Financial Conduct Authority (FCA) UK Regulation Sample Exam

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Which of the following is a key requirement for firms under MiFID when dealing with professional clients?

  1. Constant monitoring of client portfolio performance

  2. Provision of a detailed annual report to the client

  3. Compliance with strict conduct of business rules

  4. Ensuring client registration with an accredited body

The correct answer is: Compliance with strict conduct of business rules

The key requirement for firms under the Markets in Financial Instruments Directive (MiFID) when dealing with professional clients is compliance with strict conduct of business rules. These rules are designed to ensure that firms conduct their services with a high standard of care and integrity, prioritizing the interests of clients while ensuring transparency and fair treatment. Under MiFID, firms are required to have systems and controls in place to ensure that their business is conducted in a manner consistent with the obligations owed to clients, especially when those clients have a higher level of experience and knowledge due to their professional status. This includes adherence to fiduciary duties, maintaining appropriate communication and documentation, and ensuring that the advice given is in alignment with the best interests of the professional clients they serve. While monitoring client portfolio performance, providing annual reports, and ensuring registration with accredited bodies are certainly important practices in the financial services sector, they do not encapsulate the overarching obligation that MiFID imposes on firms to adhere to conduct of business rules. The focus on conduct of business is essential as it sets the framework within which all client interactions must occur, particularly emphasizing the importance of safeguarding clients' interests.