Chapter 4 Flashcards
Will a firm that has the permission to carry out regulated activities be punished under section 23 FSMA if it carries out a regulated activity it does not have the permission for?
No. It will be in breach of FCA regulations.
Section 23 is only applicable if a person who is not authorized carries out a regulated activity.
What is a prohibition order?
An FCA (Financial Conduct Authority) prohibition order is a regulatory action taken by the FCA to prohibit a person from carrying out certain regulated activities within the financial services industry in the UK. It is a severe sanction that can be imposed on individuals who have breached FCA rules, such as engaging in financial misconduct or failing to meet the required standards of competence and professionalism.
Once an FCA prohibition order is issued, the individual concerned will be prevented from working in the financial services industry in the UK, either permanently or for a specified period. The order may also include restrictions on the individual’s ability to hold certain positions within a financial services firm.
Breaching an FCA prohibition order can lead to criminal charges and fines, as well as further regulatory action. The FCA issues prohibition orders to protect consumers and maintain the integrity of the UK’s financial services industry.
What’s the difference between an article and a section in UK law?
In UK law, an “article” typically refers to a specific provision within a treaty or agreement, whereas a “section” usually refers to a specific provision within a piece of legislation.
What are the threshold conditions according to the FSMA (Schedule 6)?
A) Legal status of the applicant
B) Location of its office
C) Adequate resources (provision in respect of liabilities, how risk is being managed in the business)
D) Suitability (the applicant must satisfy the FCA “that he is fit and proper person having regard to all the circumstances”)
What is the FCA Handbook?
The FCA Handbook is a collection of rules and guidance published by the Financial Conduct Authority (FCA) that sets out the standards and requirements that regulated firms and individuals must follow in order to comply with financial regulation in the UK. The Handbook is divided into different modules, each covering a specific area of regulation, such as Conduct of Business, Prudential Standards, and Client Assets.
The Handbook includes both binding rules, which must be followed by regulated firms and individuals, and non-binding guidance, which provides additional information and best practice recommendations. The rules and guidance in the Handbook cover a wide range of areas, including conduct of business requirements, disclosure and transparency, market abuse prevention, and prudential regulation.
The FCA Handbook is an important reference for regulated firms and individuals, as non-compliance can result in enforcement action by the FCA, including fines and other penalties.
What is the Conduct of Business Sourcebook?
The Conduct of Business Sourcebook (COBS) is a set of binding rules and guidance issued by the UK Financial Conduct Authority (FCA) as part of its Handbook. COBS sets out the conduct of business requirements that FCA-regulated firms must comply with when dealing with retail clients. These requirements cover a wide range of topics, including disclosure, client communications, financial promotions, product suitability, and complaints handling. COBS is an important tool for the FCA in protecting consumers and maintaining the integrity of financial markets.
What are three important obligations resulting from the Conduct of Business Sourcebook?
(a) provide information to clients about the terms on which they conduct investment business (e.g. the fact that the firm is regulated by the FCA; details of charges and complaints, including the firm’s complaints handling procedure; details of the Financial Ombudsman Scheme which must be joined by authorised firms; and, where the firm is to carry out discretionary management for a private client, there needs to be a formal written client agreement);
(b) obtain enough information about their clients to be able to act properly for them and to ensure that the business conducted for them is appropriate to their circumstances (e.g. investments recommended must be suitable to the particular needs of the client; the firm must take reasonable steps to explain to the client the nature of the risks involved; and, where the investment concerned is a “retail investment product”, the client will need to receive a ‘suitability letter’ and a ‘key features’ document);
(c) arrange adequate protection for clients’ assets (this will be satisfied by application of the SRA Accounts Rules to safeguard clients’ money).
What are the requirements for aggrieved clients if they want to complain to a regulated firm?
When a client is unhappy with a financial firm, they should initially follow the firm’s in-house complaints procedure. The firm must respond to the complaint within four weeks. If the client is not satisfied with the outcome, the firm should inform them about the Financial Ombudsman Scheme, which can resolve disputes in a prompt and informal manner.
If a client of a solicitor who is also an authorized person has suffered loss by the inability of the authorized person to meet their liabilities, what option does the client have?
If a client of a solicitor who is also an authorized person has suffered loss by the inability of the authorized person to meet their liabilities, the client may have recourse to either the Financial Services Compensation Scheme or the Law Society’s Compensation Fund, depending on the circumstances.
If the authorized person is also regulated by the FCA, the client may be able to make a claim under the Financial Services Compensation Scheme, subject to certain limitations and conditions. However, if the client believes that the Law Society’s Compensation Fund provides sufficient protection, they may choose to make a claim under that scheme instead.
What are non-mainstream activities?
Non-mainstream regulated activities are activities that are not the primary business of the firm and are not widely conducted by firms that are not authorized by the FCA. These activities are considered to be less risky or complex, and may include services such as advising on corporate finance, advising on investments in relation to insurance-based investment products, and managing investments on behalf of others. The FCA has provided guidance on what activities qualify as non-mainstream regulated activities, and firms must ensure that they comply with any applicable regulatory requirements for such activities.
What exception exists regarding non-mainstream activities?
If a firm is authorized by the FCA to carry out regulated activities and also carries out non-mainstream regulated activities, the individuals working for the firm do not need to be approved by the FCA to carry out those non-mainstream activities. However, the firm is still subject to other regulations, such as The SRA’s Conduct of Business Rules, in relation to non-mainstream financial services.
