Integrity, Conduct and Client Treatment
This domain tests how firms must behave towards clients and markets: categorisation, fair treatment, order handling, market abuse controls and complaints. It is the most applied part of the exam and the easiest place to lose marks through over-simplification.
Client categorisation
Clients are retail, professional (per se or elective) or eligible counterparties. Elective professional status requires an appropriateness assessment, a written warning about lost protections and the client's written consent. Best execution, appropriateness and complaint handling continue to apply to professional clients.
The Consumer Duty and fair treatment
- The Consumer Principle requires firms to act to deliver good outcomes for retail customers.
- Three cross-cutting rules: act in good faith; avoid foreseeable harm; enable and support customers to pursue their financial objectives.
- Four outcomes: products and services; price and value; consumer understanding; consumer support.
- Vulnerable customers must receive outcomes at least as good as other customers.
Market conduct
- UK MAR prohibits insider dealing, unlawful disclosure of inside information and market manipulation, including attempts.
- Suspicious transaction and order reports are made to the FCA on suspicion, not proof, promptly and without tipping off.
- Controls include insider lists, personal account dealing rules, information barriers and PDMR notification.
Best execution and order handling
Firms must take all sufficient steps considering price, cost, speed, likelihood of execution and settlement, size and nature of the order, and publish and monitor an execution policy.
Complaints
Firms must resolve complaints promptly, issue a final response within eight weeks, and remind eligible complainants of the right to refer to the Financial Ombudsman Service within six months.
Worked example
A portfolio manager learns that a client is about to place a large buy order in a mid-cap stock. He buys the same stock for his personal account first. Reasoning: he traded on inside information about a pending order, which is market abuse (front running), breaches personal account dealing rules, and creates an undisclosed conflict. The firm must also consider whether a suspicious transaction report is required, and must not tip off the manager.
Traps that cost marks
- Believing disclosure alone resolves a conflict of interest.
- Thinking a report requires proof of abuse rather than suspicion.
- Equating best execution with obtaining the best price only.
- Assuming execution-only business removes all conduct obligations.