R01 Structure of the UK financial services industry: free practice questions

1. Question 1 of 5

   Which of the following is one of the four key components of the UK financial sector?

   Option A: Consumer advocacy groups that campaign on behalf of bank customersOption B: Financial infrastructure, such as payment and settlement systemsOption C: Trade unions representing staff in the banking sectorOption D: Credit reference agencies that hold borrowers' credit records

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   The answer is B: Financial infrastructure, such as payment and settlement systems

   The four components are financial infrastructure, financial markets, financial firms and the financial sector authorities (Bank of England, PRA, FCA and HM Treasury).

   Why the other options are wrong

   A

   Consumer groups are stakeholders but aren't one of the four components.

   C

   Trade unions aren't listed among the components of the financial sector.

   D

   Credit reference agencies aren't one of the four key components.

2. Question 2 of 5

   In March 2025 the Government announced a change affecting the Payment Systems Regulator (PSR). What was it?

   Option A: It will be merged into the Financial Ombudsman Service from April 2026Option B: It will be disbanded, with its work taken on by the FCA and the Bank of EnglandOption C: It will take over the FCA's consumer protection and enforcement roles from 2026Option D: It will become a UK branch of the European Banking Authority

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   The answer is B: It will be disbanded, with its work taken on by the FCA and the Bank of England

   The Government announced that the PSR will be disbanded and its responsibilities taken up directly by the FCA and the Bank of England.

   Why the other options are wrong

   A

   The FOS handles complaints; it isn't absorbing the PSR.

   C

   The change moves the PSR's work to the FCA and Bank of England, not the other way round.

   D

   The UK has left the EU, and the EBA isn't taking on any UK regulator.

3. Question 3 of 5

   A firm wants to buy foreign currency to pay an overseas supplier. Which market is it using?

   Option A: The capital market for bondsOption B: The foreign exchange marketOption C: The commodity marketOption D: The wholesale money market

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   The answer is B: The foreign exchange market

   The foreign exchange (FX) market is for trading currencies. The money market is wholesale borrowing and lending; commodity markets trade physical goods; capital markets trade shares, bonds and derivatives.

   Why the other options are wrong

   A

   Capital markets trade stocks and shares, fixed-interest investments and derivatives.

   C

   Commodity markets trade physical goods such as oil, steel and foodstuffs.

   D

   The money market is a wholesale market for borrowing and lending, not currency exchange.

4. Question 4 of 5

   Which firm may describe its advice as independent?

   Option A: One that offers its own group's products alongside a panel of other providersOption B: One that considers a sufficiently broad range of products, diverse in type and issuerOption C: One that recommends products from several providers, but not the whole marketOption D: One that charges its clients a fee instead of receiving product commission

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   The answer is B: One that considers a sufficiently broad range of products, diverse in type and issuer

   Independent advice must be based on a sufficiently broad, unbiased range of relevant products, diverse enough in type and issuer. Anything narrower is restricted advice.

   Why the other options are wrong

   A

   Offering only one group's products is restricted (traditionally tied) advice.

   C

   Recommending from several but not all providers is restricted advice.

   D

   How advice is paid for doesn't decide whether it's independent; the range of products considered does.

5. Question 5 of 5

   Which statement about friendly societies is correct?

   Option A: They're exempt from corporation tax on members' life business within limitsOption B: They can offer only general insurance, such as household and motor coverOption C: They are owned by external shareholders who receive dividendsOption D: They pay corporation tax on all of their life business at the full rate

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   The answer is A: They're exempt from corporation tax on members' life business within limits

   Friendly societies are mutual self-help organisations. They remain exempt from corporation tax on life insurance business with members, provided premiums stay within set limits, allowing tax-efficient savings plans.

   Why the other options are wrong

   B

   They offer tax-exempt savings plans and small life policies; since 1992 some also offer unit trusts and ISAs.

   C

   Friendly societies are mutual; all profits after expenses belong to members.

   D

   Life business with members within the premium limits is exempt from corporation tax.

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