The correct answer highlights the core principle of the Senior Managers and Certification Regime (SM&CR). A key lesson from major past regulatory failings, such as the 2008 financial crisis and the LIBOR scandal, was the difficulty in holding senior individuals accountable for misconduct that occurred on their watch. The UK’s Financial Conduct Authority (FCA) introduced SM&CR to address this directly. The regime imposes a statutory ‘Duty of Responsibility’ on Senior Managers, requiring them to take reasonable steps to prevent regulatory breaches within their area of responsibility. The scenario describes a clear failure by a Senior Manager (the Head of Compliance) to take such steps, making individual accountability under SM&CR the most direct and significant regulatory focus. While the other options relate to important UK regulations (RDR, COBS), they do not address the central issue of senior management failure and personal responsibility, which is the specific lesson SM&CR was designed to embed into firm culture.

This question assesses knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 7, which governs the handling of client money. According to CASS 7.13.30 R, if a firm identifies a shortfall in its client money account (as determined by its internal client money reconciliation), it must immediately pay its own money into the client money account to cover the deficit. This action must be taken by the close of business on the day of identification. The primary and overriding principle of the CASS rules is the protection of client assets. Therefore, rectifying the shortfall from the firm’s own funds is the immediate priority. While notifying the FCA (CASS 7.15.33 R) and conducting an internal investigation are also required steps, they follow the immediate action of making the client money whole. Using other clients’ funds to cover a shortfall is a severe breach of the segregation principle.

This question tests knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 6 Custody Rules, which is a critical area for the CISI Private Client Advice exam. The fundamental principle of CASS is to ensure the protection of client assets in the event of a firm’s insolvency. A key requirement under CASS 6.6 is that a firm must maintain records and accounts that enable it to distinguish assets held for one client from assets held for any other client, and from the firm’s own assets, at any time and without delay. The firm in the scenario breached this by using a consolidated ledger. While the total value was correct, the inability to attribute specific assets to individual clients is a major failing, as it would severely complicate or prevent the timely return of assets to their rightful owners during an insolvency process. The other options describe other valid, but different, CASS requirements: performing regular reconciliations (CASS 6.6), obtaining a trust status letter for client money accounts (CASS 7), and ensuring client assets are registered in the client’s name or a nominee’s name (CASS 6.2). The specific failure highlighted in the question is the lack of individual client-level asset records.

This question tests the understanding of the FCA’s Client Assets Sourcebook (CASS), specifically the rules surrounding different types of client money and applicable exemptions. Under CASS 7, any money a firm receives and holds for a client in connection with its investment business is generally considered ‘client money’ and must be segregated in a client bank account. However, CASS provides a specific exemption for ‘Delivery versus Payment’ (DvP) transactions. This exemption, detailed in CASS 7.11.14R, applies when a firm receives money from a client to settle a transaction through a commercial settlement system (like CREST in the UK). The key condition is that the firm pays the money out to the settlement system by the close of business on the day after receipt. In such cases, the money is not required to be treated under the full client money segregation rules, as the risk to the client is minimal and for a very short duration. The other options are incorrect: treating it as standard client money ignores the specific and commonly used DvP exemption; treating it as the firm’s money is a serious breach of CASS rules as the beneficial owner is the client; and classifying it as collateral is incorrect as the funds are for a transaction settlement, not to secure an obligation.

This question assesses knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 7, the Client Money Rules, which is a critical area for the CISI Private Client Advice exam. The primary risk identified is that client money, although held in a separate account, is not legally protected from the bank’s claims in the event of the firm’s insolvency. According to CASS 7.13.3R, a firm must obtain a written acknowledgement letter (often referred to as a ‘trust letter’) from any third party, such as a bank, with which it places client money. This letter must confirm that the money is held by the firm as trustee (or equivalent) for its clients and that the bank waives any right of set-off or lien against the money for any debts owed by the firm. This is the most crucial mitigation strategy as it provides legal protection for the client money. While daily reconciliations (CASS 7.15) and reporting via the CMAR (CASS 10A) are mandatory CASS requirements, they do not solve the fundamental legal risk of the bank having a potential claim on the funds. Updating an internal policy is insufficient as it has no legal standing with the external bank.

