CeMAP FRE2 Principles for Businesses, Consumer Duty & Conduct Rules question: firm breached the Consumer Duty by failing to avoid foreseeable harm

CeMAP FRE2Principles for Businesses, Consumer Duty & Conduct Rules

Meera was advised to invest in a high-risk global equity fund. The firm assessed her capacity for loss, explained the risks clearly and recorded that she understood and accepted them. The fund fell 25% in a year. She says the firm breached the Consumer Duty by failing to avoid foreseeable harm. Is she right?

A No, because the Consumer Duty applies to mortgages and banking but not to investment products
B No, because the rule does not require firms to prevent all harm and she accepted the fund's risk
C Yes, because the firm should have recommended a fund with a capital guarantee to a retail customer
D Yes, because any fall in the value of a recommended investment is foreseeable harm under PRIN 2A.2.8R

Show the answer and explanation

Answer: B. No, because the rule does not require firms to prevent all harm and she accepted the fund's risk

PRIN 2A.2.8R requires a firm to avoid causing foreseeable harm, but PRIN 2A.2.13G says this does not mean a firm must prevent all harm: products can carry inherent risks that customers accept by choosing them, and the firm is not in breach where it reasonably believed the customer understood and accepted those risks. Meera's advice process covered capacity for loss and risk. The Duty applies across retail financial services, including investments, and it does not require guaranteed products.

Common mistake

Treating any investment loss as a Consumer Duty breach.

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Original practice material mapped to the published CeMAP FRE2 learning outcomes. Independent, not endorsed by Walbrook (formerly LIBF). Verify figures and rules against current guidance before relying on them.