CeMAP FRE2: Skills, Principles and Ethical Behaviours

20 free FRE2 practice questions with answers

Try each one, then open the answer. For a timed experience use the free mock exam.

1. 1. If the NCA refuses consent during the notice period for a transaction, how long is the moratorium period during which the firm must not proceed, unless a court extends it?

   1. A. 7 working days
   2. B. 31 days
   3. C. 14 days
   4. D. 6 months
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   B. 31 days

   Section 335(6) of POCA sets a moratorium period of 31 days, starting with the day the person receives notice that consent is refused. A court can extend the moratorium under section 336A. After it ends, the firm is treated as having consent.

2. 2. A client stepped down as a senior judge eight months ago. How should the firm treat him under the PEP rules in the MLR 2017?

   1. A. As a PEP only if he holds another public office
   2. B. As a PEP for at least 12 months after he left office
   3. C. As a PEP only until he receives his final salary
   4. D. As an ordinary customer from the day he left office
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   B. As a PEP for at least 12 months after he left office

   Regulation 35(9) requires the PEP measures to continue for at least 12 months after the person ceased to be entrusted with the prominent public function, or longer if the firm considers it necessary because of the risk. Eight months after leaving office, he is still treated as a PEP.

3. 3. Under the Consumer Rights Act 2015, can a trader exclude liability for death or personal injury caused by its negligence?

   1. A. No, such a term or notice cannot bind the consumer
   2. B. Only for services provided free of charge
   3. C. Yes, if the term is clearly printed
   4. D. Yes, if the consumer signs separately
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   A. No, such a term or notice cannot bind the consumer

   Section 65(1) says a trader cannot, by a term of a consumer contract or a consumer notice, exclude or restrict liability for death or personal injury resulting from negligence.

4. 4. After selling her home, Grace has £900,000 of sale proceeds in her bank account while she waits to buy her next property. What FSCS protection applies to this temporary high balance?

   1. A. Up to £120,000 only
   2. B. Up to £1 million for twelve months
   3. C. The full amount with no time limit
   4. D. Up to £1.4 million for six months
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   D. Up to £1.4 million for six months

   The FSCS protects qualifying temporary high balances, such as proceeds from selling a home, up to £1.4 million for six months from when the amount was first deposited. After that, the standard deposit limit applies.

5. 5. Which senior manager conduct rule is breached if a senior manager hands responsibility for a function to an unqualified colleague and never checks on it?

   1. A. SC4, disclosing information to the regulators
   2. B. SC3, appropriate delegation and effective oversight
   3. C. Rule 3, openness and cooperation with regulators
   4. D. Rule 5, proper standards of market conduct
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   B. SC3, appropriate delegation and effective oversight

   Senior Manager Conduct Rule SC3 requires a senior manager to take reasonable steps to ensure that any delegation is to an appropriate person and that they oversee the delegated responsibility effectively.

6. 6. Advice was given to Maria in October 2018. She realised it was unsuitable in January 2026 and complained to the firm in October 2026. Is her complaint within the Ombudsman's time limits?

   1. A. No, as more than six years have passed since the advice
   2. B. No, as complaints must be made within 12 months of awareness
   3. C. Yes, as it is within three years of when she became aware
   4. D. Yes, as there is no time limit for mortgage complaints
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   C. Yes, as it is within three years of when she became aware

   DISP 2.8.2R(2) bars complaints referred more than six years after the event or, if later, more than three years after the complainant became, or ought reasonably to have become, aware of the cause for complaint. Maria became aware in January 2026, so a complaint in October 2026 is within the three-year limit even though the six-year limit has passed.

7. 7. An adviser's analysis finds a client is eligible for a lender's product only if she adds a £999 fee to the loan. What must the adviser consider before recommending this?

   1. A. Whether paying the fee up front would be better for her
   2. B. Whether the lender will reduce its valuation fee
   3. C. Whether the fee is lower than the adviser's commission
   4. D. Whether her employer will pay the fee
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   A. Whether paying the fee up front would be better for her

   MCOB 4.7A.6R lists whether the customer should pay fees up front rather than add them to the loan among the suitability factors. Adding a fee means paying interest on it over the term, so the adviser must consider whether she can and should pay it up front.

8. 8. Two unmarried clients buying a home together ask their mortgage adviser to draft a declaration of trust setting out their shares. What should the adviser do?

   1. A. Ask the estate agent to prepare the declaration
   2. B. Refer them to a solicitor or conveyancer for legal advice
   3. C. Draft the declaration using a standard online template
   4. D. Tell them a declaration of trust is never needed
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   B. Refer them to a solicitor or conveyancer for legal advice

   Drafting legal documents and advising on how property is held are matters for a solicitor or conveyancer. The adviser should highlight why this matters and refer the clients for legal advice, rather than act beyond their expertise.

9. 9. What is the FCA's stated aim for vulnerable customers in FG21/1?

   1. A. That firms refuse to deal with them to avoid any harm
   2. B. That they always receive lower prices than other customers
   3. C. That they experience outcomes as good as other consumers
   4. D. That they are always served by a specialist team only
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   C. That they experience outcomes as good as other consumers

   FG21/1 says the FCA wants vulnerable consumers to experience outcomes as good as those of other consumers and to receive consistently fair treatment. Firms should adapt their approach rather than exclude vulnerable customers.

10. 10. A broker discovers that one of its directors has been using client fees to pay personal debts, which could seriously damage the firm's reputation. When must the firm tell the FCA?

