Financial Services Flashcards by elena s

Who must law firms carrying on ‘regulated activities’ be authorised by?

The Financial Conduct Authority

(No person can carry out a regulated activity / financial promotion unless authorised or exempt)

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What are the 4 questions to ask to determine if an activity is regulated?

Are you in business?
Is there a specified investment?
Is there a specified activity?
Is there an exclusion?

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What are specified investments?

Company stocks & shares

Debentures, loan stock, bonds

Government securities (eg. gilts)

Open-ended investment companies (OEICs)

Insurance contracts

Home reversion / home purchase plans

Deposits (does not include sums received by solicitors acting in the course of their business)

Credit agreements

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Will a credit agreement whereby a solicitor allows a client time to pay be a specified investment?

An agreement by a solicitor allowing a client time to pay will be _exempt_ if:

The number of repayments does not exceed 12

and

The payment term does not exceed 12 months

and

The credit is provided without interest or other charges

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Will an investment in an interest in land be a specified investment?

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Will an investment in a commodity be a specified investment?

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What are the 6 specified activities?

Dealing as an agent

Arranging

Managing

Safeguarding & administering

Advising

Lending money on/administering a regulated mortgage contract

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What is the specified activity ‘Dealing as an agent’?

Buying, selling, subscribing for, underwriting investments etc. when a solicitor is dealing on behalf of a client (ie. as their agent) & commits that client to transactions

Applicable exclusions: ATP, Execution-only, Necessary, Takeover

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What is the specified activity ‘Arranging’?

Where the solicitor is the contact between the client & eg. stockbroker

Applicable exclusions: Introducing, ATP, Execution-only, Necessary, Trustee/PR, Takeover

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What is the specified activity ‘Managing’?

Managing investments, ie. active participation beyond mere holding of investments where the solicitor is the one exercising the discretion to act

Applicable exclusions: Trustee/PR

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What is the specified activity ‘Safeguarding & administering’?

Safeguarding & administering investments belonging to a client

Applicable exclusions: Necessary; Trustee/PR

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What is the specified activity ‘Advising’?

Giving advice to a person in their capacity as an investor on the merits of buying, selling etc a specific investment

Applicable exclusions: Necessary, Trustee/PR, Takeover

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What are the 6 exclusions that might apply, allowing a non-FCA authorised firm to undertake a regulated activity?

Introducing

Using an authorised third party

Execution-only

Trustee/PR

Necessary

Takeover

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What is the ‘Introducing’ exclusion?

Applies to: Arranging

Applies where: Solicitor simply introduces client to authorised person & then has no further role

Does not apply if: relates to insurance contract

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What is the ‘Using an Authorised Third Party’ exclusion?

Applies to: Dealing as an agent, arranging

Applies where: transaction is based on the advice of an ATP - solicitor retains ongoing role but isn’t providing the financial advice

Does not apply if:

Solicitor receives a commission or other advantage arising out of the client entering the transaction which they do not account to the client
Transaction relates to insurance

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What is the ‘execution-only’ exclusion?

Applies to: Dealing as agent, arranging

Applies where: client does not seek advice from solicitor as to merits of entering into the transaction

Does not apply if:

Solicitor receives commission or other advantage as a result which they do not account to the client
Transaction relates to insurance

What is the ‘acting as a trustee/PR’ exclusion?

Applies to: Arranging, managing, safeguarding, advising fellow trustees/beneficiaries, lending money on / administering regulated mortgage contract

Applies where: Solicitor acting as a trustee / PR

Does not apply if:

Solicitor is remunerated in addition to anything received as a trustee/PR
For managing & safeguarding: solicitor holds themselves out as providing service comprising managing or safeguarding
Relates to insurance

What is the ‘necessary’ exclusion?

Applies to: Advising, Arranging, Safeguarding, Dealing as agent

Applies where: can’t do the other services provided in the course of that profession/business unless the regulated activity is also performed (ie. it is necessary!)

Does not apply if:

Activity is remunerated separately from other services
Activity relates to insurance

What is the ‘takeover’ exclusion?

