2. The Financial Services and Markets Act 2000 and Financial Services Act 2012 Flashcards
IMPORTANT: What does general prohibition state? What happens if you go against general prohibition?
No person can carry on a regulated activity in the UK unless they are either authorised (by the PRA and/or FCA) or exempt from the requirement to be authorised.
MEM & IMPORTANT: Criminal penalties: What is the maximum penalty for carrying out regulated activites without be authorised? Civil law consequences: What can happen to a contact entered into by a client if advisor carried on reg activities while authorised?
Criminal: Contravention is a criminal offence, max sanctions are up to 2 years imprisonment and an unlimited fine.
Civil:
-Also if the contravening party has made an agreement with another party, the party is allowed to recover any money or property transferred under an agreement and to be compensated for any loss (e.g. a broker who sold a stock in XYC company to Mrs A, but isn’t authorised, so Mrs A can sue the broker and get money back).
-The contract is voidable ith at the discretion (choice) of the client.
-Injunctions (preventing further harm e.g. shutting fown business/person conducting)
If an authorised firm is conducting unauthorised regulated activities, this will be considered to be which ONE of the following?
AA criminal matter
BA civil matter
CA regulatory matter
DA due diligence matter
A) FSMA makes the breach of the general prohibition a criminal offence; therefore the criminal offence is the best answer.
IMPORTANT: What is the definition of regulated activity and what order is it defined under?
Defined under the Regulated Activities Order: Specified activity undertaken with a specified investment.
IMPORTANT: Which of the following constitutes a regulated activity under the FSMA 2000?
A Acting as a manager of an authorised unit trust
B Using options to limit identifiable risks as a jeweller
C Arranging deals in investments as a personal executor of a will
D Operating an employee share scheme for one’s employees
A
MEM & IMPORTANT: Exempt persons from general prohibition/authorisation (6)
- Appointed Representatives
- Recognised Investment exchanges and clearing houses (run settlement systems for nearly all securities in UK and Ireland e.g. Euroclear)
- Recognised Investment Exchanges e.g. LSE
- Lloyd’s syndciate members/Lloyd’s of London (gather together to form a syndicate for insurance activities)
5.Members of Designated Professional Bodies (e.g. Lawyers, accountants, surveryors, acturies, conveyencers.) - Other exempted bodies e.g. Bank of England, Central banks, supranationals, World Bank, IMF
IMPORTANT Q: Members of which of the following professional bodies must be authorised by the FCA before they can give investment advice and charge a fee for doing so?
a) Chartered Institute of Securities and Investments (CISI)
b) Institute of Chartered Accountants in England and Wales (ICAEW)
c) Institute of Actuaries
d) Royal Institution of chartered surveyors (RICS)
A
Think about the exempt persons!
Which of the following would not be exempt from requiring authorisation?
A
Recognised investment exchange
B
Appointed representative
C
Lloyd’s of London
D
Members of certain professions
C - it’s MEMBERS of Lloyd’s that are exempt. Lloyd’s of London is another way of saying Lloyd’s Syndicate.
I thought it was D originally because it didn’t say ‘bodies’ but I guess all people in those professions are members of the professional bodies.
What question does the perimeter guidence manual answer?
Do I need Part 4A access/am I conducting specified activities in specified investments?
IMPORTANT: A client has purchased a National savings &Investments (NS&I) bond, depositary receipts and local authority loan stock. Which of these are specified investments under the Regulated Activies Order?
Depositary Receipts and loan stock only. NS&I is specifically excluded
IMPORTANT: For which type of product must a financial adviser be fully qualified before giving advice, even under supervision?
1. Securities
2. Non-investment insurance
3. Cash ISAs
4. Friendly society endowments
- Securities
IMPORTANT: For which of the following activities must a person be fully qualified before performing the role, even under supervision?
a) providing basic advice
b) acting as a pension transfer specialist
c) advising on non-investment insurance
d) dealing in securities
B
IMPORTANT: Which one of the following activities is regulated in accorance with FSMA 2000 (RAO)?
1. Provising BBG share price informaiton
2. Writing tip sheets
3.Writing a newspaper column advising on investments
4. Hositng a financial programme on television
if the principal purpose of a publication was the provision of investment advice (i,e, tip sheets) then the authorisaton would be required.
Newspapers and broadcasters have a specific exemption and so do providers of factual share price info.
