Derivatives (Level 4, Unit 3)

Correct: Platform operators are responsible for the accuracy of asset valuations and the integrity of client records. When a pricing error occurs, the firm must ensure that clients are not disadvantaged. This involves correcting the internal records and providing compensation where necessary to restore the client to the financial position they would have been in had the correct price been applied at the time of the transaction.

Incorrect: The strategy of only updating future transactions fails to address the financial loss or misallocation already suffered by clients due to the historical error. Focusing solely on immediate regulatory reporting before addressing the client’s financial position prioritizes administrative compliance over the fundamental principle of treating customers fairly. Choosing to offset losses through future fee adjustments is inappropriate as it does not provide immediate rectification and may not accurately reflect the specific loss incurred by each individual investor.

Takeaway: Platform operators must rectify pricing errors to ensure clients are restored to the financial position they would have been in otherwise.

Correct: According to the FCA’s CASS 6 (Custody) rules, a firm must ensure that legal title to safe custody assets is registered in the name of a nominee company. This nominee must be a separate legal entity (body corporate) controlled by the firm or an affiliated company. This structure ensures that the legal title is held separately from the firm’s own assets, providing protection for the beneficial owners (the clients) in the event of the firm’s insolvency.

Incorrect: The strategy of registering assets in the name of the platform’s primary operating company is a violation of CASS rules because it co-mingles firm and client assets. Choosing to register assets in the name of individual retail investors is not the standard practice for investment platforms as it would prevent the use of pooled nominee accounts and significantly increase administrative costs. Opting to register assets in the name of a clearing house is incorrect because while clearing houses facilitate the transfer of assets, they do not typically hold the long-term legal title for a platform’s retail client holdings.

Takeaway: UK platforms must hold legal title to client assets through a controlled nominee company to ensure proper regulatory segregation and protection.

Correct: In the United Kingdom, income generated within Accumulation units is treated as a notional distribution. Even though the investor does not receive cash, the income is reinvested into the fund’s capital, increasing the net asset value. This amount is subject to income tax in the same way as a cash dividend. To prevent double taxation when the client eventually sells the units, this notional distribution is added to the allowable expenditure (the cost base) for Capital Gains Tax (CGT) purposes.

Incorrect: The strategy of treating internal growth as a capital gain is incorrect because UK tax law classifies the underlying yield as income at the point it is distributed internally. Focusing only on cash distributions for reporting purposes would be a failure of the platform’s duty to provide accurate tax vouchers, as notional distributions are legally taxable events. Choosing to automatically convert unit types based on yield thresholds is not a standard regulatory or operational practice and would likely violate the client’s investment mandate and the terms of the customer agreement.

Takeaway: Notional distributions from accumulation units are taxable as income and must be added to the cost base for capital gains purposes.

Correct: In the UK platform market, liability is typically delineated by the source of the failure. The platform operator is responsible for the functional integrity of its infrastructure, meaning it is liable for losses caused by its own administrative errors, system glitches, or failures in its proprietary tools. Conversely, the user firm (the adviser or discretionary manager) retains the regulatory liability for the suitability of the investment decisions and the overall advice provided to the client.

Incorrect: The strategy of assigning full liability to the user firm is incorrect because platform operators have a duty to provide their services with reasonable care and skill and are responsible for their own operational failures. Claiming that liability is always split equally misinterprets the FCA’s regulatory approach, which seeks to identify the specific firm responsible for the breach of duty rather than applying an arbitrary division. Suggesting the platform becomes liable for investment performance outcomes is inaccurate, as the professional judgment regarding the appropriateness of a model portfolio remains the responsibility of the firm providing the advice or management service.

Takeaway: Platform operators are liable for operational and system failures, while user firms retain responsibility for investment suitability and client advice.

Correct: Under COBS 2.2A, UK firms are required to provide retail clients with information on all costs and associated charges in good time before the provision of services. This must include an aggregated disclosure of the costs of the investment service and the costs of the financial instruments, ensuring the client understands the total cost and its cumulative effect on the investment return.

Incorrect: The strategy of providing a summary only after execution fails the regulatory requirement for pre-contractual transparency and informed decision-making. Focusing only on platform administration fees is insufficient because the firm must disclose the total costs, including those of the underlying instruments. Choosing to provide a full breakdown only upon request violates the proactive disclosure obligations designed to protect retail investors from hidden charges.

Takeaway: Firms must provide aggregated ex-ante disclosures of all service and instrument costs to retail clients before they are bound by an agreement.

