Financial services Flashcards
What is the s.19 FSMA general prohibition?
Nobody can carry out a regulated activity unless they are authorised or exempt
What is a “regulated activity”?
An activity of a specified kind carried out by way of business, and relating to a specified investment or property of any kind
4 tests for deciding whether an activity is “regulated”:
- carried on “in business”?
- is it a “specified investment”?
- is there a “specified investment activity”?
- is there an exclusion?
Examples of “specified investments”:
- stocks + shares (except shares in open-ended investment company/building society)
- debentures, loan stock and bonds,
- government securities,
- unit trusts,
- insurance contracts,
- regulated mortgage contracts,
- deposits,
- credit agreements
What is NOT a “specified investment”?
- interest in land,
- some National Savings Products
Is a solicitor giving a client time to pay a “specified investment” (credit agreement)?
No, as long as number of repayments is max. 12, it does not exceed 12 months, and there is no interest/charges
What are “specified investment activities”?
- dealing as agent,
- arranging,
- managing,
- safeguarding,
- advising
Exclusions
- introducing,
- using an authorised third person (ATP)
- execution-only,
- acting as a trustee/PR,
- activities carried out in course of a profession,
- takeover exclusion
When does the “activities carried out in course of a profession” exclusion apply?
If the activity is part of the profession and may be reasonably regarded as a necessary part of the other services provided by that profession (the other services cannot be provided without the regulated activity)
BUT: the regulated activity cannot be remunerated separately
When does the “takeover” exclusion apply?
Applies to transactions to acquire/dispose of shares in a public or private company, if:
- shares include at least 50% of the voting shares in the company, and
- the acquisition/disposal is between parties who are both companies/partnerships/individuals/group of “connected individuals”
Which exclusions apply to “dealing as an agent”?
- using an authorised third person (ATP),
- execution-only,
- professional/necessary,
- takeover
Which exclusions apply to “arranging”?
ALL of them
Which exclusions apply to “advising”?
- acting as a trustee/PR,
- professional/necessary,
- takeover exclusion
Which exclusions apply to “advising”?
Acting as trustee/PR, professional/necessary, takeover exclusion
Which exclusions apply to “safeguarding”?
ONLY
- acting as trustee/PR,
- professional/necessary
What is the effect of an exclusion applying to a “specified investment activity”?
The activity is NOT regulated
What is the effect of the exemption for professional firms applying?
The activity is still regulated, but the solicitor can carry it out
Conditions for the exemption for professional firms to apply:
- firm cannot receive a reward from anyone but the client, or must account to the client for it,
- activity must be “incidental” to providing its professional services,
- activity must be permitted by DPB,
- activity cannot be prohibited by Treasure/FCA direction,
- firm cannot carry on any other regulated activity
2 tests for an activity being “incidental”
- specific test: the activity must arise out of another service being provided, and supplied to the same client
- general test: the activity cannot be a major part of the firm’s services
What is insurance distribution?
Essentially any work relating to contracts of insurance (including advising on them)
Doing anything relating to insurance is a “specified investment activity”
How can a solicitor carry out work related to insurance?
Rely on the s.327 exemption for professional firms (exclusions to regulation very unlikely to apply)
What is the financial promotions restriction?
Cannot in the course of business communicate an invitation/inducement to engage in investment activities, unless the promotion is made/approved by an FCA-authorised person
Test for whether the financial promotions restriction applies:
- is there a communication?
- is the communication an invitation/inducement (must be a promotional element)?
- is there an “investment activity”?
- is the communication made in the course of business?
- is the communication exempted?
One-off promotions exemption applies if:
There are reasonable grounds to believe the client:
- understands the risks,
- expected to be contacted about that investment
Introducer exemption applies if:
- solicitor is not connected to the authorised third person carrying out the controlled activity,
- solicitor receives no reward for the introduction, and
- client is not seeking/has been denied advice by the solicitor on the merits of the investment
