Financial Conduct Authority (FCA) UK Regulation Sample Exam

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Which of the following is TRUE of the FCA's principles-based approach to money laundering?

The firm must have appropriate and adequate systems and controls based on the firm’s business activities
The firm can ignore the regulatory requirements if it believes they are unnecessary
All firms are required to follow the same set of rules regardless of their activities
The firm is required to submit monthly reports to the FCA

The correct answer is: The firm must have appropriate and adequate systems and controls based on the firm’s business activities

The principles-based approach to money laundering adopted by the Financial Conduct Authority (FCA) emphasizes that firms must implement appropriate and adequate systems and controls that are tailored to their specific business activities and risks. This approach allows for flexibility and encourages firms to assess their own risk profiles and apply measures that are suitable for their particular circumstances. It recognizes that not all firms operate in the same manner and acknowledges the diversity in the financial sector. To comply with this principles-based framework, firms are expected to take a proactive stance in identifying and mitigating risks related to money laundering, rather than adhering to a one-size-fits-all set of regulations. This ensures that the controls implemented are effective and proportional to the nature and scale of the firm's operations. In contrast, regulatory requirements cannot be disregarded merely because a firm feels they are unnecessary, nor can all firms follow identical rules without regard to their unique activities. Furthermore, the requirement for firms to submit monthly reports to the FCA does not align with the principles-based approach, as reporting frequency can vary based on assessed risks and business models. The correct answer reflects the FCA's commitment to risk-based regulation, ensuring that firms maintain robust anti-money laundering frameworks suited to their individual situations.