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CRS practice questions

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Question 1Professional Standards and Ethics

When a compliance professional's personal financial interest could reasonably be seen to impair their professional judgement, the appropriate first response is to:

  1. Proceed quietly, provided that no financial loss to the firm results
  2. Delegate the decision to a junior colleague without documenting the reason for doing so
  3. Wait until the conflict is raised by a colleague or an internal auditor before acting
  4. Disclose the interest and step back from the affected decision Correct answer.

Explanation

Conflicts of interest are managed through prompt disclosure, escalation and, where necessary, removal from the decision. The test is whether judgement could reasonably be seen to be affected, not whether a loss actually occurs.

Question 2Professional Standards and Ethics

Client information obtained during an engagement may generally be shared with a third party when:

  1. The client has given informed consent or disclosure is legally required Correct answer.
  2. The engagement has ended and the working papers have been placed in the archive
  3. A colleague at another firm asks for it as a professional courtesy
  4. The same information is already available somewhere on the internet

Explanation

Confidentiality is owed to the client and is lifted only by informed consent or by a legal or regulatory obligation to disclose. Neither the passage of time nor the wider availability of information removes the duty.

Question 3Professional Standards and Ethics

The primary reason a firm sets a monetary threshold for accepting gifts and entertainment from a business partner is to:

  1. Comply with tax reporting rules that apply to employees who receive taxable benefits
  2. Reduce the firm's overall marketing and hospitality expenditure
  3. Ensure the firm's own hospitality is reciprocated on an equivalent scale
  4. Keep business judgement free from improper influence and permit monitoring Correct answer.

Explanation

Gift and entertainment limits are an anti-corruption and conflicts control: they reduce the risk that benefits influence business decisions and give the firm a measurable trigger for review and approval. Tax treatment is a separate, secondary consideration.

Question 4Professional Standards and Ethics

Information is generally treated as material non-public information when it:

  1. Has been shared only with a small group of senior employees inside the firm
  2. Concerns a company whose shares are listed only on a foreign exchange rather than domestically
  3. Is not yet public and would likely affect a reasonable investor's decision Correct answer.
  4. Has been prepared by a research analyst rather than by an investment banker

Explanation

Materiality turns on whether a reasonable investor would consider the information important to an investment decision, and non-public means it has not been disseminated to the market. The source of the information and the exchange on which the security trades are irrelevant.

Question 5Professional Standards and Ethics

Which protection do most regulatory regimes extend to an employee who reports a suspected violation in good faith?

  1. Reimbursement of legal costs regardless of the outcome of the investigation
  2. Automatic immunity from any personal liability arising out of the same conduct
  3. Protection from retaliation such as dismissal or demotion Correct answer.
  4. A guaranteed share of any penalty eventually recovered from the wrongdoer

Explanation

Whistleblower regimes are built around anti-retaliation protection so that staff can raise concerns without fear of detriment. They do not generally confer financial rewards, immunity or cost reimbursement as of right.

Question 6Professional Standards and Ethics

Maintaining professional competence primarily requires a compliance professional to:

  1. Rely on external counsel for any matter that involves a novel regulatory question
  2. Hold the highest available academic qualification in the field
  3. Keep knowledge current with changing rules and accepted practice Correct answer.
  4. Restrict their work to tasks they have performed repeatedly in the past

Explanation

Competence is a continuing obligation: the professional must keep pace with regulatory change and evolving market practice, and must recognise the limits of their expertise. Formal qualifications and the use of counsel support competence but do not discharge it.

Question 7Professional Standards and Ethics

Objectivity in a compliance role is best described as:

  1. Reaching conclusions that are consistent with those of senior management
  2. Refusing to take any position that a client or colleague might disagree with
  3. Forming judgements on evidence and fact rather than on personal interest or pressure Correct answer.
  4. Avoiding any contact with the business units that are subject to compliance monitoring

Explanation

Objectivity means that conclusions are reached on the evidence, free from bias, conflict of interest or improper influence. It does not mean agreement with management, avoidance of disagreement, or detachment from the business.

Question 8Professional Standards and Ethics

Records of client instructions and compliance decisions should be created:

  1. By the business unit rather than by the compliance function
  2. Contemporaneously, accurately, and in a form that can be retrieved and audited Correct answer.
  3. Only when a regulator formally requests them
  4. Once the matter has been closed, using a retrospective summary of the events as recalled

Explanation

Records must be made at or near the time of the event, must be accurate, and must be retrievable for supervisory, audit and regulatory purposes. Reconstruction from memory months later is unreliable and generally unacceptable.