Correct: Under the FCA’s Consumer Duty, the ‘Consumer Understanding’ outcome requires firms to ensure that their communications are not only technically accurate but are actually understood by the intended audience. Proactively testing communications with a representative sample of the target market allows the firm to identify and rectify potential misunderstandings before the product is marketed, directly supporting the requirement to deliver good outcomes.

Incorrect: The strategy of relying solely on minimum regulatory disclosures like the PRIIPs KID is insufficient because the Consumer Duty sets a higher standard for actual comprehension beyond mere technical compliance. Simply providing a glossary of terms places the burden of understanding on the customer rather than the firm, failing to meet the proactive requirements of the cross-cutting rules. Opting to delegate the responsibility of understanding to financial advisers is incorrect because the platform, as a distributor or manufacturer, maintains its own distinct regulatory obligations to ensure its communications are fit for purpose for the target market.

Takeaway: Consumer Duty requires firms to proactively test and ensure that retail customers actually understand the information provided to make informed decisions.

Correct: Under the FCA’s Conduct of Business Sourcebook (COBS), the responsibility for suitability rests with the firm providing the advice or making the investment decision for the client. Even if a platform provides sophisticated tools for portfolio construction or asset allocation, the intermediary firm must ensure the output is appropriate for the client’s individual circumstances, risk appetite, and financial goals.

Incorrect: The strategy of assuming the platform provider takes on liability is incorrect because platforms are service providers and do not hold the advisory relationship with the retail client. Relying solely on the tool to satisfy due diligence requirements is a failure of the firm’s own obligations to understand the products they recommend. Choosing to believe that disclosure transfers conduct risk ignores the fundamental principles of the Consumer Duty, which requires firms to ensure good outcomes for their clients regardless of the technology used.

Takeaway: Intermediaries remain responsible for suitability even when using platform-provided portfolio construction and asset allocation tools for client portfolios.

Correct: The customer agreement is a foundational legal document that sets out the terms and conditions of the relationship. It defines the services provided by the platform, the fees applicable, and how the firm will comply with FCA requirements such as the Client Assets (CASS) rules for holding money and investments. This ensures both the platform and the client understand their legal standing and operational boundaries.

Incorrect: The strategy of viewing the agreement as a suitability report is incorrect because platforms typically provide the infrastructure for investments rather than personal financial advice, which is the responsibility of an adviser. Focusing only on historical performance comparisons misidentifies the document’s purpose, as performance data belongs in marketing materials or Key Investor Information Documents rather than a legal service contract. Choosing to treat the agreement as an application for compensation is a misconception; while it may mention the Financial Services Compensation Scheme, the scheme is a separate regulatory safety net and does not protect against general market volatility or losses.

Takeaway: The customer agreement is a legally binding contract defining the service scope, fees, and asset protection obligations between the platform and investor.

Correct: Delivery versus Payment (DvP) is the standard settlement method in the UK, typically facilitated through CREST. It ensures that the delivery of securities occurs if, and only if, the payment is made. This mechanism is crucial for reducing counterparty and principal risk in the financial markets by synchronising the transfer of ownership with the transfer of value.

Incorrect: Relying on net bilateral settlement outside a depository increases counterparty risk because it lacks the simultaneous exchange guarantee provided by a central system. Choosing Free of Payment transfers is inappropriate for standard market trades as it decouples the asset transfer from the payment, exposing the firm to significant principal risk. Opting for guaranteed pre-settlement funding describes a liquidity management strategy rather than the actual technical settlement mechanism used to exchange title for cash.

Takeaway: Delivery versus Payment (DvP) is the primary settlement method in the UK used to eliminate principal risk by ensuring simultaneous exchange of assets and cash.

Correct: Under FCA COBS rules, specifically COBS 10 and 10A, when a firm provides services other than investment advice (such as execution-only platform services) regarding complex instruments, it must perform an appropriateness assessment. This assessment determines if the client has the necessary knowledge and experience to understand the risks. If a client fails to provide the required information, the firm is unable to determine appropriateness and must either warn the client or, in many platform configurations, block the trade to ensure compliance with consumer protection obligations.

Incorrect: The strategy of requiring a full suitability assessment for every complex trade is incorrect because suitability is only mandatory for advised sales or discretionary management, not for execution-only platforms where appropriateness is the standard. Choosing to block the trade based on the account wrapper is inaccurate, as structured notes can legally be held in a General Investment Account provided regulatory tests are met. Opting for a total prohibition on retail investors holding structured investments is a misunderstanding of UK law, as retail clients are permitted to hold such assets provided the firm has assessed the product as appropriate for them or provided a clear warning.

