CISI IAD Regulation and Compliance 2

Question 1

Under MiFID II, what is the purpose of the 'product governance' requirements?

Accepted Answer

To require manufacturers and distributors to identify a target market for each product and ensure it reaches appropriate clients

Answer

MiFID II product governance requirements oblige manufacturers to define a target market for each product, considering the needs, characteristics, and objectives of the intended client group. Distributors must then ensure the product is distributed to clients within the identified target market. This end-to-end process aims to prevent mis-selling by ensuring products reach appropriate investors.

Question 2

What is the FCA's approach to 'treating customers fairly' (TCF)?

Accepted Answer

It is a principles-based approach requiring firms to demonstrate fair outcomes for consumers throughout the product lifecycle

Answer

TCF is embedded in the FCA's Principles for Businesses, particularly Principle 6 (treating customers fairly). It has been further strengthened by the Consumer Duty (effective July 2023). Firms must demonstrate that they deliver fair outcomes across six key areas: culture, products, information, advice, service standards, and barriers to switching. TCF is principles-based, not prescriptive, and is enforceable.

Question 3

Which of the following best describes the FCA's Consumer Duty introduced in 2023?

Accepted Answer

A higher standard of consumer protection requiring firms to act to deliver good outcomes across price, products, understanding, and support

Answer

The Consumer Duty (PS22/9) sets a higher standard than TCF, requiring firms to act to deliver good outcomes for retail customers across four areas: price and value, products and services, consumer understanding, and consumer support. It includes a new Consumer Principle, cross-cutting rules (act in good faith, avoid foreseeable harm, enable customers to pursue financial objectives), and outcome-specific rules.

Question 4

Under anti-money laundering (AML) regulations, what is 'enhanced due diligence' (EDD)?

Accepted Answer

Additional verification measures required for higher-risk clients, such as politically exposed persons (PEPs)

Answer

EDD is required under the Money Laundering Regulations 2017 (as amended) for situations posing a higher risk of money laundering or terrorist financing. This includes PEPs, clients from high-risk countries, and complex or unusual transactions. EDD requires more detailed verification of identity, source of wealth, source of funds, and enhanced ongoing monitoring. Firms must apply a risk-based approach.

Question 5

What is the maximum compensation limit per person per firm under the Financial Services Compensation Scheme (FSCS) for investment claims?

Accepted Answer

Up to £85,000

Answer

The FSCS provides compensation of up to £85,000 per eligible person per firm for investment claims (where a firm has failed and is unable to pay claims against it). This is separate from the deposit protection limit (also £85,000). The FSCS is funded by levies on authorised firms and acts as the compensation scheme of last resort when firms become insolvent.

CISI Investment Advice Practice Test

CISI Investment Advice Practice Test

CISI IAD Regulation and Compliance 2