Conduct of Business and Market Practices
What the domain tests
This domain tests client categorisation, suitability and appropriateness, disclosure, conflicts of interest, best execution, financial promotions and market-abuse controls.
Core rules and concepts
- Clients are typically categorised as retail, professional or eligible counterparty. Categorisation determines required protections; opting up must follow prescribed warnings and safeguards.
- Suitability applies to advised sales and portfolio management: the firm must understand the client, the product and the match. Appropriateness applies to execution-only complex products and tests knowledge and experience.
- Disclosure is not a cure-all. Conflicts must be identified, managed and, where possible, avoided; mere disclosure may be insufficient.
- Best execution requires reasonable steps to obtain the best possible result considering price, cost, speed, likelihood of execution and settlement.
- Market abuse includes insider dealing, unlawful disclosure and manipulation. Controls include information barriers, restricted lists, personal-account dealing rules and surveillance.
Worked example
A retail client asks to buy a complex derivative without advice. The firm should assess appropriateness, warn if the client lacks knowledge, and record the warning. It should not conduct a full suitability assessment unless advice is given. If the client refuses to provide information, the firm may proceed only within the execution-only conditions and must document the decision.
Traps that cost marks
Treating disclosure as sufficient conflict management; equating best execution with cheapest price; allowing categorisation changes without safeguards; and confusing suitability with appropriateness.