Takeaway: UK platforms must block non-advised trades in complex products if the client fails to provide enough information for an appropriateness assessment.

Correct: A robust SLA must contain measurable KPIs and escalation procedures. This ensures the platform can monitor the provider’s performance against agreed standards and take corrective action when necessary, fulfilling the firm’s duty of oversight under the FCA’s Systems and Controls (SYSC) requirements.

Incorrect: The strategy of attempting to transfer ultimate regulatory accountability is flawed because the FCA mandates that the regulated firm retains responsibility for outsourced activities. Opting for annual-only reporting is insufficient for effective risk management as it prevents the platform from identifying and addressing service failures in a timely manner. Requiring the exclusive use of the platform’s internal IT systems is an operational choice rather than a fundamental requirement of an SLA focused on service standards and oversight.

Takeaway: Effective SLAs must include measurable performance metrics and escalation paths to ensure the platform maintains proper oversight of outsourced providers.

Correct: In a typical tripartite relationship involving a platform, the financial adviser retains the regulatory obligation to ensure that the investment strategy or mandate managed by the DIM remains suitable for the client’s specific needs, risk appetite, and objectives. The Discretionary Investment Manager (DIM) is responsible for the day-to-day management of the assets and ensuring that the individual trades and asset allocations stay within the boundaries of the agreed-upon mandate or model portfolio.

Incorrect: The strategy of shifting liability to the platform provider is incorrect because platforms generally act as administrators and custodians rather than investment fiduciaries. Focusing only on the DIM’s role in holistic planning is a misconception, as their expertise and regulatory scope are usually limited to the specific investment mandate rather than the client’s broader financial situation. Choosing to believe the adviser is fully discharged of liability is a common error; the adviser must provide ongoing oversight to ensure the DIM’s service continues to meet the client’s suitability requirements under FCA COBS rules.

Takeaway: Advisers are responsible for the suitability of the DIM mandate, while DIMs are responsible for managing investments within that specific mandate.

Correct: Under UK anti-money laundering regulations and FCA guidance, Politically Exposed Persons (PEPs) are considered higher risk, requiring Enhanced Due Diligence (EDD). This process mandates that the firm establishes the source of wealth (the activities that generated the client’s total net worth) and the source of funds (the origin of the specific assets being invested). Furthermore, senior management approval is a specific regulatory requirement for establishing or continuing a business relationship with a PEP.

Incorrect: The strategy of applying standard due diligence is insufficient because PEP status automatically triggers the requirement for enhanced measures regardless of the client’s residency or the use of a UK bank. Relying solely on an adviser’s KYC documentation without independent platform-level verification or senior management oversight fails to meet the platform’s direct regulatory obligations for high-risk clients. Choosing to delay the source of wealth investigation until a future review date is non-compliant, as these risks must be assessed and mitigated at the point of onboarding before the relationship commences.

Takeaway: Platforms must apply Enhanced Due Diligence and obtain senior management approval when onboarding Politically Exposed Persons to comply with UK AML requirements.

Correct: When a fund manager implements deferred redemptions, they are exercising a right (usually found in the prospectus) to delay the settlement of sell orders to protect the fund’s remaining investors. The platform, acting as an intermediary, cannot override this decision and must pass the delay on to the client. This means the client cannot access their cash immediately and remains subject to the risk that the fund’s price may change before the redemption is finally processed.

Incorrect: The strategy of providing a cash advance from the platform’s own funds is incorrect as platforms are not required to act as a liquidity provider for third-party fund failures or delays. Opting to match buy and sell orders internally is generally not permitted for suspended or deferred OEICs because the official register is controlled by the fund’s Authorised Corporate Director (ACD). Focusing only on automatic switching to a money market fund is a violation of conduct rules, as platforms do not have the discretionary authority to move client assets between different funds without a specific instruction or a discretionary mandate.

Takeaway: Deferred redemptions mean platforms cannot guarantee liquidity, leaving clients exposed to both timing delays and market price volatility.

Correct: The primary purpose of rebalancing is to manage risk by ensuring the portfolio does not drift away from its strategic asset allocation. When one asset class outperforms others, the portfolio’s risk profile changes, potentially becoming more volatile than the client originally agreed to during the suitability process. Rebalancing sells over-weighted assets and buys under-weighted ones to restore the original balance.

