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Regulatory SIE Practice Questions

Regulatory

Regulation Best Interest, AML, prohibited activities, and FINRA rules covered on the SIE.

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What this domain covers

The regulatory framework is the smallest SIE domain — roughly 9% of the exam — but it is rules-heavy. Expect questions on Regulation Best Interest and its four obligations, the older suitability standard, AML basics including structuring red flags, the distinction between prohibited activities like churning and front-running, FINRA-specific rules (such as Rule 3220), and how customer communications are classified.

Sample questions

Question 1. Regulation Best Interest (Reg BI) imposes four general obligations on broker-dealers when making recommendations to retail customers. Which of the following is NOT one of them?

  1. Disclosure Obligation
  2. Care Obligation
  3. Fiduciary Obligation
  4. Conflict of Interest Obligation
Show answer and explanation

Correct answer: C. Reg BI's four obligations are Disclosure, Care, Conflict of Interest, and Compliance. Reg BI is a 'best interest' standard — it is not a formal fiduciary duty equivalent to the Investment Advisers Act of 1940 standard that applies to registered investment advisers.

Question 2. Which statement most accurately describes Regulation Best Interest (Reg BI)?

  1. Reg BI imposes a fiduciary duty identical to that of a registered investment adviser
  2. Reg BI requires broker-dealers to act in the retail customer's best interest at the time of a recommendation, replacing the older suitability standard
  3. Reg BI applies only to recommendations involving variable annuities
  4. Reg BI permits broker-dealers to place their own interests ahead of the customer's
Show answer and explanation

Correct answer: B. Reg BI requires broker-dealers and their representatives to act in the retail customer's best interest when making a recommendation, raising the bar above the older FINRA suitability standard. It is not a full fiduciary duty equivalent to an RIA's, but it does prohibit putting the firm or rep's financial interests ahead of the customer's.

Question 3. On Monday, a customer deposits $9,500 in cash into her brokerage account. On Wednesday she deposits another $9,500 in cash. The branch manager notices the pattern and reviews the account. This activity is most consistent with:

  1. Routine cash management requiring no further action
  2. Structuring to evade the $10,000 Currency Transaction Report threshold
  3. A reportable insider transaction
  4. A churning violation
Show answer and explanation

Correct answer: B. Structuring is breaking cash transactions into amounts under the $10,000 Currency Transaction Report threshold to avoid federal reporting. Firms must file a Suspicious Activity Report (SAR) when activity reasonably appears designed to evade reporting. The customer must not be tipped off.

Question 4. A registered representative with discretionary authority over a customer's account executes a high volume of trades that generate substantial commissions but are inconsistent with the customer's stated investment objectives. The activity is best described as:

  1. Front-running
  2. Marking the close
  3. Painting the tape
  4. Churning
Show answer and explanation

Correct answer: D. Churning is excessive trading in a customer's account primarily to generate commissions for the representative. It violates the quantitative-suitability framework of FINRA Rule 2111. Front-running, by contrast, is trading ahead of a customer order to profit from its anticipated price impact — a different violation.

Question 5. Under FINRA Rule 3220 as amended in 2026, what is the maximum value of gifts (other than ordinary and usual business entertainment) that a member firm may give to any single person per year in connection with that person's business?

  1. $100
  2. $200
  3. $300
  4. $500
Show answer and explanation

Correct answer: C. FINRA Rule 3220 was amended effective March 30, 2026, raising the maximum gift value in connection with the recipient's business to $300 per person per year. This was the first adjustment to the limit since 1992, when it was originally set at $100 — a figure still printed in older study materials. Ordinary and usual business entertainment, where a firm representative accompanies the recipient, is governed by a separate, principles-based standard rather than the $300 cap.

Question 6. A research report distributed to more than 25 retail investors within any 30-calendar-day period is classified as which type of communication under FINRA's communications rule?

  1. Correspondence
  2. Institutional communication
  3. Retail communication
  4. Confidential communication
Show answer and explanation

Correct answer: C. FINRA classifies written or electronic communications distributed or made available to more than 25 retail investors within 30 calendar days as retail communications. Communications to 25 or fewer retail investors are correspondence; communications limited to institutional investors are institutional communications. Each category has different review and supervisory requirements.

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