Try the questions in the test above first, then open each one here to see the correct answer and why every other option is wrong.
01A regulator finds that its rulebook is not keeping pace with new technology and a wider range of assets. Which point relates to this problem in a rules-based model?
Practice question Unit: The International Regulatory Environment
AA broader, more complex market needs more rules, so a comprehensive model is hard to maintain ✓ Correct answer
As a market broadens and becomes more complex it needs more rules, and a comprehensive rules-based model becomes hard to maintain.
BDetailed rules become unnecessary because firms voluntarily apply broad principles in their place
A rules-based approach must be detailed enough to distinguish right from wrong reliably, so the need for detail does not fall away.
CSelf-regulation alone becomes sufficient to deal with every new product and every new technology
Self-regulation operates in addition to laws and does not replace them.
DThe problem disappears because detailed rules adapt automatically to changes in the market
Detailed rules do not adapt on their own; the regulator has to update them.
Reference: Workbook (2026), ch.1 §1.3, p.10
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02A European Supervisory Authority recommends that a national supervisor change how it applies EU law. The supervisor does not act, the European Commission then issues a formal opinion, and the supervisor still does not comply. What may the ESA do next?
Practice question Unit: The International Regulatory Environment
ATake decisions binding on firms or market participants to ensure compliance with EU law ✓ Correct answer
Correct. If the supervisor does not comply with the Commission's formal opinion, the ESAs may take decisions binding on firms or market participants.
BIssue a third recommendation only, without taking any decision
Incorrect. After the formal opinion the process does not stop at another recommendation; binding decisions are possible.
CRefer the matter to the Financial Stability Board for a binding decision
The FSB is not part of this EU process and takes no binding decision here.
DWithdraw the national supervisor's authorisation and appoint a replacement
Incorrect. The ESAs have no power to withdraw a national supervisor's authorisation or replace it.
Reference: Workbook (2026), ch.1 §2.2.4, p.60
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03Senior management at a securities firm discovers that a control failure may expose the firm to significant regulatory sanctions. According to the Basel Committee principles, what should it do?
Practice question Unit: The Compliance Function
AInclude the failure in its annual report to the board at the usual time
The annual report is not enough for material failures, which are reported promptly.
BFix the failure internally and tell the board only if the regulator asks
Withholding the matter until the regulator asks contradicts senior management's duty to the board.
CLeave the compliance function to decide alone whether the board needs to know
Reporting is senior management's responsibility, not something left to compliance alone to decide.
DReport the material failure to the board or a board committee promptly ✓ Correct answer
Correct. Senior management must report promptly any material compliance failure that may bring sanctions, loss or reputational harm.
Reference: Workbook (2026), ch.2 §1.1.3, p.100
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04The compliance function sees a trend in a specific type of money laundering transaction and checks a sample from a similar business unit in detail. The pattern is confirmed in a sub-set of the sample. What is the logical next step?
Practice question Unit: The Compliance Function
AClose the review, treating the pattern as a one-off anomaly that needs no further follow-up
The pattern was confirmed in part of the sample, so treating it as an anomaly ignores the sign of a wider trend.
BWiden the checks to more transactions, observing processes and interviewing staff ✓ Correct answer
Correct: once the pattern is confirmed in part of the sample, checks are extended to more transactions and include observation and interviews.
CStop the whole unit from operating until an investigation concludes
Halting the whole unit is disproportionate at this stage; the staged approach is to widen the checks.
DRepeat the check on the same sample without widening its scope
Re-checking the same sample adds no new evidence; the scope must widen to establish how widespread the issue is.
Reference: Workbook (2026), ch.2 §2.1.1, p.128
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05A firm's monitoring system flags an investor who changed their bank details and address and, shortly afterwards, redeemed their entire holding. How should the firm treat this pattern?
Practice question Unit: Managing the Risk of Financial Crime
AAs a pattern that calls for due care, even though the transactions may still turn out to be genuine ✓ Correct answer
Systems look for this pattern; the transactions may be genuine, but the firm must still exercise due care.
BConclusive proof of money laundering that requires the account to be closed at once without further review
The pattern alone does not establish laundering; it calls for review, not a pre-judged conclusion.
CRoutine activity needing no follow-up, because each step looks innocent when viewed on its own
Layering relies on steps that look innocent individually, which is why firms monitor patterns across a series of transactions.
DA matter for the client's bank alone, because the firm deals only with the investment side of the account
The firm is responsible for monitoring activity on its own clients' accounts and is not relieved of this because a bank sits in the payment chain.