Incorrect: Relying solely on momentum to increase weightings in high-performing sectors describes an active tactical strategy that actually increases risk rather than controlling it. The strategy of generating cash for fees is a liquidity management function and does not address the structural alignment of the investment strategy. Opting to switch assets between wrappers for tax purposes is a specific tax planning activity and does not correct the underlying asset allocation drift caused by market movements.

Takeaway: Rebalancing maintains the intended risk-return characteristics of a portfolio by correcting asset allocation drift caused by market performance fluctuations over time.

Correct: In the United Kingdom, when a material pricing error occurs (typically defined as 0.5% or greater for most retail funds), the guiding principle under FCA conduct rules and Treating Customers Fairly (TCF) is to ensure the investor suffers no financial loss. The platform and fund manager must work together to provide redress that restores the client to the position they would have occupied if the valuation had been calculated correctly.

Incorrect: The strategy of advising clients to pursue insurance claims independently fails to meet the platform’s obligations to manage the correction process and protect retail investors from administrative burdens caused by provider errors. Opting to automatically reverse transactions without client consultation can create significant tax complications, such as unintended Capital Gains Tax liabilities, and may not be suitable if the client required the liquidity. Focusing only on fee credits as a goodwill gesture is insufficient because it does not legally or financially rectify the specific loss incurred from the undervalued sale of the assets.

Takeaway: Platforms must ensure clients are restored to their original financial position following material pricing errors to comply with UK regulatory standards.

Correct: Logical security refers to the technical controls and software-based measures, such as user IDs, passwords, and access permissions, used to protect digital assets. In a platform environment, maintaining robust logical security is essential for complying with the Data Protection Act 2018 and ensuring that client data is only accessible to authorised personnel.

Incorrect: Focusing on physical security would only address the protection of the actual office space, servers, and hardware from unauthorised entry or damage. Opting for data portability concerns the right of individuals to obtain and reuse their personal data across different services rather than internal access control. The strategy of implementing encryption standards focuses on making data unreadable to those without a key but does not manage the administrative lifecycle of user accounts and permissions.

Takeaway: Logical security controls govern digital access to platform systems through technical measures like user authentication and role-based permissions.

Correct: In a standard UK platform nominee arrangement, the legal title to the assets is held by a nominee company, which is a non-trading subsidiary. This structure is designed to facilitate efficient administration and trading while ensuring that client assets are legally ring-fenced from the platform’s own corporate assets, adhering to the segregation requirements of CASS 6.

Incorrect: Identifying the individual retail client as the legal holder describes an ‘own name’ registration model, which is distinct from the nominee structures typically employed by modern platforms for administrative efficiency. Proposing that the platform’s primary operating company holds the title would represent a failure to segregate client assets from firm assets, creating significant regulatory risk and potential breaches of CASS rules. Attributing legal ownership to the Financial Conduct Authority misinterprets the regulator’s supervisory function, as they do not take legal title to private client investments or act as a custodian.

Takeaway: In UK platform nominee models, legal title is held by a nominee company while beneficial ownership remains with the client for asset protection.

Correct: Multiple nominee structures allow a platform to partition assets into logical sub-pools, such as separating different tax wrappers or assets belonging to different advisory firms. This structure improves operational transparency and can simplify the management of corporate actions and reporting for specific client segments while still benefiting from the efficiencies of nominee-based settlement.

Incorrect: The idea that legal title rests with the individual investor describes an own-name registration rather than a nominee arrangement. The suggestion that internal reconciliations are eliminated is incorrect because FCA CASS rules mandate rigorous internal record-keeping and reconciliation regardless of the nominee structure used. Asserting that this model removes the need for CASS oversight is false, as all nominee arrangements used by regulated platforms must comply with the FCA’s Client Assets sourcebook to ensure investor protection.

Takeaway: Multiple nominee structures allow platforms to group assets by criteria like wrapper or intermediary for better administrative control and reporting. (22 words)

Correct: Under the FCA CASS 7 rules, firms are required to maintain accurate records and perform regular reconciliations of client money. This process ensures that the amount of money held in the firm’s client bank accounts matches the amount the firm should be holding for its clients. Regular external reconciliations with bank statements and internal reconciliations with the firm’s own ledgers are critical to maintaining the statutory trust and protecting client funds in the event of the firm’s insolvency.