Under the UK’s regulatory framework, specifically the FCA’s Conduct of Business Sourcebook (COBS 4), all communications with clients must be fair, clear, and not misleading. For illiquid and complex assets like an Over-The-Counter (OTC) structured product, the valuation is often based on a theoretical model (‘mark-to-model’) rather than an observable market price. The primary risk from a client advice and reporting perspective is that the client will see this theoretical value on their statement and assume it is a firm, realisable price at which they can exit the investment. This is misleading because the actual price achievable in a thin or non-existent secondary market could be significantly lower. The firm’s duty is to ensure the valuation is presented with sufficient context and caveats, so the client understands its theoretical nature and does not make decisions based on a false perception of liquidity and value. This aligns with MiFID II principles on providing fair and appropriate information to clients.

This question tests understanding of the UK’s client money rules, which are a critical part of the CISI syllabus. The primary protection for client money held by an FCA-regulated firm is mandated by the FCA’s Client Assets Sourcebook (CASS), specifically CASS 7. The core principle of CASS 7 is that a firm must segregate eligible client money from its own funds by holding it in a designated client money account with a bank. This segregation creates a statutory trust, meaning the money is legally owned by the clients, not the firm. In the event of the firm’s insolvency, this ring-fenced pool of client money does not form part of the firm’s assets and is therefore protected from the firm’s general creditors. An insolvency practitioner is appointed to manage the distribution of this client money pool back to the entitled clients. The Financial Services Compensation Scheme (FSCS) acts as a secondary layer of protection and would only be triggered if there were a shortfall in the client money pool (e.g., due to fraud or administrative failure) that the insolvent firm cannot cover. Therefore, the primary principle is the segregation and protection from creditors, not the FSCS compensation.

Under the UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), firms regulated by the Financial Conduct Authority (FCA) must apply a risk-based approach to client onboarding. This means the level of Customer Due Diligence (CDD) is not uniform but is determined by an initial risk assessment of the client. The correct answer identifies the key factors that influence this assessment. These include: the client’s country of residence or operation (jurisdictional risk, particularly if it’s a high-risk third country identified by bodies like the Financial Action Task Force – FATF); the client’s profile, specifically whether they are a Politically Exposed Person (PEP), which automatically triggers Enhanced Due Diligence (EDD); the complexity of the services or structures involved (e.g., trusts, shell companies); and establishing the legitimate source of the client’s wealth and the funds for the specific transaction. The Joint Money Laundering Steering Group (JMLSG) provides guidance on implementing these regulations. The other options are incorrect as they relate to different aspects of the client relationship: investment suitability (COBS rules), internal firm metrics, or purely administrative preferences, none of which are the primary drivers for AML/CTF risk assessment.

This question assesses knowledge of the FCA’s Client Assets Sourcebook (CASS), specifically CASS 6 which covers Custody Rules. A fundamental principle of CASS is the requirement for regulated firms to segregate client assets from the firm’s own assets. This is to ensure that in the event of the firm’s failure or insolvency, client assets are protected and can be returned to them promptly. Co-mingling the firm’s proprietary investments with client assets in the same omnibus nominee account, even with clear internal records, constitutes a serious breach. The primary and most significant risk of this breach is that an insolvency practitioner may not be able to easily distinguish and separate client assets from the firm’s assets. This could result in client assets being treated as part of the insolvent firm’s estate and used to satisfy the claims of the firm’s general creditors, leading to potential shortfalls and significant delays for clients in recovering their property. The other options are incorrect: the Financial Services Compensation Scheme (FSCS) may still be available, but the primary risk is the loss itself; investment performance is unrelated to segregation; and while reporting may be an issue, it is secondary to the fundamental risk of asset loss.

This question tests knowledge of the specific disclosure requirements under the Markets in Financial Instruments Directive II (MiFID II), which are incorporated into the UK’s Financial Conduct Authority (FCA) Handbook, primarily within the Conduct of Business Sourcebook (COBS). The correct answer is that the firm has breached the MiFID II requirement for ex-ante (i.e., before the event) disclosure of costs and charges. This rule is critical for ensuring clients can make informed decisions, as it mandates that firms provide a full, aggregated breakdown of all anticipated costs and charges related to both the investment service and the financial instrument before the service is provided. Providing this information a week after the transaction is a clear violation. The other options are incorrect because: the ex-post statement is an annual requirement detailing costs actually incurred, not a pre-sale disclosure; the Client Assets Sourcebook (CASS) rules relate to the safeguarding of client money and assets, not cost disclosure; and while the firm’s actions do contravene the spirit of the FCA’s Treating Customers Fairly (TCF) principle, the MiFID II rule is the specific, technical requirement that has been breached, which is what a targeted compliance question in a CISI exam would focus on.

