Financial Conduct Authority (FCA) UK Regulation Sample Exam

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What must a financial promotion highlight regarding risk?

Potential conflicts of interest
Possible loss and how it can affect clients
Past performance of investments
Company profile and history

The correct answer is: Possible loss and how it can affect clients

A financial promotion must highlight the possibility of loss and how it can affect clients because this is essential for ensuring that clients make informed decisions. The FCA emphasizes the importance of transparency and the need for financial promotions to communicate the risks associated with investments clearly. By highlighting possible losses, it ensures that investors understand that while there may be the potential for returns, there is also the risk of losing money. This is a vital part of managing customer expectations and protecting them from overestimating potential gains without recognizing the downside. Effective communication of risk is crucial because it empowers clients to assess their own risk tolerance and make investment decisions accordingly. This fits within the broader regulatory framework aimed at upholding fair treatment of consumers and promoting financial education. The other options, while relevant to financial promotions, do not directly address the primary obligation to inform clients about the risks of loss associated with investment activities.