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SQE - FLK1 > Financial Services > Flashcards

Financial Services Flashcards

1
Q

What is the “general prohibition” created by the FSMA?

A

A person cannot carry on any regulated (investment-related) activity in the UK unless he is: (i) an AUTHORIZED person or (ii) EXEMPT from the authorisation requirement

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2
Q

What 5 sanctions follow on a breach of the general prohibition?

A
  1. Criminal offence
  2. Civil right for damages for private clients
  3. Agreements contravening prohibition will be unenforceable without court’s consent
  4. FCA may issue prevention order in respect of exempt professional firms if it considers them no longer fit and proper to carry out FS activities
  5. May face disciplinary action by SRA
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3
Q

4-stage test for whether an activity is regulated

A
  1. Carrying on BUSINESS?
  2. Specified INVESTMENT involved?
  3. Investment REGULATED under Part II RAO
  4. EXCLUSION applicable?
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4
Q

What is the most common precaution solicitors’ firms take to ensure compliance with the FSMA?

A

Take advantage of RAO exclusions or exemptions under the FSMA

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5
Q

When are bank and building society deposits captured by the FSMA?

A

When the activity involves the acceptance of deposits, that are then: (1) lent to others or (2) used to a material extent to finance an activity, then it becomes a regulated activity under the FSMA

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6
Q

3 examples of common “specified investments” captured by the FSMA?

A
  1. Securities
  2. Insurance contracts (with or without an investment element)
  3. Regulated Mortgage Contracts
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7
Q

Most common RAO exclusion for solicitors receiving a deposit?

A

Received by a PRACTISING SOLICITOR acting in the course of his PROFESSION

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8
Q

What are 2 common examples where solicitor’s work falls within an RAO exclusion even though they are dealing with investments as principal?

A
  1. Selling investments as a Professional Receiver during the winding up of a probate estate
  2. Solicitor is acting in a business capacity as the legal owner of the investment (e.g. as trustee)
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9
Q

What three criteria apply under the ATP RAO exclusion, allowing the solicitor to deal with an investment as agent?

A
  1. Carried out through an ATP
  2. Client is advised by an ATP OR solicitor has recommended client to seek advice from an ATP, so that solicitor is acting on an EXECUTION ONLY basis
  3. Firm accounts to client for any PECUNIARY REWARD or other advantage received
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10
Q

When is the specified activity of “arranging investments” most likely to implicate a solicitor’s work? 2 most common exceptions?

A

When negotiating or drawing the sale and purchase contract for the client.

Exception 1: Solicitor’s arrangement did not CAUSE the transaction to happen (depends how key solicitor was)

Exception 2: Solicitor simply INTRODUCED client to an ATP or EP for that person to provide independent financial advice

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11
Q

What exception do solicitors commonly rely on when managing investments (2 components)?

A
  1. Managing the investments under a POA
  2. All routine / day-to-day decisions relating to the regulated investments are undertaken by an ATP or EP
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12
Q

What exception do solicitors commonly rely on when safeguarding and administering investments?

A

A qualifying custodian (an ATP or EP) undertakes to safeguard and administer the assets for the owner

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13
Q

When does a solicitor’s provision of advice on investments become a specified activity (3 points)?

A

Where: (1) the recipient is a current or potential INVESTOR; (2) the advice touches on the MERITS of the transaction; and (3) the advice concerns a SPECIFIC investment

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14
Q

When are solicitors most likely to carry on the specified activities of “arranging or advising on RMCs”? What significant RMC-related activity is exempt from the scope of this activity?

A

When circulating, advising on or negotiating a mortgage deed.

This activity does NOT cover arranging or advising on the discharge or redemption of the client’s existing RMC

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15
Q

Why is a law firm instructed by a bank to enforce a mortgage not carrying on a specified activity when implementing those instructions?

A

If the solicitor is administering an RMC pursuant to an agreement with an ATP, this is an RAO exclusion

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16
Q

2 criteria for a solicitor to rely on the “dealing as principal” exception as trustee? What is the effect of the exception

A
  1. Acting as a BARE TRUSTEE, merely acting on the other person’s instructions
  2. Does not hold himself out as PROVIDING A SERVICE in the sale or purchase of securities or other contractually-based investments

Exception permits the solicitor to collect additional remuneration for carrying this work

17
Q

What is the scope of the “reasonably necessary” exception? Important precaution?

