FRE2: 50 practice questions

Mock format: 40 questions, 60 minutes, pass 28/40 (70%). Answer key on the last page. From cemapexam.co.uk · independent study aid, not an official test. Contains public sector information licensed under the Open Government Licence v3.0. FCA Handbook material is quoted for reference and remains © Financial Conduct Authority.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

21. 21. Why does principles-based regulation depend heavily on the ethical judgement of firms and individuals?

    1. A. Principles replace all detailed rules in the Handbook
    2. B. Principles apply only to firms that volunteer
    3. C. Broad principles must be applied to situations the rules do not spell out
    4. D. Principles can be ignored if a detailed rule is met

22. 22. Which Principle requires a firm to maintain adequate financial resources?

    1. A. Principle 8
    2. B. Principle 3
    3. C. Principle 4
    4. D. Principle 10

23. 23. What is the higher maximum fine that can be imposed on a firm for a serious infringement of the UK GDPR?

    1. A. £17.5 million or 4% of worldwide turnover, if higher
    2. B. £8.7 million or 2% of worldwide turnover, if higher
    3. C. £500,000 for each separate infringement
    4. D. £1 million or 1% of UK turnover, if higher

24. 24. Once the MLR 2017 retention period for a former client's due diligence records has expired, what must the firm normally do with the personal data?

    1. A. Return the original documents to the client's mortgage lender
    2. B. Keep it permanently in case of a future criminal investigation
    3. C. Delete it, unless the law, a court or the client's consent allows it to be kept
    4. D. Send it to the National Crime Agency for central storage

25. 25. What should the adviser tell a client about the scope of the suitability assessment behind a recommendation?

    1. A. It covers only circumstances on the day of the meeting
    2. B. It covers current and reasonably foreseeable circumstances
    3. C. It covers every possible future event
    4. D. It guarantees suitability for the whole term

26. 26. An adviser increases a client's declared income on a mortgage application so that the case will pass the lender's criteria. Which Principle for Businesses is most directly breached?

    1. A. Principle 4, financial prudence
    2. B. Principle 10, clients' assets
    3. C. Principle 1, integrity
    4. D. Principle 5, market conduct

27. 27. During a fact-find, a broker notices that a payslip provided by an applicant appears to have been altered. What is the most appropriate response?

    1. A. Tell the applicant the firm suspects fraud and close the file
    2. B. Report it to the nominated officer and apply enhanced checks before any further dealing
    3. C. Submit the case and flag the issue to the lender's underwriter
    4. D. Ask the applicant for a new payslip and then submit the application

28. 28. For how long must a firm keep a record of why its mortgage advice was suitable?

    1. A. At least six months
    2. B. Until the mortgage ends
    3. C. At least three years
    4. D. At least one year

29. 29. What is the main purpose of a professional code of ethics in financial services?

    1. A. To set the fees members may charge
    2. B. To set standards of behaviour beyond the legal minimum
    3. C. To replace the need for FCA rules
    4. D. To protect members from customer complaints

30. 30. A single transaction gives a consumer both a 14-day and a 30-day cancellation right under COBS 15. Which period should the firm apply?

    1. A. Both periods, running one after the other
    2. B. The 30-day period, as it is the longer
    3. C. The 14-day period, as it is the shorter
    4. D. Whichever period the firm prefers

31. 31. Before recommending a mortgage, what must an adviser take reasonable steps to ensure under MCOB 4.7A?

    1. A. That the mortgage has the lowest initial rate available
    2. B. That the customer has a deposit of at least 10%
    3. C. That the lender pays the firm a procuration fee
    4. D. That the recommendation is suitable for the customer

32. 32. A client's life insurer fails while a valid claim under her term assurance policy is pending. How much of the claim does the FSCS protect?

    1. A. 100%, with no upper limit
    2. B. 90%, with no upper limit
    3. C. 100% of the first £85,000 only
    4. D. Nothing, as life cover is not protected

33. 33. What is the Financial Ombudsman Service's maximum money award for a complaint referred on or after 1 April 2026 about an act on or after 1 April 2019?

    1. A. £445,000
    2. B. £455,000
    3. C. £375,000
    4. D. £430,000

34. 34. How does a strong ethical culture usually affect a firm's compliance record?

    1. A. More breaches, as staff ignore rules they disagree with
    2. B. No effect, as ethics and compliance are unrelated
    3. C. Fewer breaches, as staff do the right thing without being told
    4. D. It removes the need for a compliance function

35. 35. When dealing with an insistent client, how should the firm ideally record the client's acknowledgement that the transaction goes against its advice?