This question assesses a candidate’s understanding of the UK’s regulatory framework for handling client money, specifically the rules set out in the Financial Conduct Authority’s (FCA) Client Assets Sourcebook (CASS), particularly CASS 7 (Client Money Rules). A core principle of the UK’s client asset protection regime, which is a critical topic for the CISI Private Client Advice exam, is the strict segregation of client money from the firm’s own money. The proposal in the scenario describes co-mingling the firm’s operational funds with client money in a single account. This is a fundamental breach of CASS 7. The primary purpose of segregation is to protect client assets in the event of the firm’s insolvency. If a firm fails, segregated client money held in a designated client bank account is ring-fenced from the firm’s creditors. Co-mingling the funds, as suggested, would destroy this protection, putting client money at significant risk. While issues like interest allocation and reporting are also relevant CASS requirements, the foundational breach is the failure to segregate.

This question tests the candidate’s knowledge of Know Your Customer (KYC) and specifically the application of Enhanced Due Diligence (EDD) as required by UK regulation. The scenario describes a client who presents multiple high-risk factors: they are likely a Politically Exposed Person (PEP) due to their senior role in a state-owned enterprise, they are from a high-risk jurisdiction, the sum is substantial, and the funds are channelled through a complex offshore structure. Under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), such circumstances mandate the application of EDD. Regulation 33 of MLR 2017 requires firms to apply EDD in any situation which by its nature can present a higher risk of money laundering or terrorist financing. Regulation 35 specifically details the EDD measures for PEPs, which must include obtaining senior management approval for the relationship, taking adequate measures to establish the source of wealth and funds, and conducting enhanced ongoing monitoring. Standard Due Diligence is insufficient for this level of risk. Filing an immediate Suspicious Activity Report (SAR) is premature; the firm must first conduct its due diligence to determine if a suspicion is justified. Relying on third-party due diligence is not appropriate for such a high-risk client without meeting stringent conditions, and applying Simplified Due Diligence is incorrect as it is reserved for low-risk clients. The Financial Conduct Authority (FCA) SYSC (Senior Management Arrangements, Systems and Controls) rules also require firms to have robust systems to manage financial crime risks, which includes correctly identifying and handling high-risk clients.

This question assesses knowledge of a firm’s regulatory reporting obligations under the UK’s Financial Conduct Authority (FCA) framework, a core component of the CISI Private Client Advice syllabus. The correct answer is based on the FCA’s Supervision (SUP) manual, specifically SUP 15.3.11R. This rule requires a firm to notify the FCA immediately of any matter which could have a significant adverse impact on the firm’s reputation, or which could affect the firm’s ability to continue to provide adequate services to its clients and which could result in serious detriment to a client of the firm. A systemic failure in risk monitoring that leads to clients’ portfolios significantly breaching their agreed risk profiles is precisely the type of significant event the FCA would reasonably expect to be notified about without delay. This aligns with FCA Principle for Business 3 (A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems). While informing clients, rectifying the system, and reviewing senior management responsibilities are all necessary subsequent actions, the immediate regulatory priority is to inform the regulator of the significant control failing.

This question assesses understanding of the UK’s primary client money protection scheme, the Financial Services Compensation Scheme (FSCS), and its jurisdictional limits, a key area in the CISI Private Client Advice syllabus. The correct answer is to invest with the UK-based, FCA-authorised firm. The FSCS protects eligible claimants up to £85,000 per person, per authorised firm for investments if the firm fails. Although the client’s investment of £100,000 exceeds this limit, choosing the UK firm is the only way to secure this specific UK-based protection. Investing with the Jersey firm would mean the investment falls outside the FSCS’s jurisdiction and would instead be covered by the Jersey Depositors Compensation Scheme, which has different rules and limits and does not meet the client’s objective of maximising protection under UK schemes. Splitting the investment reduces the amount covered by the FSCS. While the FCA’s Client Assets Sourcebook (CASS) rules require UK firms to segregate client money, the FSCS provides a crucial safety net if, upon a firm’s failure, there is a shortfall in those segregated assets.

The correct answer is ‘Mandate’. Under the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 8, a ‘mandate’ is defined as any authority, given by a client to a firm, which allows the firm to control a client’s assets or liabilities. The scenario describes a classic example where a discretionary management agreement gives the firm the power to instruct a third party regarding the client’s assets, thereby creating a mandate. For the CISI Private Client Advice exam, it is crucial to distinguish this specific regulatory term from more general ones. While the arrangement is part of a ‘Client Agreement’ and involves ‘Discretionary Authority’, the specific CASS term for the power to control assets is ‘Mandate’. A ‘Power of Attorney’ is a legal instrument that can grant such authority, but ‘Mandate’ is the precise term used within the CASS rules, which triggers specific record-keeping and control requirements for the firm.

