Conduct of Business, Client Assets and Consumer Protection
This domain tests fair treatment, disclosure, suitability, conflicts and custody of client assets. The exam often uses a firm that treats client money as working capital or hides behind deposit insurance.
Conduct rules
- Fair treatment, clear disclosure of charges and risks, suitability, management of conflicts, fair advertising and accessible complaints handling.
- CMA conduct-of-business rules apply to market intermediaries; CBK consumer protection guidelines apply to banks; the Competition Act addresses misleading conduct.
- Complaints must be logged, investigated and escalated; regulators can impose sanctions and require redress.
Client assets
Client money must be segregated in trust accounts, reconciled and audited; securities are held through CDSC; firm and client money must not be commingled. Records must identify each client's assets, and custody should be insolvency-remote. Investments are not deposits and are not covered by deposit insurance.
Worked example
A stockbroker uses client settlement cash to cover its own payroll. This breaches client-money segregation and conduct rules. CMA can intervene, require restoration, restrict the licence and refer suspected fraud to FRC or police. The reasoning: client money is not the firm's working capital, and custody is a fiduciary duty, not a funding source.
Traps
Assuming deposit insurance covers shares or unit trusts; treating complaints as public relations; ignoring conflicts in research; failing to reconcile trust accounts; describing client money as a bank deposit.