Chapter 7: Financial services Flashcards
Which act governs financial services?
Financial Services and Markets Act 2000
What is General Prohibition?
prevents businesses and individuals form carrying out certain regulated activities without appropriate authorisation or exemption. To breach is an offence.
What are the objectives of the FCA?
Strategic objective: ensure financial markets function effectively.
Consumer protection objective (appropriate degree)
Integrity objective (protect/ enhance the system)
The competition objective (effective market competition)
What are regulated activities?
financial/ legal activities only carried out by people with authorisation/ persons exempt from authorisation.
What are the 3 criteria for a regulated financial activity?
Specified activity in an order of the treasury
Relate to specified investments
Carried out in course of business
What are 5 regulated activities examples?
Dealing in investments as an agent
Arranging deals in investments (acting as a contact between parties)
Managing investments (actively involved)
Advising on investments (buying, selling etc)
Safeguarding and administering investments (protecting/ administering)
What must advice from a solicitor be to fall within the act?
specific not general
examples of specific investments
Company stocks/ shares
Credit agreements
Deposits
Home reversion (sells a portion)/ home purchase plans
Regulated mortgage contracts
Insurance contracts
Open-ended investment companies
Government and public securities
Debentures (document to prove security on a loan), loan stock and bonds
What are not specified investments?
Interests in Land
Certain national savings products
What happens if a solicitor gives advice on non specified investments?
disciplinary
What happens when an exclusion applies?
authorisation is not required
What are the exclusions to specified activities for solicitors?
Introducing the client to an authorised person
Arranging or dealing through an authorised third party.
Acting as a trustee, nominee, personal rep
Activities carried on in course of professional or non - investment business
Activities carried on connection with the sale of a corporate body.
What is the DPB exemption?
Designated professional body exemption - exempt from authorisation for regulated activities. Applies to firms that carry out regulated activities (not main purpose) but the MAJORITY of work in the firm IS NOT a regulated financial activity
Exempt regulated activities
when the activity carried out is by a person exempt from FCA authorisation under a DPBE.
what are the 6 statutory requirements for solicitor firms to use the DPB exemption?
- A person is member of a profession e.g solicitors regulated by SRA.
- Solicitors must tell their client of any payment/ advantage they receive from another person (that is not the client) for the regulated activity.
- Financial services must not be a major part of the firms work (if it is they need FCA auth). When assessing if regulated financial actives are ‘incidental’:
The scale of regulated activity undertaken
How the degree of separation between regulated activities and professional services is advertised.
The impression created by the firm e.g does the firm specifically advertise regulated activities?
Financial service must arise from/ connect to a legal matter.
- The only regulated actives solicitors are permitted to carry out under the DPBE are laid out in the SRA Financial services scope rules.
- Firms cannot rely on the DPBE if they are carrying out specified activities in the list given by the treasury (above specified activities).
- Exception cannot be relied upon by firms that are authorised and regulated by the FCA.
What does EPF mean
exempt professional firms
What legislation regulates HOW exempt firms carry out regulated activities.
SRA Financial Services (Conduct of Business) Rules 2001
What are the rules in the SRA conduct of business rules.
Rule 2: Status disclosure - firms must disclose certain information about their status in writing BEFORE carrying out a regulated activity:
Rule 3: Execution of transfers - must execute the transaction as soon as possible unless they reasonably believe it is in the client’s interests not to do so.
Rule 4: Records of transactions - receive instructions, keep record, record of name, date received.
Rule 5: Records of commissions - receive commission reward for financial services, must keep record of amount and method.
Rule 6: Safekeeping of clients’ investments - safeguard/ administer investments, must use appropriate systems for safe keeping. Passed to third party, must obtain receipt (if passed on must have client instructions in writing).
Rule 7: Execution only business - transaction involves retail investment product, written confirmation that: client did not seek or receive legal advice about transaction, received advice but client insisted transaction happened, transaction is effected on the clients specific instructions.
Rule 8: Retention of records must be retained for 6 years.
What information must be disclosed under Rule 2 of SRA conduct of business rules
Statement that solicitor is not authorised by FCA
Solicitors name and practicing address
Nature of regulated financial services carried out
Statement that firm is authorised and regulated by SRA
Statement that complaints redress to go through SRA/ legal ombudsman
What is the financial promotion prohibition?
in the course of business cannot invite clients to engage in investment activity (promote investment opportunities) unless an authorised firm.
When can firms not reply on the DPBE?
To communicate financial promotion (invitation to engage in investment activity) to a client in course of business.
Which legislation specifies regulated activities and exclusions?
Financial Services and Markets Act 2000 (Regulated Activities) Order 2000 SI 2001/544
Which legislation states specific activities that cannot be ordered by EPF under the DPBE?
Financial Services and Markets Act 2000 (Professions) (Non-Exempt Activities) Order 2001 SI 2001/1227
Which legislation regulates communication of financial promotions?
Financial Services and Markets Act 2000 (Financial promotion) Order 2005 SI 2001/ 1529
