Free CISI CMP UK Reg Practice Questions: Enhancing Market Integrity

CISI means Chartered Institute for Securities & Investment. CMP means Capital Markets Programme, and this page is for the UK Financial Regulation unit. Use this focused CISI CMP UK Regulation page as a short practice test for Enhancing Market Integrity. The items are original Finance Prep sample exam questions built for scenario-based practice, not trivia, puzzle questions, official CISI questions, copied live-exam content, or exam dumps.

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These are original Finance Prep practice questions aligned to this topic area. They are not official CISI questions, copied live-exam content, or exam dumps. Use them to preview question style and explanation depth before continuing with topic drills, mixed sets, and timed mock exams in Finance Prep.

Question 1

Topic: Enhancing Market Integrity

A UK investment firm’s surveillance system flags possible market abuse in an AIM-listed share.

Alert facts:

• A professional client bought a large quantity shortly before a takeover announcement.
• The order was split across several child orders and amended twice before execution.
• The firm is considering whether a suspicious transaction and order report should be made.
• Compliance needs to reconstruct exactly what happened in the trading sequence.

Which record is the single best starting point for that reconstruction?

• A. The approved marketing material for the issuer that was available to sales staff before the announcement.
• B. The latest client money reconciliation for the account used to settle the trade.
• C. The time-stamped order and execution audit trail showing receipt, amendments, routing, cancellations, executions, trader IDs, and client identifiers.
• D. The client categorisation record confirming the client was treated as a professional client.

Best answer: C

What this tests: Enhancing Market Integrity

Explanation: For a suspicious trading event, compliance needs records that show the actual trading sequence: when the order was received, how it was amended or split, who handled it, where it was routed, and how and when it executed. This evidence supports surveillance review and any decision about submitting a suspicious transaction and order report. Client status, promotional material, and client asset records may be relevant in other conduct or control reviews, but they do not reconstruct the order chronology or execution pattern that caused the market-integrity alert.

• Client categorisation may affect conduct obligations, but it does not show the order sequence or execution details.
• Marketing material might help assess communications around the issuer, but it is not the primary record of the suspicious trading activity.
• Client money reconciliation relates to safeguarding and settlement funds, not reconstructing suspected market abuse.

A time-stamped order and execution audit trail best reconstructs the sequence of trading activity needed for a market-abuse review.

Question 2

Topic: Enhancing Market Integrity

A settlements analyst at an FCA-authorised investment firm is reviewing a client instruction.

Facts identified:

• The client has recently opened an account and provided limited explanation of the source of wealth.
• A large payment has arrived from an unrelated third party.
• The client immediately asks for the money to be transferred to an overseas account with no clear investment rationale.
• When asked for routine supporting information, the client says the firm should “just process it quickly” and not ask further questions.

The analyst suspects money laundering but does not have proof that a crime has occurred. Which action should the analyst take next?

• A. Ask the client whether the funds are linked to criminal activity and warn that the firm may report the matter if no explanation is provided.
• B. Submit an internal suspicion report to the MLRO or nominated officer, avoid tipping off the client, and follow the firm’s instructions before acting further.
• C. Reject the transfer and tell the client that the account is being closed because money laundering is suspected.
• D. Process the transfer because the firm has not established that the money is criminal property.

Best answer: B

What this tests: Enhancing Market Integrity

Explanation: In UK financial-crime controls, staff do not need proof of money laundering before escalating a concern. A genuine suspicion should be reported through the firm’s internal process, normally to the MLRO or nominated officer. The staff member should avoid saying or doing anything that might alert the client to the suspicion or to a possible report, because that can create tipping-off risk. The firm can then decide, under its procedures, whether a suspicious activity report should be made externally and what should happen to the transaction. Processing the transfer without escalation ignores the financial-crime risk, while confronting or warning the client may compromise any investigation.

• Processing the transfer treats absence of proof as decisive, but suspicion is enough to require escalation.
• Questioning the client about criminal activity and warning about reporting risks tipping off.
• Closing the account while telling the client the reason also risks alerting the client to the suspicion.

A suspicion, not proof, is enough to trigger the firm’s internal financial-crime reporting process while avoiding any communication that could tip off the client.