Incorrect: The strategy of providing disclosure documents only after a transaction is completed fails to meet COBS requirements for pre-investment transparency. Holding client assets in the firm’s own name directly contradicts the fundamental principle of asset segregation and increases the risk of loss to the client. Opting to report daily transaction data to the Financial Ombudsman Service represents a misunderstanding of regulatory reporting, as the Ombudsman handles individual disputes rather than market oversight or transaction monitoring.

Takeaway: Firms must perform frequent reconciliations and maintain strict segregation to protect client money under FCA CASS rules.

Correct: Platforms support distribution by acting as an administrative hub. They consolidate buy and sell orders from various financial advisers and wealth managers, which reduces the operational complexity for the product provider. Instead of the provider managing thousands of individual relationships, the platform handles the settlement, custody, and reporting, making the fund more accessible to the wider market.

Incorrect: The strategy of acting as an underwriter is incorrect because platforms are intermediaries that facilitate transactions rather than providing capital guarantees or market-making services. Opting for the platform to conduct suitability assessments is a misunderstanding of regulatory roles, as the duty to ensure suitability remains with the financial adviser or the firm providing the personal recommendation. Focusing on guaranteed capital inflows through automatic allocation is incorrect because platforms must maintain objective investment environments and cannot unilaterally mandate allocations to specific third-party funds without the consent of the investment manager or client.

Takeaway: Platforms facilitate distribution by centralizing administration and aggregating demand from multiple intermediaries for product providers.

Correct: The platform operator maintains oversight through a formal Service Level Agreement (SLA) and regular due diligence to ensure the custodian adheres to the FCA’s Client Assets Sourcebook (CASS) requirements. This is essential because the platform retains ultimate regulatory responsibility for the safety of investor assets even when custody is outsourced.

Correct: In accumulation units, the income generated by the underlying assets is not paid out as cash but is instead retained within the fund’s capital. This process increases the net asset value (NAV) of the accumulation units relative to the income units. For UK tax purposes, this is treated as a ‘notional distribution,’ meaning the investor must still account for it as income even though no physical cash was received.

Incorrect: Describing the purchase of additional fractional units is incorrect because that defines the ‘reinvestment’ of income units rather than the internal mechanism of accumulation units. Suggesting the income is held in a statutory trust account as client money is a misunderstanding of fund accounting, as accumulation happens within the fund itself before any money reaches the platform. Claiming that income is reclassified as a capital gain is incorrect under UK tax law, as notional distributions from accumulation units are still subject to income tax rules.

Takeaway: Accumulation units retain income internally to increase unit value, requiring investors to report these ‘notional distributions’ for UK tax purposes.

Correct: A fixed or tiered fee structure is often more appropriate for high-net-worth clients because it avoids the ‘wealth tax’ effect of uncapped percentage-based fees. Under the FCA’s Consumer Duty, firms must ensure there is a reasonable relationship between the price paid and the value of the service received. For very large portfolios, the actual cost of administration to the platform does not scale linearly with the asset value, making a capped or flat fee more representative of the service provided.

Incorrect: The strategy of using an uncapped ad valorem structure can lead to excessive costs for large portfolios where the level of platform administration does not increase at the same rate as the asset value. Relying on interest margins as a hidden fee structure often fails transparency tests and may not provide fair value, especially in high-interest-rate environments where the client loses significant potential returns. Choosing a transaction-led model creates a conflict of interest and lacks cost predictability, potentially penalising clients who follow a buy-and-hold strategy or creating an incentive for unnecessary trading.

Takeaway: Capped or flat-fee structures often provide better value for high-net-worth clients by decoupling platform costs from total asset value.

Correct: In the UK, OEICs typically use forward pricing, where the price is determined at the next valuation point (often midday). In contrast, Investment Trusts are exchange-traded and priced in real-time. This creates a timing mismatch for platforms, as the exact proceeds from the OEIC sale are not known until after the valuation point, which complicates the timing of the Investment Trust purchase and can lead to the client being ‘out of the market’ or requiring the platform to manage a funding gap.

Incorrect: Relying on physical stock transfer forms is an outdated practice as modern UK platforms hold assets in electronic nominee accounts to facilitate efficient trading. The strategy of using a single central counterparty is technically impossible because OEICs settle directly with the fund manager or an aggregator, while exchange-traded securities settle through systems like CREST. Opting for a mandatory 14-day cooling-off period between the legs of a switch is not a regulatory requirement for transaction execution and would expose the client to significant market movement risk.

Takeaway: Platforms must manage timing and settlement risks caused by the different pricing and trading mechanisms of funds versus exchange-traded securities.

