Practice and exam technique

HKSI Paper 1 practice questions: Topic 5, business conduct

Compiled by the Sitonce editorial team from the HKSI and SFC sources listed belowUpdated 11 August 20269 min readFacts verified 5 September 2026

The short answer

Topic 5 is the Code of Conduct and the specialist codes, and we estimate about 11 of 60 questions. It is where partial-compliance distractors live: options that describe something the firm genuinely did and that do not discharge the obligation. Six worked questions below.

Small topic, disproportionate damage. Topic 5 is only around 6 questions on our estimate, but it produces more avoidable losses than its size suggests, because the questions are scenarios and the scenarios are built to reward the answer that sounds professional rather than the one that is required.

Disclosure is the classic. Firms disclose, candidates recognise disclosure as good practice, and the option gets picked. Disclosure on its own almost never discharges anything.

What Topic 5 covers

Syllabus title: Business conduct and client relations
Second-level headings: 6
Our estimate of questions: About 11 of 60
Core text: Code of Conduct for Persons Licensed by or Registered with the SFC
Specialist codes: Fund managers, corporate finance advisers, credit rating services, open-ended fund companies, share registrars
Dominant distractor pattern: Partial compliance

The question estimate is ours, scaled from the topic's six second-level syllabus headings. HKSI publishes no blueprint.

One structural point before the questions. The General Principles at the front of the Code are the organising idea for everything that follows, and a surprising share of Topic 5 questions can be answered from them alone. Learn the nine principles before you learn any paragraph of detail.

Six practice questions

Question 1 - General Principles

An SFC investigation into a licensed corporation finds that its dealing procedures were adequate on paper but that no one at board or executive level had ever set, monitored or enforced standards of conduct. Which General Principle is most directly engaged?

General Principle 1, honesty and fairness
General Principle 3, capabilities
General Principle 7, compliance
General Principle 9, responsibility of senior management

Answer: D. General Principle 9 places primary responsibility for maintaining appropriate standards of conduct and for adherence to procedures on senior management, and it is the principle that underpins the Internal Control Guidelines. Option B is about having adequate resources and procedures, which the firm did have, so it is a near miss rather than a wrong idea. Option C is compliance with regulatory requirements generally, which is too broad to be the best answer. Option A is the overarching principle and would apply to almost any misconduct, which is exactly what makes it a poor answer to a specific question.

Question 2 - client agreements

A licensed corporation opens an account for a new retail client on Monday morning and executes trades for the client that afternoon. The written client agreement is signed the following week. Which statement is correct?

Acceptable, because the agreement was signed within a reasonable period of account opening
Acceptable, because the client is not a professional investor
Not acceptable, because a written client agreement must be in place before services are provided
Not acceptable, because client agreements require SFC approval before use

Answer: C. The Code requires a written client agreement before services are provided, and it must contain specified content including the suitability clause and the statement that nothing in the agreement derogates from it. Option A assumes a grace period, which is the single most common duty-character error on this heading. Option B inverts the direction of protection, since retail clients receive more protection rather than less. Option D asks for the wrong consent: the SFC sets the content requirements but does not approve individual agreements.

Question 3 - professional investors

Which category of professional investor attracts the widest set of Code exemptions without the firm first carrying out an assessment and obtaining written consent?

An individual professional investor
A corporate professional investor
An institutional professional investor
Any client whose portfolio exceeds the firm's internal threshold

Answer: C. Institutional professional investors, meaning banks, insurers, licensed corporations, governments and similar bodies, attract the widest exemptions and do not require the assessment and consent process. Options A and B both require the firm to assess the client, obtain written consent and explain the consequences of being treated as a professional investor, so treating them as equivalent to institutions over-extends the exemption. Option D invents a criterion: a firm's internal threshold has no bearing on a regulatory classification.

Question 4 - which code applies

A corporation is licensed for Type 9 regulated activity and manages discretionary portfolios for clients. Which conduct standards apply to it?

The general Code of Conduct only
The general Code of Conduct together with the Fund Manager Code of Conduct
The Corporate Finance Adviser Code of Conduct
The Code on Open-Ended Fund Companies

Answer: B. Asset managers are subject to the general Code and, in addition, to the Fund Manager Code of Conduct, which addresses matters specific to managing funds and discretionary accounts. Option A drops the specialist code entirely, a scope error. Option C picks the code that binds Type 6 corporate finance advisers, including sponsors. Option D picks a product code governing open-ended fund companies as vehicles rather than a conduct code binding a manager, which is a category error worth being able to spot quickly.