This question assesses knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 7, the Client Money Rules, which is a core topic in the CISI Private Client Advice syllabus. The correct answer identifies the primary breach described in the scenario. Under CASS 7.13.3 R, a firm must, on receipt of client money, promptly pay it into a client bank account. The rules specify that ‘promptly’ means no later than the next business day after the money is received. In the scenario, the firm receives the money on Monday but only segregates it into the client account on Friday. This four-day delay, where the money is held in the firm’s general office account, is a clear violation of the CASS 7 segregation timescale. This practice, known as co-mingling, exposes the client’s money to the firm’s creditors in the event of insolvency, which is precisely what the CASS rules are designed to prevent. The other options are incorrect as they refer to different CASS rules or misinterpret the primary issue: weekly reconciliation (CASS 7.15) is a separate requirement, incorrect registration relates to custody assets (CASS 6), and failing to provide a CASS information sheet relates to client disclosure (CASS 9), not the physical handling and segregation of money.

Under the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 7.15.33R, a firm must notify the FCA of any breach of the client money rules as soon as it becomes aware of it. However, there is a crucial exception: this notification is not required if the breach was inadvertent and has been rectified promptly. In this scenario, the shortfall was due to an administrative error (inadvertent) and was corrected on the same day by the firm (promptly). Therefore, a separate, immediate ad-hoc notification to the FCA is not required for this specific incident. The firm must, however, maintain a record of all breaches. While the CASS auditor has a duty to report to the FCA, the firm has its own primary responsibilities. There is no specific monetary or percentage-based materiality threshold for reporting; the decision is based on the nature and resolution of the breach.

This question assesses a candidate’s understanding of the FCA’s Client Assets Sourcebook (CASS), specifically CASS 7 which governs client money rules. A core, non-negotiable principle for UK regulated firms, and a key topic in CISI exams, is the strict segregation of client money from the firm’s own money. The primary purpose of this rule is to protect clients’ funds in the event of the firm’s insolvency. Using client money for any firm-related purpose, such as covering payroll or other operational expenses, is a serious regulatory breach, regardless of the intention to repay it quickly. Client permission cannot override this regulatory requirement. The correct action is to ensure the client’s money is immediately paid into a designated client bank account and kept separate at all times. This demonstrates the firm’s adherence to its fiduciary duty and regulatory obligations to act in the client’s best interests and with integrity.

Under UK regulations, specifically Regulation 40 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), firms are required to retain client due diligence (CDD) records for a specific period. The rule states that records, including a copy of the evidence of identity and information on the business relationship, must be kept for five years beginning on the date on which the business relationship ends. Similarly, records of transactions must be kept for five years from the date the transaction was completed. However, for the purposes of CDD documentation relating to the overall relationship, the key trigger is the cessation of that relationship. The regulations also permit a competent authority, such as a law enforcement agency, to request that these records be retained for a further period of up to five years. This requirement is a cornerstone of the UK’s anti-money laundering framework, enforced by the FCA under its SYSC (Senior Management Arrangements, Systems and Controls) rules, and is detailed in the Joint Money Laundering Steering Group (JMLSG) guidance. Retaining records for seven years is a common misconception related to other business or tax requirements, while retention from the date of the last transaction is incorrect for relationship-based CDD records.

This question assesses understanding of the FCA’s Client Assets Sourcebook (CASS), specifically CASS 7, which governs the handling of client money. The primary objective of the CASS rules is to ensure the protection of client money and assets, particularly in the event of a firm’s insolvency. A key requirement under CASS 7 is that firms must perform an internal client money reconciliation each business day. This process verifies that the amount of client money held in the firm’s client bank accounts matches the amount the firm’s own records show it should be holding for its clients. Performing this reconciliation only monthly, as described in the scenario, is a serious breach. The most significant risk this creates for clients is that a shortfall (caused by error, misappropriation, or fraud) could go undetected for an extended period. If the firm were to become insolvent during this time, there would be insufficient funds in the segregated client money pool to return all clients’ money in full, leading to direct financial loss for them. While the firm would face regulatory fines (a risk to the firm, not the client’s assets) and operational issues, the fundamental risk to the client, which CASS is designed to prevent, is the loss of their funds upon the firm’s failure.

