Financial Services

Question 1

Regulation of financial services?

Answer 1

• Ensure those providing such services are approved and authorised and that consumers are adequately protected form negligent advisers.
  Main regulators are the
  Prudential regulation authority
  Financial conduct authority

Question 2

Can a law firm carry out the work?

Answer 2

Key statute is financials services and market acts 2000
financial services and markets act 2023
- MAY NOT CARRY OUT regulated activity unless you are authorised or exempt
Breach of s19 FSMA is a criminal offence
Regulated or specific activities include
- Dealing in investments, buying or selling
- Arranging deals in investment
- Managing investment
- Advising on merits of investment
Solicitors should not provide financial advice to their client, but refer the client to an independent financial advisor who is authorised by the FCA.

Question 3

FSMA decision tree steps 1 - Is there a specified investment?

Answer 3

Types of specified investment:

Rights under a contract of insurance
- shares in a company
- Instruments creating indebtedness
- Government or public securities
- Rights under a pension scheme
- Regulated mortgage contracts
o Contract which lender provides credit to an individual or to trustees
o The contract provides for obligations of borrower to repay to be secured by a mortgage on land in the EEA
o At least 40% of that land is used
o In the case of credit – in connection with a dwelling

COVERS - typical home buyers mortgage but not a loan to buy an office or loans to companies.

Question 4

FSMA step 2 - Is there a specified activity?

Answer 4

• Dealing investments as principal or as agent – buying, selling, subscribing
• Arranging deals in investments
• Managing investments
• Advising on merits of investment
  o Giving recommendation and giving advice requiring an element of opinion
  o Generic advice is not a specific activity

Question 5

Step 3 - Is there an exclusion?

Answer 5

1. Regulated activities that are necessary part of other services carried out in course of profession
2. Regulated activities in connection with sale of a body corporate
3. Authorised persons

Necessary part exclusion
- A solicitor will general not be
- Dealing as an agent
- Arranging deals
- Advising on merits
- And will not be accruing out a specified acidity provided these activities are
- Carried in course of profession
- MAY BE REGARDED AS NECESSARY
Exclusion doesn’t apply if specified activity is remunerated separately from other services.
Exclusion does not apply to contracts of insurance

Sale of body corporate exclusion
Dealing as principal – solicitor acting on his own account
Dealing as agent – solicitor acting as though he was with client
Arranging
Advising
If these such are carried out, in connection with sale of a company provided that
- Shares consist of 50% more of voting shares in the company
- The shares together with any shares already owned consist of 50% more.
- Acquisition may be regarded as acquisition of day-to-day control of affairs of body corporate.
Authorises person exclusion
- Transaction is entered into on advice of authorised person or it is clear that the client is not seeking and has not sought advice from solicitor as to merits of entering into transaction
- Provided client is not seeking and has not sought advice from solicitor as to merits of entering into transaction
DOES NOT APPLY TO CONTRACT OF INSURANCE OR IF SOLICITOR RECIEVES COMMISION

Question 6

FSMA Step 4?

Answer 6

Does the activity fulfil basic conditions and is a regulated exempt activity?
IF YES
- EXEMPT REGULATED ACTIVITY

IF NO
- Firm must be authorised by the FCA and must comply with the handbook. IF they carry it out then likely to be in breach of s19 FSMA

Solicitors may carry on exempt regulated activities without being directly regulated by the FCA provided they can meet conditions satisfied, in s327
Key conditions - ALL MUST BE SATISFIED.
- Person carrying on regulated activities must be a member of a profession
- Person must not receive a pecuniary reward from third party UNLESS accounts to client for money.
- Specified activity must be provided in a way that is incidental to provision of professional services
- Person must only carry out regulated activity which is he is permitted

Question 7

FSMA restrictions relating to share sales?

Answer 7

Sale of body corporate - very useful
SHARES CANNOT BE ISSUED WITHOUT A PROSPECTUS TO PUBLIC.