Free CISI UK RPI Practice Questions: FCA and PRA Authorisation of Firms and Individuals

Use this focused CISI UK RPI page as a short practice test for FCA and PRA Authorisation of Firms and Individuals. 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: FCA and PRA Authorisation of Firms and Individuals

An FCA-authorised mortgage and insurance broker has no Part 4A permission for designated investment business. It launches an online “wealth triage” service for existing customers. The service collects each customer’s objective, time horizon, capacity for loss and existing cash savings, then displays: “Based on your answers, transfer £20,000 from cash into the ABC UK Equity Fund through this platform link.” ABC is an authorised unit trust. The broker receives an introduction fee from the platform. After losses, several customers complain and the FCA says the broker has acted outside its permissions. What was the primary driver of that finding?

• A. The service was delivered online rather than through a face-to-face adviser.
• B. The service recommended investing in units of a collective investment scheme without permission to advise on designated investments.
• C. The service received an introduction fee from the platform after customers opened accounts.
• D. The service gathered information about customers’ savings and tax position before showing the platform link.

Best answer: B

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: The decisive issue is the nature of the activity and the investment. Units in an authorised unit trust are units in a collective investment scheme, which are specified investments. The online tool did more than provide generic information or make a neutral introduction: it used customer-specific facts and directed customers to invest a stated amount in a named fund. That is advice on the merits of buying a specified investment, so the firm needed the appropriate Part 4A permission for investment advice. The broker’s existing mortgage and insurance permissions did not cover designated investment business. Other facts may raise conduct issues, but they are not the main perimeter reason for the FCA’s finding.

• The introduction fee may create a conflict or inducement concern, but the permissions breach arises from giving regulated investment advice.
• Collecting customer information is not, by itself, the regulated activity; the issue is using it to recommend a named fund.
• Online delivery does not determine whether an activity is regulated; the content and effect of the service do.

A tailored recommendation to buy units in an authorised unit trust is investment advice on a specified investment and requires the relevant permission.

Question 2

Topic: FCA and PRA Authorisation of Firms and Individuals

An FCA solo-regulated investment firm wants to appoint an existing certified employee as Head of Compliance, a senior management function role. The employee is already shown on the FCA Directory for their current certified function. The proposed start date is in six weeks.

What is the firm’s best next step?

• A. Notify the FCA after the appointment because the individual is already within the SM&CR regime.
• B. Submit the senior manager approval application to the FCA with the required statement of responsibilities and ensure the individual does not perform the role until approval is granted.
• C. Apply to the PRA for approval because all senior management function appointments are approved by the PRA.
• D. Issue a new annual certificate and allow the individual to start, then update the Directory record after appointment.

Best answer: B

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: Under the SM&CR, individuals performing senior management functions must be approved by the appropriate regulator before they carry out the role. For an FCA solo-regulated investment firm, the application is made to the FCA and includes the individual’s statement of responsibilities. The firm must also be satisfied that the person is fit and proper. Certification and Directory records do not replace senior manager approval. A certified employee may already be assessed by the firm and visible on the Directory, but moving into an SMF role changes the regulatory status and requires pre-approval.

• Issuing a certificate is relevant to certification functions, not approval to perform a senior management function.
• Post-appointment notification skips the required pre-approval safeguard for SMF roles.
• PRA approval is relevant to PRA-regulated firms and PRA senior management functions, not every SMF appointment at an FCA solo-regulated firm.

A senior management function requires FCA approval before the individual performs that role, even if the person is already certified.

Question 3

Topic: FCA and PRA Authorisation of Firms and Individuals

In a firm-authorisation context, which term describes the minimum conditions that a firm must satisfy, and continue to satisfy, to be authorised to carry on regulated activities?

• A. Principles for Businesses
• B. Fit and proper expectations
• C. Systems and controls requirements
• D. Threshold conditions

Best answer: D

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: Threshold conditions are the baseline conditions a firm must meet before authorisation and continue to meet once authorised. They cover fundamental matters such as suitability, effective supervision, appropriate resources, business model, and location of offices. The Principles for Businesses are high-level conduct obligations that apply to authorised firms. SYSC focuses on governance, risk management, compliance arrangements, and internal systems and controls. Fit-and-proper expectations assess the honesty, integrity, competence, capability, and financial soundness of individuals performing relevant roles, rather than serving as the firm’s minimum authorisation conditions.

