CISI IoI Financial Services Regulation (FCA) 2

Question 1

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

Accepted Answer

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

Answer

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.

Question 2

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

Accepted Answer

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

Answer

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.

Question 3

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

Accepted Answer

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

Answer

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.

Question 4

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

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

Retail clients

Answer

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.

CISI Introduction to Investment Practice Test

CISI Introduction to Investment Practice Test

CISI IoI Financial Services Regulation (FCA) 2