Correct: Under UK tax rules, the Stocks and Shares ISA is a highly tax-efficient wrapper where any income generated (whether from dividends or interest) and any capital gains realized upon the sale of assets are completely exempt from UK personal taxation. This allows the investor to reinvest the full gross amount of any distributions and retain the entirety of any investment growth without reporting these specific figures to HMRC.

Incorrect: The suggestion that income is subject to a non-reclaimable tax credit or that gains are merely deferred fails to account for the absolute tax-exempt status provided by the ISA regulations. Claiming that dividends are taxed at a marginal rate describes the treatment within a General Investment Account rather than an ISA. Describing a system where tax is applied at the point of withdrawal incorrectly applies the ‘Exempt-Exempt-Taxed’ model used for pensions to an ISA, which is generally tax-free upon withdrawal.

Takeaway: UK Stocks and Shares ISAs offer complete exemption from both Income Tax and Capital Gains Tax on all investments held within the wrapper.

Correct: According to FCA COBS 16.3, for occasional reporting of executed transactions, a firm must provide a retail client with a confirmation notice in a durable medium as soon as possible and no later than the first business day following execution. This ensures the client receives timely information regarding the price, costs, and details of their specific trade.

Incorrect: The strategy of linking the report to the settlement date is incorrect because regulatory deadlines for trade confirmations are triggered by execution rather than the final settlement of assets. Relying on periodic statements is insufficient for occasional reporting requirements, as periodic statements are intended for portfolio overviews rather than immediate post-trade confirmation. Choosing a five-day window from the instruction date is non-compliant because the FCA requires a much tighter turnaround following the actual execution of the trade to protect investor interests.

Takeaway: FCA rules require platforms to provide trade confirmations to retail clients no later than the first business day after execution.

Correct: For voluntary corporate actions, platforms have a regulatory and operational obligation to disseminate the details of the event to the beneficial owners or their appointed advisers. This allows the decision-makers to evaluate the options and provide instructions. The platform must set an internal deadline that allows sufficient time to aggregate these instructions and communicate them to the market or registrar before the final cutoff.

Incorrect: The strategy of automatically applying a default option is inappropriate for voluntary events as it removes the client’s right to choose the outcome that best suits their investment strategy. Choosing to delay notification until after the event is completed is a failure of service, as it denies the client the opportunity to participate in the decision-making process. Focusing only on specific wrappers like General Investment Accounts is incorrect because assets held within an ISA wrapper are entitled to the same corporate action rights and benefits as those held elsewhere.

Takeaway: Platforms must promptly notify clients or advisers of voluntary corporate actions to facilitate informed elections within required market timeframes.

Correct: The pooled nominee model involves aggregating the assets of multiple clients into a single account held by a nominee company. Under this arrangement, the nominee is the legal owner on the share register, while the platform maintains internal ledgers to track the beneficial ownership of each individual investor. This is the standard model for most UK retail platforms due to its operational efficiency and lower transaction costs.

Incorrect: Choosing to implement a segregated client model would require the platform to maintain entirely separate accounts for every individual investor at the sub-custodian level, which is significantly more expensive. The strategy of using a designated nominee model typically involves a unique designation code for a specific client or group, which does not match the omnibus nature of the scenario. Opting for investor’s own name registration would mean the individual client appears directly on the company’s share register, removing the platform’s nominee from the legal ownership chain.

Takeaway: A pooled nominee model aggregates multiple clients’ assets into one account, requiring robust internal record-keeping to identify individual beneficial interests accurately.

Correct: Under the FCA’s Consumer Duty, platform operators have a direct responsibility to retail investors to ensure their services are designed to meet the needs of the target market and provide clear, fair, and not misleading communications. Even in an execution-only relationship, the platform must provide necessary disclosures and act to deliver good outcomes for the retail customer.

Incorrect: Requiring a full suitability assessment for every trade is incorrect because execution-only platforms are generally not responsible for the suitability of the client’s investment choices. The strategy of automatically reclassifying investors as professional clients based on a fifty thousand pound threshold is a violation of FCA rules, which require specific qualitative and quantitative tests for ‘opting up’ a client. Choosing to omit mandatory disclosure documents like the Key Investor Information Document is a breach of COBS requirements, as these must be provided to retail investors to ensure they can make informed decisions regardless of whether they are advised.

Takeaway: Platform operators must provide mandatory disclosures and meet Consumer Duty standards for retail investors, even in non-advised, execution-only relationships.