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Fit & Proper FSP License (Fit & Proper/Operational Ability)
Why do discretionary (Category II) and administrative (Category III) FSPs face additional financial requirements compared with a basic Category I adviser?
RE5 practice question with a worked answer. This is one of hundreds of FSCA RE5 questions in the RegulatoryExams question bank.
- a) Because they handle or control client assets/money to a greater degree, so they must hold additional capital and liquidity to protect clients.Correct
- b) Because their representatives earn more commission.
- c) Because they are located in larger cities.
- d) Because they advertise more than Category I FSPs.
Why this is the answer
Categories that take greater control of client assets (discretionary management, administration) carry higher prudential requirements — additional capital and liquidity — precisely because more client money is at risk if the FSP fails. It is risk-based, not about commission, location or advertising.
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