Applies to: Advising, arranging, dealing as agent

Applies where: Transaction to acquire or dispose of shares in a body corporate if-
(a) The shares are 50% or more of the voting shares; and
(b) Each of the parties are a body corporate, partnership, single individual or group of connected individuals
Or if the object of the transaction is the acquisition of day-to-day control of the affairs of the body corporate

Does not apply if: relates to insurance

What is the s327 FSMA exemption?

Professional firms which do not carry out ‘mainstream’ investment business can carry out regulated activities in the course of carrying out their professional work

What must be satisfied for a professional firm to use the s327 FSMA exemption?

The firm is regulated & supervised by a designated professional body

and

The following 5 conditions are met:

The firm must not receive from a person other than its client any pecuniary or other advantage for the activity which it does not account to the client
The manner of providing the financial service is incidental (to the firm in general and to the specific matter) to the provision of the SRA-regulated services
The firm only carries out regulated activities permitted by the SRA
The activities are not prohibited by a Treasury order or order by the FCA
The firm must not carry on any other regulated activities, ie. exemption cannot be used by FCA-authorised firms

What are the five conditions a professional firm must meet for the s327 exemption?

The firm must not receive from a person other than its client any pecuniary or other advantage for the activity which it does not account to the client
The manner of providing the financial service is incidental (to the firm in general and to the specific matter) to the provision of the SRA-regulated services
The firm only carries out regulated activities permitted by the SRA
The activities are not prohibited by a Treasury order or order by the FCA
The firm must not carry on any other regulated activities, ie. exemption cannot be used by FCA-authorised firms

(and must be supervised & regulated by a DPB)

When do the SRA Conduct of Business Rules apply?

When a firm is carrying out an exempt regulated activity under the s327 FSMA exemption

If a firm wishes to undertake insurance distribution, what are 3 things it must do?

Notify the SRA
&
Be registered in the Financial Services Register
&
Have an appointed insurance distribution officer

What are the rules about disclosure in the SRA Conduct of Business Rules?

A firm must provide clients with certain information about the status of the firm (eg. that it is not FCA-authorised, the complaints process)

What are the rules about records in the SRA Conduct of Business Rules?

A firm must keep records of: * Instructions from a client to carry out transactions + instructions to TPs to carry them out * Commissions received in respect of regulated activities & how they were dealt with

When acting for an execution-only client on a retail investment product using the s327 FSMA exemption, what must the firm send to the client?

A letter confirming that the **client is not relying on the advice** of the solicitor Firm must keep a copy of the letter

What is the FSMA rule about financial promotions?

A solicitor who is **not FCA-authorised** _cannot_ make a financial promotion unless the contents are approved by an authorised person ==> Is it a financial promotion? ==> Do any of the exemptions apply?

What are the 4 questions to ask to determine if something is a financial promotion?

1. Are you **in business**? 2. Are you making an **invitation or inducement**? 3. Is there a **specified investment**? 4. Is there a **specified activity**?

What are the four exemptions for financial promotions?

**Real-time** promotions (*professional firms only*) **Non real-time** promotions (*professional firms only*) **One-off** promotions **Introducers**

What is the real-time promotions exemption?

A solicitor may make a real-time promotion if: 1. It is made to a client who **engaged the solicitor to provide _legal_ services *prior*** to the communication being made *and* 2. The regulated activity the communication is about is exempt because of **s327** or the **necessary** exclusion *and* 3. The regulated activity the communication is about would be done for the **purpose of** & be **incidental** to the provision of **professional services**

What is the non-real time promotions exemption?

Letters, emails, brochures, websites etc. where the solicitor is promoting a regulated activity are okay if the promotion contains certain specific statements

What is the one-off promotions exemption?

→ **One-off**, **non-real time** & **one-off, solicited real-time** promotions are exempt if the communication is **personal to the client** → **One-off, unsolicited real-time** promotions are exempt if the solicitor believes that: 1. The **client understands the risks**; *and* 2. At the time of the communication, the **client would expect to be contacted** by the solicitor in relation to that investment activity

What is the introducers exemption for financial promotions?

A solicitor can make any **real-time** communication to **introduce a client to an ATP** if: 1. The solicitor is **not connected** to the ATP 2. The solicitor does **not receive** from anyone except the client a **pecuniary reward or other advantage** from making the introduction 3. The client has **not sought advice from the solicitor as to the merits** of the investment activity *(or, if client _has sought_, solicitor declined to give but recommended ATP)*