Financial services

Question 1

what is the general prohibition (s19)

Answer 1

no person can carry on a regulated activity in the UK unless they are authorised or exempt

Question 2

who is an authorised person

Answer 2

individuals or entities who have permission from FCA

Question 3

what is the penalty for breach of general prohibition

Answer 3

criminal offence

up to 2 years imprisonment or unlimited fine

agreements may be unenforceable

Question 4

what is the financial promotions restriction under s21

Answer 4

unauthorised persons cannot make a financial promotion

Question 5

what is the general prohibition under s19 FSMA

Answer 5

Businesses carrying out regulated activities must be authorised by an appropriate regulator (FCA) OR fall within the provision for professional firms

Question 6

what are the 4 tests to see if an activity is regulated

Answer 6

1. is it a business?
2. is there a specified investment?
3. is there a specified investment activity?
4. is there an exclusion?

Question 7

what is a specified investment

Answer 7

basically any investment NOT interests in land OR National Savings products

Question 8

what is a specified investment activity

Answer 8

• dealing as agent
• arranging
• managing
• safeguarding
• advising
• lending money on/administering a regulated mortgage contract

Question 9

dealing as agent

Answer 9

• Sol buys, sells, subscribes or underwrites investments on behalf of a client
• commits the client to transaction

Question 10

arranging

Answer 10

• sol acts as link btw client and financial institution

Question 11

managing

Answer 11

• discretionary management only
• sol makes investment decisions on behalf of client
• e.g. where sol acts as trustee or pR

Question 12

safeguarding

Answer 12

• sol holds and administers investments for a client

Question 13

advising

Answer 13

• giving advice on merits of specific investments
• generic advice NOT regulated

Question 14

what is the effect of an exclusion

Answer 14

act which would otherwise be a regulated activity is NOT considered a regulated activity

Question 15

introducting

Answer 15

for: arranging

sol introduces client to authorised person and has no further involvement (cannot act as a mediator)

Question 16

ATP exclusion

Answer 16

for: dealing as agent and arranging

when transaction is carried on based on the advice of an authorised third person - financial advice given by ATP not sol

Question 17

when does ATP not apply

Answer 17

where sol receives comission and does not account to client

Question 18

execution only

Answer 18

for: dealing as agent and arranging

client has not sought advice from sol regarding merits or sol declined to five

Question 19

when does execution only not apply

Answer 19

when sol has received comission or reward not from the client

Question 20

trustees or PRs

Answer 20

for: arranging, managing, safeguarding, administering

sols acting as trustees or PRs

Question 21

professional/necessary exclusion

Answer 21

for: advising, arranging, safeguarding, dealing as agent

must be necessary part of other services provided in that profession (not possible to deliver other services w/o performing the regulated activity)

Question 22

takeover excl

Answer 22

for: arranging, advising, dealing as agent

transactions to acquire or dispose of shares in a body corporate where:
- shares are 50% or more of voting shares
- between parties who are within the body corporate, a partnership or group of connected individuals

Question 23

what do the exclusions not apply to?

Answer 23

insurance contracts

Question 24

what is the exemption for professional firms

Answer 24

can conduct certain regulated financial activities without needing FCA authorisation provided they are regulated by designated professional body (here SRA)

Question 25

requirements for exemption:

Answer 25

1. activity must arise out of or be complementary to the professional service
2. must be incidiental to the legal service
3. must account for any reward
4. must carry out regulated activities permitted by the DPB
5. cannot be prohibited by treasury
6. not carry out any other regulated activities

Question 26

what is the specific test

Answer 26

relates to that particular client:
* arise or be complementary to the professional service provided to the client
* regulated activity must be linked to the legal service
* legal service must be primary and regulated activity must be incidental
* legal and regulated activity must be provided to same client

Question 27

what is the general test

Answer 27

relates to firms overall activities:
* proportion of regulated activities compared to other services
* how the regulated activities are represented
* impression from advertising

Question 28

can the 327 exemption be used for firms authorised by FCA

Answer 28

NO

Question 29

What is the test to determine whether a communication contravenes financial promotion restriction

Answer 29

1. Is a communication being made?
2. Is the communication an invitation or inducement?
3. Is there an investment activity?
4. Is the communication made in the course of a business?