Financial Conduct Authority (FCA) UK Regulation Sample Exam

When a £1,000 cheque is paid, comprising £900 of client money and £100 for fees, under what condition is it treated as client money?

1. When it is explicitly stated by the client

2. When the firm opts to treat it as such

3. Always

4. Only if agreed upon by other clients

The correct answer is: Always

The treatment of £1,000 as client money is always applicable in this scenario due to the nature of client money regulations. Client money refers specifically to funds that belong to a client and are held by a firm in the course of its regulated activities. In this case, by breaking down the cheque into components, it is evident that £900 is explicitly client money, as it directly represents the funds deposited by the client for their use. When a payment is made that includes a portion for fees, the distinction still maintains relevance only to the fee-related amount. The regulators understand that when funds are paid in a manner that includes any amount designated for client purposes, the entire sum is treated as client money until such funds are explicitly and properly allocated. Therefore, regardless of the specific intentions or instructions from the client or firm's internal policies regarding allocation, as long as part of the payment pertains to client funds, it will invariably be classified as client money. The option regarding explicit state by the client or any agreements among clients does not change the fundamental interpretation of the payment as client money based on the regulatory framework established by the FCA. This upholds the spirit of client protection in financial services.