Question 3

Topic: Enhancing Market Integrity

A UK investment firm reviews a market-abuse surveillance alert for a UK-listed share.

Firm policy:

• Open and review surveillance alerts on the business day generated.
• Escalate immediately to Market Abuse Compliance once reasonable suspicion is identified.
• Keep a case record showing timing, evidence reviewed, rationale and escalation outcome.

Case record:

• Monday 09:42: alert generated for repeated large sell orders cancelled within seconds while the same client bought at lower prices.
• 10:15: surveillance analyst opened the case and reviewed order-book replay, client trading history and contemporaneous news.
• 12:05: analyst recorded that the pattern was consistent with layering and no news or hedging rationale was found.
• 12:07: case escalated to Market Abuse Compliance.
• 13:20: Market Abuse Compliance recorded a STOR decision; 13:50: STOR reference logged.

Which conclusion is most appropriate about the documentation?

• A. Treat the file as insufficient because cancelled orders cannot support a market-abuse escalation unless a trade was executed.
• B. Treat the file as insufficient because market-abuse concerns should have been escalated first to the MLRO rather than Market Abuse Compliance.
• C. Treat the file as insufficient because the firm needed to obtain the client’s explanation before escalating the concern.
• D. Treat the file as sufficient because it records the alert time, same-day review, evidence considered, suspicion rationale, escalation time and STOR outcome.

Best answer: D

What this tests: Enhancing Market Integrity

Explanation: For suspicious transaction and order surveillance, the record should show more than the final outcome. A sufficient file normally evidences when the alert arose, who reviewed it, what evidence was considered, why the facts did or did not create reasonable suspicion, when escalation occurred and what decision followed. Here the alert was opened and analysed on the same business day, the rationale for suspected layering was documented, escalation occurred two minutes after that rationale was recorded, and the STOR outcome was logged shortly afterwards. That supports timely review and escalation under the firm’s process and UK market-abuse expectations.

• Waiting for a client explanation is not a prerequisite to escalating a market-abuse concern where reasonable suspicion already exists.
• Suspicious orders, including cancelled orders, can be relevant to market-abuse surveillance; an executed trade is not required.
• The MLRO is associated with money-laundering escalation, while suspected market abuse is handled through the firm’s STOR escalation process.

The record evidences both timely handling and the reasoning behind escalation once reasonable suspicion was identified.

Question 4

Topic: Enhancing Market Integrity

A UK investment firm conducts a market-integrity case review after an FCA information request.

Findings:

• A dealer entered several large buy orders in a listed share during the closing auction and cancelled them seconds before uncrossing.
• The firm’s surveillance tool only generated alerts for executed trades that moved materially away from the day’s volume-weighted average price.
• The desk supervisor closed the review because no order was executed and no client loss was identified.
• Compliance was not asked to consider whether a suspicious transaction and order report should be submitted.

Which control improvement is most likely to prevent recurrence of this failure?

• A. Require written client approval before any closing-auction order may be cancelled.
• B. Extend surveillance to cover orders, amendments, and cancellations, with mandatory Compliance escalation for suspicious order patterns and STOR assessment.
• C. Increase reconciliations between executed trades and MiFIR post-trade reporting records.
• D. Add a quarterly reminder that dealers must obtain best execution for auction trades.

Best answer: B

What this tests: Enhancing Market Integrity

Explanation: Market abuse controls must address suspicious orders as well as executed transactions. Under the UK market abuse framework, patterns such as large orders entered and quickly cancelled around an auction may indicate manipulation even if no trade occurs and no client loss can be shown. The key weakness was a surveillance and escalation design that treated execution as the trigger for review. A recurrence control should therefore capture order activity, including amendments and cancellations, and require Compliance to assess whether a STOR is needed. Trade-reporting reconciliations, client approval processes, and best-execution reminders may be useful in other contexts, but they do not fix the missed detection and escalation of suspicious order activity.

• Trade-reporting reconciliations support reporting completeness for executed trades, but they do not identify unexecuted suspicious orders.
• Written client approval before cancelling auction orders is not the relevant UK MAR control and would not ensure suspicious patterns are escalated.
• Best execution concerns client order outcomes, while the failure was missed market-abuse surveillance and STOR assessment.