• Principles for Businesses are high-level standards of conduct, not the minimum conditions for becoming authorised.
• Systems and controls requirements concern governance and control arrangements, but they are not the statutory authorisation gateway term.
• Fit and proper expectations mainly apply to individuals in relevant roles, not to the firm’s overall authorisation threshold.

Threshold conditions are the minimum statutory conditions for authorisation and ongoing permission to conduct regulated activities.

Question 4

Topic: FCA and PRA Authorisation of Firms and Individuals

An FCA solo-regulated investment firm is checking the status of two employees before updating its records.

• Maya will take up a role that the firm has identified as an FCA-designated senior management function. Her employment contract has been signed, but FCA approval has not yet been granted.
• Tom gives retail investment advice. The firm has assessed him as fit and proper for a certification function and will submit his details for the FCA Directory. His HR grade is senior consultant.

Which statement best matches the regulatory distinction between their roles?

• A. Maya needs FCA approval before performing the senior management function; Tom’s certification is issued by the firm, and Directory publication or HR grade does not amount to SMF approval.
• B. Both Maya and Tom may perform their roles once they are published on the FCA Directory.
• C. Maya may perform the role once the firm signs her employment contract; Tom needs FCA approval because he advises retail clients.
• D. Tom’s senior HR grade makes him a senior manager under SM&CR; Maya’s firm certification is enough because approval is only internal.

Best answer: A

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: Under SM&CR, an individual performing a senior management function must be approved by the FCA before carrying out that function. Certification functions are different: the firm, not the FCA, assesses the individual’s fitness and propriety and issues the certificate. Directory publication helps make information about relevant individuals visible, but it is not itself an approval or certification decision. Internal HR labels, such as “senior consultant” or “head of” titles, may describe employment status, but they do not determine whether a role is an SMF or a certification function. The regulatory classification depends on the function actually performed.

• A signed employment contract or job title does not replace FCA approval for an SMF.
• FCA Directory publication is a public record mechanism, not the source of permission to perform the function.
• Retail investment advice is commonly a certification function, but it does not automatically make the adviser an FCA-approved senior manager.

SMFs require FCA approval, while certification is a firm responsibility and the Directory and HR title do not create SMF status.

Question 5

Topic: FCA and PRA Authorisation of Firms and Individuals

An enhanced solo-regulated investment firm reorganises its investment operations and outsourcing teams. During supervisory discussions, the FCA finds that the firm’s management responsibilities map still shows the old structure and that oversight of a new outsourced trading platform is described only as “shared by operations, technology, and compliance.” Which response best matches the SM&CR governance function being tested?

• A. Reclassify affected retail clients as professional clients to reduce the conduct obligations linked to the platform.
• B. Treat the outsourced trading platform as an appointed representative and rely on the principal-firm oversight rules.
• C. Refer the matter to the Financial Ombudsman Service because it concerns a potential customer complaint route.
• D. Update the responsibilities map and relevant Statements of Responsibilities so a named Senior Manager has clear accountability for the business area and its key risks.

Best answer: D

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: Under SM&CR, governance arrangements should make senior accountability clear, especially where business changes create new or changed risks. For an enhanced firm, the management responsibilities map should accurately show how responsibilities are allocated across the firm. Relevant Statements of Responsibilities should also reflect what each Senior Manager is responsible for. A vague “shared” description may leave no one clearly accountable for oversight, escalation, and control of the outsourced platform risk. The appropriate response is to update the allocation and documentation, not to shift the issue into client categorisation, complaint handling, or appointed representative rules.

• Appointed representative oversight applies where a firm has an appointed representative, not simply because a service is outsourced.
• Client reclassification cannot be used to avoid proper governance or conduct responsibilities.
• The Financial Ombudsman Service deals with eligible complaints; it does not allocate Senior Manager accountability for business risks.

SM&CR requires clear allocation and documentation of senior management responsibilities so accountability is not diluted by vague shared ownership.

Question 6

Topic: FCA and PRA Authorisation of Firms and Individuals

In an FCA or PRA authorisation or individual approval application, which response best reflects high standards of professional conduct?

• A. Make full, frank, and accurate disclosure of material information relevant to fitness and propriety, including adverse matters.
• B. Provide only the information specifically requested on the form and wait for the regulator to ask follow-up questions.
• C. Disclose adverse matters only if they resulted in a criminal conviction or formal regulatory sanction.
• D. Present uncertain matters in the most favourable way and leave materiality judgments to the regulator.

