Financial Conduct Authority (FCA) UK Regulation Sample Exam

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What is the role of information barriers in a financial firm?

To enhance competitive advantage
To protect sensitive information
To ensure compliance with profit-sharing
To facilitate operations between departments

The correct answer is: To protect sensitive information

The role of information barriers, often referred to as "Chinese walls" within a financial firm, is primarily to protect sensitive information. These barriers are implemented to prevent the unauthorized sharing or leaking of confidential information that could create conflicts of interest or insider trading situations. For example, they ensure that information obtained by one department, such as investment banking, does not improperly influence the decisions of another department, such as sales and trading, which could lead to unfair advantages or regulatory breaches. By maintaining these barriers, firms can safeguard the integrity of their operations, promote trust within the market, and comply with legal and regulatory requirements. Effective information barriers not only help in protecting client confidentiality but also play a vital role in ensuring that employee behavior aligns with ethical standards set forth by the Financial Conduct Authority (FCA). Other options, while potentially relevant to different aspects of firm operations, do not encapsulate the primary objective of information barriers as explicitly as the chosen answer does.