CISI IoI FCA Regulation and Consumer Protection

Question 1

What are the FCA's three main statutory objectives?

Accepted Answer

Consumer protection, market integrity, and competition

Answer

The FCA has three statutory objectives under the Financial Services and Markets Act 2000: protecting consumers, maintaining market integrity, and promoting effective competition in the interests of consumers.

Question 2

What is the Financial Services Compensation Scheme (FSCS) and what does it protect?

Accepted Answer

A scheme providing compensation to eligible claimants if an authorised financial firm is unable to pay claims against it, with limits depending on the type of claim

Answer

The FSCS is the UK's statutory compensation scheme of last resort for eligible customers of authorised financial services firms that have failed. Limits include £85,000 for bank deposits, £85,000 for investment claims, and £85,000 for insurance policies per eligible person per firm.

Question 3

What is the meaning of 'authorisation' under the Financial Services and Markets Act 2000 (FSMA)?

Accepted Answer

The permission granted by the FCA (and/or PRA) allowing a firm or individual to carry on regulated activities in the UK

Answer

Under FSMA 2000, it is a criminal offence to carry on regulated financial activities in the UK without FCA authorisation (and PRA authorisation for certain firms). Authorised firms receive specific permissions for the regulated activities they are permitted to conduct.

Question 4

What is the FCA's definition of a 'retail client'?

Accepted Answer

Any client who is not a professional client or eligible counterparty — the broadest category with the highest level of regulatory protection

Answer

A retail client is the default classification under the FCA's client categorisation rules — any client not meeting the criteria for professional client or eligible counterparty status. Retail clients receive the highest level of regulatory protections, including full suitability and appropriateness requirements.

Question 5

What is the purpose of the FCA's 'appropriateness' test for non-advised sales of complex investments?

Accepted Answer

To assess whether the client has the knowledge and experience necessary to understand the risks of the complex product they are purchasing without advice

Answer

For execution-only sales of complex products (e.g., derivatives, structured products), the FCA requires firms to conduct an appropriateness assessment. If the assessment indicates the product is not appropriate for the client, the firm must warn them. Unlike suitability, it focuses on knowledge and experience, not personal circumstances.

CISI Introduction to Investment Practice Test

CISI Introduction to Investment Practice Test

CISI IoI FCA Regulation and Consumer Protection