Question 9Professional Standards and Ethics

A firm's anti-bribery programme should extend to third-party agents and consultants because:

  1. Intermediaries are excluded from the firm's code of conduct by definition
  2. A firm can be liable for bribes paid on its behalf by intermediaries Correct answer.
  3. Payments to intermediaries are always treated as permissible facilitation payments
  4. Agents and consultants are legally required to be paid only through the firm's head office account

Explanation

Anti-bribery laws typically attribute to a firm the conduct of intermediaries acting on its behalf, so risk-based due diligence, contractual controls and monitoring of third parties are core programme elements. Facilitation payment treatment varies by regime and is never automatic.

Question 10Professional Standards and Ethics

A useful test when deciding whether a proposed course of action is ethical is to ask:

  1. Whether other firms in the same market have adopted the same practice
  2. Whether the action is likely to be detected by the regulator
  3. Whether the action will increase the firm's reported short-term profitability for this quarter
  4. Whether the action could be defended publicly and to those affected Correct answer.

Explanation

Publicity or 'front page' tests force the decision-maker to weigh transparency, fairness to affected parties and reputational consequences. Detection risk, profitability and market practice are not ethical criteria, although market practice may inform expectations.

Question 11Professional Standards and Ethics

A compliance officer learns that a client order will move the price of a stock and buys the stock for a personal account before executing the client order. This is best characterised as:

  1. Acceptable, because the personal trade is small relative to the client order
  2. Market making, which is permitted where the firm is a registered dealer in the stock
  3. Front-running, a breach of duty to the client and of personal account dealing rules Correct answer.
  4. Acceptable, provided the personal holding is disclosed to the client afterwards

Explanation

Trading ahead of a client order on the strength of that order is front-running: it puts the firm's or individual's interest before the client's and breaches both the duty of loyalty and personal account dealing policies. Size and later disclosure do not cure it.

Question 12Professional Standards and Ethics

After leaving a firm, a compliance professional may generally:

  1. Use general skills and knowledge acquired, but not the former employer's confidential information Correct answer.
  2. Take copies of client files to support continuity of service to those clients
  3. Solicit the former employer's clients using contact details that were retained from the previous role
  4. Use the former employer's confidential methodologies at their new employer

Explanation

The line is drawn between general skill and experience, which the individual may use, and confidential information or client connections belonging to the former employer, which they may not exploit. Restrictive covenants and local law may narrow the position further.

Question 13Professional Standards and Ethics

A compliance professional discovers a suspected fraud. The most appropriate first step is normally to:

  1. Confront the individuals suspected so that they can explain the transaction
  2. Take no action until the annual audit confirms that a loss has occurred
  3. Escalate internally through the established reporting channel without alerting those involved Correct answer.
  4. Report the matter directly to the press or on social media to ensure an independent investigation

Explanation

Suspicions should be escalated promptly through the firm's designated channel so that evidence is preserved and an independent investigation can begin. Confronting suspects, going public or waiting for audit risks tipping off, destroying evidence or allowing further loss.

Question 14Professional Standards and Ethics

Which situation should most readily prompt a supervisor to make further enquiries?

  1. A trader's results are consistently strong while never taking leave Correct answer.
  2. A trader asks for a limit increase that is supported by a written business case and risk analysis
  3. A trader attends a client meeting accompanied by a colleague
  4. A trader takes annual leave at the same time as the rest of the desk

Explanation

Uninterrupted strong performance combined with a refusal to take leave is a recognised red flag because it may indicate concealment of positions or irregularities that would surface during absence. Well-documented requests and normal team activity are not red flags.

Question 15Professional Standards and Ethics

When a firm files a suspicious activity report with the financial intelligence unit, staff handling the matter must generally:

  1. Inform the customer promptly so that they have an opportunity to correct any inaccurate information
  2. Keep the report and the underlying suspicion confidential from the customer Correct answer.
  3. Publish a summary of the report in the firm's annual compliance report
  4. Continue the transaction immediately so that the customer is not disadvantaged at that moment

Explanation

Tipping-off prohibitions require that the customer is not told that a report has been made or that a suspicion exists, because disclosure could defeat the investigation. Transaction handling is governed by the applicable regime and internal approval, not by a duty to proceed.

