2. Financial Services

Question 1

What is the 4 stage test for identifying a regulated activity?

Answer 1

1. Are you in business?
2. Is there a specified investment?
3. Is there a specified activity?
4. Is there an exclusion?

Question 2

What are specified investments?

Answer 2

Company stocks / shares; debentures, loan stock and bonds; government securities (i.e. gilts); OEICs; insurance contracts; regulated mortgage contracts; home reversion / home purchase plans; deposits; credit agreements

Question 3

What is not included in specified investments?

Answer 3

Interests in land; most National Savings products

Question 4

What are the specified investment activities?

Answer 4

Dealing as an agent
Arranging
Managing
Safeguarding
Advising
Lending money on / administering a regulated mortgage contract

Question 5

How is insurance different to the other specified activities?

Answer 5

The exclusions never apply

Question 6

What is the authorised third party (ATP) exclusion?

Answer 6

Transaction to be entered into is based on the advice of an ATP (solicitor cannot rely on this exclusion if receiving payment from any person other than the client which they do not account to the client)

Question 7

What is the execution-only exclusion?

Answer 7

Client has not sought / is not seeking advice from the solicitor, and solicitor is just executing the transaction

Question 8

What is the professional / necessary exclusion?

Answer 8

Includes things such as when acting on acquisition of a company, giving advice on the merits of buying it and arranging for the acquisition of its shares – does not apply if activity is remunerated separately from other services

Question 9

What is the takeover exclusion?

Answer 9

Applies where the shares being acquired consist of or include 50% or more of the voting shares in a company

It is possible to add the number of shares being acquired by a client to those already held by them to reach the requisite limit of 50% or more, OR adds up to 50% by a number of connected individuals

Question 10

What exclusions apply to dealing as an agent?

Answer 10

ATP
Execution-only
Professional/ necessary
Takeover

Question 11

What exclusions apply to arranging?

Answer 11

Introducing
ATP
Execution-only
Professional/ necessary
Acting as a trustee/ PR
Takeover

Question 12

What exclusions apply to advising?

Answer 12

Professional/ necessary
Acting as a trustee/ PR
Takeover

Question 13

What exclusions apply to managing?

Answer 13

Acting as a trustee/ PR

Question 14

What exclusions apply to safeguarding?

Answer 14

Professional/ necessary
Acting as a trustee/ PR

Question 15

What is the s 327 FSMA exemption?

Answer 15

Professional firms are able to carry out certain regulated activities provided certain conditions are met

Question 16

Under the s 327 exemption, can a firm receive a pecuniary advantage from the activity (other than from the client)?

Answer 16

Yes but they must account it (i.e. give it) to the client

Question 17

What is the specific test in relation to the conditions for meeting the s 327 exemption?

Answer 17

Regarding the particular client concerned, the professional service being provided to the client must be a primary service, and the regulated activity should be “incidental” or “subordinate” to provision of professional service

Question 18

What is the general test in relation to the conditions for meeting the s 327 exemption?

Answer 18

Activities carried out by firm which would otherwise be regulated cannot be a major part of firm’s activities

Question 19

Under s 327, what relevant rules from the SRA apply to solicitors?

Answer 19

Financial Services (Scope) Rules
Conduct of Business (COB) Rules

Question 20

Can a firm use the s 327 exemption is authorised by the FCA?

Answer 20

No

Question 21

What is the COB status disclosure rule (Rules 2.1 and 2.2)?

Answer 21

Firms must provide clients with certain information concerning status of the firm - i.e. not authorised by the FCA

Question 22

What is the COB best execution rule (Rules 3.1)?

Answer 22

Firm must carry out transactions for clients as soon as possible unless reasonably believes in clients best interest not to

Question 23

What is the COB transactions rule (Rules 4.1 and 4.2)?

Answer 23

Firm must keep records of: instructions from clients to carry out transactions; and, instructions to third parties to carry them out

Question 24

What is the COB commission rule (Rules 5.1)?

Answer 24

Firm must keep records of commissions received in respect of regulated activities and how those commissions were dealt with

Question 25

What is the COB execution-only clients rule (Rules 5.1)?

Answer 25

Where retail investment product, must send a letter to the client confirming that the client is not relying on the advice of the solicitor and the firm must keep a copy of this letter

Question 26

Do the exclusions apply for Financial Promotions Orders?

Answer 26

No

Question 27

What kinds of activities are exempt from Financial Promotion Orders?

Answer 27

Acting as a trustee/ PR
Takeover of a corporate body

Question 28

When can real-time promotions be made?

Answer 28

Under the professional/ necessary exclusion

Question 29

When can non-real time promotions occur?

Answer 29

When the promotion contains certain specific statements

Question 30

When are one-off, unsolicited real-time communications exemption?

Answer 30

Solicitor believes on reasonable grounds that:
1. Client understands risks associated with engaging with the investment activity, and
2. At the time of communication, the client would expect to be contacted by the solicitor in relation to that investment activity

Question 31

What are the conditions for a solicitor making any real-time communication in order to introduce a client to an ATP?

Answer 31

1. The solicitor is not connected to the ATP
2. The solicitor does not receive any pecuniary award other than from the client
3. The client is not seeking and has not sought advice from the solicitor as to the merits of engaging in investment activity (and if they are, the solicitor has declined to give it)

Question 32

What does Part 20 FSMA enable?

Answer 32

Law firms to be classed as Exempt Professional Firms (EPF) to conduct financial regulated activities - provided they only carry out work which falls under Part 20 FSMA