Question 5 - suitability

During a recommendation meeting, a licensed corporation assesses a complex structured product as unsuitable for a retail client. The client insists on proceeding. The firm explains the risks in writing, the client signs an acknowledgement, and the firm executes the trade. Which statement is correct?

Compliant, because the risks were disclosed to the client in writing
Compliant, because the client gave informed written consent
The suitability obligation cannot be derogated from by any provision of the client agreement or by a client acknowledgement
Compliant, because a client who insists on proceeding is treated as a professional investor

Answer: C. The client agreement must state that nothing in it derogates from the suitability obligation, and the obligation is not discharged by disclosure or by the client signing something. Options A and B are partial compliance in its purest form: both describe real, sensible steps, and neither answers the question, which is whether the obligation survives. Option D invents a reclassification mechanism, and professional investor status is a defined classification rather than something a client acquires by being insistent.

Question 6 - order priority

A dealing desk receives a large buy order from a client and, moments later, an order in the same security from a member of the firm's own staff for their personal account. What does the Code require?

Execute strictly in the order received, whoever placed each order
Give the client order priority over the firm's own orders and its employees' personal orders
Execute the staff order first, because it is small enough not to affect the price
Refer the conflict to the SFC before executing either order

Answer: B. Client interests come first, and firms are expected to have arrangements that stop employees dealing ahead of clients. Option A sounds even-handed and is exactly the reasoning the rule exists to displace, since a neutral queue lets staff trade in front of clients whenever they happen to be quick. Option C offers a commercial rationale for a conduct question, which is a reliable sign of a wrong answer. Option D makes escalation automatic when the firm is expected to manage the conflict itself.

What the wrong options were testing

Pattern	Where it appeared	The defence
Near-miss principle	Question 1	Ask which principle the facts point at, not which one could cover it
Grace period assumed	Question 2	For every duty, fix when it starts. "Before" means before
Exemption over-extended	Question 3	Know which client categories need assessment and consent
Specialist code dropped	Question 4	Map each licence Type to the code that binds it
Partial compliance	Question 5	A real step the firm took is background, not an answer
Commercial rationale	Question 6	Conduct rules are protective. A profit-based reason is a tell
Escalation made automatic	Question 6	The firm handles it first; the SFC is not a helpdesk

How to revise Topic 5

Start with the nine General Principles and learn them properly, in order, with one sentence each. They are short. They are also the frame the rest of the Code hangs off, and a question you cannot answer from the detail can often be answered from the principle.

Then build a small map of the specialist codes: which licence Type each one binds and what it adds. That map is four or five lines long and it disposes of an entire class of question.

For the scenario questions, drill one habit until it is automatic. When the stem tells you what the firm did, treat that as background rather than as a candidate answer. Then ask whether the substantive obligation has been met, not whether the firm behaved reasonably. Those are different questions and the Code cares about the first.

The opinion: Topic 5 is the best return on study time on the whole paper. It is small, the source text is short and readable compared with the Ordinance, and the distractor pattern is so consistent that learning one habit fixes most of it. Candidates skip it because it lacks the intimidating bulk of Topic 3, which is exactly the wrong reason.

The concession: the Code is more open-textured than the licensing rules, and reasonable practitioners genuinely differ on where fair treatment ends in a marginal case.For anything you will rely on professionally, go to the current text of the Code on the SFC site. There is more depth in the SFC Code of Conduct explained and the suitability obligation.

Common questions

How many Paper 1 questions come from business conduct?

HKSI does not publish a breakdown. Our estimate scales the topic's six second-level syllabus headings to 60 questions and puts it at around six. The topic punches above that weight because its questions are scenarios, which take longer and trap more candidates.

Can a client waive the suitability obligation?

No. The client agreement must state that nothing in it derogates from the suitability obligation, so a waiver, an acknowledgement or a risk disclosure signed by the client does not discharge it. Disclosure and suitability are separate requirements, and meeting one does not meet the other.

When must a client agreement be signed?

Before services are provided. There is no grace period after account opening, and the agreement must contain the specified content, including the suitability clause. Executing trades before the agreement is in place is a breach even if the paperwork follows shortly afterwards.

What is the difference between institutional, corporate and individual professional investors?

Institutional professional investors, such as banks, insurers and licensed corporations, attract the widest exemptions without an assessment process. Corporate and individual professional investors require the firm to assess them, obtain written consent and explain the consequences, and they retain more of the Code's protections.

Which code applies to an asset manager?

The general Code of Conduct applies to all licensees, and Type 9 asset managers are additionally subject to the Fund Manager Code of Conduct. Type 6 corporate finance advisers have their own code, and credit rating providers and share registrars have theirs.