Question 16Professional Standards and Ethics

Marketing material that presents a fund's past performance must:

  1. Use bar charts that begin at the highest value recorded in the period so that growth is visible
  2. Be approved by the investment manager who produced the performance figures
  3. Be fair and balanced, include the relevant time period, and not be misleading Correct answer.
  4. Show only the years in which the fund outperformed its benchmark

Explanation

Financial promotions must be fair, clear and not misleading, which requires complete rather than selective performance data, a stated period and appropriate warnings that past performance is not indicative of future results. Self-approval by the author is not an adequate control.

Question 17Professional Standards and Ethics

Applying a 'know your customer' process supports fair dealing mainly because it:

  1. Allows the firm to share client data more freely with affiliated companies
  2. Guarantees that the client will not suffer a loss on the recommended product
  3. Reduces the firm's documentation burden when onboarding new clients
  4. Helps ensure products and advice are matched to the client's circumstances Correct answer.

Explanation

Knowing the client's objectives, financial position and risk appetite is the foundation of suitability and fair treatment. It is a protective process, not an administrative shortcut, and it never removes investment risk.

Question 18Professional Standards and Ethics

Under most firm policies, employees must seek approval before:

  1. Joining a professional body relevant to their role
  2. Accepting a paid non-executive directorship at another company Correct answer.
  3. Attending a training course arranged by the compliance department
  4. Participating in a firm-sponsored volunteering day in the local community

Explanation

Outside business interests that involve remuneration, fiduciary duties or time commitments create potential conflicts and therefore require prior written approval. Routine professional development and firm-sponsored activities do not ordinarily require it.

Question 19Professional Standards and Ethics

A compliance team needs to build a monitoring report from client transaction data. Consistent with data minimisation principles, the team should:

  1. Retain every data field available in case it becomes relevant later
  2. Share the full dataset with several external vendors so that a second opinion can be obtained
  3. Anonymise nothing, so that individual advisers remain accountable for their actions
  4. Collect and use only the fields needed for the stated monitoring purpose Correct answer.

Explanation

Data minimisation requires that personal data be adequate, relevant and limited to what is necessary for the specified purpose. Broad retention and wide external sharing increase risk without improving the monitoring outcome.

Question 20Professional Standards and Ethics

Under most sanctions regimes, a firm that processes a payment for a designated person:

  1. Commits a breach only if it actually knew that the person was designated
  2. May breach the regime even without knowledge, so screening and escalation are essential Correct answer.
  3. Is excused if the payment was small and part of routine business activity
  4. Is liable only if a regulator had previously issued a specific warning to the firm about that name

Explanation

Many sanctions regimes impose strict liability, meaning a breach can occur without knowledge or intent. Robust screening, escalation and, where available, licensing are therefore the principal defences.

Question 21Professional Standards and Ethics

Within a firm, an information barrier ('Chinese wall') is designed to:

  1. Prevent material non-public information held in one area from reaching areas that trade or advise Correct answer.
  2. Allow research analysts to share draft ratings with the investment banking team before those ratings are published
  3. Separate the firm's legal entity from its affiliates so that they cannot share capital
  4. Replace the need for personal account dealing rules within the restricted area

Explanation

An information barrier is a procedural and physical control that stops confidential, price-sensitive information from flowing from a private-side team to public-side teams. It supplements rather than replaces other controls such as personal account dealing and restricted lists.

Question 22Professional Standards and Ethics

A compliance professional is instructed by a senior executive to suppress a finding that must be reported to the regulator. The professional's paramount obligation is to:

  1. Delay reporting until the executive leaves the firm so that the conflict disappears
  2. Follow the instruction, because the executive carries legal accountability for the firm
  3. Document the instruction carefully and let the firm's external auditors decide whether it should be reported
  4. Ensure the matter is reported and, where necessary, escalate to the board or regulator Correct answer.

Explanation

Regulatory reporting duties attach to the professional and the firm and cannot be overridden by an internal instruction. Where internal channels are blocked, escalation should continue to the board and, ultimately, to the regulator.

Question 23Professional Standards and Ethics

Which arrangement presents the clearest threat to the independence of published investment research?

  1. An analyst's bonus is set by the investment banking team whose deals the analyst covers Correct answer.
  2. A research analyst attends an industry conference alongside sales staff
  3. A research analyst is required to disclose in each report any personal holdings in the companies they cover
  4. A research analyst's coverage list is reviewed annually by the head of research

Explanation

Independence is compromised when remuneration or reporting lines place the analyst under the influence of the commercial team whose business the research could affect. Shared events, editorial review and personal holding disclosure are normal controls rather than threats.

