Financial Conduct Authority (FCA) UK Regulation Sample Exam

When can fees to a third party be paid by an introducer of business on behalf of a client?

1. For any services provided to the client

2. Only for fees which are necessary for the provision of the service, such as custody fees

3. For promotional services only

4. When the client has another service provider

The correct answer is: Only for fees which are necessary for the provision of the service, such as custody fees

The rationale behind why fees to a third party can be paid by an introducer of business on behalf of a client specifically applies to situations where those fees are necessary for the provision of services, such as custody fees. This aligns with regulatory guidance emphasizing the importance of transparency and ensuring that any fees paid must be directly relevant to the services being provided to the client. The regulatory framework stipulates that any intermediary's involvement should contribute to the efficient delivery of services to the client, and paying necessary fees ensures that the introducer is acting in the best interest of the client. This approach helps prevent potential conflicts of interest that might arise from paying non-essential fees or fees unrelated to the service provision. In contrast, the other choices suggest broader or different contexts where fees might be permissible. Payments for any services provided to a client, or exclusively for promotional services, could lead to ambiguities about the nature of the services rendered and could potentially compromise the integrity of the introducer-client relationship. Additionally, the scenario where the client has another service provider does not establish a clear basis for fee payment, as the need for such payments would depend on the specific services being offered and the agreements in place between the parties involved. Thus, emphasizing the necessity of fees fortifies regulatory compliance