CII R01 cheat sheet

Regulatory architecture: the FCA regulates conduct for all firms and prudential matters for firms not dual-regulated by the PRA; the PRA regulates prudential soundness of banks, insurers and major investment firms under the Financial Services and Markets Act 2000 (FSMA).

FSMA statutory objectives for the FCA: protecting consumers, protecting and enhancing market integrity, and promoting effective competition in consumers' interests; the PRA has general safety-and-soundness and policyholder-protection objectives.

The FCA's consumer protection objective is delivered through the Consumer Duty: a cross-cutting obligation on firms to act to deliver good outcomes for retail customers across products and services, price and value, consumer understanding, and consumer support.

Threshold Conditions are the minimum standards a firm must satisfy to be authorised and to remain authorised; they cover legal status, location of offices, effective supervision, suitability, and business model.

Approved Persons regime (SM&CR): Senior Managers hold prescribed responsibilities and Statements of Responsibilities; Certification staff are annually certified as fit and proper; Conduct Rules apply to almost all employees.

Treating Customers Fairly outcomes remain embedded in supervision; the six TCF outcomes map closely to Consumer Duty outcomes and are still examined as conduct expectations.

Financial Ombudsman Service: compulsory jurisdiction for regulated firms; awards are binding on the firm if accepted by the complainant, and the award limit is set and periodically updated by the FCA.

Financial Services Compensation Scheme: protects eligible claimants up to prescribed limits per firm per claimant; deposits, investments and insurance each have separate limits and eligibility rules.

Regulatory tools: the FCA can impose requirements, vary permissions, publicly censure, fine, prohibit individuals, and use its product intervention and temporary product intervention powers.

Six Principles for Businesses (FCA): integrity, skill care and diligence, management and control, financial prudence, market conduct, and customers' interests; the Consumer Duty sits alongside the Principles.

Client categorisation under MiFID-style rules: eligible counterparty, professional client, and retail client; protections decrease as categorisation moves up, and opting up requires prescribed procedures and disclosures.

Best execution: firms owe a duty to obtain the best possible result for clients taking into account price, costs, speed, likelihood of execution and settlement, size, nature and other considerations relevant to the order.

Financial promotions must be fair, clear and not misleading; under the gatekeeper rules, unauthorised firms generally cannot approve their own promotions, and promotions must be communicated or approved by an authorised person unless an exemption applies.

Vulnerability: the FCA expects firms to understand the needs of customers in vulnerable circumstances and to take reasonable steps to avoid foreseeable harm; vulnerability is not limited to diagnosed conditions.

Complaints: firms must resolve complaints promptly and fairly; the FCA sets the maximum response period (eight weeks for most complaints) after which the complainant may refer to the Financial Ombudsman Service.

Record keeping: firms must retain records of regulated activities and client communications for prescribed periods (often five years, longer for certain pensions and investments) to evidence compliance.

Conflicts of interest: firms must identify, prevent or manage conflicts, maintain a conflicts policy, and disclose conflicts where management is insufficient; inducements must not impair the duty to act in clients' best interests.

Market abuse regime: insider dealing, unlawful disclosure and market manipulation are prohibited; MAR requires disclosure of inside information, insider lists, and suspicious transaction reporting.

Ethical decision framework: identify the facts, identify affected parties, identify relevant principles and rules, consider alternatives and consequences, decide, then document and review.

Integrity (Principle 1) requires honesty and fair dealing; it cannot be overridden by commercial pressure, and conflict with a client's instruction is resolved by disclosure and refusal where appropriate.

Client money and assets: firms must segregate client money, reconcile frequently, and hold assets in trust; misusing client money is a serious breach and can amount to a criminal offence.

Inducements: firms must not pay or accept fees, commissions or non-monetary benefits that impair the duty to act in the client's best interests; disclosure alone does not cure a harmful inducement.

Whistleblowing: firms must have internal arrangements for staff to report concerns, protect whistleblowers from detriment, and the FCA expects senior managers to foster a speak-up culture.

Gifts and hospitality: must be reasonable, proportionate, disclosed in a register and approved under firm policy; the test is whether the benefit could influence a decision.

Fitness and propriety: honesty, integrity, reputation, competence, financial soundness and criminal record are relevant; a breach can lead to prohibition or withdrawal of approval.

Personal account dealing and insider dealing: staff must obtain pre-clearance, avoid dealing ahead of client orders, and never trade on inside information; front-running is prohibited.

Risk and return relationship: higher expected return generally requires accepting higher risk; diversification reduces unsystematic risk but not systematic (market) risk.

Asset classes: cash, fixed interest (gilts, corporate bonds), equities, property and alternatives; each has distinct liquidity, volatility, income and inflation-sensitivity profiles.

Bonds: price moves inversely to yield; duration measures sensitivity to interest rate changes; credit spread reflects default and liquidity risk.

Collective investment schemes: authorised funds (e.g., ICVC/ OEIC, unit trusts) are regulated and offer diversification; charges include initial, annual management, and ongoing charges figure (OCF).

Pension products: defined contribution and defined benefit schemes differ in who bears investment risk; personal pensions and SIPPs offer investment choice with tax-relieved contributions subject to annual and lifetime allowances.

Protection products: term assurance, whole-of-life, income protection and critical illness cover differ in payout triggers; underwriting and disclosure of material facts affect claims.

Mortgages: repayment, interest-only and offset structures; affordability rules and stress testing apply; fixed, tracker and variable rates carry different interest-rate risk.

Markets: primary market issues securities; secondary market trades them; exchanges, MTFs and OTC venues differ in transparency, liquidity and counterparty risk.

Tax wrappers: ISAs, pensions and investment bonds have distinct tax treatment; wrapper choice affects the tax efficiency of the underlying product, not just the product itself.