Free CISI UK RPI Practice Questions: FCA Conduct, Fair Treatment, and Client Assets

Use this focused CISI UK RPI page as a short practice test for FCA Conduct, Fair Treatment, and Client Assets. The items are original Finance Prep sample exam questions built for scenario-based practice, not trivia, puzzle questions, official CISI questions, copied live-exam content, or exam dumps.

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These are original Finance Prep practice questions aligned to this topic area. They are not official CISI questions, copied live-exam content, or exam dumps. Use them to preview question style and explanation depth before continuing with topic drills, mixed sets, and timed mock exams in Finance Prep.

Question 1

Topic: FCA Conduct, Fair Treatment, and Client Assets

A firm provides independent investment advice to retail clients. Before advisers attend a product provider event, compliance reviews the invitation:

• Half-day technical seminar on a fund’s strategy, charges, risks, and target market
• Tea and a working lunch at the seminar venue
• Complimentary weekend hotel stay and tickets to a sporting event for each adviser

The firm’s policy requires pre-clearance and recording of benefits. What is the best next step?

• A. Approve attendance for the seminar and modest refreshments if recorded and disclosed in generic terms, but decline the hotel stay and sporting tickets.
• B. Forward the invitation to the FCA for approval before accepting any part of the event.
• C. Decline the whole invitation because independent advisers may not receive any training or refreshments from product providers.
• D. Approve the full invitation because all items are non-cash and the seminar may improve advisers’ product knowledge.

Best answer: A

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: Under COBS, an adviser firm must not accept benefits from a third party that create an improper inducement or conflict with the duty to act honestly, fairly and professionally in the client’s best interests. Some minor non-monetary benefits may be acceptable, including product training or information and reasonable de minimis hospitality, provided they are capable of enhancing service quality, do not impair compliance with the client’s best interests, and are disclosed appropriately. The technical seminar and working lunch can fall within that category if the firm records and controls them under its policy. A weekend hotel stay and sporting tickets go beyond modest hospitality and create a risk of influencing adviser behaviour, so they should be declined.

• Treating all non-cash benefits as acceptable ignores the inducement risk created by high-value hospitality.
• Rejecting all provider training is too strict, as relevant training and modest refreshments can be acceptable minor non-monetary benefits.
• FCA pre-approval is not the normal route for this decision; the firm should apply its own inducements policy and controls.

Product training and reasonable de minimis hospitality can be acceptable minor non-monetary benefits, while the weekend hospitality is excessive and likely to impair the duty to act in clients’ best interests.

Question 2

Topic: FCA Conduct, Fair Treatment, and Client Assets

A platform marketed a retail service as “execution-only”. During onboarding it collected identity details, a selected risk band, and bank details, but no information about the client’s investment objectives or wider financial circumstances. The service terms also allowed the firm to rebalance the client’s holdings each quarter and switch funds within the selected risk band without obtaining a fresh instruction. After losses, a complaint was upheld for a failure at client take-on. What was the primary driver of the failure?

• A. The firm charged for the platform service, which automatically converted the arrangement into investment advice.
• B. The firm classified the customer as a retail client, which prevents any execution-only service from being provided.
• C. The firm treated a discretionary investment-management service as execution-only and did not obtain the information needed to assess suitability.
• D. The firm used a risk band during onboarding, which is prohibited for non-advised investment accounts.

Best answer: C

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: Execution-only business is based on the client deciding what to buy or sell and the firm carrying out that instruction without giving a personal recommendation or making discretionary decisions. By contrast, managing investments involves the firm making investment decisions for the client, such as rebalancing and switching holdings under a mandate. That changes the firm’s responsibilities at take-on: it must obtain enough information about the client’s objectives, financial situation, and relevant knowledge and experience to assess suitability for the portfolio management service. The failure was not the use of a platform or the client’s retail status; it was misdescribing the service and applying the lighter execution-only process to an arrangement where the firm had decision-making authority.

• Retail clients can use execution-only services, provided the service is genuinely non-advised and other COBS requirements are met.
• Charging a platform or service fee does not by itself create investment advice; the key distinction is whether the firm recommends or decides investments.
• A risk band can be part of onboarding, but it is not a substitute for the suitability information needed when the firm manages investments.

Authority to rebalance and switch holdings without fresh client instructions meant the firm was managing investments, requiring suitability information rather than execution-only treatment.

Question 3

Topic: FCA Conduct, Fair Treatment, and Client Assets

Under the FCA’s CASS rules, which term describes an arrangement that gives a firm the ability to control a client’s assets or liabilities held by a third party, without the firm holding the money or investment itself?

