1.5 Exempt Persons Flashcards
What is an Exempt Person?
Found in FSMA and in the statutory instrument FSMA Exemption Order 2001, which provides an exemption for the BoE and other central banks.
Exemptions generally relate to specific regulated activity and may be restricted to certain circumstances or subject to certain conditions.
1) Exemption restricted to certain circumstances - some other authorised person has accepted responsibility for the regulated activities (e.g. an appointed representative)
2) Exemption subject to certain conditions - a requirement that the regulated activity is not undertaken for profit
Exempt persons split into 2 groups
1) Those specifically described as exempt persons under FSMA (such as RCHs and RIEs)
2) Those not described as exempt persons under FSMA, but who are exempt from the requirement to apply to the FCA for authorisation - such as a member of a DPB, carrying on regulated activities in particular circumstances
Important distinction. Certain legal provisions apply only to transactions involving exempt persons, and not to non-exempt persons who are only free from the need for authorisation because of the specific circumstance of their activity.
2 groups of exemption:
1) Exempt persons under the Act
2) Others (such as designated professionals)
Appointed Representatives
A representative of an authorised firm - not an employee or under a contract for services for the firm (self-employed). Can be any type of person and must be party to a contract with an authorised person that allows it to carry on regulated activities and the authorised person has accepted responsibility in writing.
FCA rules don’t apply to appointed representatives, any business conducted by an appointed representative is treated as having been done by the authorised person., who:
1) Must have permission to perform the regulated activities
2) is potentially liable for the actions of its representatives and subject to FCA discipline. (although appointed representatives don’t need to be uathorised, individuals involved may require approval from the FCA if they are fulfilling controlled functions (directors, partners) and individuals who will be dealing directly with clients.
FCA expects firms to conduct reviews of the conduct of appointed representatives/ Exemption of appointed representatives (S.39 of FSMA and the FSMA Appointed Representatives Regulations 2001) means the appointing firm has responsibility for vetting and monitoring, which the FCA would normally do itself.
FCA’s Supervision Manual (Chapter 12) SUP 12.3.2G - Appointed Representatives
the firm is responsible, to the same extent as if it had expressly permitted it, for anything that the appointed representative does or omits to do, In carrying on the business for which the firm has accepted responsibility@
Appointed Representatives are exempt persons in relation to the following types of designated investment business
1) Arranging deals in investments and making arrangements with a view to transactions in investments
Advising on investments
3) Giving basic advice on stakeholder products
4) Safeguarding and administrating assets
5) Assisting in the administration and performance of a contract of insurance that is a life policy
6) Arranging the safeguarding and administration of assets
7) Agreeing to carry on a regulated activity
Appointed representatives are not permitted to deal in investments as an agent, in principle, or to manage investments
Recognised Investments Exchanges (RIEs) and Recognised Clearing Houses (RCHs)
FSMA gives FCA the responsibility of recognising, regulating and supervising investment exchanges.
BOE similar role for clearing houses
To be recognized by either these houses need to demonstrate they are fit for purpose. once demonstrated, they are referred to as registered. RIEs and RCHs are exempt persons, don’t need authorisation from the FCA for regulated activities
Miscellaneous Exempt Persons
Treasury est exemptions from the need to be authorised for particular persons.
e.g.
1) Supernational bodies of which the te UK or another EEA member state is a member
2) Central banks of the UK or another EEA member state
Exempted from the need be to be authorised to carry on a regulated activity, apart from effecting or carrying out contracts of insurance. E.g. BoE, the European Investment Bank (EIB) and the International Monetary Fund (IMF)
Certain bodies are exempted from the need to be authorised from the sole regulated activity of accepting deposits, including municipal banks, local authorities, industrial and provident societies and charities
Members of Lloyd’s and the Professions
Members of Lloyd’s Insurance Market and firms regulated by DPBs are allowed to perform limited regulated activities without being authorised. They aren’t exempt persons, but the general prohibition of FSMA doesn’t apply to them
Members of Lloyds
Lloyd’s regulated activity include:
1) Advising on syndicate participation
2) Acting as managing agent for one or more syndicates
3) Arranging deals in insurance contracts
FSMA disapplies the general prohibition for members of Lloyd’s in relation to contracts of insurance written at Lloyds. This is extended to members that ceased to be underwriting members at any time on or after 24 Dec 1996 - they can also carry out insurance contracts underwritten at Lloyds without being authorised.
Reason - the FCA expects activities at Lloyds o be supervised and executed by the Society of Lloyds, so additional FCA authorisation of members is deemed unnecessary. FCA does, however, have powers to impose rules if needed
Members of the Professions (individual firms can carry out particular regulated activities without authorisation)
1) Accountants
2) Actuaries
3) Chartered Surveyors
4) Licensed Conveyancers
5) Solicitors
Firms are required to apply to their relevant designated professional body (DPB) for permission to conduct activities.
DPB must operate a set of rules which members must comply with. The Regulated activity must only be incidental to the provision of professional services e.g. accountant tax advise advising on investments to sell.
other restrictions to member firms of DPBs: only allowed to receive a pecuniary reward from their client. They also can’t conduct the following regulated activities:
1) Dealing in investments as principal (Acting as a market maker)
2) Establishing, operating or winding up a CIS or stakeholder pension scheme, or acting as a stakeholder pension scheme manager
Managing investments - firm may exercise discretion to sell investments, but can only purchase them if advice/decision given by an authorised person
Advising on investments can only be done in specified circumstances in order for it to be exempt
Exempt Persons vs Authorised Persons
Exempt persons who are appointed representatives or miscellaneous persons can not be exempt from some activities and authorised for others. If a firm is already authorised and wishes to perform additional regulated activities that might fall under exemptions, it must extend its authorization to include those regulated activities
