Client Onboarding and Suitability
What this domain tests
This section covers know-your-client obligations, anti-money-laundering controls and the suitability process: matching a debt product to a client's objectives, horizon and risk capacity.
AML/CFT and CDD
Under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, reporting entities must conduct customer due diligence (CDD). This includes verifying identity, identifying beneficial owners, screening politically exposed persons (PEPs), understanding source of funds and wealth, and monitoring the relationship. Enhanced CDD applies to higher-risk customers. Records must be retained.
Suitability
Onboarding is not a formality. You need the client's investment objectives, financial situation, risk tolerance, time horizon and liquidity needs. A recommendation must be suitable and explain why the product fits. Under the FSLAA regime, advice must comply with the Code of Professional Conduct, including acting with care, diligence and skill.
Worked example
A 70-year-old client needs reliable income and access to capital within two years. An adviser is offered a 10-year subordinated bond yielding 8%. The yield is attractive, but the long duration and subordinated ranking create interest-rate and credit risk that do not match the client's horizon and capital-preservation need. A short-dated government stock or comparable low-risk deposit is more suitable. The adviser should document the client's objectives, the rejected product and the reasons.
Traps that cost marks
Treating CDD as a one-off event; missing beneficial ownership; recommending on yield alone; ignoring the client's time horizon; and failing to record the basis for the advice.