Best answer: A

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: Authorisation and approval processes depend on open, honest, and complete dealings with the FCA or PRA. A firm or individual should disclose material information that may bear on fitness and propriety, including matters that could be adverse. This reflects integrity and helps the regulator assess honesty, competence, capability, reputation, and financial soundness. A narrow or selective approach to disclosure may itself raise concerns about integrity, even where the underlying matter is not decisive.

• Limiting disclosure to convictions or formal sanctions is too narrow because other adverse matters can be relevant to fitness and propriety.
• Waiting for follow-up questions is not sufficiently open or cooperative where material information is known.
• Framing uncertain matters favourably without proper disclosure risks misleading the regulator and undermines integrity.

High standards of conduct require honesty and transparency with the regulator on matters relevant to fitness and propriety.

Question 7

Topic: FCA and PRA Authorisation of Firms and Individuals

Calder Holdings Ltd received FCA approval to acquire a 35% shareholding in Calder Advice Ltd, an FCA-authorised investment adviser. Calder Holdings is not authorised, is not an appointed representative of Calder Advice or any other principal, and is not a member of a designated professional body. It then used its own call centre, as part of its business, to recommend particular funds to retail clients and pass completed application forms to Calder Advice. A client complaint about an unsuitable recommendation is upheld because the activity was carried on outside Calder Advice’s permission structure. What was the primary driver of the breach?

• A. Calder Holdings treated controller approval as permission to advise and arrange, rather than needing authorisation, appointed representative status, exempt-person status, or a genuine exclusion.
• B. Calder Holdings used call-centre staff who had not each been approved by the FCA as senior managers.
• C. Calder Advice accepted applications before obtaining a second controller approval for Calder Holdings.
• D. Calder Holdings failed to classify the client as a professional client before discussing investment funds.

Best answer: A

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: Under FSMA, a person carrying on regulated activities by way of business in the UK generally needs appropriate authorisation unless an exemption or exclusion applies. Appointed representative status is different: the representative acts under an authorised principal that accepts responsibility for the regulated activities covered by the arrangement. Controller approval is also different. It relates to acquiring or increasing control over an authorised firm and does not give the controller its own Part 4A permission. Here, Calder Holdings was not authorised, was not an appointed representative, and was not described as an exempt person. Its conduct also went beyond a simple introduction, because staff recommended particular funds and passed completed applications. The root cause was therefore a perimeter failure: the group treated control of an authorised firm as if it allowed the holding company to advise and arrange investments.

• Client categorisation affects conduct obligations, but retail status does not explain why an unauthorised company was giving regulated recommendations.
• Individual approval under SM&CR does not authorise an unauthorised firm to carry on regulated activities.
• Controller approval had already been obtained for the shareholding; obtaining another approval would not give the holding company permission to advise or arrange.

Controller approval allows a person to acquire or hold control; it does not itself permit that person to carry on regulated advice or arranging activities.

Question 8

Topic: FCA and PRA Authorisation of Firms and Individuals

An FCA-authorised advisory firm has permission to advise on investments only in relation to shares and units in collective investment schemes. It has no permission for derivatives. A retail client asks for a personal recommendation on ordinary shares in a UK listed company and on a cash-settled contract for differences (CFD) referencing the same company’s share price. Which statement best distinguishes the RAO and permission position?

• A. Both recommendations fall within the firm’s permission, because the CFD references shares that the firm is permitted to advise on.
• B. Only the ordinary shares are RAO specified investments, because the CFD does not involve delivery of the shares.
• C. Neither recommendation is regulated unless the firm also arranges or executes the client’s transaction.
• D. Both the ordinary shares and the CFD are RAO specified investments, but only advice on the ordinary shares falls within the firm’s stated permission.

Best answer: D

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: Under the RAO, ordinary shares are specified investments, and contracts for differences are also specified investments. The fact that a CFD is cash-settled and does not deliver the underlying shares does not take it outside the perimeter. However, an authorised firm must act within the scope of its specific permissions. A permission covering advice on shares and units in collective investment schemes does not automatically extend to derivatives such as CFDs, even where the derivative references a share. Giving a personal recommendation on the CFD would therefore be regulated investment advice, but outside the firm’s stated permission unless it obtains the relevant variation of permission or does not provide that advice.