IMPORTANT: Spectified investments with the Regulated Activities Order (RAO)
Ones you’d expect:
-Shares/depositary receipts (certificates representing shares)/Warrants
-Debt instruments e.g. bonds, Gilts, loan stock (unsecured corp bonds)
-Units in collective investment schemes (unit trust/open ended investment company (OEIC)/ investment company with variable capital (ICVC)/ Hedge funds
-Options
-Futures
-Contracts for difference (CFDs) e.g. swaps and spread bets
Ones you’d not expect:
-Lloyd’s syndicates (society for insurance), insurance contracts, funeral plan contracts
-Pensions
-Regulated mortgages and home finance
- Deposits and electronic money
- Rights to specified investments, e.g. sale & repurchase agreements (Repos) (using as collateral for loans
-Loans and other forms of credit
-Emissions auction products (e.g. carbon credit)
- Benchmarks e.g. LIBOR
- Forward rate agreement
-Floating rate agreement
According to the Regulated Activities Order 2001, which of the following are specifiedinvestments?
A
Commercial property, including buy-to-let investments
B
Gold bullion
C
Insurance covering vehicle breakdown
D
Units in a collective investment scheme
D -
Learn the list and be confident. Tangible assets and car breakdown insurance are not specified investments (physical stuff)
IMPORTANT: Specified activities under the RAO (regulated activities order)
One’s you’d expect:
-Dealing in investments
-Arranging deals in investments
-Managing investments
-Advising on investments
-Operating a multilateral or organised trading facility (MTF or OTF)
One’s you wouldn’t expect:
-Safeguarding and administering investments e.g. acting as a custodian
-Sending dematerialised instructions e.g. electronic money transfer
-Lloyd’s activities, insurance activities and providing funeral plan contracts
-Mortgages: provisions, administration, advising and arranging
-Home finance activities
-Managing dormant account funds
-Accepting deposits by way of business and issuing electronic money
-Providing credit insurance or credit information services
-Establishing, operating or winding up a collective investment scheme or pension scheme
-Agreeing to carry on most regulated activities
IMPORTANT Q: Does a firm that accepts deposits from customers need to be regulated and authorised to carry out this activity?
Yes, we know that if a business is carrying on a regulated activity (and deposit taking is one) then it must either be authorised or exempt.
What is dealing is a principal in shares and bonds and why is it excluded from general prohibition?
Someone is excluded if individuals or companies are not in the business of dealing in investments and which invest only for THEMSELVES in the hope of making a profit.
What is NOT an exclusion in Newspaper/Media investment advice
If the principal of a publication is the provision of investment advice, with the view to encourage investors to undertake investment activity, authorisation is required - TIP SHEETS
MEM & IMPORTANT Q: Exclusions relating to regulated activity (not requiring authorisation/Part 4A)
-Dealing as principal and end used (for yourself only)
-Primary market sale or buyback (company issues shares to public or buyback from public)
-Derivatives for risk management (hedging)
-Precious metals
-Foreign exchange
-NS&I Premium bonds (not actually bonds)
- Group or Joint Enterprises - Firms undertaking intra-group dealing (SUBSIDIARY provides services to parent)
- Advice in Newspapers and other media - unless it’s a tip sheet
-Providing information (Bloomberg, Reuters etc)
- UNPAID Trustees, Nominees and Personal Representatives - acting as the representative of the other party, e.g. executer of someone’s will or charity worker.
- Employee Share Schemes - Companies to set up schemes enabling employees to hold shares in the company they work for
- Oversees Persons - They carry on regulated activity from a permanent place of business outside of the UK.
In relation to rules governing regulated and unregulated activities, Part 9A of
theFinancial Services and Markets Act 2000
empowers the FCA to do which one of the following?
A
Make rules that are legally binding on authorised firmsconcerning regulated activity only
B
Suggest rules to HM Treasury that would be legally binding onauthorised firms concerning regulated activity only
C
Create rules that are legally binding on authorised firmsconcerning regulated activity and also activity that is notregulated
D
Propose rules to HM Treasury that would be legally binding onauthorised firms concerning regulated activity and also activitythat is not regulated
C
A defence against a charge of carrying out a regulated activity without authorisation could be:
AManaging own portfolio
BThey did not believe that it was a regulated activity
CThey had applied and were awaiting confirmation
DThey dealt on their own account and held themselves out to others
A - dealing for yourself is excluded from the need of getting authorisation
A subsidiary company acts as broker for its parent company and arranges a deal in the shares of a public company. Which of the following statements is true?
