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Guide to Risk Profiling

    Guide to Risk Profiling


    While there is no prescribed form of risk profiling, the Financial Conduct Authority and their predecessor the Financial Services Authority has set out its expectations and tests for suitable consumer outcomes that should be delivered by assessments of how much cash a client could put in jeopardy.

    For example, the regulator has asserted that not taking into account risk capacity as well as risk tolerance would fail the sufficiency test.

    The regulator has been particularly concerned where centralised investment propositions do not reflect the answers provided to risk questionnaires, for example consumers with no tolerance for any capital loss have still been put into product solutions containing an exposed equity component.

    This guide will explore the different ways to assess a client’s attitude to risk or capacity to lose cash, how to make sure they grasp the level of jeopardy their capital faces and the regulatory requirements for this process.

    Supporting material for this guide was provided by Paul Resnik, co-founder of FinaMetrica and Vaughan Jenkins, financial services expert at PA Consulting Group.

    In this guide


    Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

    1. What does Mr Resnik describe as a “good rule-of-thumb” that a risk assessment tool is independent?

    2. What type of instrument does Mr Jenkins say profiling tools are?

    3. What does Mr Resnik say is an absolute measure?

    4. What test does the FCA/FSA state all parts of your risk assessment process must pass?

    5. How does Mr Jenkins say geo-political risks can be assessed?

    6. What does Mr Resnik say is essential in a risk assessment system?

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