This question assesses knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), a critical area for the CISI Private Client Advice exam. The most serious breach identified is the use of client money for the firm’s own operational purposes. This is a fundamental violation of CASS 7 (Client Money Rules), which mandates the strict segregation of client money from the firm’s own funds. Using client money, even with the intention of replacing it, constitutes commingling and misappropriation, directly placing client assets at risk in the event of the firm’s insolvency. While failing to obtain a trust acknowledgement letter (CASS 7.13.3 R) and potentially inadequate reconciliation frequency (CASS 6.6) are also serious regulatory breaches, the active use of client money for the firm’s benefit is considered the most severe violation of the core principle of safeguarding client assets.

This question tests understanding of critical anti-money laundering (AML) obligations under UK law, specifically Client Due Diligence (CDD) and reporting suspicions. The scenario presents several red flags: the client is from a high-risk third country, wants to invest a large sum quickly, is evasive about their source of wealth (SoW), and offers a financial incentive to rush the process. Under the UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), firms must conduct a risk assessment. The client’s profile mandates the application of Enhanced Due Diligence (EDD). A key component of EDD is taking adequate measures to establish the source of wealth and source of funds. The client’s refusal to provide this information makes it impossible to complete the required CDD. Proceeding with the relationship is a direct breach of MLR 2017. The combination of red flags creates a reasonable suspicion of money laundering. Therefore, under the Proceeds of Crime Act 2002 (POCA), the adviser has a legal obligation to submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) via their firm’s Money Laundering Reporting Officer (MLRO). The correct action is to cease the transaction/onboarding process and report the suspicion. Accepting the client, even with enhanced monitoring, is not compliant as the initial, fundamental CDD has failed. Escalating to the MLRO for ‘approval to proceed’ misinterprets the MLRO’s role, which is to manage financial crime risk and report suspicion, not to waive legal requirements for commercial gain.

This question assesses knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 7, which governs the handling of client money for investment business. The fundamental principle of CASS 7 is the strict segregation of client money from the firm’s own money to protect clients in the event of the firm’s insolvency. In the scenario, the payment for the collective investment scheme is correctly identified as ‘client money’. However, the separately invoiced advice fee, once due and payable, is the firm’s own money (‘house money’). By depositing the entire cheque into the client money bank account, the firm has co-mingled its own funds with client funds. This is a direct breach of the CASS 7.13.3 R segregation rule. While firms may receive mixed remittances, they are required to have procedures to promptly identify and transfer any of their own money out of the client account. The other options are incorrect: the money was deposited immediately, so timing is not the issue; CASS 5 relates to insurance mediation, not collective investment schemes; and while client consent for fees is important under Conduct of Business Sourcebook (COBS) rules, the primary breach in terms of asset protection is the failure to segregate under CASS.

This question assesses knowledge of the UK’s Client Assets Sourcebook (CASS), which is a critical part of the FCA Handbook for firms holding client money or assets. Specifically, it relates to CASS 7 (Client Money Rules). A core principle of CASS is the absolute segregation and protection of client money. When a firm performs its internal or external client money reconciliations and identifies a shortfall in a client money account, its primary and immediate obligation is to rectify that shortfall. Under CASS 7.17.2 R, the firm must pay its own money into the client money account to make good the shortfall. This must be done by the close of business on the day the firm performs the reconciliation, or if that is not possible, by the close of business on the next business day. Delaying this action to investigate the cause, notify clients, or await FCA instructions would be a serious breach of the rules, as the overriding objective is to ensure the client money pool is whole at all times.

This question assesses knowledge of the record-keeping requirements under the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS). Specifically, it relates to CASS 6 (Custody Rules). The FCA mandates that firms holding client assets must maintain adequate records to enable them, at any time and without delay, to distinguish assets held for one client from assets held for any other client, and from the firm’s own assets. According to CASS 6.4.5R, a firm must maintain its records and accounts in a way that ensures their accuracy and, in particular, their correspondence to the safe custody assets held for clients. For business subject to MiFID, these records must be retained for a period of at least five years. A critical point for the CISI exam is understanding the trigger for this retention period. For custody records, the requirement is to keep them for a minimum of five years after the termination of the relationship with the client. This ensures a complete audit trail exists for a sufficient period even after the client has moved their business elsewhere. The other options are common distractors: three years is the retention period for some non-MiFID business, while basing the five-year period on the ‘last transaction’ is incorrect as the overarching relationship is the key determinant for custody records.

