Chapter Questions 1-5 - CISI Financial
Regulations Pre Test Questions with All
Correct and Complete Answers 2026-
2027 Update.
Chpt 4 Q 16: When do the prospectus advertisements rules apply? (NOTE, not covered in the
slides so don't worry too much) - Answer The prospectus rules apply to offers, or admission to
trading, of transferrable securities in respect of which:
1. A prospectus is required under S85 FSMA.
2. Where an election to produce a prospectus has been made under S87 FSMA.
Chpt 4 Q 17: When is a firm permitted to undertake an unsolicited communication (cold calling)
with a retail client? - Answer 1. The recipient has an existing client relationship with the firm
and would envisage such a call, or;
2. The call relates to a genially marketable packaged product (not a higher-volatility fund or a
life policy linked to such a fund), or;
3.It relates to a controlled activity relating to a limited range of investments, including deposits
and readily realizable investments (not warrants or makeable non-geared packaged products).
Chpt 4 Q 18: What are the rules on churning and who do they apply to? - Answer Churning is
over-dealing for a client to generate extra fees. COBS says that a series of transactions in
isolation that looks suitable may not be if trades are so frequent as to be determinantal to the
client.
It applies to firms trading on behalf of their clients, eg investment managers.
Chpt 4 Q 19: What is the purpose of the suitability rules? - Answer To ensure personal
recommendations (or decisions to trade) are suitable for the client's needs.
Chpt 4 Q 20: What is the appropriateness test? - Answer To provide protection for non-advised
transactions.
,Chpt 4 Q 21: What is the purpose of the cancellation rules? - Answer To ensure that clients
have the opportunity to reconsider their decision within a certain period of time and are able to
cancel the transaction if they wish to.
Chpt 4 Q 22: State four steps firms could take to prevent or manage conflicts of interest. -
Answer 1. For external investment research, have information controls to stop information
flowing to the rest of the firm (Chinese wall)
2. Prepare conflicts of interest policy
3. Where conflict arises, ensure disclosure is made (only as last resort)
4. Keep records of activities when conflict of interest has arisen.
Chpt 4 Q 23: What is the difference between investment research and research
recommendations? - Answer Investment research is information recommending an
investment strategy, including opinion as to the value/price of investments, as intended for
distribution to the public (as opposed to just for use within the firm).
It has to be clearly labelled as investment research and presented as an objective or
independent
explanation.
Chpt 4 Q 24: What payments are permitted under the inducements rules? - Answer 1. Fees
and non-monetary benefits paid by clients
2. Proper fees paid by firm, which are necessary for the provision of services.
3.Fees and non-monetary benefits paid to/by a third party.
Chpt 4 Q 25: What is the purpose of the best execution requirements? - Answer For firms to
demonstrate to their clients how they obtain the best possible trading results.
Chpt 4 Q 26: What is an order execution policy? - Answer The policy, which tells clients how
the firm seek to obtain the best possible result for them, must contain:
1. The factors considered when choosing the execution venue.
, 2. How price, cost, speed and likelihood of execution are considered.
3. Clear instruction that if a client has a specific instruction it may impact the firm's ability to
obtain the best possible results.
Chpt 4 Q 27: What is the purpose of the personal account dealing rules? - Answer To prevent
employees from entering into a personal transaction that:
1. Involves misuse of improper disclosure.
2. Conflicts with the firm's duties to a customer.
Chpt 4 Q 28: What is trade confirmation information? - Answer Frequent confirmation
reporting for each transaction - firms must provide essential information promptly (T+1)
Chpt 4 Q 29: How frequently must a periodic statement be sent to a retail client? - Answer At
least quarterly.
Where a client receives deal-by-deal confirmations, statements may be sent annually.
Monthly statements must be sent for leveraged portfolios.
Chpt 4 Q 30: What is the purpose of the client money segregation and trust rules? - Answer
Restrict comingling of clients' and firm's assets to minimise the risk of clients' assets being used
by firm in event of a default.
Chpt 4 Q 31: What are the reconciliation requirements for safe custody investments and client
money? - Answer Safe custody investments: internal reconciliations carried out as often as
necessary and any discrepancies must be made good immediately. External reconciliations
carried out as often as needed but at least every month.
Client money: If reconciliation shows a discrepancy, firm must pay any shortfall to client by the
close of the business day the reconciliation was performed.
C1 Q1: Who are the two regulators that together make up the twin peaks of UK financial
services regulation and how do their responsibilities differ? - Answer FCA - Oversees conduct
regulation. Responsible for protecting consumers.
