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Legal Services > Financial Services > Flashcards

Financial Services Flashcards

1
Q

What are regulated activities under FSMA?

A
  • dealing in investments
  • arranging deals in investments
  • managing investments
  • advising on the merits of investments
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2
Q

What are the consequences of carrying out a regulated or specified activities without authorisation or exemption?

A

Potential criminal offence

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3
Q

What is a regulated activity under FSMA?

A

It is specified investment and specified activity

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4
Q

What steps should be taken in assessing if activity will be in breach of FSMA?

A

1) Is the investment ‘specified’ under FSMA?

2) Is the activity a ‘specified activity’ under FSMA?

3) Is the Activity excluded under FSMA?

4) Does the activity fulfil the basic conditions in s 327 of FSMA and SRA scope rule 2?

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5
Q

What are examples of specified investments under FSMA?

A
  • rights under a contract of insurance
  • shares in a company
  • instruments creating or acknowledging indebtedness
  • government and public securities
  • rights under a pension scheme
  • regulated mortgage contracts
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6
Q

What situations are likely covered by regulated mortgages and what are not?

A

Typical home buyer’s mortgage but not loan to buy an office or loans to companies

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7
Q

What are specified activities?

A
  • dealing in investments
  • arranging deals in investments
  • managing investments
  • advising on the merits of investments
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8
Q

What is advising on the merits?

A
  • giving advice requiring an element of opinion and
  • a recommendation as to a course of action
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9
Q

What will not be covered by advising on the merits of an investment?

A
  • giving generic advice
  • giving information
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10
Q

What are the three most relevant exclusions under FSMA for the work of solicitors?

A
  • regulated activities that are a necessary part of other services carried on in the course of a profession
  • regulated activities in connection with the sale of a body corporate
  • authorised persons
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11
Q

What conditions must be met for the necessary part exclusion to apply?

A

Activities are

  • carried on in the course of carrying on any profession or business which does not otherwise consist of the carrying on of the regulated activities in the UK and
  • may reasonably be regarded as a necessary part of other services provided in the course of that profession or business
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12
Q

When will the necessary part exclusion not apply (to do with remuneration)?

A

When it is remunerated separately from the other services

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13
Q

What is the FCA’s view on when something will be a necessary part of other services?

A

When it is not possible for the other services to be provided unless the dealing/arranging/advertising is also provided

Eg sale of leasehold flat which comes with share of management company

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14
Q

What is the body corporate exclusion?

A

Solicitors will not be in breach of FSMA if such activity is carried out in connection with the purchase or sale of shares in a company (if the transaction to buy or sell the shares is entered into for the purposes of buying or selling shares, provided that:

  • shares consist of 50% or more of the voting shares in the company AND the acquisition or disposal is between parties each of whom is a body corporate, partnership, single individual or a group of connected individuals or
  • the shares, together with any shares already held by the purchaser, consist of or include 50% or more of the voting shares in the company AND the acquisition or disposal is between the parties each of whom is a body corporate, partnership, single individual or a group of connected individuals or
  • the object of the transaction may reasonably be regarded as being the acquisition of day-to-day control of the affairs of the body corporate
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15
Q

When will the dealing with or through authorised persons exclusion apply?

A

When the solicitor enters into a transaction as agent for his client with or through an authorised person, provided:

  • the transaction is entered into on the advice of the authorised person

OR

  • it is clear that the client is not seeking and has not sought advice from the solicitor as to the merits of entering into the transaction
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16
Q

When will the arranging deals with or through authorised persons exemption apply?

A

If solicitor enters into a transaction as agent for his client with or through an authorised person, provided:

  • the transaction is entered into on the advice of the authorised person

OR

  • it is clear that the client is not seeking and has not sought advice from the solicitor as to the merits of entering into the transaction (or solicitor refused to give such advice and recommended they got authorised person to advise)
17
Q

When do the authorised person exceptions do not apply when?

A
  • transaction relates to a contract of insurance
  • if solicitor receives a commission from any other person for which he does not account to the client for
18
Q

What will the solicitor need to be in order to carry out regulated activity under FSMA?

A
  • directly authorised ie where firm is authorised by FCA directly and complies with the FCA handbook or
  • supervised by a designated professional body - Law Society is our DPB through the SRA.
19
Q

If the firm is carrying out exempt regulated activities, what rules must they follow?

A

Not FCA under FSMA but SRA’s rules in relation to exempt regulated activities

20
Q

What will happen if a firm is carrying out a regulated activity?

A

Will need authorisation from FCA directly and will have to comply with FCA handbook

21
Q

What conditions must apply for solicitors to be able to carry out exempt regulated activities without being directly regulated by the FCA?

A
  • person carrying on the regulated activities must be a member of a profession
  • that person must not receive a pecuniary reward (eg commission) from a third party in respect of the regulated activity unless he accounts to his client for the commission
  • the specified activity must be provided in a way that is incidental to the provision of professional services and
  • the person must only carry out regulated activities which he is permitted to carry out as a result of s 332(3)
22
Q

When will a provision of exempt regulated activity be incidental to firm’s business?

A

When it does not form major part of the practice of the firm.

Factors of relevance:

1) scale of regulated activity in proportion to other professional service provided

2) whether and to what extent activities that are regulated are held out as separate services

3) the impression given of how the firm provides regulated activities

23
Q

What are the basic conditions under SRA scope rule 2 which must be met for a solicitor to carry out exempt regulated activities?

A
  • activities must arise out of, or are complementary to, the provision of a particular professional service to a particular client
  • there is no order or direction from FCA preventing you from carrying out the activity
  • activities are not otherwise prohibited
24
Q

When will exempt regulated activities by complementary?

A

When it arises naturally out of the work the solicitor is doing for the client

25
Q

What restriction is there on financial promotions (eg prospectus for sale of shares)?

A

Criminal offence for unauthorised person to communicate a financial promotion unless an authorised person has approved its contents or a relevant exemption applies.

Under FSMA authorised person will need permission of the FCA to approve prospectus

26
Q

What is the sale of a body corporate exemption for not getting authorised person and FCA to approve prospectus?

A

Applies where transaction is to acquire or dispose of shares in a body corporate AND

  • the shares consist of 50% or more of the voting shares in the body corporate OR
  • the shares together with those already held by the purchaser consist of at least 50% of such shares AND
  • ## the acquisition or disposal is between parties each of whom is a body corporate, partnership, single individual or group of connected individualsOR
  • the subject of the transaction is to acquire day to day control of the company AND
  • the acquisition or disposal is between parties each of whom is a body corporate, partnership, single individual or group of connected individuals
27
Q

What is the exemption in relation to investment professionals and high net worth for not getting authorised person and FCA to approve prospectus?

A

Ensuring the memorandum is only distributed to persons believed to fall within one of exemptions:

  • investment professionals
  • high net worth companies
  • high net worth individuals
28
Q

What are the two exemptions to getting a prospectus approved by FCA?

A
  • offer is directed at fewer than 150 people
  • offer is sent to qualified investors

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