Financial Conduct Authority (FCA) UK Regulation Sample Exam

What must be considered when a client wishes to purchase a significant holding of a complex instrument without an advisory relationship?

1. The rules on appropriateness for non-advised sales

2. The need for a financial product review

3. The licensing of the selling firm

4. The suitability assessment for retail clients

The correct answer is: The rules on appropriateness for non-advised sales

When a client intends to purchase a significant holding of a complex instrument without an advisory relationship, the rules on appropriateness for non-advised sales become a central focus. These rules are designed to ensure that the client has the necessary knowledge and experience to understand the risks and workings of the complex instrument they are considering. In non-advised sales, it is crucial for the firm to assess whether the product is appropriate for the client based on their stated objectives and financial situation. This means that the firm must take reasonable steps to verify the client's understanding of the product and any associated risks before proceeding with the sale. If a client does not meet the appropriateness criteria, the firm could be exposed to regulatory scrutiny and potential liability. Other options, such as the necessity for a financial product review or licensing of the selling firm, do not specifically pertain to situations involving significant purchases of complex instruments in a non-advisory context. Similarly, while the suitability assessment is vital in an advised sales environment, it is not a requirement for non-advised transactions, which places a greater emphasis on the appropriateness of the product for the client’s situation. Therefore, focusing on the rules of appropriateness is paramount in this scenario.