AThe subsidiary company is performing a regulated activity and requires Part 4A permission under the RAO
BArranging deals in the shares of public companies is not a regulated activity so no Part 4A permission is required
CAs the activity is conducted within the company group, it creates an exclusion from the need for Part 4A permission
DAs the activity is conducted within the company group, a breach of conflict of interest rules has occurred
C, a subsidiary is excluded from the need to get part 4a,; don’t need to specify if parent is authorised or not.
IMPORTANT: What is the regulatory states of a trustee or personal representative carrying out regulated activities for which they are separately remunerated?
They are required to be authorised. Trustees or personal representatives carrying out regulated activities for which they are separately renumerated require authorisation. There’s an exclusion under FSMA 2000 from the need for authorisation if a person carrying on a regulated activity is a trusee or personal representatives and not receiving renumeration for providing investment services.
IMPORTANT Q: An exclusion from the need for authorisation under the FSMA 2000 regulated Activities Order applies to which specfic category of individual?
1. Trustees
2. Fund Managers
3. Politically exposed persons
4. Board Directors
- Trustees
IMPORTANT Q: Is a market maker required to be regulated and authorised when carrying out on such activity for a firm?
Yes, people acting as market makers and who regularly solicit the public with the purpose of inducing them to deal are required to be authorised or exempt.
IMPORTANT Q: Exemptions of the FSMA: Appointed Representatives, what are they? How are they exempt?
It’s a person who has entered into a contract with an authorised person (the principal) for the purpose of conducting regulated activiity. The authorised person becomes the principal and accepts legal responsibility for the regulated activity conducted by the appointed representative. The principal must conduct reviews of suitability and conduct of the authorised representative.
However, some people within an appointed representative firm must be approved for controlled functions like governors and individuals who perform customer functions.
What are Recognised Investment Exchanges (RIEs) and Recognised Clearing Houses (RCHs)? Who regulates?
The formal exchanges conducts the trading&issuance of securities. A clearing system is connected to the formal exchange and it facilitates the settlement of the trades that take place.
FCA regulates , recognises and supervises changes and clearing houses.
Once the exchange/clearing house is recognised by the FCA, they are referred to as Recognised Investment Exchanges (RIEs) and Recognised Clearing Houses (RCHs) and these are EXEMPT PERSONS once recognised. Therefore they don’t have to seek authorisation from the FCA to carry out regulated activities. They are exempt fromg eneral prohibition under the FSMA.
IMPORTANT Q: Investment exchanges in London have to be recognised by which organisation?
a) LSE
b) FCA
c) PRA
d) BoE
B - FSMA gives the FCA responsibility of recognising, regulating and supervising exchanges and clearing houses. Think about FCA responsibilities!
What are central banks exempt from?
Exempted from the need to be authorised to carry on any regulated activity exept from carrying out contracts of insurance.
Who are exempt from the need to be authorised for the regulated activity of accepting deposits?
Muncipal banks, local authorities and charities
IMPORTANT What are the five professions where individual firms are permitted to carry on particular regulated activities without the need to apply to the regulators for authorisation? Who do they require permission from instead?
Accountants.
Solicitors.
Actuaries.
Chartered surveyors.
Licensed conveyancers.
Required to apply to their relevant professional body for permission to conduct the activities.
IMPORTANT: What permission does the FRA and/or PRA grant for a person to be authorised?
Part 4A permission - means that authorisation is granted. Can carry out designated regulated activities without breaching general prohibition.
It specifies precisely which regulated activities the firm can carry on, the investments those activities may related to and any further requirements/special conditions attached to the permission.
The activities which a firm is given permission to conduct can be limited. E.g. it may be permitted to deal as principal but only for a particular type of client.
What’s the process if a firm is likely to be dual-regulated? Who do they apply to?
The firm will make a single application (application pack) to the PRA as its lead regulator. If the FCA consents to the firm’s authorisation, the PRA has the final decision whether to authorise.
Who is the regulator of insurance firms?
PRA: need to make sure there’s money for claims!
IMPORTANT Q: What are the Threshold Conditions (TCs) for bring granted and remaining to have Part 4A permission? I.e. how do we get it?
