Free ICA Specialist Certificate in Conduct Risk Practice Questions

Sample Practice Questions

Try these 10 sample questions from the ICA Specialist Certificate in Conduct Risk practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1Why did the LIBOR misconduct findings prompt a wider reassessment of conduct controls?

   1. A.They challenged assumptions about which activities could be manipulated.Correct answer: A
   2. B.They established that manipulation was confined to currency trading.
   3. C.They showed that culture was separate from benchmark governance.
   4. D.They established that existing controls eliminated conflicts of interest.

   Explanation: The FCA states: "It forced the industry – and indeed regulators – to challenge our orthodoxies about what mattered; about what could and could not be manipulated;". LIBOR forced scrutiny of manipulation risks, loyalties and culture; it did not validate existing controls or isolate the problem to FX.

   Reference: FCA — Wholesale Conduct Risk — Introductory discussion and Regulators and the industry

2. 2Which description matches the conduct risk definition cited by ASIC?

   1. A.Risk solely from borrowers failing to repay contracted debts.
   2. B.Risk solely from insufficient cash to meet obligations.
   3. C.Risk from inappropriate, unethical or unlawful organisational behaviour.Correct answer: C
   4. D.Risk solely from changes in market prices of investments.

   Explanation: The source states: "the risk of inappropriate, unethical or unlawful behaviour on the part of an organisation’s management or employees". The definition concerns behaviour, distinct from market, credit and liquidity exposures.

   Reference: ASIC — Conduct risk management letter — p. 1 footnote 1

3. 3What weakness made the banks' high-level FX policies ineffective in the FCA's findings?

   1. A.Insufficient guidance on how policies applied to the FX business.Correct answer: A
   2. B.Excessive tailoring of policies to the specific risks of FX trading.
   3. C.A requirement that control staff understand individual trading practices.
   4. D.Regular monitoring designed to detect the investigated behaviours.

   Explanation: The source states: "there was insufficient training and guidance on how these policies applied to this business". The findings connect generic policies with insufficient business-specific training and monitoring.

   Reference: FCA — FX failings and remediation — The FCA's findings

4. 4What is the purpose of an SMF holder's Statement of Responsibilities?

   1. A.Replace all individual accountability with collective board ownership.
   2. B.Provide a sales forecast for the manager's next reporting period.
   3. C.Identify what that senior manager is responsible and accountable for.Correct answer: C
   4. D.List only the firm's consolidated financial assets and liabilities.

   Explanation: The source states: "clearly states what they are responsible and accountable for". The statement identifies personal responsibilities, not financial statements or sales forecasts.

   Reference: FCA — Senior Managers Regime — Senior Managers Regime — Statement of Responsibilities

5. 5What distinguishes industry-led market standards from regulatory minimum requirements?

   1. A.They replace statutory requirements when firms adopt them.
   2. B.They apply only after a regulator has imposed a penalty.
   3. C.They convert every industry practice into a legal obligation.
   4. D.They can promote improvements beyond the regulatory minimum.Correct answer: D

   Explanation: The FCA states: "over and above regulatory minima". The speech describes industry standards as a means of improving conduct beyond minimum regulation. They neither replace law nor automatically create legal obligations.

   Reference: FCA — Wholesale Conduct Risk — Regulators and the industry

6. 6In the FCA's broad description, what does governance concern?

   1. A.The number of transactions completed by a firm.
   2. B.The way decisions are made within a firm.Correct answer: B
   3. C.The market value of securities held by a firm.
   4. D.The demographic profile of a firm's customers.

   Explanation: The source states: "how decisions are made within a firm". Governance describes decision arrangements rather than valuation, customer composition or transaction volume.

   Reference: FCA — Drivers of culture, purpose and governance — Culture and the drivers of culture

7. 7What did the FX remediation programme require from senior management?

   1. A.A statement that the regulator now owned each firm's trading risks.
   2. B.Certification that no further market losses could ever occur.
   3. C.Delegation of all responsibility to the traders under investigation.
   4. D.Attestation that action had been taken and controls were adequate.Correct answer: D

   Explanation: The source states: "Senior management will be asked to attest that action has been taken and that firms’ systems and controls are adequate to manage these risks.". Attestation establishes senior management accountability for remediation, not a risk transfer or guarantee.

   Reference: FCA — FX failings and remediation — Tackling the root causes

8. 8When could an SMF holder be held accountable under the described Duty of Responsibility?

   1. A.A subordinate makes a mistake despite all reasonable preventive and corrective steps.
   2. B.Their area breaches a requirement and they failed to take reasonable preventive or corrective steps.Correct answer: B
   3. C.Any customer loses money even when the firm has complied with every requirement.
   4. D.A breach occurs anywhere in the sector regardless of their area of responsibility.

   Explanation: The source states: "if a firm breaches one of our requirements, the SMF responsible for that area could be held accountable if they did not take reasonable steps to prevent or stop the breach.". The duty links a firm breach, the manager's responsibility and inadequate reasonable steps; it is not automatic strict liability.

   Reference: FCA — Senior Managers Regime — Duty of Responsibility

9. 9A bank wants to mitigate conduct risk but has not identified where it arises in its business. Which activity must underpin its mitigation work?

   1. A.Wait for complaints before identifying affected activities.
   2. B.Copy another bank's risk labels without examining its own activities.
   3. C.Identify the conduct risks inherent in its activities.Correct answer: C
   4. D.Set a provision based solely on historic regulatory fines.

   Explanation: The FCA states: "you cannot hope to mitigate something you don’t know exists". Risk identification must precede meaningful mitigation. Provisions, waiting for complaints or copying labels do not identify the bank's own exposures.

   Reference: FCA — Wholesale Conduct Risk — Five conduct questions

10. 10What does a firm's corporate purpose describe in the FCA's explanation?

    1. A.Its economic function and the value its business exists to provide.Correct answer: A
    2. B.Its regulatory permissions without reference to its business activity.
    3. C.Its historic profitability without reference to its reason for existing.
    4. D.Its internal reporting chart without reference to customer services.

    Explanation: The source states: "how a company describes, to itself and others, the essential purpose of the firm, its products and its services, and so its reason for existing". Purpose connects the economic function and reason for existing; it is not just permissions, past profit or structure.

    Reference: FCA — Drivers of culture, purpose and governance — Corporate purpose