Question 24Professional Standards and Ethics

Under the misappropriation theory of insider trading, liability can arise when a person:

  1. Trades on information obtained from a company's own press release issued that morning
  2. Trades on information that is publicly available but widely misunderstood by the market
  3. Trades on confidential information in breach of a duty owed to the source of that information Correct answer.
  4. Trades on a hunch that is later shown to be correct but based on no information at all

Explanation

The misappropriation theory targets trading on confidential information obtained in breach of a duty of trust and confidence owed to the source, even where the trader owes no duty to the issuer whose securities are traded. It extends beyond the classic insider relationship.

Question 25Professional Standards and Ethics

An agent working for a firm proposes paying a foreign official from a 'marketing budget' to win a contract. The firm's most robust response is to:

  1. Approve the payment provided the official signs a receipt for the amount
  2. Refuse the arrangement and review the agent relationship for bribery risk Correct answer.
  3. Approve the payment but record it as marketing spend in the ledger
  4. Ask the agent to confirm in writing that the payment is customary in that market

Explanation

A payment to a government official to win business is a bribe regardless of how it is labelled, and the firm may be liable for its agent's conduct. The correct response is refusal plus a risk-based review of the relationship and possible escalation.

Question 26Professional Standards and Ethics

A compliance analyst receives an unsolicited and expensive watch from a broker whose firm is an approved counterparty. Under typical firm policy the analyst should:

  1. Keep it, provided no business decision involving the broker is currently pending
  2. Keep it if its value is below the threshold in the local anti-bribery statute
  3. Decline or surrender the gift to the firm and record it in the gifts and hospitality register Correct answer.
  4. Keep it and disclose it in the next annual attestation

Explanation

Gifts and hospitality create a sense of obligation and can compromise judgement, so firms set low monetary limits and require anything beyond a nominal value to be declined or handed to the firm and logged. Registration allows the firm to monitor patterns of hospitality and to identify where influence may be building. The test is not whether a decision is pending today, but whether independence could be affected at any point.

Question 27Professional Standards and Ethics

A firm identifies a conflict of interest between two clients that it cannot avoid because it acts for both. The most appropriate response is to:

  1. Resolve it by offering the affected client a reduction in fees
  2. Manage it with controls and, if the risk remains, disclose it to the client Correct answer.
  3. Record the conflict in the firm's conflicts register and take no further action
  4. Obtain a general waiver from both clients covering all future conflicts

Explanation

Conflicts are handled through a hierarchy: avoid the conflict where possible, otherwise control it through measures such as information barriers, independent oversight or separate teams. Where controls cannot eliminate the risk of detriment, the residual conflict must be disclosed clearly so the client can give informed consent. A blanket waiver of unknown future conflicts is generally not valid consent, and a fee reduction does not address the underlying conflict.

Question 28Professional Standards and Ethics

A compliance professional may disclose confidential client information without the client's consent when:

  1. The professional believes disclosure would improve the firm's reputation with investors
  2. The recipient undertakes in writing to keep the information confidential
  3. Another client of the firm asks for a reference about the client's payment record
  4. Disclosure is required by law or requested by a competent regulatory authority Correct answer.

Explanation

Confidentiality is a duty owed to the client, but it is not absolute: disclosure is permitted where the law compels it or a regulator with the appropriate powers requires it in the course of supervision. Disclosure to other clients, or for reputational convenience, falls outside these exceptions. A promise of confidentiality from a third party does not create a legal basis for disclosure.

Question 29Professional Standards and Ethics

Which statement best describes the purpose of whistleblower protection within a firm's ethics framework?

  1. It removes the need for the firm to investigate the concerns raised
  2. It guarantees that a reporter's identity will never be revealed
  3. It applies only to reports about a colleague's personal misconduct
  4. It allows staff to raise concerns about misconduct without fear of reprisal Correct answer.

Explanation

Speak-up protections exist so that staff report suspected wrongdoing through internal channels rather than staying silent, which is why retaliation against a genuine reporter is itself a disciplinary matter. Confidentiality is offered wherever possible but cannot be guaranteed, for example where an investigation or legal process requires the source to be identified. Reporting a concern triggers an investigation; it does not replace one.

