FRE2 · Skills, Principles and Ethical Behaviours
LO8 is the most judgement-based part of FRE2. Most questions describe a dilemma (a gift before a big case, a manager's sales push, a friend asking about a client, a colleague backdating forms) and ask for the one clearly right course of action. The rest test the language: which ethical theory is in play, how ethics differs from compliance, what SYSC 18 and the Public Interest Disclosure Act protect, and what CPD an adviser needs. The right answer is almost always the one that puts the client first, is honest, and uses proper channels.
8 min read6 sections
Checked against: Walbrook (formerly LIBF) FSRE specification v7 (July 2026), FRE2 LO8 AC8.1-8.3; FCA Handbook PRIN 2.1, PRIN 2A, COCON 2.1-2.2, SYSC 18, TC 2.1, MCOB 2.3; Employment Rights Act 1996 ss43B, 43F, 43J; Fraud Act 2006 s2; checked 11 Oct 2026. Independent prep, not endorsed by Walbrook (formerly LIBF).
The exam describes someone's reasoning and asks which theory it reflects (FSRE LO8 AC8.1). Look for the test the person applies.
| Theory | The question it asks | Signal words in a stem | Weakness |
|---|---|---|---|
| Utilitarianism (consequentialism) | Which option gives the best overall outcome? | 'most customers benefit', 'overall', 'net gain' | Can justify harming a minority |
| Deontology (duty-based) | Which duty or rule applies, whatever the result? | 'my duty', 'whatever it costs', 'always tell the truth' | Duties can clash |
| Virtue ethics (character-based) | What would a person of good character do? | 'honest person', 'integrity', 'the kind of adviser I want to be' | Gives less precise guidance |
Regulation borrows from all three. The Conduct Rules read like duties. The Consumer Duty looks at outcomes, but for every group of customers, not the average: PRIN 2A.9.10R requires firms to spot groups getting worse outcomes and PRIN 2A.9.12R to act. That is why 'it helps 90% of customers' is not a defence.
Trap: labelling any honest act as utilitarian because it leads to a good result; ask whether the person is weighing outcomes or following a duty.
Takeaway: Outcomes = utilitarian. Duty regardless of cost = deontology. Good character = virtue ethics.
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Compliance-driven behaviour asks 'what must I do to meet the rules?'. Ethical behaviour asks 'what is the right thing to do?' (FSRE LO8 AC8.3). The difference shows when the rules are silent or allow more than one choice: two suitable mortgages, one £1,800 cheaper for the client and one paying you more. The rules allow either if you explain; ethics points to the cheaper one.
The Consumer Duty narrows the gap between ethics and compliance: firms must act in good faith and avoid foreseeable harm (PRIN 2A.2, from 31 July 2023), so a fee designed to go unnoticed can breach the rules even with no specific ban.
Trap: treating 'allowed by the rules' as 'right'. The exam's best answer often goes beyond the minimum.
Takeaway: Compliance is the floor. Ethics is what you do when nobody has written a rule for the situation.