The failure arose because potentially manipulative orders were not monitored or escalated for a UK MAR suspicious order assessment.

Question 5

Topic: Enhancing Market Integrity

An FCA-authorised corporate finance firm is competing for an advisory mandate from a listed overseas issuer. A relationship manager records the following onboarding and pitch notes:

• The issuer’s procurement committee is due to decide on the mandate next week.
• A local consultant introduced the issuer but has no written agreement with the firm.
• The consultant asks for a “success referral fee” to be paid to an offshore company not named in the introduction email.
• The consultant says the payment will “make sure the committee understands who should win”.
• The relationship manager also proposes modest refreshments at a pitch meeting, within the firm’s hospitality policy and recorded in the gifts register.

Which is the single best answer?

• A. The offshore success referral fee is a bribery and corruption indicator and should be escalated before any payment is made.
• B. The refreshments at the pitch meeting are the main bribery and corruption indicator because hospitality is always prohibited during a mandate tender.
• C. The payment can proceed if it is described as a referral fee, because referral arrangements are outside bribery and corruption controls.
• D. The consultant’s lack of a written agreement is only an administrative issue if the issuer is a listed company rather than a retail client.

Best answer: A

What this tests: Enhancing Market Integrity

Explanation: Bribery and corruption risk often appears through indirect payments, not only direct gifts. A third-party introducer or consultant is a high-risk channel where the services are vague, the recipient is not the person who performed the introduction, payment is requested offshore, and the timing is tied to a live procurement decision. The wording about helping the committee decide suggests improper influence rather than legitimate advisory or referral work. The firm should not pay first and document later; it should escalate to compliance or the appropriate financial crime function for due diligence and approval. By contrast, modest, transparent hospitality that is within policy, recorded, and not designed to improperly influence a decision is not the strongest indicator on these facts.

• Hospitality is not automatically prohibited; the concern is whether it is excessive, hidden, poorly timed, or intended to influence improperly.
• Treating the missing agreement as merely administrative ignores the combined red flags around offshore routing, unclear services, and influence over the committee.
• Labelling a payment as a referral fee does not remove bribery risk; substance and purpose matter more than the description.

A vague third-party success payment routed offshore and linked to influencing a pending mandate decision is a clear bribery and corruption red flag.

Question 6

Topic: Enhancing Market Integrity

An FCA-authorised investment firm is monitoring an existing professional client.

Onboarding record:

• Standard customer due diligence was completed six months ago.
• The legal entity and beneficial owners were verified.
• The expected activity was UK-listed equity trading funded from the client’s named UK bank account.

Current alert:

• Recent purchases were funded by three unrelated third-party transfers.
• The client now asks for sale proceeds to be paid to an account in the name of an unrelated offshore company.
• The relationship manager cannot reconcile the activity with the client profile and has formed a suspicion.

What is the best next step in the firm’s financial-crime workflow?

• A. Submit an internal suspicious activity report to the MLRO or nominated officer and await instructions before processing the payment.
• B. Repeat standard customer due diligence and process the payment if the identity and beneficial ownership records are still valid.
• C. Treat the matter only as enhanced due diligence by asking the client for source-of-funds evidence before making any internal report.
• D. Record the alert as ongoing monitoring and review the client file at the next scheduled periodic refresh.

Best answer: A

What this tests: Enhancing Market Integrity

Explanation: Customer due diligence identifies and verifies the customer and beneficial owners, usually at onboarding and when material doubts arise. Enhanced due diligence adds deeper checks for higher-risk relationships or transactions. Ongoing monitoring is the continuing scrutiny of activity against the client’s profile; here, it is the process that detected the unusual third-party funding and payment request. Once the relationship manager has formed a suspicion of money laundering or related financial crime, the next step is not simply more routine KYC or a deferred file review. The matter should be escalated internally to the MLRO or nominated officer under the firm’s suspicious activity reporting process. The firm should also avoid tipping off the client and await appropriate instructions, including whether an external SAR or consent request is needed.

• Repeating standard identity checks does not address the new suspicion created by the transaction pattern.
• Enhanced due diligence may be relevant to risk assessment, but it does not replace prompt internal escalation once suspicion exists.
• Leaving the matter for periodic review treats the alert as ordinary monitoring rather than a suspicious activity escalation.

