SFC must work closely together in
relation to any SFC-regulated activities that are carried out by registered institutions. To this end, a
memorandum of understanding (“MOU”) has been signed between the two regulators, setting out their
roles and responsibilities so as to minimise overlaps under the regulatory regime. The Commissioner of
Insurance is a Government official who reports directly to the Permanent Secretary for Financial Services
and the Treasury.
22 Which of the following institutions is required to become a "registered institution"? Topic 1

A An Authorised Financial Institution (AFI) that wishes to conduct banking business. Chapter 2

B A corporation that wishes to engage in activities regulated by the Securities and Futures Ordinance (SFO). Section 18

C An Authorised Financial Institution (AFI) that wishes to engage in activities regulated by the Securities QID 176
and Futures Ordinance (SFO).
D A licensed corporation that wishes to engage in arbitrage through the trading of securities defined by Ans C Hot
Securities and Futures Ordinance (SFO).
Exp The provisions of the SFO have different applications to the following different classes of person:
(b) “registered institution”, which refers to authorised financial institutions (“AFIs”) directly supervised by
the Hong Kong Monetary Authority (“HKMA”) and registered with the SFC.

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 23 Which of the following is the regulator of Authorised Financial Topic 1
Institutions?
A SFC Chapter 2

B Financial Secretary Section 18

C Banking Commissioner QID 31

D HKMA Ans D Hot

Exp As the frontline regulator of AFIs is the HKMA, the latter takes the leading role in vetting applications for
such registration and in supervising their SFC-regulated activities, including carrying out on-site
inspections. The HKMA applies all SFC criteria, such as the “fit and proper” criteria, in supervising AFIs
registered with the SFC.
24 If an AFI plans to conduct regulated activities as defined by the SFO, which of the following entities Topic 1
should it register with ?
A Exchange Fund Chapter 2

B SFC Section 18

C HKMA QID 24

D The office of the Chief Executive Ans B Hot

Exp Under the SFO and the Banking Ordinance, authorised financial institutions (“AFIs”), which are regulated
by the HKMA and include banks, have to be registered with the SFC as registered institutions if they wish
to carry out an SFC-regulated activity.
25 British Construction Bank is an AFI regulated by the HKMA. If it plans to conduct Type 9 Regulated Topic 1
Activity (Asset Management) in the near future, how should it proceed?
A Apply to be registered with the SFC Chapter 2

B Apply to be licensed by the SFC Section 18

C Apply to be registered with the HKMA QID 23

D Apply to be licensed by the HKMA Ans A Hot

Exp Under the SFO and the Banking Ordinance, authorised financial institutions (“AFIs”), which are regulated
by the HKMA and include banks, have to be registered with the SFC as registered institutions if they wish
to carry out an SFC-regulated activity.
26 If an Authorised Financial Institution wishes to conduct regulated activities as defined by the SFO, which Topic 1
of the following entities should oversee its operation?
A HKMA Chapter 2

B HKEX Section 18

C The Chief Executive QID 232

D The SFC Ans A Hot

Exp AFIs (including banks) that are authorised and regulated by the HKMA and conduct the SFC regulated
activities must be registered with the SFC as “Registered Institutions”, such status having been set up as
a special category because of the special features of AFIs. They are jointly regulated by the HKMA and the
SFC, with the HKMA being the front-line regulator that will apply all SFC regulatory criteria, including
fitness and properness and business conduct, other than capital adequacy, the handling of client money
and the audit requirements in supervising them.

