7. Core Regulatory Principles and Rules

Question 1

Define the General Prohibition

Answer 1

Under s.19 of the Financial Services and Markets Act 2000, it is an offense for someone to carry out a regulated activity unless the person is authorised or exempt.

N.B. A breach of s.19 may be a criminal offense and punishable on indictment by a maximum term of two years imprisonment and/or a fine.

Question 2

Define Excusions

Answer 2

Exclusions are provisions that turn otherwise regulated activities into unregulated activities. So if a firm can rely on exclusion for an activity, it would not require authorisation to carry it out.

Examples:

• Introducer exclusion
• Overseas Persons exclusion

Question 3

When does a firm have an exempt status?

Answer 3

A firm has an exempt status if it has a contract with an authorised firm whereby that authorised firm has accepted responsibility in writing for its activities.

N.B. The firm with the exemption is an appointed representative (AR). The firm that is authorised is called the Principal.

Question 4

Define Business Test

Answer 4

Under s.22 of the FSMA, for an activity to be a regulated activity, it must be carried out ‘by way of business’.

Question 5

Define the difference between a full Appointed Representative (AR) vs an Introducer Appointed Representative (IAR)

Answer 5

An AR is able to give advice on and arrange investments.

An IAR is restricted to merely making introductions and distributing advertisements.

Question 6

Define applying for Part 4A Permission

Answer 6

Any person wishing to carry out one or more regulated activities by way of business must apply to the appropriate regulator for direct authorisation.

Question 7

What are the aims of the Senior Management and Certification Regime (SM&CR)?

Answer 7

The SMCR aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence by:

• Encourage a culture of staff at all levels taking responsibility for their actions
• Make sure firms and staff clearly understand and can demonstrate where responsibility lies

Question 8

Define Limited Scope Firms

Answer 8

These are smaller firms which are subject to fewer requirements than core firms.

E.g. Sole traders and authorised professional firms such as accountants and solicitors

Question 9

Define Core Firms

Answer 9

Firms that do not qualify as Limited Scope or Enhanced will be subject to the baseline regime, which is a pared-back version of the SM&CR for banks

Question 10

Define Enhanced Firms

Answer 10

Around 350 of the largest, most complex, or riskiest firms will be subject to additional requirements above the baseline Core regime, more akin to the requirements for banks.

Question 11

What are the additional requirements for Enhance Firms?

Answer 11

• Additional senior management functions
• Additional prescribed responsibilities
• Overall responsibility requirement
• Responsibilities maps
• Handover requirements

Question 12

Define Additional Senior Management Functions

Answer 12

A broader set of roles specific to a larger firm that require registration

Question 13

Define Additional Prescribed Responsibilities

Answer 13

Functions associated to those wider roles that need to be allocated to a senior manager

Question 14

Define Overall Responsibility Requirement

Answer 14

A senior manager is responsible for ensuring all prescribed responsibilities are properly allocated to competent individuals

Question 15

Define Responsibilities Maps

Answer 15

A replacement for the governance map. An organisation chart who sets out who performs what functions

Question 16

Define Handover Requirements

Answer 16

An obligation for a senior manager leaving a role to provide adequate notes of key topics and current matters to the successor