    1. A. In a pre-printed standard paragraph
    2. B. By the adviser signing on the client's behalf
    3. C. In the client's own words
    4. D. By a verbal comment noted on file

36. 36. Priya tells her adviser she is "a bit worried about the payments". The adviser replies, "You mentioned worry about the payments; can you tell me more about that?" Which skill is the adviser using?

    1. A. Summarising the whole meeting
    2. B. Probing to explore a concern
    3. C. Using a leading question
    4. D. Closing the sale

37. 37. Which of the following must a summary resolution communication contain?

    1. A. A full report on the firm's investigation
    2. B. A statement that the Ombudsman may be able to help later
    3. C. An offer of compensation for inconvenience
    4. D. A copy of the adviser's suitability report

38. 38. What is the main purpose of a written recommendation or suitability letter given to a client?

    1. A. To replace the lender's mortgage offer
    2. B. To transfer legal responsibility for the advice to the client
    3. C. To advertise the firm's other services
    4. D. To explain the advice and the reasons it meets the client's needs

39. 39. Which of the following is a forbearance option that MCOB requires a lender to consider for a customer in payment difficulty?

    1. A. Adding a penalty to the balance
    2. B. Increasing the interest rate
    3. C. Starting possession proceedings at once
    4. D. Extending the mortgage term

40. 40. Rhona must remortgage, and her adviser finds suitable products. Must the adviser also consider whether she would be better off selling and renting?

    1. A. Yes, renting must always be compared in full
    2. B. No, the firm need not consider renting
    3. C. Yes, but only if she is aged over 55
    4. D. No, because renting always costs more

41. 41. A buy-to-let client asks her mortgage adviser exactly how much income tax she will pay on her rental profits. What is the most appropriate response?

    1. A. Ask the lender's underwriter to calculate her tax liability
    2. B. Calculate her tax bill and confirm it in the suitability letter
    3. C. Tell her landlords pay no tax on rent that covers the mortgage
    4. D. Suggest she gets specialist advice from an accountant or tax adviser

42. 42. During a review, a client says he has had a second child and his mortgage has increased after a further advance. What should the adviser also review?

    1. A. His car insurance premium and excess
    2. B. The lender's own capital adequacy ratios
    3. C. Only the interest rate on the mortgage
    4. D. His protection needs, such as life and income cover

43. 43. For a disclosure to be a qualifying disclosure under the Employment Rights Act 1996, what must the worker reasonably believe?

    1. A. That it will lead to a personal reward for the worker
    2. B. That it will be reported widely in the national press
    3. C. That it will result in the firm being fined by the FCA
    4. D. That it is in the public interest and shows a relevant failure

44. 44. An insurer subject to SYSC 18 appoints a whistleblowers' champion. What must the champion be responsible for?

    1. A. Approving each disclosure before staff may make it
    2. B. Deciding which disclosures may be passed to the FCA
    3. C. Overseeing the effectiveness of whistleblowing policies
    4. D. Investigating every disclosure made to the firm in person

45. 45. Under the Consumer Rights Act 2015, a consumer buys goods that turn out to be faulty. How long is the normal short-term right to reject?

    1. A. 14 days
    2. B. 6 months
    3. C. 12 months
    4. D. 30 days

46. 46. Under the COBS client's best interests rule, a firm must act:

    1. A. Profitably, efficiently and in the firm's best interests
    2. B. Honestly, fairly and professionally in the client's best interests
    3. C. Cautiously, avoiding all products with any risk
    4. D. Quickly, cheaply and as the product provider directs

47. 47. Which of the following is the best practice when presenting a mortgage recommendation to a client?

    1. A. Present several products and let the client pick
    2. B. Focus mainly on the features the lender advertises
    3. C. Avoid mentioning disadvantages to keep it simple
    4. D. Link each feature of the product to a need the client expressed

48. 48. When does an Ombudsman's final decision become binding on the firm?

    1. A. When the complainant accepts the decision
    2. B. As soon as it is issued, whether accepted or not
    3. C. Only once the FCA has confirmed the decision
    4. D. Only if the firm notifies its agreement

49. 49. Under the MLR 2017, what does ongoing monitoring of a business relationship involve?

    1. A. Re-verifying the client's identity before every telephone call
    2. B. Scrutinising transactions and keeping due diligence information up to date
    3. C. Checking the client's credit file every month for new debts
    4. D. Reviewing the client's mortgage rate each year to find a cheaper deal

50. 50. What does Principle 10 of the Principles for Businesses deal with?

    1. A. Protecting clients' assets the firm is responsible for
    2. B. Maintaining enough of the firm's own capital
    3. C. Communicating openly and fully with regulators
    4. D. Managing conflicts of interest between clients