Question 30Professional Standards and Ethics

An employee in the compliance department is invited to become a paid non-executive director of a small unlisted company that supplies services to their employer. The employee should:

  1. Decline the role only if the time commitment exceeds ten hours a month
  2. Accept the role and mention it at the next team meeting
  3. Accept the role, because non-executive directorships carry no executive authority
  4. Seek prior written approval under the outside interests policy and manage any conflict Correct answer.

Explanation

Outside appointments must be pre-approved so the firm can assess whether the role conflicts with the employee's duties, compromises independence, or creates a commercial relationship with a supplier. A non-executive title does not remove the risk, and the compliance function is expected to set an example in managing personal interests. Informal notification after the event defeats the purpose of the control.

Question 31Professional Standards and Ethics

A fund manager directs all of a client's equity orders to one broker, which in return supplies a market-data terminal used partly for that client and partly for the manager's other business. The clearest ethical concern is that:

  1. Brokerage commissions may never be used to buy market data
  2. The manager has breached client confidentiality by sharing order flow data
  3. The broker may be unable to execute the orders at the best available price
  4. The arrangement may be an undisclosed inducement that conflicts with best execution Correct answer.

Explanation

Directing order flow in exchange for services is a benefit that can bias order-routing decisions away from what is best for the client, and it must be justified, allocated fairly and disclosed. Where the benefit is not clearly for the client's benefit, it operates as an inducement conflicting with the duty to act in the client's best interests. The concern is about influence and disclosure, not about the mechanics of execution.

Question 32Professional Standards and Ethics

A new issue is heavily oversubscribed and is expected to trade above the offer price. To meet its ethical and regulatory obligations, the firm should allocate the shares:

  1. In line with a documented, pre-defined and non-discriminatory allocation policy Correct answer.
  2. To the clients who generate the highest commission revenue
  3. To clients who undertake to place further orders with the firm
  4. To the firm's own trading accounts first, to hedge the risk

Explanation

Allocation of scarce profitable allocations is a classic conflict area, so firms must apply a policy set in advance that is fair, documented and applied consistently to comparable clients. Preferencing the firm's own book, or rewarding clients for revenue or future business, transfers value improperly and can amount to an inducement. Records of how each allocation decision was reached are essential.

Question 33Professional Standards and Ethics

A trader enters large buy orders that he intends to cancel before execution, so that other participants believe demand exists while he sells his own holdings at the inflated price. This conduct is best described as:

  1. Market manipulation, because it creates a false impression of demand Correct answer.
  2. Acceptable conduct, provided the orders are cancelled within the trading day
  3. Legitimate execution practice, because the orders were never executed
  4. Insider dealing, because the trader relied on information not available to others

Explanation

Manipulation captures conduct that gives a false or misleading signal about the supply of, demand for or price of a financial instrument, and cancelling the orders is the very mechanism that makes the signal false. The trader's intent to induce others to trade at an artificial price is central, and non-execution provides no defence. This is distinct from insider dealing, which concerns misuse of non-public information rather than deceptive order entry.

Question 34Professional Standards and Ethics

A retail client with a stated low risk tolerance and a two-year horizon is recommended a concentrated position in an emerging-market small-cap fund. Reviewing the file, the compliance professional should conclude that:

  1. There is a suitability concern, because the product is inconsistent with the client's profile Correct answer.
  2. The recommendation is suitable once the client signs the application form
  3. The recommendation is suitable if the fund has a strong long-term performance record
  4. Suitability is a matter for the client to determine rather than for the firm

Explanation

Suitability requires the recommendation to match the client's objectives, risk tolerance, knowledge, experience and financial situation, and a concentrated emerging-market small-cap holding sits poorly with a low-risk, short-horizon profile. A signed form records the client's decision but does not discharge the firm's duty to assess suitability. Past performance does not convert an unsuitable product into a suitable one.

Question 35Professional Standards and Ethics

During onboarding, a client is identified as a senior official of a foreign government. Under a risk-based anti-money-laundering framework the firm should:

  1. Apply enhanced due diligence and obtain senior management approval before onboarding Correct answer.
  2. Decline the relationship automatically, because such clients may not be onboarded
  3. Onboard the client once a copy of the passport has been obtained
  4. Apply standard due diligence, since the status is not itself a risk factor

Explanation

Politically exposed persons present a higher risk of bribery and corruption because of the position they hold, so enhanced measures are required: establishment of source of wealth and source of funds, closer ongoing monitoring, and senior management sign-off. A blanket prohibition goes beyond what risk-based rules require, and ordinary due diligence understates the risk. Identity verification alone is only the starting point.