    1. A. In its next regular regulatory return
    2. B. Only once its internal investigation ends
    3. C. Immediately it becomes aware of the matter
    4. D. Only if a customer complains about it
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    C. Immediately it becomes aware of the matter

    SUP 15.3.1R requires a firm to notify the FCA immediately it becomes aware of, or has information reasonably suggesting, a matter that could have a significant adverse impact on its reputation. Waiting for a return, an investigation or a complaint would not meet this standard. The duty reflects Principle 11, which requires openness with the regulator.

11. 11. An adviser recommends against a pension switch, but the client wants the firm to arrange it anyway. Under COBS 9.5A, what should the firm make clear to the client?

    1. A. That it did not recommend the transaction, and the risks involved
    2. B. That insistent clients lose all rights to complain
    3. C. That the firm will take responsibility for the outcome
    4. D. That the original advice is now withdrawn
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    A. That it did not recommend the transaction, and the risks involved

    COBS 9.5A.3G says the firm should communicate clearly, fairly and in a way that is not misleading that it has not recommended the transaction, why it differs from the advice, the risks of the client's choice, and why the firm did not recommend it.

12. 12. When issuing an SPS, which aspects of a retail investment adviser's compliance does the accredited body verify?

    1. A. Their sales volumes and income targets
    2. B. Their personal credit history
    3. C. Their client satisfaction scores
    4. D. Their qualification and their CPD
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    D. Their qualification and their CPD

    TC 2.1.27R requires the accredited body to verify compliance with the qualification requirement and the CPD rule in TC 2.1.15R, among other standards. This independent check gives clients confidence in the adviser's professional standing.

13. 13. A lender makes it very difficult for borrowers to switch products at the end of a deal by requiring paper forms and long waits. Which TCF outcome is most at risk?

    1. A. Outcome 1, fair treatment in corporate culture
    2. B. Outcome 3, clear information
    3. C. Outcome 4, suitable advice
    4. D. Outcome 6, no unreasonable post-sale barriers
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    D. Outcome 6, no unreasonable post-sale barriers

    TCF Outcome 6 is that consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint. Making switching unnecessarily difficult is a classic post-sale barrier.

14. 14. Which TCF outcome requires that consumers are given clear information and kept appropriately informed before, during and after the point of sale?

    1. A. Outcome 2
    2. B. Outcome 3
    3. C. Outcome 5
    4. D. Outcome 1
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    B. Outcome 3

    TCF Outcome 3 is that consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale. This links to the requirement that communications are fair, clear and not misleading.

15. 15. How does the FCA describe culture in a firm?

    1. A. The firm's financial results over five years
    2. B. The habitual behaviours and mindsets of the firm
    3. C. The firm's written policies and procedure manuals
    4. D. The firm's brand, logo and marketing style
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    B. The habitual behaviours and mindsets of the firm

    The FCA describes culture as the habitual behaviours and mindsets that characterise an organisation. It sees firms' cultures as a major root cause of conduct failures.

16. 16. Under MCOB, what overarching standard must a mortgage firm meet in its dealings with a customer?

    1. A. Follow the lender's instructions ahead of the customer's needs
    2. B. Arrange whichever mortgage the customer asks for, without question
    3. C. Act honestly, fairly and professionally in the customer's best interests
    4. D. Recommend the lender that pays the highest procuration fee
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    C. Act honestly, fairly and professionally in the customer's best interests

    MCOB 2.5A.1R, the customer's best interests rule, requires a firm to act honestly, fairly and professionally in accordance with the best interests of its customer. It applies throughout the relationship, from first contact to after the sale.

17. 17. Under COBS 3, into which three categories must a firm place each client for investment business?

    1. A. Retail client, professional client and eligible counterparty
    2. B. Personal client, business client and trustee client
    3. C. Consumer, micro-enterprise and small business
    4. D. Advised client, execution-only client and insistent client
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    A. Retail client, professional client and eligible counterparty

    COBS 3 requires a firm to categorise each client as a retail client, a professional client or an eligible counterparty. The category decides how much regulatory protection the client receives.

18. 18. A firm could boost this year's profits by not telling existing customers about a cheaper product. What is the main ethical risk of doing so?

    1. A. Reducing the firm's need for compliance staff
    2. B. Long-term loss of trust in exchange for short-term gain
    3. C. Breaching the firm's financial prudence rules
    4. D. Customers being given too much information
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    B. Long-term loss of trust in exchange for short-term gain

    Short-termism puts immediate profit ahead of customers' interests and long-term trust. When customers find out, reputational damage and complaints usually outweigh the gain, and the practice may also be unfair to customers.

19. 19. When may an MCD mortgage credit intermediary describe its advice as 'independent'?

    1. A. When it uses at least ten lenders on its panel
    2. B. When its consideration of products across the market is unlimited
    3. C. When it charges the customer a fee rather than taking commission
    4. D. When it is not owned by a bank or building society
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    B. When its consideration of products across the market is unlimited

    MCOB 4.4A.4R(3) says an MCD mortgage credit intermediary may disclose that it is independent only if its consideration of MCD regulated mortgage contracts across the market is unlimited. A panel, however large, is a limited range.

20. 20. Which approach to planning CPD best supports professionalism?

    1. A. Logging hours only when an audit is about to happen
    2. B. Choosing whichever activity takes the least time
    3. C. Repeating the same course each year because it is easy
    4. D. Finding knowledge gaps and choosing activities to fill them
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    D. Finding knowledge gaps and choosing activities to fill them

    Effective CPD is planned and reflective: the adviser identifies development needs, chooses relevant activities and reviews the result. This matches the expectation that CPD is relevant to the role and helps maintain competence (TC 2.1.13G and 2.1.22G).

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