• A. Statutory trust
• B. Custody asset
• C. Client money
• D. Mandate

Best answer: D

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: A mandate under CASS is about control rather than possession. It arises where a firm has the means or authority to control a client’s assets or liabilities held by a third party, such as authority over a bank account, without the firm itself receiving the money or holding the investment. Client money rules apply when the firm holds money for a client in the course of relevant business. Custody asset rules apply when the firm safeguards or administers designated investments for a client. A statutory trust is the legal basis on which client money is segregated and protected for clients.

• Client money concerns money held or received by the firm for a client, not merely authority to control funds held elsewhere.
• Custody asset concerns investments held or safeguarded by the firm, not control over assets held by a third party.
• Statutory trust describes the trust protection for client money, not the authority itself.

A mandate gives the firm the ability to control a client’s assets or liabilities held elsewhere, even though the firm does not itself hold the client money or custody asset.

Question 4

Topic: FCA Conduct, Fair Treatment, and Client Assets

A UK investment platform holds client cash in a pooled client bank account and nominee investments with a third-party custodian. Its CASS policy requires comparisons of the firm’s client ledgers with bank and custodian records, with breaks investigated and corrected promptly. During a system change, unmatched bank receipts and custody position breaks were carried forward for several weeks without review. A client’s cash withdrawal was delayed and another client’s transfer of shares failed because the firm’s records no longer matched the external records.

Which weakness was the primary cause of the customer-protection failure?

• A. Failure to maintain a complete CASS resolution pack for use if the firm became insolvent
• B. Failure to perform effective CASS reconciliations and investigate, resolve, and escalate discrepancies promptly
• C. Failure to classify the affected clients correctly before providing investment services
• D. Failure to handle the clients’ later complaints within the firm’s complaint-handling process

Best answer: B

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: CASS reconciliations are a key control for protecting client money and custody assets. They compare the firm’s internal records with external records held by banks and custodians so that breaks, shortfalls, excesses, or misallocations are found quickly. Once identified, discrepancies should be investigated, corrected, funded where needed, and escalated or reported where required. In this scenario, the direct cause of the delayed withdrawal and failed share transfer was not the later complaint or an insolvency document. It was the carrying forward of unresolved reconciliation breaks, which meant the firm did not have reliable records of what it should hold for clients or what was actually held externally.

• A CASS resolution pack helps an insolvency practitioner or the FCA understand client asset arrangements, but it would not itself detect daily bank or custody breaks.
• Client classification affects conduct obligations such as disclosures and suitability, but it does not explain why cash and custody records failed to match.
• Complaint handling deals with the client’s later grievance; it is a downstream response, not the control that should have prevented the asset mismatch.

The harm arose because differences between the firm’s records and the bank or custodian records were not identified and corrected in time.

Question 5

Topic: FCA Conduct, Fair Treatment, and Client Assets

An unauthorised corporate finance boutique wants to send a promotion about an unlisted share placing only to investment professionals and high-net-worth corporate bodies. In this context, which function is performed by the Financial Promotion Order?

• A. It gives the boutique FCA permission to carry on arranging deals in investments once the promotion has been sent.
• B. It replaces the requirement for promotions to be fair, clear and not misleading when the recipient is a professional client.
• C. It determines whether a public offer document must be prepared under the PRM rules for admission to trading on a regulated market.
• D. It identifies statutory exemptions from the FSMA financial-promotion restriction, including recipient-based exemptions that may allow the communication without authorised-person approval if all conditions are met.

Best answer: D

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: The Financial Promotion Order is central to deciding whether an exemption from the FSMA section 21 financial-promotion restriction is available. The restriction generally prevents an unauthorised person from communicating an invitation or inducement to engage in investment activity unless the content is approved by an authorised person or an exemption applies. The Order contains exemptions based on factors such as the type of recipient, the nature of the communication, or the circumstances in which it is made. Common recipient-based examples include investment professionals and certain high-net-worth companies or associations. The exemption must be applied exactly; if its conditions are not met, approval or another valid route is needed.

• FCA permission to arrange deals is a separate authorisation issue, not a function of the Financial Promotion Order.
• Fair, clear and not misleading standards can still be relevant; an exemption from section 21 is not a general waiver of conduct standards.
• PRM public-offer disclosure concerns admission/public-offer documentation, not the statutory exemptions from the financial-promotion restriction.

The Financial Promotion Order sets out exemptions from the section 21 restriction, such as communications to investment professionals or certain high-net-worth bodies, subject to the detailed conditions.

Question 6

Topic: FCA Conduct, Fair Treatment, and Client Assets

Which statement correctly differentiates MiFID business, non-MiFID business and eligible-counterparty business for the purposes of COBS protections and obligations?