Question 36Professional Standards and Ethics

A regulator asks for client records during a supervisory review. The firm's confidentiality obligations to its clients:

  1. Require the firm to obtain each client's consent first
  2. Require the firm to provide aggregated data with names removed
  3. Prevent disclosure unless every affected client gives written consent
  4. Not prevent disclosure, since regulators may receive it in supervision Correct answer.

Explanation

Confidentiality is subject to legal and regulatory override: where a competent authority with statutory powers requires information, the firm must provide it. Seeking consent, or anonymising records, would obstruct a lawful request and may itself breach regulatory obligations. Firms should keep the request, the scope of disclosure and the records supplied properly documented.

Question 37Professional Standards and Ethics

A client complains that an adviser failed to disclose a fee before a transaction. The most appropriate response is to:

  1. Log the complaint, investigate it and respond within the required timeframe Correct answer.
  2. Ask the adviser to reply to the client directly without oversight
  3. Resolve the matter informally, so that the relationship is preserved
  4. Reject the complaint, since the fee was set out in the terms of business

Explanation

Complaints must be recorded, investigated impartially and answered within the required period, because the record allows the firm and the regulator to see how fairly clients are treated. Leaving the adviser to respond alone creates a conflict, as the person complained about would judge their own conduct. Informal resolution that is not recorded deprives the client of escalation rights and the firm of management information.

Question 38Professional Standards and Ethics

A compliance officer learns from a deal-team colleague that an unannounced takeover bid will be launched next week. In conversation she names the target company to her brother-in-law, without explaining why. Under insider dealing rules:

  1. No liability arises, because she neither traded nor obtained a benefit
  2. No liability arises, since the conversation was personal in nature
  3. She may be liable for unlawful disclosure, and he may be liable if he trades Correct answer.
  4. Liability arises only if the brother-in-law is a client of the firm

Explanation

Inside information may not be disclosed outside the proper course of business, and the offence of unlawful disclosure can be committed even where the tipper does not trade or profit personally. The recipient who knows, or ought to know, that the information is inside information and trades on it is also liable. The personal nature of the relationship and the recipient's client status are irrelevant.

Question 39Professional Standards and Ethics

A private banking client asks staff to move funds through a series of transfers structured so that income is hidden from the tax authority. The firm's position should be that:

  1. The firm may act on the instructions, because tax planning is a legitimate service
  2. The firm should refuse, and consider filing a suspicious activity report Correct answer.
  3. The firm may proceed, provided each transfer stays below the reporting threshold
  4. The firm may proceed if the client signs an indemnity for any tax liability

Explanation

Knowingly assisting a client to conceal income from the tax authority goes beyond legitimate tax planning and may amount to facilitating tax evasion, which exposes the firm and individuals to criminal liability. The firm should decline the business and escalate internally, and suspicion of criminal conduct should be reported to the financial intelligence unit. Structuring transfers to stay under thresholds is itself a recognised red flag rather than a safeguard.

Question 40Professional Standards and Ethics

A firm wants to sound out an investor about a planned share placing and must give that investor inside information. Which control is essential if the wall-crossing is to be relied on?

  1. A documented disclosure, the investor's acknowledgement, and an insider list entry Correct answer.
  2. A verbal assurance from the investor that no trading will take place
  3. Approval of the disclosure by the head of the sales desk
  4. A public announcement of the transaction before any investor is approached

Explanation

Giving inside information to an outsider is only defensible if the firm can show the recipient was told what they were receiving, understood the trading restrictions and was recorded on an insider list. The evidence must be contemporaneous and retrievable, because it is what the firm will rely on if the investor trades. Informality destroys the safe harbour the crossing was meant to create, and a public announcement would defeat the purpose of the sounding.

Question 41Listing and Buyer Representation

A broker holds a listing that entitles the broker to a commission if the property sells during the listing period, no matter who finds the buyer - even the seller. Which type of listing is this?

  1. Open listing
  2. Net listing
  3. Exclusive agency listing
  4. Exclusive right to sell listing Correct answer.

Explanation

Under an exclusive right to sell listing, the broker earns a commission regardless of who procures the buyer, including the seller. It gives the broker the strongest compensation protection of the common listing types.

Question 42Listing and Buyer Representation

Under an open listing, when is the listing broker entitled to a commission?

