Financial Conduct Authority (FCA) UK Regulation Sample Exam

According to the SYSC rules, what is the minimum action a firm must take when a conflict of interest arises?

1. Notify the Financial Conduct Authority

2. Email the client with sufficient information and ask for their decision

3. Document the conflict and proceed without further action

4. Terminate the relationship with the conflicting party

The correct answer is: Email the client with sufficient information and ask for their decision

The minimum action a firm must take when a conflict of interest arises, according to SYSC (Senior Management Arrangements, Systems and Controls) rules, involves communicating with the affected client. This means providing them with adequate and relevant information regarding the conflict, allowing them to make an informed decision about how to proceed. This approach not only demonstrates transparency but also upholds the firm's duty to act in the best interest of its clients, as required by regulatory expectations. By taking this step, the firm ensures that clients are aware of the potential implications of the conflict and can express their preferences or decisions based on a full understanding of the situation. It aligns with the principle of treating customers fairly and emphasizes the importance of clear communication in upholding trust and integrity within the financial services sector. This option reflects the regulatory focus on maintaining client confidence and ensuring informed consent, which is essential when conflicts occur. In contrast, while notifying the Financial Conduct Authority or terminating relationships may be steps taken in more severe cases, they are not considered the minimum necessary action stipulated under SYSC rules when a conflict arises. Documenting the conflict without further action does not fulfill the requirement for client engagement and transparency and is therefore insufficient.