Reference: Workbook (2026), ch.3 §1.2, p.162
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06A firm receives a request to change a client's address and bank details, followed within days by an instruction to sell the client's holdings and send the proceeds to the new account. The new account is in the client's name. Which risk does this pattern most strongly suggest?
Practice question Unit: Managing the Risk of Financial Crime
ACounterparty default by the client's previous bank
Incorrect: nothing in the pattern points to a bank failing to meet its obligations.
BUnreliable market valuations affecting the sale price
Incorrect: valuation problems concern market prices, not the sequence of changing details and redeeming assets.
CAccount takeover by a criminal impersonating the client ✓ Correct answer
Correct: criminals with a client's details impersonate the client, change address or bank details, then instruct a sale and direct the proceeds to an account they control, often a fraudulently opened one in the same name.
DA normal change of circumstances needing no further checks
Incorrect: the account being in the client's name is a feature criminals arrange on purpose, so the pattern warrants further checks.
Reference: Workbook (2026), ch.3 §2.2, p.188
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07A bank's trust department manages a client's funds. A manager at the bank suggests putting part of them into a product issued by a bank subsidiary, although an alternative product is better suited to the client's objectives. How should the trust department act?
Practice question Unit: Ethics, Integrity and Fairness
AChoose the subsidiary's product, because the bank's interest comes before the client's
Incorrect. Putting the bank's interest ahead of the client's breaches the essence of the fiduciary duty.
BChoose the product best suited to the client, because it must act solely in the client's interest ✓ Correct answer
Correct. A fiduciary always acts in the sole benefit of the principal, and the bank's own interest must not influence the choice of investment.
CSplit the funds equally between the two products without considering their suitability
Incorrect. An equal split ignores whether the investment fits the client's needs.
DDelay the decision until the client agrees to the subsidiary's product
Incorrect. Waiting for agreement to one specific product puts pressure on the client and does not resolve the conflict of interest.
Reference: Workbook (2026), ch.4 §1.5.2, p.237
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08A finance director who holds inside information about a target company instructs their own company's investment department to buy shares in that target. Who may commit the offence?
Practice question Unit: Ethics, Integrity and Fairness
AThe company alone, because it is the party that entered into the trade in the target's shares
Insider dealing is committed by an individual insider; it cannot be committed by a company.
BNobody, because the trade was carried out in the name of a legal entity and not a person
An individual who arranges for a company to deal can commit the offence of encouraging it.
CThe finance director, for encouraging the company to deal ✓ Correct answer
Correct: the offence rests with the individual insider, and encouraging the company to deal constitutes it.
DOnly the investment employee who placed the order, because they carried out the trade themselves
The employee executing the order does not hold the inside information; the person who encouraged dealing does.
Reference: Workbook (2026), ch.4 §2.2, p.250
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09A senior manager at a bank delegated a compliance task to subordinates, and a regulatory breach followed because the task was performed poorly. Which position is correct?
Practice question Unit: Governance, Risk Management and Compliance
Adelegation is permitted, but the manager had to take reasonable steps to check the task was done ✓ Correct answer
The manager is ultimately responsible and may delegate provided reasonable steps are taken to ensure tasks are carried out properly.
Bthe manager is not accountable because delegation transfers responsibility entirely to the subordinates
The senior manager's personal responsibility remains after delegation.
Cthe manager should never have delegated any compliance task at all
Delegating tasks is perfectly permissible, but the manager must take reasonable steps to ensure delegated tasks are discharged properly.
Dresponsibility lies with the regulator because it had previously approved this manager
Regulatory approval of a manager does not move responsibility for their actions to the regulator.
Reference: Workbook (2026), ch.5 §1.2, p.311
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10After the 9/11 attacks, restoring operations did not necessarily enable financial institutions to continue business. Which pair of factors explains this?
Practice question Unit: Governance, Risk Management and Compliance
AClosure of the NYSE and nearby banks, and grounded aircraft that stopped cheque clearing ✓ Correct answer
The debris and chaos closed the exchange, brokerage houses and banks in the area, and the grounding of aircraft prevented cheque clearing and distribution of paper currency, creating uncertainty for institutions.
BA sudden rise in interest rates across the market, and a fall in house prices in the affected districts
Rising interest rates and falling house prices were not the cause of the disruption in this event.
CLoss of customer records at all large institutions, and a surge in cybercrime against payment systems
Lost customer records and a surge in cybercrime were not among the factors behind the disruption in this event.
DWithdrawal of local banks' licences by the regulator, and a freeze on foreign investors' accounts
No licences were withdrawn and no accounts frozen; the obstacle was physical and logistical.
Reference: Workbook (2026), ch.5 §2.2.5, p.332
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