  1. Whenever any cooperating broker produces a buyer
  2. Whenever the property sells during the listing period, no matter who procures the buyer
  3. Only if the listing broker is the procuring cause of the sale Correct answer.
  4. Only if the seller agrees in writing after the sale closes

Explanation

An open listing is non-exclusive: the owner may list with several brokers and may sell personally without owing a fee. Only the broker who is the procuring cause of the sale earns a commission.

Question 43Listing and Buyer Representation

A listing agreement in which the broker keeps whatever the sale price exceeds a stated amount the seller wants to receive is known as a net listing. In California, this arrangement is:

  1. Permissible for residential property only
  2. Permissible when both parties are represented by attorneys
  3. Permissible if the broker discloses an estimated commission
  4. Prohibited by law Correct answer.

Explanation

California prohibits net listings because they create a conflict of interest: the broker's compensation rises as the price paid by the seller's own asset increases. The broker's fee must be a set amount or percentage, not a residual.

Question 44Listing and Buyer Representation

Which term must appear in every California listing agreement?

  1. An automatic renewal clause
  2. A definite termination date Correct answer.
  3. A broker commission of at least five percent
  4. A clause allowing the broker to extend the listing unilaterally

Explanation

A listing must state a fixed expiration date; an agreement of indefinite duration does not comply with California requirements. Renewals or extensions require the parties' agreement rather than automatic operation.

Question 45Listing and Buyer Representation

The broker whose efforts ultimately produced a buyer who was ready, willing, and able to buy on the seller's terms is described as:

  1. The designated agent
  2. The dual agent
  3. The procuring cause of the sale Correct answer.
  4. The subagent

Explanation

Procuring cause refers to the broker whose uninterrupted efforts led to the sale, which is the standard used to decide who earns a commission among competing brokers. It is a factual question, not simply a matter of who wrote the offer.

Question 46Listing and Buyer Representation

A salesperson takes a signed listing that results in a completed sale. From whom is the salesperson legally entitled to be paid?

  1. The seller directly, under the listing agreement
  2. The salesperson's employing broker Correct answer.
  3. The title company at closing, in the salesperson's name
  4. The multiple listing service, which distributes commissions

Explanation

A salesperson may not receive compensation for licensed acts except through the employing broker. The broker collects the commission and then pays the salesperson according to their agreement.

Question 47Listing and Buyer Representation

A seller asks the listing agent what price to ask for the home. What is the agent's proper role?

  1. Decline to discuss price to avoid any liability for the decision
  2. Use the appraised value as the asking price
  3. Provide a broker price opinion and market data, then let the seller decide Correct answer.
  4. Set the asking price, because the agent knows the market best

Explanation

Pricing is the seller's decision; the agent's role is to supply a reasoned opinion of value and supporting market data. Advising on price is a service, but the principal retains the decision.

Question 48Listing and Buyer Representation

Which of the following is a fiduciary duty an agent owes to a principal?

  1. A duty to guarantee the property will sell within the listing term
  2. A duty of loyalty and confidentiality Correct answer.
  3. A duty to pay the seller's closing costs if the sale falls through
  4. A duty to set a listing price the market will support

Explanation

Fiduciary duties include loyalty, confidentiality, disclosure, accounting, reasonable care, and obedience to lawful instructions. None of these duties guarantees an outcome such as a sale.

Question 49Listing and Buyer Representation

A seller sells the property personally to a buyer the seller located while an exclusive agency listing is in effect. The listing broker is entitled to:

  1. Half the commission as a cancellation fee
  2. The full commission, because the listing was exclusive
  3. Commission only if the broker had shown the property to that buyer
  4. No commission, because the seller was the procuring cause Correct answer.

Explanation

An exclusive agency listing reserves the seller's right to sell personally without paying the broker; the broker is paid only if the broker procures the buyer. This is what distinguishes it from an exclusive right to sell.

Question 50Listing and Buyer Representation

A listing provides that the broker is entitled to a commission if, within a set number of days after the listing expires, the seller sells to a buyer the broker had introduced to the property. This provision is:

  1. A safety or holdover clause, enforceable if properly drafted and time-limited Correct answer.
  2. A net listing provision
  3. A dual agency disclosure
  4. An unlawful attempt to extend the listing beyond its term

Explanation

A safety clause protects the broker's commission when a buyer the broker produced buys shortly after expiration. It must be conspicuous, limited in time, and ordinarily supported by a list of the buyers the broker had introduced.