Financial Conduct Authority (FCA) UK Regulation Sample Exam

Which of the following must be disclosed to a retail client when holding designated investments or client money subject to MiFID?

1. Investment performance history

2. Details of any investor compensation scheme applicable

3. Proprietary trading strategies

4. Any penalties against the firm

The correct answer is: Details of any investor compensation scheme applicable

When dealing with designated investments or client money in accordance with the Markets in Financial Instruments Directive (MiFID), it is essential for firms to provide transparency to retail clients. Disclosing the details of any applicable investor compensation scheme is crucial as it informs clients about the safety nets available to them in case of firm failure or misconduct. This information is key for clients to understand the extent of their protection and the recourse options available to them should any issues arise with their investments or client funds. Understanding the investor compensation scheme helps reinforce confidence in the market and allows clients to make more informed decisions about where to place their investments. It is an integral part of the regulatory framework designed to protect retail clients, ensuring they are aware of their rights and the protections afforded to them. The other options, while potentially relevant in different contexts of client engagement, do not meet the specific disclosure requirements mandated by MiFID when it comes to designated investments or client money. Knowing about investment performance history, proprietary trading strategies, or penalties against a firm may be important, but they do not have the same direct impact on a client's understanding of the safety of their investments as being informed about an investor compensation scheme does.