- Legal status in UK / solo: N/A / dual reg (DR): PRA
-Location of offices (needs to be UK) / solo: FCA / DR: PRA
-Effective supervision (disclose close links e.g. significant shareholder)/ solo: FCA/ DR: FCA & PRA - Appropriate resources (sufficient finance and staff etc)/ solo: FCA/ DR: N/A
-Appropriate non-financial resources: solo: FCA/ DR: FCA
-Prudent conduct: solo: N/A / DR: PRA
-Suitability (fitness and propriety): solo: FCA / DR: FCA & PRA
-Business model (impact on FCA objectives): Solo: FCA / DR: FCA
IMPORTANT Q: Q: Which of the following threshold conditions applies to PRA regulated firms only?
a) suitability
b) effective supervision
c) Legal status
d) business model
C
IMPORTANT Q: The threshold condition of location of offices requires UK registered company to have its head office registered in which geographical area?
a) EEA
b) EU
c) UK
d) UK or EU only
C
MEM & IMPORTANT: How long does it take to get a decision to be granted authorisation?
Up to 6 months (can grant, refuse or authorisation with limitations (some of the activities applied for but not all)
Senior Manager and Certification Regime (SM & CR) aka Individual Accountability Regime: 4 types of staff/functions, who are approved by regulator, who are subject to the fit and proper test? Who are subject to conduct rules?
- Senior Management Functions - NEED PRIOR APPROVAL FROM REGULATOR and FIT AND PROPER TEST and SUBJECT TO CONDUCT RULES
- Certification Functions (client dealing/significant harm functions): NEED CERTIFICATE ISSUED BY FIRM, SUBJECT TO FIT AND PROPER TEST AND SUBJECT TO CONDUCT RULES
- Other conduct rules staff (e.g. general compliance, legal, middle office, operations) SUBJECT TO CONDUCT RULES]
- Ancillary staff: catering, hospitality, health and safety staff. Not subject to any rules
Fatima’s role involves dealing with customers, specified as a significant harm function bythe regulator. Under the certification regime, which of the following is true?
A
Fatima needs regulatory pre-approval by the regulator beforeperforming the role
B
Fatima needs to be certified by her firm before performing therole only
C
Fatima needs to be certified by her firm before performing therole and annually thereafter
D
Fatima could perform the role without the need for anassessment of fitness and propriety
C - this is the fit and proper test
All of the following are specified by the FCA as a certification function except:
A
Material risk takers
B
Dealing directly with clients
C
Supervisors of Certification Functions
D
Information providers
D - Certification functions are: CASS oversight, proprietary trader, significant management, functions requiring qualifications, managers of certification functions, material risk takers and client dealing
Which of the following functions in an authorised firm is LEAST likely to require approvalunder the individual accountability regime?
A Chief Financial Officer
B Manager responsible for certified persons
C Money laundering reporting officer
D Customer advisor on investments
D - it is the most likely to require certification, notapproval.. B means like a head of a team or dept.
Which one of the following conduct rules applies to all persons captured by the SM&CR regime? You must:
ATake reasonable steps to ensure the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
BTake reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
CDisclose appropriately any information of which the FCA or PRA would reasonably expect notice
DObserve proper standards of market conduct
D) all staff are subject to conduct rules
Examples of SMFs (senior manager functions)
Chief of -, Chair, DIrector, Compliance oversight, Money laundering money officer (MLRO)
IMPORTANT: What does the Accountability Regime set out?
- Prescribe responsibility for different SMF functions - set out in a statement of responsibilities signed by SMF and sent to regulator & kept for 6 years
- Responsibilities map - enhance transparency on reporting lines
- Senior managers have duty of responsibility and prove how they do this and stop/remedy breaches
MEM & IMPORTANT: When should the fit and proper test be done?
On appointment and annually of a certication function and SMF
IMPORTANT: The Fit and Proper Test: what are the 3 things
- Honesty, Integrity and reputation
-Employment history (6 years)
-criminal convictions (no time limit)
-breaches of FCA/PRA rules
-complaints - Competence and capability
-exam success
-experience and training - Financial soundness
-Bankruptcy, default on loans
IMPORTANT Q: A regulatory reference must capture a candidate’s employment going back how many years?
6 years
IMPORTANT: What does the firms fill in to get approval from regulators for SMFs and by when should they be informed?
Firms use Form A to apply on behalf of SMFs
Should be informed within 90 days.
