Financial Services Regulation (FCA) Flashcards

Under FCA rules, what is the key difference between 'advised' and 'non-advised' (execution-only) services?

Answer: In advised services the firm makes a personal recommendation; in non-advised the client makes their own decision

In an advised service, the firm assesses suitability and makes a personal recommendation to the client. In a non-advised (execution-only) service, the client decides which products to buy without receiving a recommendation, and the firm simply executes the instruction. Both are regulated but carry different obligations.

What is the FCA's Consumer Duty, which came into force in 2023?

Answer: A higher standard requiring firms to act to deliver good outcomes for retail customers

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

What is money laundering, and what are the three stages commonly associated with it?

Answer: The process of making illegally obtained money appear legitimate, through placement, layering, and integration

Money laundering is the process of disguising the proceeds of crime to make them appear legitimate. The three stages are: (1) Placement — introducing criminal proceeds into the financial system, (2) Layering — moving money through complex transactions to obscure its origin, (3) Integration — reintroducing the 'cleaned' money into the legitimate economy.

What does 'best execution' require of a firm under FCA rules?

Answer: Taking all sufficient steps to obtain the best possible result for the client, considering price, costs, speed, and other relevant factors

Best execution requires firms to take all sufficient steps to obtain the best possible result for clients when executing orders, taking into account factors including price, costs, speed, likelihood of execution and settlement, size, nature, and any other relevant consideration. Price is typically the most important factor for retail clients but is not the only consideration.

Under the FCA's client categorisation rules, which category of client receives the highest level of regulatory protection?

Answer: Retail clients

The FCA categorises clients into three groups: retail clients (highest protection), professional clients (intermediate protection), and eligible counterparties (lowest protection). Retail clients receive the most comprehensive protections including suitability requirements, best execution, and access to the Financial Ombudsman Service and FSCS.

What is the role of the Financial Ombudsman Service (FOS)?

Answer: To resolve disputes between consumers and financial services firms without going to court

The FOS is an independent service that resolves disputes between consumers and financial services firms. If a consumer is unhappy with a firm's response to their complaint, they can refer the case to the FOS, which can make binding decisions up to certain monetary limits. The service is free to consumers.