Financial Conduct Authority (FCA) UK Regulation Sample Exam

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For a MiFID firm, what is one criterion that must be met for a client to be categorized as an elective professional client?

The client's portfolio exceeds Euro 500,000
The client has been a professional trader for five years
The client is a public sector entity
The client generates more than 50% of income from investments

The correct answer is: The client's portfolio exceeds Euro 500,000

To be categorized as an elective professional client under MiFID regulations, one of the criteria is that the client's portfolio must exceed a specific monetary threshold, namely Euro 500,000. This requirement is designed to ensure that clients have a sufficient level of financial resources and experience to understand the risks associated with investment products, thereby allowing them to receive a lower level of regulatory protection compared to retail clients. The significance of this criterion lies in its focus on the financial adequacy and investment experience that such clients are presumed to have. The portfolio threshold acts as a gauge of the client's ability to bear potential losses and make informed decisions regarding complex financial products. The other options involve different criteria or contexts that do not align with the specific MiFID regulations regarding elective professional clients, as they focus on aspects such as trading experience, client type, or income sources, which do not directly satisfy the rules governing client categorization under MiFID.