Regulation, ethics and professional standards
Domain 4: Regulation, ethics and professional standards
This domain tests the architecture of UK conduct regulation and the professional judgement built on it: FSMA and the FCA Handbook, client classification, the Consumer Duty, financial crime controls, complaints and redress, and the ethical principles of CISI membership. Ethics items are scenario-based - they reward reasoning and documentation, not statute recitation.
Rulebook architecture
- FSMA 2000 underpins the FCA Handbook: PRIN (11 Principles for Businesses), COBS (conduct of business, including suitability and disclosure), SYSC, CASS and TC.
- The Consumer Duty (PRIN 2A) sets four outcomes: products and services, price and value, consumer understanding, consumer support. It applies to retail customers, including those who are vulnerable, and requires evidence of good outcomes, not just absence of harm.
- Client categories are retail, professional (per se or elective) and eligible counterparty. Elective opt-up needs an appropriateness assessment and disclosure; it never licenses dishonest or unfair treatment.
- Advised retail investment business operates without commission-style inducements; costs are disclosed ex-ante and ex-post, and conflicts are managed and disclosed.
Worked example: third-party funding
A long-standing client asks you to accept £250,000 into her portfolio from her nephew's offshore account. Reasoning: this is higher-risk funding. Identify and verify the nephew as payer, establish source of funds and source of wealth, ask why his account is used, screen for PEP, sanctions and high-risk jurisdiction exposure, and apply enhanced due diligence. If the explanation is inconsistent, decline to proceed; consider a suspicious activity report to the NCA (defensive reporting is permitted) and do not tip off the client - tipping off is a criminal offence under POCA. Record the decision and the MLRO or senior manager sign-off; accepting the money because the client is known would breach both the money laundering regulations and PRIN 6.
Complaints, redress and ethics
- FOS award limit £430,000 for complaints referred on or after 1 April 2024; FSCS protects investments to £85,000 per person per firm; firms have eight weeks to resolve a complaint.
- The professional principles - integrity, objectivity, competence, confidentiality and compliance - apply where the rulebook is silent.
Marks-losing traps
- Assuming elective professional status removes all protections.
- Treating compliance sign-off as ethical justification.
- Failing to spot a gift or hospitality that impairs objectivity.
- Disclosing client information without a lawful basis, or tipping off during an investigation.
- Meeting the regulatory minimum while missing the Consumer Duty outcome.