A client who is the spouse of the head of a foreign state is classified as aPolitically Exposed Person (PEP).
Firms are required to undertakeenhanced due diligence (EDD)for PEPs and their immediate family members due to the increased risk of corruption, money laundering, or misuse of public funds.
* Simplified (A): This applies to low-risk clients, not PEPs.
* Standard (B): Standard due diligence is insufficient for PEPs or their relatives.
* Additional (D): This term is not a formal category under anti-money laundering (AML) regulations.
References:
* International Certificate in Wealth & Investment Management: AML procedures and the treatment of PEPs.
* FATF (Financial Action Task Force) guidelines on enhanced due diligence for politically exposed persons.

In an order-driven market, an electronic order book is used to match buy and sell orders based on strict price and time priority. This system ensures transparency and fair pricing since all orders are visible to market participants.
Reference:
ICWIM, Topic: Market Structures and Trading Mechanisms.
Examples include London Stock Exchange (LSE) SETS and NASDAQ.

Hedge funds are effectively restricted to wealthy investors and institutions primarily because of regulatory constraints on how they can be promoted and to whom they can be marketed. Many hedge funds are structured and regulated in a way that does not permit broad retail distribution, and marketing is commonly limited to professional clients, eligible counterparties, or investors who meet specific sophistication and wealth criteria. This restriction reflects investor protection objectives, given that hedge funds may use complex strategies such as leverage, derivatives, short selling, and less liquid holdings, and may provide limited transparency and different liquidity terms. High minimum investments can reinforce the restriction in practice, but the most direct reason is the regulatory framework that limits promotion to retail investors.
Saying they are unsuitable for retail investors describes the policy intent, but it is the marketing restrictions that create the practical access barrier tested in exam questions. Embedded risk is relevant, but risk alone does not automatically restrict access unless the regulatory rules classify the product and limit distribution accordingly.

The Know Your Customer (KYC) principle is a regulatory requirement ensuring that financial advisers gather comprehensive client information before making recommendations.
* Why KYC Is Important:
* It helps in identifying the client's financial goals, risk tolerance, and investment suitability.
* It prevents fraud and money laundering by verifying the client's identity.
* It ensures that recommendations are appropriate based on the client's circumstances.
* Regulatory Requirement:
* FCA (Financial Conduct Authority) rules require firms to follow KYC processes before providing financial services.
* MiFID II (Markets in Financial Instruments Directive) mandates thorough suitability assessments.
# Reference: FCA Handbook (COBS 9 - Suitability), CISI Wealth & Investment Management.

Standard deviation measures the volatility of returns. A higher standard deviation means higher risk.
* Key Concept:
* Fund A (Lower Standard Deviation) = Lower Risk.
* Fund B (Higher Standard Deviation) = Higher Risk.
* Risk-Return Tradeoff: Fund B may not necessarily be more profitable, but it is riskier.
# Reference: CFA Institute (Risk Metrics), CISI Wealth & Investment Management.