Financial Conduct Authority (FCA) UK Regulation Sample Exam

Which of the following is TRUE in respect of the Client money rules?

1. Client money can be mixed with the firm's bank accounts

2. Client money must be separate from the firm's bank accounts

3. Client money can be used for the firm's operating expenses

4. Client money must be held in the same currency as the firm's accounts

The correct answer is: Client money must be separate from the firm's bank accounts

The statement that client money must be separate from the firm's bank accounts is true and aligns with the Financial Conduct Authority (FCA) regulations designed to protect clients' funds. The fundamental principle behind this rule is to ensure that client money is safeguarded and not at risk if the firm faces financial difficulties. By keeping client funds separated, it minimizes the risk of misuse, misappropriation, or unintended access by the firm. This separation is essential for upholding trust and maintaining client confidence in financial services. The other options misinterpret the regulatory requirements. Mixing client money with a firm's bank accounts poses substantial risks to the clients, as it creates potential for those funds to be used inappropriately. Allowing client money to be used for the firm's operating expenses would breach fiduciary duties, as these funds belong to the clients, not the firm. Lastly, while there are specific currency considerations to keep in mind, the requirement does not state that client money must be held in the same currency as the firm’s accounts, allowing for operational flexibility in managing client funds in various currencies.