Chartered Institute for Securities & Investment (CISI) Qualifications UK Financial Services Regulation and Professional Integrity Syllabus

How many Principles for Businesses are there in the FCA's PRIN sourcebook, and what is the status of breaching them?

There are 11 (eleven) Principles for Businesses. They are high-level, fundamental obligations. A breach of a Principle makes a firm liable to disciplinary/enforcement action by the FCA, though Principles alone do not generally give rise to a private right of action (with limited exceptions).

State Principles 1, 2 and 3 of the FCA's Principles for Businesses.

Principle 1 (Integrity): A firm must conduct its business with integrity. Principle 2 (Skill, care and diligence): A firm must conduct its business with due skill, care and diligence. Principle 3 (Management and control): A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

State Principles 4, 5 and 6 of the FCA's Principles for Businesses.

Principle 4 (Financial prudence): A firm must maintain adequate financial resources. Principle 5 (Market conduct): A firm must observe proper standards of market conduct. Principle 6 (Customers' interests): A firm must pay due regard to the interests of its customers and treat them fairly (TCF).

State Principles 7, 8 and 9 of the FCA's Principles for Businesses.

Principle 7 (Communications with clients): A firm must pay due regard to the information needs of its clients and communicate in a way that is clear, fair and not misleading. Principle 8 (Conflicts of interest): A firm must manage conflicts of interest fairly, both between itself and its customers and between one customer and another. Principle 9 (Customers: relationships of trust): A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for customers entitled to rely on its judgement.

State Principles 10 and 11 of the FCA's Principles for Businesses, and identify the newest 'Principle' covering retail outcomes.

Principle 10 (Clients' assets): A firm must arrange adequate protection for clients' assets when it is responsible for them. Principle 11 (Relations with regulators): A firm must deal with its regulators in an open and cooperative way and disclose anything of which the regulator would reasonably expect notice. Principle 12 (Consumer Duty): A firm must act to deliver good outcomes for retail customers.

What is 'Principle 12' under the Consumer Duty, and what is the overarching 'Consumer Principle' it expresses?

Principle 12 (the Consumer Duty / Consumer Principle) states: 'A firm must act to deliver good outcomes for retail customers.' It sets a higher and more exacting standard than the previous TCF approach (Principle 6) for in-scope retail business.

Under the Consumer Duty, name the three 'cross-cutting rules' and the four 'outcomes' that firms must deliver.

Three cross-cutting rules: 1) act in good faith; 2) avoid causing foreseeable harm; 3) enable and support customers to pursue their financial objectives. Four outcomes: 1) products and services; 2) price and value (fair value); 3) consumer understanding; 4) consumer support.

What does COBS stand for, and what is its main purpose in the FCA Handbook?

Conduct of Business Sourcebook. It sets out detailed conduct rules for firms carrying on designated investment business and long-term insurance with retail and professional clients - covering client categorisation, communications/financial promotions, suitability, appropriateness, disclosure, dealing and reporting to clients.

Under COBS/MiFID client categorisation, name the three client categories in order of regulatory protection, from highest to lowest.

1) Retail client - highest level of protection; 2) Professional client - medium protection (can be 'per se' or 'elective'); 3) Eligible counterparty (ECP) - lowest level of protection, e.g. for executing/receiving orders between professional market participants.

Under COBS, what is the difference between a 'suitability' assessment and an 'appropriateness' assessment?

A suitability assessment is required when giving a personal recommendation or managing investments - the firm must obtain information on the client's knowledge/experience, financial situation and investment objectives to ensure the recommendation is suitable. An appropriateness assessment is required for non-advised (e.g. execution-related) services in complex products - the firm checks only whether the client has the knowledge and experience to understand the risks.

What does CASS stand for, and what are the two main categories of assets it protects?

Client Assets Sourcebook (CASS). It protects 1) client money (cash a firm holds for clients) and 2) custody assets / safe custody assets (clients' investments such as shares and bonds held by the firm). The aim is to keep client assets separate from the firm's own so they can be returned promptly if the firm fails.

Under CASS, what is the principle of 'segregation' and why is it fundamental to client money protection?

Segregation requires a firm to keep client money separate from its own money, typically in a designated client bank account held on trust (statutory trust) with an approved bank. This ensures that if the firm becomes insolvent, client money is ring-fenced, not available to the firm's general creditors, and can be returned to clients.

Under CASS, what is a 'client money reconciliation' and how often must internal client money reconciliations generally be performed?

A client money reconciliation compares the firm's internal records of how much client money it should be holding against the amount actually held in client bank accounts, identifying and correcting any shortfall or excess. Internal client money reconciliations must generally be performed each business day. External reconciliations (against bank statements) are performed as regularly as necessary.

Name the principal UK regulations and Act governing anti-money laundering (AML) obligations on financial firms.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs 2017), and the Proceeds of Crime Act 2002 (POCA). Terrorist financing is covered by the Terrorism Act 2000. The FCA's SYSC and the JMLSG Guidance also apply.

Describe the three classic stages of the money laundering process.

1) Placement - introducing illicit cash into the financial system (e.g. depositing, buying assets); 2) Layering - moving funds through complex transactions to obscure their origin (e.g. transfers, conversions); 3) Integration - returning the 'cleaned' funds to the criminal as apparently legitimate wealth (e.g. investments, property).

