Financial Services Regulation Flashcards
Chapter 4
What is the primary legislation governing financial services and markets?
The Financial Services and Markets Act 2000 (FSMA 2000). This act provides a general framework, with more specific details found in secondary legislation.
What are the main regulatory bodies for financial services?
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), both established under the Financial Services Act 2012. The Financial Policy Committee also monitors the stability of the UK financial system.
hat are the FCA’s objectives?
○ Securing an appropriate degree of protection for consumers.
○ Protecting and enhancing the integrity of the UK financial system.
○ Promoting effective competition in the interests of consumers.
What is the general prohibition under FSMA 2000?
No person may carry on a regulated activity in the UK unless authorised or exempt. It is a criminal offense to do so without authorization or exemption.
What are the four tests to determine if an activity is regulated?
○ Are you in business?
○ Is there a specified investment or does the activity relate to a person’s financial standing or administering a benchmark?
○ Is there a specified activity?
○ Is there an exclusion?
What are some examples of specified investments?
○ Company stocks and shares (with exceptions)
○ Debentures, loan stock and bonds
○ Government securities
○ Unit trusts and open-ended investment companies (OEICs)
○ Insurance contracts
○ Regulated mortgage contracts
○ Home reversion/home purchase plans
○ Deposits
○ Credit agreements (with some exceptions)
What are some examples of specified investment activities?
○ Dealing as agent
○ Arranging
○ Managing
○ Safeguarding
○ Advising
○ Lending money on/ administering a regulated mortgage contract
What are some exclusions to regulated activities that may apply to solicitors?
○ Introducing
○ Using an Authorised Third Party (ATP)
○ Acting for an execution-only client
○ Acting as trustee or personal representative
○ The ‘professional/necessary’ exclusion
○ The ‘takeover’ exclusion
What is the Section 327 exemption for professional firms?
An exemption from needing FCA authorization for firms regulated by a Designated Professional Body (DPB) like the SRA, allowing them to conduct certain regulated activities incidental to their professional services.
What are the key conditions for the Section 327 exemption?
○ The firm must not receive a benefit from a third party that is not accounted to the client.
○ The regulated activity must be incidental to the provision of professional services.
○ The firm must only carry out regulated activities permitted by the DPB.
○ The activities must not be prohibited by the Treasury or the FCA.
○ The firm must not carry out other regulated activities.
What is the financial promotions restriction?
An unauthorised person cannot, in the course of business, communicate an invitation or inducement to engage in investment activity unless the promotion has been made or approved by an authorized person or it is exempt.
What are the tests to determine whether a communication is a financial promotion?
○ Is a communication being made?
○ Is the communication an invitation or inducement?
○ Is there an investment activity?
○ Is the communication made in the course of a business?
○ Does the communication fall within one of the exemptions?