• A. MiFID business is business with retail clients, non-MiFID business is business with professional clients, and eligible-counterparty business is unregulated business outside COBS.
• B. Eligible-counterparty business is the highest level of client protection under COBS because the client is presumed to need enhanced disclosure and suitability protections.
• C. MiFID business concerns investment services and activities within the UK MiFID framework, non-MiFID business covers other designated investment business, and eligible-counterparty business involves clients for whom some COBS protections are reduced or disapplied.
• D. MiFID business is exempt from COBS because it is governed only by market rules, while non-MiFID business receives the full COBS regime in every case.

Best answer: C

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: The MiFID and non-MiFID labels primarily distinguish the type of investment business being carried on. MiFID business relates to investment services and activities within the UK MiFID-derived conduct framework. Non-MiFID business is other designated investment business that may still be subject to COBS, but under different application rules. Eligible-counterparty business is different: it is not simply another product category. It reflects the client classification and transaction context, with certain COBS protections reduced or disapplied because eligible counterparties are treated as highly sophisticated market participants.

• Treating MiFID as retail-client business and non-MiFID as professional-client business confuses activity scope with client categorisation.
• Saying MiFID business is exempt from COBS is wrong; MiFID-derived obligations are a major part of COBS.
• Eligible-counterparty status reduces, rather than increases, many conduct protections compared with retail client treatment.

This correctly separates the activity-based distinction between MiFID and non-MiFID business from the client-status effect of eligible-counterparty business.

Question 7

Topic: FCA Conduct, Fair Treatment, and Client Assets

At an annual review, a retail investment client tells her adviser that her husband, who used to deal with investments, has died and that she now finds financial paperwork difficult because of treatment-related fatigue. She wants to sell her diversified ISA portfolio and put the proceeds into a high-risk illiquid fund recommended by a friend. She also asks the adviser to advise on transferring her defined benefit pension, but the adviser’s firm has no permission to advise on defined benefit pension transfers. The client says she is determined and asks the adviser to “keep it short and just make it happen.” Which response best applies FCA fair treatment and professional conduct expectations?

• A. Pause any transaction, adapt communication to the client’s support needs, update the fact-find and suitability assessment, explain the investment risks clearly, refer the pension transfer request to an authorised specialist, and document any insistent-client decision under the firm’s process.
• B. Carry out the ISA sale using the existing risk profile, but decline to advise on the pension transfer because the transfer is outside the firm’s permissions.
• C. Refuse all investment discussions until a family member approves the decision because the client has disclosed vulnerability.
• D. Process both requests as execution-only after giving standard risk warnings because the client has said she is determined.

Best answer: A

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: FCA expectations require firms to pay due regard to customers’ interests and information needs, including appropriate support for vulnerable customers. Bereavement, treatment-related fatigue and a major change in investment intention are reasons to refresh the fact-find and suitability assessment rather than rely on the previous review. Communication should be adapted, for example by using clear summaries, allowing more time, checking understanding, and involving a trusted person only with the client’s consent. A client who insists on acting against advice is not automatically an execution-only client; the firm should follow its insistent-client process and keep clear records. The defined benefit pension transfer request is also outside the firm’s stated permissions, so the adviser must not advise on it and should refer or decline that part appropriately.

• Treating the matter as execution-only ignores the adviser’s role, the suitability issues and the firm’s lack of permission for pension transfer advice.
• Requiring family approval would undermine client autonomy; support from another person should normally be with the client’s consent.
• Using the existing risk profile is inadequate because the client’s circumstances, support needs and proposed investment have materially changed.

It addresses the client’s vulnerability and changed circumstances before acting, while keeping the pension transfer matter within authorised specialist scope.

Question 8

Topic: FCA Conduct, Fair Treatment, and Client Assets

An FCA-authorised investment firm is manufacturing a new capital-at-risk structured note. It plans to distribute the note to UK retail clients through an execution-only online platform. The product approval paper describes the target market as “all retail clients seeking growth” and says the product will be reviewed only if complaints are upheld. Which action best meets FCA product governance expectations before launch?

• A. Rely on execution-only distribution because no suitability advice is being given to the retail clients.
• B. Treat the online platform as the target market because it is the firm’s direct commercial client and will make the product available to investors.
• C. Define the intended end-client target market more precisely, align the distribution strategy with it, and set review and information-sharing arrangements with the platform.
• D. Keep the broad target-market wording but add a risk warning to the platform’s financial promotion.