• Treating the CFD as outside the RAO confuses non-delivery of the underlying share with the separate specified investment category for contracts for differences.
• Treating the CFD as covered because it references shares ignores that permissions are tied to the investment type being advised on, not just the underlying exposure.
• Saying advice is unregulated unless the firm also arranges or executes a deal overlooks that advising on specified investments is itself a regulated activity.

Shares and CFDs are both specified investments, but the firm’s permission is limited to shares and collective investment scheme units and excludes derivatives.

Question 9

Topic: FCA and PRA Authorisation of Firms and Individuals

A retail investment firm was authorised on the basis that it would have experienced senior managers, documented compliance procedures, and monitoring of client communications before trading. Eight months later, an FCA visit finds that no competent compliance lead is in place, financial promotions are approved by untrained sales staff, and the board receives no conduct-risk MI. Several clients have complained about misleading promotions.

What is the primary regulatory driver of the FCA’s supervisory concern?

• A. The firm may no longer be meeting the threshold conditions because its governance, systems and controls, and fitness arrangements are inadequate for its regulated activities.
• B. The complaints show that the firm must immediately stop all regulated activity until the FOS has decided each case.
• C. The issue is limited to individual sales staff training and does not affect the firm’s authorisation position.
• D. The firm’s main problem is that client communications have created reputational risk for the FCA.

Best answer: A

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: FCA authorisation is not a one-off hurdle. A firm must satisfy the threshold conditions when authorised and continue to satisfy them while carrying on regulated activities. Weak governance, absent competent oversight, poor systems and controls, and inadequate monitoring can call into question the firm’s suitability and ability to be effectively supervised. These concerns also connect to SYSC, SM&CR and FIT expectations because responsibility, competence, and control arrangements must be appropriate for the firm’s business. Complaints and misleading promotions are evidence of the weakness, but the deeper supervisory concern is whether the firm remains fit and properly organised to hold its permissions.

• FOS involvement may be relevant to individual complaint outcomes, but it is not the driver of authorisation and supervision concerns.
• Reputational risk is too indirect; the FCA’s concern is the firm’s continuing compliance with high-level regulatory standards.
• Treating the matter as only a staff-training issue ignores senior management responsibility, systems and controls, and continuing threshold conditions.

Threshold conditions and related high-level standards must be met at authorisation and maintained during ongoing supervision.

Question 10

Topic: FCA and PRA Authorisation of Firms and Individuals

A new firm applies to the FCA for Part 4A permission to provide retail investment advice and to hold client money. Its application includes a statement that it will “put customers first and treat them fairly”. The file also shows:

• no documented client-money segregation or reconciliation arrangements;
• no clear allocation of senior management responsibility for compliance oversight; and
• incomplete information about the proposed chief executive’s competence and integrity.

Which assessment best applies to the authorisation decision?

• A. The firm’s customer-first statement is sufficient at authorisation, because detailed systems and controls are assessed only after permission is granted.
• B. The firm has not yet shown that it can satisfy the threshold conditions, because a PRIN commitment does not replace adequate SYSC arrangements and fit-and-proper senior management evidence.
• C. The client-money weaknesses are relevant only to CASS supervision after the firm starts trading and cannot affect the authorisation decision.
• D. Fitness and propriety is only a matter for retail advisers seeking a Statement of Professional Standing, not for senior managers in an applicant firm.

Best answer: B

What this tests: FCA and PRA Authorisation of Firms and Individuals

Explanation: FCA authorisation is not satisfied by a broad commitment to fair treatment alone. The firm must be capable of meeting the threshold conditions at the point of authorisation and on an ongoing basis. Those conditions are supported by evidence that the firm is suitable, appropriately resourced, capable of effective supervision, and has a viable business model. SYSC arrangements, such as governance, controls, compliance oversight, and client-money procedures, help demonstrate that capability. Where individuals will perform senior management functions, the FCA also needs to be satisfied about their fitness and propriety, including competence and integrity. PRIN sets high-level standards for authorised firms, but it is not a substitute for the operational and personal accountability evidence required in an application.

• A fair-customer statement supports culture, but it does not replace evidence of governance, controls, and responsible senior management.
• Client-money arrangements are relevant before trading where the firm seeks permission to hold client money.
• Fitness and propriety applies to senior managers as well as other relevant individuals, not only to advisers with professional standing requirements.

Authorisation requires the FCA to be satisfied that the firm can meet threshold conditions, supported by adequate systems and controls and suitable individuals.

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