Under POCA 2002, what is a SAR, to whom is it submitted, and what offence may be committed by failing to report?

A SAR is a Suspicious Activity Report. Staff report knowledge or suspicion of money laundering internally to the firm's MLRO (Money Laundering Reporting Officer), who reports onward to the National Crime Agency (NCA). Failure to report a suspicion in the regulated sector is itself a criminal offence under POCA (failure to disclose). 'Tipping off' the suspect is also an offence.

What does CDD stand for under the MLRs, and when must Enhanced Due Diligence (EDD) be applied?

CDD = Customer Due Diligence - identifying and verifying the customer (and beneficial owner) and understanding the nature/purpose of the relationship. Enhanced Due Diligence (EDD) is required in higher-risk situations: e.g. Politically Exposed Persons (PEPs), customers from high-risk third countries, complex/unusually large transactions, or where money laundering risk is higher.

Under the MLRs, what is a Politically Exposed Person (PEP) and what level of due diligence do they trigger?

A PEP is an individual entrusted with a prominent public function (e.g. head of state, senior politician, senior judge/military officer), plus their family members and known close associates. PEPs trigger Enhanced Due Diligence (EDD), including senior management approval to establish the relationship, establishing source of wealth/funds, and enhanced ongoing monitoring.

What is the principal UK legislation criminalising market abuse and insider dealing, and which two regimes (civil and criminal) apply?

Civil market abuse is governed by the UK Market Abuse Regulation (UK MAR). Criminal insider dealing is governed by Part V of the Criminal Justice Act 1993 (CJA 1993), and the offence of making misleading statements/impressions by the Financial Services Act 2012 (sections 89-91). The FCA enforces both regimes.

Under UK MAR, name the three main types of behaviour that constitute civil market abuse.

1) Insider dealing (and unlawful disclosure of inside information) - dealing on the basis of inside information; 2) Improper/unlawful disclosure of inside information; 3) Market manipulation - distorting the market in a financial instrument or disseminating false/misleading information. (Attempts at insider dealing and manipulation are also caught.)

Define 'inside information' under UK MAR by stating its four key characteristics.

Inside information is information that is: 1) of a precise nature; 2) not generally available (non-public); 3) relating, directly or indirectly, to one or more issuers or financial instruments; and 4) which, if generally available, would be likely to have a significant effect on the price of those financial instruments (price-sensitive).

Under the Criminal Justice Act 1993, what are the three distinct offences of insider dealing?

1) Dealing - dealing in price-affected securities while in possession of inside information as an insider; 2) Encouraging - encouraging another person to deal in price-affected securities; 3) Disclosing - disclosing inside information otherwise than in the proper performance of one's employment, office or profession.

What is the maximum criminal penalty for insider dealing under the Criminal Justice Act 1993 in the UK?

On conviction on indictment, insider dealing carries a maximum penalty of an unlimited fine and/or up to 10 years' imprisonment. (Market manipulation/misleading statements under the Financial Services Act 2012 also carry up to 10 years.)

List the core values/principles underpinning the CISI Code of Conduct that members must uphold.

CISI members must: 1) act honestly and fairly, with integrity, putting clients' interests first; 2) act with due skill, care and diligence and maintain competence; 3) comply with all regulatory requirements and the law; 4) treat others (clients, colleagues, counterparties) with respect; 5) manage conflicts of interest fairly; 6) maintain the highest standards of market conduct; 7) strive to uphold the standards and reputation of the profession.

In professional integrity terms, what is the difference between compliance with rules and acting with integrity, as emphasised by the CISI?

Compliance means following the letter of laws, regulations and rules. Integrity means doing the right thing - acting honestly, fairly and ethically - even where no specific rule applies or where the rules are silent. The CISI stresses that high ethical standards (the 'spirit') go beyond mere rule-following ('the letter') and underpin trust in the profession.

What is the Financial Ombudsman Service (FOS), and what is the maximum award it can make (for the most recent complaints)?

The FOS is the UK's independent dispute-resolution body for complaints by eligible complainants (mainly consumers and small businesses) against financial firms, free to the consumer. As of April 2024, its maximum binding award is £430,000 for acts/omissions on or after 1 April 2019 (£195,000 for earlier acts), with figures updated annually for inflation.

Within what timeframe must a firm normally resolve a complaint under FCA DISP rules before a complainant may refer it to the Financial Ombudsman Service?

A firm must send a final response within 8 weeks of receiving the complaint (reduced to 35 days for certain payment-services complaints). If the firm fails to do so, or the complainant is dissatisfied with the final response, the eligible complainant may refer the complaint to the FOS - generally within 6 months of the final response date.

What is the Financial Services Compensation Scheme (FSCS), and what is the compensation limit for protected deposits?

The FSCS is the UK's statutory 'fund of last resort' that pays compensation to eligible claimants when an authorised firm fails (is unable to meet claims). For protected deposits it covers up to £85,000 per eligible person per banking authorisation (£170,000 for joint accounts).

State the FSCS compensation limits for (a) investment business and (b) long-term insurance/insurance provision.

(a) Protected investment business (and most other categories such as home finance and debt management): up to £85,000 per eligible person per firm. (b) Long-term insurance and compulsory insurance/claims arising from the failure of an insurer: protected at 100% of the claim with no upper limit. General (non-compulsory) insurance is generally protected at 90% with no upper limit.