Best answer: C

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: Product governance is concerned with the end client for whom an investment product is designed, not merely the intermediary through which it is sold. A manufacturer should identify the target market at an appropriate level of detail, taking account of the product’s features, risks, objectives, and the needs and characteristics of the intended clients. The distribution strategy should be consistent with that target market, even where sales are made through an execution-only platform. The manufacturer and distributor also need arrangements to share relevant information and review whether the product continues to meet the needs of the identified target market. Waiting until upheld complaints arise is too reactive for product governance purposes.

• Treating the platform as the target market ignores the intended retail end clients.
• Execution-only distribution does not remove product governance responsibilities.
• A risk warning may support clear communication, but it does not replace target-market assessment, distribution planning, and review.

Product governance requires manufacturers and distributors to assess the intended end clients, use a compatible distribution strategy, and keep the target market under review.

Question 9

Topic: FCA Conduct, Fair Treatment, and Client Assets

A firm is manufacturing a new capital-at-risk structured investment for retail distribution through several advisory firms. The product has a capped return, possible early maturity, and loss of capital if the reference index falls sharply. The manufacturer expects sales volumes to be modest and wants a proportionate product-governance approach that supports fair customer outcomes. Which action best applies the relevant UK product-governance principle?

• A. Use the same product-approval template as for a simple deposit account because the expected sales volume is low and proportionality allows a lighter process.
• B. Define the target and negative target markets, run scenario analysis and stress testing reflecting adverse market conditions, give distributors clear product and target-market information before sale, and review outcome data proportionately to the product’s complexity and risk.
• C. Keep distributor disclosure limited to headline return features so that client communications remain simple, and provide detailed risk information only if a distributor asks for it.
• D. Rely on advisers at distributor firms to assess suitability, because manufacturer stress testing is unnecessary once the product is sold on an advised basis.

Best answer: B

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: Product governance should be proportionate, but proportionality does not mean ignoring complexity or risk. A manufacturer of a complex capital-at-risk retail investment should identify who the product is and is not designed for, test how it may perform under different and stressed conditions, and give distributors enough information to understand the product, target market, risks, costs, and distribution strategy. It should also obtain and review information from distributors where needed to check whether the product is reaching the intended market and producing fair outcomes. Low expected sales volume may affect the scale of review activity, but it does not justify treating a high-risk complex product like a simple product.

• A simple deposit-account template would understate the governance needed for a complex capital-at-risk investment.
• Adviser suitability checks do not remove the manufacturer’s responsibility to design, test, and monitor the product appropriately.
• Limiting disclosure to headline returns weakens information sharing and may prevent distributors from understanding material risks.

A complex capital-at-risk product requires proportionate but robust governance, including testing, distributor information sharing, disclosure, and ongoing review focused on customer outcomes.

Question 10

Topic: FCA Conduct, Fair Treatment, and Client Assets

A retail client uses the same FCA-authorised firm for two services. Under a discretionary portfolio management mandate, the firm decides which investments to buy and sell for the client. Separately, the client uses an execution-only online dealing account to place their own order in listed ordinary shares, with no advice from the firm.

Which broad conduct pattern best explains the different information requirements and responsibilities?

• A. Execution-only dealing requires the firm to manage the client’s portfolio risk; managing investments only requires the firm to record the client’s order accurately.
• B. Managing investments requires the firm to obtain enough client information to assess suitability for its decisions; execution-only dealing does not involve a suitability assessment for the client’s own decision.
• C. Managing investments requires only cost disclosure; execution-only dealing requires the firm to approve the client’s investment objective before accepting the order.
• D. Managing investments and execution-only dealing both require the same suitability assessment because both involve a retail client transaction.

Best answer: B

What this tests: FCA Conduct, Fair Treatment, and Client Assets

Explanation: Where a firm manages investments for a client, it is making investment decisions on the client’s behalf. It must obtain and consider sufficient information about the client, such as objectives, financial situation, risk tolerance, and relevant knowledge and experience, so that the managed service is suitable. In a genuine execution-only service, the client makes the investment decision and the firm merely executes the order. The firm is not responsible for assessing suitability of that decision, although other requirements may still apply, such as clear service-status disclosure, costs and charges information, and, for some products, appropriateness checks unless an execution-only exemption is available.

• Treating every retail transaction as requiring suitability ignores the distinction between advice or management and true execution-only dealing.
• Requiring approval of the client’s investment objective for execution-only dealing overstates the firm’s role where no advice or management is provided.
• Making the execution-only firm responsible for portfolio risk reverses the responsibilities of discretionary management and client-directed dealing.

Discretionary management involves investment decisions for the client, so suitability information and responsibility attach to the firm’s service, unlike a true execution-only order.

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