A formed suspicion requires internal escalation through the firm’s suspicious activity reporting route, rather than treating the issue as routine due diligence.

Question 7

Topic: Enhancing Market Integrity

A UK listed issuer’s finance team identifies draft quarterly results that may require a profit warning. The disclosure committee meets the same morning and decides to delay an announcement briefly while the figures are validated, provided confidentiality is maintained.

The company secretary wants the file to show that the disclosure decision was properly reviewed under the issuer’s market-disclosure process. What is the best next step?

• A. Wait until after the announcement and rely on the published market statement as the record of the review.
• B. Create a dated record of the disclosure committee review, including attendees, information considered, the UK MAR disclosure or delay rationale, the decision, actions, and approvals.
• C. Ask the finance team to keep updating the forecast until the figures are final enough for an announcement.
• D. Add everyone who knows about the matter to the insider list and treat that as proof of the disclosure review.

Best answer: B

What this tests: Enhancing Market Integrity

Explanation: For issuer-market disclosure decisions, the key evidence is a contemporaneous governance record showing how the decision was made. The file should show who reviewed the matter, what information was considered, whether the information was assessed as inside information, why immediate disclosure or delayed disclosure was considered appropriate, what actions were required to preserve confidentiality, and who approved the decision. Operational steps such as updating forecasts, maintaining insider lists, and preparing an announcement may be necessary, but they do not by themselves evidence that the disclosure judgment was properly reviewed.

• Forecast updates support the commercial assessment, but they do not show that the disclosure decision was reviewed and approved.
• Insider lists help control and evidence access to inside information, but they are not a substitute for a disclosure-committee decision record.
• A published statement shows what the market was told, but it is too late and too narrow to evidence the review process behind the decision.

A contemporaneous decision record is the strongest evidence that the disclosure judgment was reviewed, reasoned, and approved through the proper governance process.

Question 8

Topic: Enhancing Market Integrity

An equity sales trader at an FCA-authorised broker receives an exception alert in a UK Main Market share.

Alert summary:

• 09:04 - A client sells 80,000 shares.
• 09:12 - The same client posts in a public investor forum:

The company has lost its main NHS contract and will issue a profits warning today. I have seen the letter.

• There is no regulatory information service announcement supporting the claim.
• 10:05 - The share price is down 9%; the client buys back 60,000 shares.
• 10:20 - The issuer states that it has not lost the contract and is unaware of any basis for the rumour.
• The firm’s procedure requires possible market abuse to be escalated to Compliance for STOR assessment.

What is the best next step?

• A. Wait for the FCA to confirm the post was false before making a market abuse escalation.
• B. Refer the forum post to the financial promotions approval team for correction.
• C. Escalate the trade record and forum post to Compliance for prompt STOR assessment.
• D. Ask the client to send the letter and explain the trades before escalating the alert.

Best answer: C

What this tests: Enhancing Market Integrity

Explanation: Under UK MAR, market manipulation can include disseminating information, including rumours, that gives or is likely to give false or misleading signals about a financial instrument where the person knew or ought to have known it was false or misleading. A broker does not need proof of a breach before acting. The proper process is to preserve the trading and communications evidence and escalate promptly to the firm’s Compliance or market abuse function, which assesses whether a STOR must be submitted to the FCA without delay. Here, the same client traded before and after posting a damaging unsupported rumour, the price moved sharply, and the issuer denied the basis of the rumour. Those facts support a manipulation concern and require STOR assessment.

• Asking the client for proof first risks alerting the client and delays escalation despite sufficient facts for a suspicion assessment.
• Treating the post as a financial promotion issue misses the market abuse workflow; the concern is the link between a rumour, price movement and trading.
• Waiting for FCA confirmation sets the threshold too high; STOR assessment is based on reasonable suspicion, not a concluded regulatory finding.

The linked trading, unsupported rumour, price movement and issuer denial create a potential market manipulation concern requiring prompt internal escalation.

Question 9

Topic: Enhancing Market Integrity

An FCA-authorised investment firm’s surveillance system flags trading in XYZ plc, a UK listed issuer. The firm has not yet decided whether a STOR is required.