A

Where the specified activity may REASONABLY be regarded as a NECESSARY part of other services provided in the course of a business that DOES NOT OTHERWISE CONSIST OF REGULATED ACTIVITIES

Cannot be separately remunerated: meaning you should not separately reflect time spent on this work in your bill.

18
Q

There is a RAO exclusion where a law firm or solicitor carries out specified activities “in connection with the sale or purchase of a body corporate”. When will this exception apply?

A

Where as a result of the transfer, the transferee either: (1) acquires 50% or more of the voting shares or (2) reasonably can be regarded as having the objective of acquiring day-to-day control of the company

19
Q

When insurance contracts are concerned, which 2 activities have no RAO exclusions?

A
  1. Dealing in IDAs as an agent.
  2. Advising on IDAs
20
Q

What is the effect of an RAO exclusion on a solicitor’s work?

A

Where an exclusion applies, the investment activity becomes an excluded activity outside the scope of the FSMA restrictions, so the solicitor does not need to be an ATP or EP in order to conduct it

21
Q

What are the four criteria considered by the FCA when considering an application for Part IV permission?

A
  1. Legal status
  2. Office location
  3. Resource adequacy
  4. Suitability (“fit and proper person”)
22
Q

What document signifies a formal grant of Part IV permission?

A

The Scope of Permission Notice

23
Q

What are the 3 independent grounds on which the FCA can vary or cancel permission?

A
  1. Firm failed to satisfy a threshold condition
  2. Firm likely to fail to satisfy a threshold condition
  3. Firm failed in the last 12 months to carry on a regulated activity to which the permission relates
24
Q

2 criteria to be an exempt person?

A
  1. The firm’s investment business activities are: (1) INCIDENTAL to their main professional business or (2) DO NOT REQUIRE FCA PROTECTION for reasons of investor protection or market integrity
  2. The firm is supervised by a Designated Professional Body
25
Q

3 basic conditions for a transaction to satisfy the basic conditions for exemption?

A
  1. Regulated activity ARISES OUT OR IS COMPLEMENTARY to the legal work carried out for the client under the retainer
  2. Regulated activity is INCIDENTAL to the legal work (in terms of times and fees)
  3. Solicitor ACCOUNTS to the client for any commission, however small
26
Q

4 additional requirements for solicitor’s firms to achieve exemption while handling IDAs?

A
  1. Register in Financial Services Register
  2. Appointed an insurance distributon officer
  3. Notifies SRA in the prescribed form, with an ongoing duty of disclosure if information changes
  4. Constitutes an “ancillary insurance intermediary”
27
Q

3 conditions to be an “ancillary insurance intermediary”?

A
  1. PRINCIPAL professional activity is not insurance distribution
  2. Only distributes certain insurance products that are COMPLEMENTARY to a good or service
  3. Do not cover LIFE ASSURANCE OR LIABILITY risks unless complementary to the good or service which the intermediary provides as its principal professional activity
28
Q

What is the definition of a Financial Promotion under the FSMA (I-B-I)?

A
  1. Communicating an INVITATION or INDUCEMENT
  2. In the course of BUSINESS
  3. To engage in INVESTMENT ACTIVITY (which concerns either a CONTROLLED ACTIVITY or rights under CONTROLLED INVESTMENTS)
29
Q

5 requirements for a law firm to conduct real time financial promotions?

A
  1. Made to the CLIENT
  2. FIrm is carrying on a REGULATED activity WITHOUT AUTHORISATION
  3. Client has engaged firm to PROVIDE PROFESSIONAL SERVICES prior to the communication
  4. Firm carries on the controlled activity to which the communication relates FOR THE PURPOSE OF, AND INCIDENTAL TO, the provision of professional services
  5. Controlled activity is EXEMPT or excluded from regulation as a NECESSARY PART OF PROFESSIONAL SERVICES
30
Q

3 requirements for a law firm to conduct non real time financial promotions?

A
  1. Firm is carrying on EXEMPT REGULATED ACTIVITY
  2. Promotion makes a SPECIFIC STATEMENT and is LIMITED IN CONTENT
  3. Promotion sets out AUTHORISED DISCLAIMER (stating that they are not authorised under FSMA 2000 but can provide certain investment services if incidental to their professional engagement)

SQE - FLK1 (21 decks)

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