PRA - Oversees prudential regulation of 'dual-regulated' firms
Regulations Pre Test Questions with All
Correct and Complete Answers 2026-
2027 Update.
Chpt 4 Q 16: When do the prospectus advertisements rules apply? (NOTE, not covered in the
slides so don't worry too much) - Answer The prospectus rules apply to offers, or admission to
trading, of transferrable securities in respect of which:
1. A prospectus is required under S85 FSMA.
2. Where an election to produce a prospectus has been made under S87 FSMA.
Chpt 4 Q 17: When is a firm permitted to undertake an unsolicited communication (cold calling)
with a retail client? - Answer 1. The recipient has an existing client relationship with the firm
and would envisage such a call, or;
2. The call relates to a genially marketable packaged product (not a higher-volatility fund or a
life policy linked to such a fund), or;
3.It relates to a controlled activity relating to a limited range of investments, including deposits
and readily realizable investments (not warrants or makeable non-geared packaged products).
Chpt 4 Q 18: What are the rules on churning and who do they apply to? - Answer Churning is
over-dealing for a client to generate extra fees. COBS says that a series of transactions in
isolation that looks suitable may not be if trades are so frequent as to be determinantal to the
client.
It applies to firms trading on behalf of their clients, eg investment managers.
Chpt 4 Q 19: What is the purpose of the suitability rules? - Answer To ensure personal
recommendations (or decisions to trade) are suitable for the client's needs.
Chpt 4 Q 20: What is the appropriateness test? - Answer To provide protection for non-advised
transactions.
,Chpt 4 Q 21: What is the purpose of the cancellation rules? - Answer To ensure that clients
have the opportunity to reconsider their decision within a certain period of time and are able to
cancel the transaction if they wish to.
Chpt 4 Q 22: State four steps firms could take to prevent or manage conflicts of interest. -
Answer 1. For external investment research, have information controls to stop information
flowing to the rest of the firm (Chinese wall)
2. Prepare conflicts of interest policy
3. Where conflict arises, ensure disclosure is made (only as last resort)
4. Keep records of activities when conflict of interest has arisen.
Chpt 4 Q 23: What is the difference between investment research and research
recommendations? - Answer Investment research is information recommending an
investment strategy, including opinion as to the value/price of investments, as intended for
distribution to the public (as opposed to just for use within the firm).
It has to be clearly labelled as investment research and presented as an objective or
independent
explanation.
Chpt 4 Q 24: What payments are permitted under the inducements rules? - Answer 1. Fees
and non-monetary benefits paid by clients
2. Proper fees paid by firm, which are necessary for the provision of services.
3.Fees and non-monetary benefits paid to/by a third party.
Chpt 4 Q 25: What is the purpose of the best execution requirements? - Answer For firms to
demonstrate to their clients how they obtain the best possible trading results.
Chpt 4 Q 26: What is an order execution policy? - Answer The policy, which tells clients how
the firm seek to obtain the best possible result for them, must contain:
1. The factors considered when choosing the execution venue.
, 2. How price, cost, speed and likelihood of execution are considered.
3. Clear instruction that if a client has a specific instruction it may impact the firm's ability to
obtain the best possible results.
Chpt 4 Q 27: What is the purpose of the personal account dealing rules? - Answer To prevent
employees from entering into a personal transaction that:
1. Involves misuse of improper disclosure.
2. Conflicts with the firm's duties to a customer.
Chpt 4 Q 28: What is trade confirmation information? - Answer Frequent confirmation
reporting for each transaction - firms must provide essential information promptly (T+1)
Chpt 4 Q 29: How frequently must a periodic statement be sent to a retail client? - Answer At
least quarterly.
Where a client receives deal-by-deal confirmations, statements may be sent annually.
Monthly statements must be sent for leveraged portfolios.
Chpt 4 Q 30: What is the purpose of the client money segregation and trust rules? - Answer
Restrict comingling of clients' and firm's assets to minimise the risk of clients' assets being used
by firm in event of a default.
Chpt 4 Q 31: What are the reconciliation requirements for safe custody investments and client
money? - Answer Safe custody investments: internal reconciliations carried out as often as
necessary and any discrepancies must be made good immediately. External reconciliations
carried out as often as needed but at least every month.
Client money: If reconciliation shows a discrepancy, firm must pay any shortfall to client by the
close of the business day the reconciliation was performed.
C1 Q1: Who are the two regulators that together make up the twin peaks of UK financial
services regulation and how do their responsibilities differ? - Answer FCA - Oversees conduct
regulation. Responsible for protecting consumers.
PRA - Oversees prudential regulation of 'dual-regulated' firms