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 27 British Construction Bank is an authorised financial institution (AFI). Due to the rapid development of the Topic 1
securities markets, the company plans to provide securities trading services to its customer. How should
the company proceed?
A Submit an application to the Hong Kong Monetary Authority (HKMA), the HKMA will vet the application. Chapter 2
The license will be registered with the HKMA and the HKMA will be responsible for supervising the
activities of the applicant.
B Submit an application to the Hong Kong Monetary Authority (HKMA), the HKMA will vet the application. Section 18
The license will be registered with the Securities and Futures Commission (SFC) but the HKMA will be
responsible for supervising the activities of the applicant.
C Submit an application with the Securities and Futures Commission (SFC), the SFC will vet the application. QID 25
The license will be registered with the SFC and it will be responsible for supervising the activities of the
applicant.
D Submit an application to the Securities and Futures Commission (SFC), the SFC will vet the application, Ans B Hot
the licence will be registered with the SFC but the HKMA will be responsible for
supervising the activities of the applicant.
Exp Under the SFO and the Banking Ordinance, authorised financial institutions (“AFIs”), which are regulated
by the HKMA and include banks, have to be registered with the SFC as
registered institutions if they wish to carry out an SFC-regulated activity. As the frontline regulator of AFIs
is the HKMA, the latter takes the leading role in vetting applications for such registration and in
supervising their SFC-regulated activities, including carrying out on-site inspections. The HKMA applies
all SFC criteria, such as the “fit and proper” criteria, in supervising AFIs registered with the SFC.
28 Which of the following is the purpose of establishing a capital requirement? Topic 1

A To ensure that all licensed corporations are large companies. Chapter 2

B To ensure that the clients of licensed corporations have the ability to cope with external shocks. Section 22

C To ensure that the licensed corporations can support the level of its business activities in the long run. QID 258

D To ensure that the licensed corporations can cope with settlement risks. Ans C Hot

Exp The regulator must ensure that a licensed corporation has enough capital within the corporation (or
available to it from external sources):
(a) to support the level of its business activities.
29 Which of the following individuals or entities should adhere to Securities and Futures (Accounts and Topic 1
Audit) Rules?
A Solicitors of the licensed corporation Chapter 2

B Auditors of the licensed corporation Section 23

C Associated entities of the licensed corporation QID 744

D Controlling shareholder of the licensed corporation Ans C Hot

Exp The SFC has made the Accounts and Audit Rules specifying the form and contents of financial statements
and other documents that licensed corporations and associated entities of intermediaries (both licensed
corporations and registered institutions) should prepare and the content of auditors' reports.

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 30 The SFO has provided powers for the SFC to make detailed rules relating to which of the following? Topic 1
I. Financial Resources
II. Handling of client money and other client assets
III. The keeping of accounts and records
IV. Auditing matters
A I, II, III Chapter 2

B I, II Section 23

C II, III, IV QID 190

D I, II, III, IV Ans D Hot

Exp The SFO grants the SFC powers to make detailed

rules relating to:
(a) their financial resources;
(b) the handling of client money and other client assets;
© the keeping of accounts and records; and
(d) auditing matters.
31 The Fit and proper guidelines of the SFO are more likely to apply to which of the following individuals or Topic 1
entities?
I. Company that's applying for a license or registration.
II. Representative of company that's applying for a license or registration.
III. Executive Director of company that's applying for a license or registration.
IV. Professional Investor
A I, II, IV Chapter 2

B I, II, III Section 28

C I, III, IV QID 758

D II, III, IV Ans B Hot

Exp The corporate (including its officers e.g. directors, managers, etc.) and individual applicants for licensing
or registration have to satisfy fitness and properness requirements stated in the Fit and Proper
Guidelines. These requirements apply to applicants and to licensed and registered persons on an ongoing
basis. Compliance with the requirements will be monitored by the HKMA in the case of AFIs and their
executive officers and staff, and by the SFC in the case of others.
32 The SFC-issued codes, guidelines and guidance notes Topic 1

A Have the force of law and override the provisions of any other applicable law. Chapter 2

B Have the force of law but do not override the provisions of any other applicable law. Section 29

C Do not have the force of law and override the provisions of any other applicable law. QID 773

D Do not have the force of law and do not override the provisions of any other applicable law. Ans D Hot

Exp Codes and guidelines do not have the force of law and are not legally enforceable. However, the SFC is
able to penalise licensed or registered persons breaching the codes and guidelines by applying the
blanket principle that a breach of these may impugn the licensed or registered person's fitness and
properness to remain licensed or registered.

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