Alert bundle:

• Staff communication: A sales-trader chat states, “Client wants the whole line sold today; he says a private CFO call sounded worse than the market expects.”
• Order data: The client placed an urgent sell order for 450,000 shares, far larger than the account’s normal orders, completed shortly before market close.
• Trading history: The client had held the position for 14 months and had made no similar same-day issuer-event trades.
• Issuer event: XYZ released an unscheduled profit warning at 7:00 am the next morning; the share price opened down 22%.
• Firm procedure: Surveillance analysts must preserve relevant records, link alert evidence, and escalate to Market Abuse Compliance for the STOR decision. Front-office staff must not contact the client about a possible STOR.

What is the best next step?

• A. Submit a money laundering SAR to the NCA as the first regulatory report because the trade may involve non-public information.
• B. Wait until the issuer or exchange confirms whether inside information was leaked before recording a suspicion.
• C. Open a documented surveillance case linking the chat, order timestamps, trading history and profit warning, then escalate promptly to Market Abuse Compliance for STOR assessment.
• D. Ask the sales trader to call the client for an explanation before escalating the matter internally.

Best answer: C

What this tests: Enhancing Market Integrity

Explanation: Market-abuse surveillance is not based on one data point in isolation. A firm should connect staff communications, order characteristics, trading history and issuer events to decide whether there is reasonable suspicion of insider dealing or market manipulation. Here, the urgent and unusually large sell order, the chat referring to a private CFO call, the lack of comparable past trading and the next-day profit warning together require a documented escalation for STOR assessment. The records should be preserved and the matter kept confidential. The firm does not need proof of a leak before escalating internally, and front-office contact with the client could compromise the process.

• Contacting the client through the sales trader risks tipping off and bypasses the required surveillance escalation route.
• Waiting for external confirmation applies too high a threshold; STOR analysis is triggered by reasonable suspicion, not proof.
• A SAR to the NCA addresses money laundering concerns; the immediate market-integrity workflow is STOR assessment under UK MAR/FCA expectations.

The facts create a coherent market-abuse concern that should be preserved, evidenced and escalated through the firm’s STOR assessment process.

Question 10

Topic: Enhancing Market Integrity

An FCA-authorised corporate finance firm is advising a UK-listed issuer on a possible cash takeover. The information is precise, not public, and would be likely to have a significant effect on the issuer’s share price if made public.

Control facts:

• The information was received by the deal team at 09:15 on Monday.
• The issuer made no public announcement until Wednesday morning.
• A trader outside the deal team asked why the issuer had appeared on the restricted list, but was not told the reason.
• Compliance is reviewing whether the information was properly contained before announcement.

Which record is the single best evidence that the inside information was contained?

• A. The engagement file showing the issuer is a professional client and the firm has corporate finance permissions.
• B. A staff training record showing all front-office employees completed annual market abuse training before the takeover work began.
• C. A timestamped control pack showing the insider list opened at 09:15, the issuer added to the restricted list, access permissions limited to named staff, and the trader’s access request denied.
• D. A post-announcement surveillance report showing no unusual trading by the firm in the issuer’s shares after Wednesday morning.

Best answer: C

What this tests: Enhancing Market Integrity

Explanation: To demonstrate containment of inside information, the strongest evidence is a contemporaneous audit trail showing who knew the information, when they knew it, what restrictions were imposed, and whether access was actually controlled. Under UK MAR controls, insider lists, restricted-list entries, information-barrier permissions, and access logs are direct evidence of need-to-know handling before disclosure. In this scenario, the concern is not whether staff were generally trained or whether the firm was authorised, but whether unpublished price-sensitive information was kept within the authorised group until the announcement. A timestamped record linking the insider list, restricted list, access permissions, and denied access request best addresses that issue.

• Annual training supports general market abuse awareness, but it does not prove the takeover information was contained at the relevant time.
• Post-announcement trade surveillance may help detect suspicious trading, but the absence of unusual trading does not show access was restricted before disclosure.
• Client status and corporate finance permissions establish regulatory context, but they do not evidence information-barrier operation or containment.

This directly evidences who had access, when restrictions were applied, and that an attempted access by someone outside the wall was blocked.

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