Financial services

Question 1

What is the s.19 FSMA general prohibition?

Answer 1

Nobody can carry out a regulated activity unless they are authorised or exempt

Question 2

What is a “regulated activity”?

Answer 2

An activity of a specified kind carried out by way of business, and relating to a specified investment or property of any kind

Question 3

4 tests for deciding whether an activity is “regulated”:

Answer 3

1. carried on “in business”?
2. is it a “specified investment”?
3. is there a “specified investment activity”?
4. is there an exclusion?

Question 4

Examples of “specified investments”:

Answer 4

• 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

Question 5

What is NOT a “specified investment”?

Answer 5

• interest in land,
• some National Savings Products

Question 6

Is a solicitor giving a client time to pay a “specified investment” (credit agreement)?

Answer 6

No, as long as number of repayments is max. 12, it does not exceed 12 months, and there is no interest/charges

Question 7

What are “specified investment activities”?

Answer 7

• dealing as agent,
• arranging,
• managing,
• safeguarding,
• advising

Question 8

Exclusions

Answer 8

• introducing,
• using an authorised third person (ATP)
• execution-only,
• acting as a trustee/PR,
• activities carried out in course of a profession,
• takeover exclusion

Question 9

When does the “activities carried out in course of a profession” exclusion apply?

Answer 9

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

Question 10

When does the “takeover” exclusion apply?

Answer 10

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”

Question 11

Which exclusions apply to “dealing as an agent”?

Answer 11

• using an authorised third person (ATP),
• execution-only,
• professional/necessary,
• takeover

Question 12

Which exclusions apply to “arranging”?

Answer 12

ALL of them

Question 13

Which exclusions apply to “advising”?

Answer 13

• acting as a trustee/PR,
• professional/necessary,
• takeover exclusion

Question 14

Which exclusions apply to “advising”?

Answer 14

ONLY acting as trustee/PR

Question 15

Which exclusions apply to “safeguarding”?

Answer 15

ONLY
- acting as trustee/PR,
- professional/necessary

Question 16

What is the effect of an exclusion applying to a “specified investment activity”?

Answer 16

The activity is NOT regulated

Question 17

What is the effect of the exemption for professional firms applying?

Answer 17

The activity is still regulated, but the solicitor can carry it out

Question 18

Conditions for the exemption for professional firms to apply:

Answer 18

• 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

Question 19

2 tests for an activity being “incidental”

Answer 19

1. specific test: the activity must arise out of another service being provided, and supplied to the same client
2. general test: the activity cannot be a major part of the firm’s services

Question 20

What is insurance distribution?

Answer 20

Essentially any work relating to contracts of insurance (including advising on them)
Doing anything relating to insurance is a “specified investment activity”

Question 21

How can a solicitor carry out work related to insurance?

Answer 21

Rely on the s.327 exemption for professional firms (exclusions to regulation very unlikely to apply)

Question 22

What is the financial promotions restriction?

Answer 22

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

Question 23

Test for whether the financial promotions restriction applies:

Answer 23

1. is there a communication?
2. is the communication an invitation/inducement (must be a promotional element)?
3. is there an “investment activity”?
4. is the communication made in the course of business?
5. is the communication exempted?

Question 24

One-off promotions exemption applies if:

Answer 24

There are reasonable grounds to believe the client:
- understands the risks,
- expected to be contacted about that investment

Question 25

Introducer exemption applies if:

Answer 25

1. solicitor is not connected to the authorised third person carrying out the controlled activity,
2. solicitor receives no reward for the introduction, and
3. client is not seeking/has been denied advice by the solicitor on the merits of the investment