This question tests a core principle of UK financial regulation under the Financial Conduct Authority (FCA), specifically the Client Assets Sourcebook (CASS), which is a critical topic for the CISI Private Client Advice exam. The fundamental rule under CASS 7 is that a firm must segregate eligible client money from its own money by holding it in a separate client bank account. This money is held on trust for the client. In the event of the firm’s insolvency, this segregated client money pool is not available to the firm’s general creditors. An insolvency practitioner’s primary duty regarding these funds is to facilitate their return to the rightful clients. Therefore, Client A, whose funds were correctly segregated, is protected by this ring-fencing and should expect to receive their money back in full from the client money pool. In contrast, Client B’s money was mistakenly placed in the firm’s own account, meaning the firm breached CASS rules. Consequently, Client B loses the primary protection of segregation and becomes an unsecured creditor of the insolvent firm, meaning they must claim against the firm’s general assets, which may yield little to no return. However, this failure by the firm constitutes a valid claim for the Financial Services Compensation Scheme (FSCS). The FSCS can compensate eligible claimants for investment business up to a maximum of £85,000 per person, per firm. Therefore, Client B’s most likely recourse is to claim from the FSCS, but they would face a potential loss on the amount exceeding the compensation limit.

This question assesses knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 7, the Client Money Rules, which are a critical part of the CISI Private Client Advice syllabus. The fundamental principle of CASS 7 is the segregation of client money from the firm’s own money. This is to protect clients in the event of the firm’s insolvency. By moving client funds, regardless of the amount, into a ‘Firm’s Sundry Balances’ account, the firm is co-mingling client money with its own. This breaks the statutory trust established over client money and exposes it to claims from the firm’s general creditors. The correct answer correctly identifies this as the primary breach. The other options are incorrect: while interest policies (other approaches and reconciliations (other approaches are also governed by CASS, they are secondary to the cardinal sin of breaking segregation. Option (other approaches invents a ‘de minimis’ exemption that does not exist in CASS for this purpose; all client money must be protected, regardless of the amount.

This question assesses knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 7 which covers the Client Money Rules. For the CISI Private Client Advice exam, understanding the immediate actions required upon discovering a client money shortfall is a critical aspect of operational risk and regulatory compliance. The overriding principle of CASS is the protection of client assets. CASS 7.15.33 R explicitly states that if a firm identifies a shortfall in its client money resource, it must pay its own money into the relevant client bank account to make good the shortfall. This must be done by the close of business on the day the reconciliation is performed. While notifying the FCA of a significant CASS breach is also a requirement (under SUP 15), the primary and most immediate obligation is to rectify the shortfall to ensure client money is fully protected. Launching an investigation is a necessary subsequent step, but it must not delay the funding of the shortfall. Using money from another client account is strictly prohibited as it constitutes improper commingling of client funds and would be a further serious breach of CASS rules.

This question assesses knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 7, which governs client money rules. A core principle of CASS 7 is the prompt segregation of client money to protect it in the event of a firm’s insolvency. The rules state that a firm must pay any client money it receives into a client bank account ‘promptly’, which is defined as no later than the close of business on the business day following the day of receipt. In the scenario, holding the client’s funds in the firm’s general office account for three business days is a clear breach of this requirement. The other options are incorrect as they refer to different, albeit related, CASS requirements. Daily reconciliation is a separate process to check balances, the client money calculation ensures the correct total amount is held, and FSCS rules relate to the compensation scheme, not the operational handling of client money. For the CISI Private Client Advice exam, a detailed understanding of the CASS rules, including the specific timing for segregation, is essential.

This question assesses knowledge of the UK’s Financial Conduct Authority (FCA) Client Assets Sourcebook (CASS), specifically CASS 7, which covers the Client Money Rules. A core principle of CASS 7 is the prompt segregation of client money to protect it in the event of a firm’s insolvency. According to CASS 7.13.3 R, upon receiving client money, a firm must pay it into a client bank account ‘promptly and in any event no later than the next business day after the day of receipt’. In the scenario, the firm received the money on Monday. Therefore, the absolute latest it should have been segregated into the client money account was by the close of business on Tuesday. By only transferring the funds on Wednesday, Sterling Wealth Management has committed a clear breach of this fundamental CASS rule. The other options are incorrect as they suggest incorrect timeframes or allowances that do not exist within the strict CASS regime.