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FSMA 2000 Flashcards

1
Q

What is the takeover exclusion?

A

The takeover exclusion (as set out in the Regulated Activities Order 2001) applies to a transaction to acquire or dispose of shares in a body corporate if the shares include ‘50% or more’ of the voting shares and is ‘between parties each of whom is a body corporate, a partnership, a single individual or a group of connected individuals’.

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2
Q

How are financial services regulated in the UK?

A

Two regulators: Prudential Regulation Authority and the Financial Conduct Authority

PRA: subsidiary of the Bank of England and is responsible for the prudential supervision of deposit takers, insurers and a small number of significant investment firms

FCA: responsible for the conduct of business, supervision of PRA and FCA firms and the prudential regulation of firms not regulated by the PRA (including law firms carrying out work relating to financial services)

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3
Q

Can a law firm give financial advice?

A

This is governed by FSMA 2000 (financial and markets act 2000).

One of the key principles established by FSMA is that you may not carry out a regulated activity in the UK unless you are:
- authorised or
- exempt

Criminal offence to breach FSMA.

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4
Q

What is step 1 of the FSMA decision tree?

A
  1. Is there a specified investment?
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5
Q

What is step 2 of the FSMA decision tree?

A
  1. Is there a specified activity?
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6
Q

What is step 3 of the FSMA decision tree?

A

Is there an exclusion available?

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7
Q

What is step 4 of the FSMA decision tree?

A

Can both a s327 FSMA and SRA Scope Rule 2 be satisfied?

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8
Q

What is a regulated activity under FSMA 2000?

A

Regulated Activity = Specified Investment + Specified Activity

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9
Q

What are the specified investments under FSMA 2000?

A
  • Rights under a contract of insurance
  • Shares in a company
  • Instruments creating or acknowledging indebtedness
  • Government and public securities
  • Rights under a pension scheme
  • Regulated mortgage contracts (at least 40% of the land is for residential purposes)

Note: land is not a specified investment

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10
Q

What are specified activities under FSMA 2000?

A
  • Dealing in investments as principal or as agent: buying, selling, subscribing or underwriting securities or contractually based investments
  • Arranging deals in investments
  • Managing investments
  • Advising on [the merits] of investments
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11
Q

What is meant by advising on the merits?

A
  • Giving advice requiring an element of opinion
  • A recommendation as to a course of action

Must be for a particular investment (not generic advice relating to investing in China vs Europe)

A solicitor giving generic advice on investments will not require FCA authorisation

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12
Q

What are the exclusions available under FSMA 2000

A
  • Necessary part exclusion
  • Sale of a body corporate
  • Authorised persons
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13
Q

What is the necessary party exclusion?

A

Where it would not be possible for the other services to be provided unless the dealing/arranging/advising is also provided.

Example: selling a leasehold flat might also involve the transfer of shares in a management company or the company that owns the freehold of the block of flats - arranging the sale of these shares would be a necessary part of the other property work the solicitor is carrying out.

DOES NOT apply to contracts of insurance

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14
Q

Exclusion: sale of a body corporate

A

Will be excluded if:

  • shares consist or include 50% or more of the voting shares
  • the shares together with any shares already held by the purchaser consist of or include 50% or more of the voting shares in the company
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15
Q

Exclusion: dealing in investments as agent

A

A solicitor will not be dealing in investments/arranging deals in investments if he enters into a transaction as agent for his client with or through an authorised person provided:

  • the transaction is entered into on the advice of the authorised person

OR

  • it is clear that the client is not seeking and has not sought advice from the solicitor as to the merits of entering into the transaction

DOES NOT APPLY to contracts of insurance or if the solicitor receives a commission from any other person for which he does not account to the client

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16
Q

What is the exemption under s327 FSMA?

A

Solicitors may carry on exempt regulated activities without being directly regulated by the FCA provided they can meet the conditions of s327:

  • the person carrying on the regulated activities must be a member of a profession (eg solicitor)
  • the person must not receive a pecuniary award in respect of the regulated activities (can only keep with client’s consent)
  • the specified activity must be provided in a way that is incidental to the provision of professional services
  • person must comply with rules set by relevant designated professional body (the SRA)
17
Q

What is meant by incidental?

A

Must look at the overall work the firm does - is the specified activity the solicitor is being asked to do a small part of what the firm does for clients overall?

18
Q

Examples of legal work where regulated activities might arise out of or be complementary

A

Property work: giving legal advice, drafting documents and undertaking a conveyancing transaction involving a regulated mortgage

Corporate work: giving legal or tax advice, drafting documents to effect the sale of shares or other specified investments

Litigation work: giving legal or tax advice, drafting documents and dealing with court proceedings where regulatory matters are involved

18
Q

What are the SRA scope rules?

A
  • activity must arise out of or is complementary to the provision of a particular service to a particular client
19
Q

What is the restriction on financial promotions?

A

Criminal offence for an authorised person to communicate a financial promotion unless an authorised person has approved its contents or a relevant exemption applies.

May catch solicitors advising on share sales who are often involved in producing documents that constitute an invitation to engage in investment activity eg memorandum where the shares are being sold at an auction.

Three exceptions:
- Sale of a body corporate: 50% or more
- Investment professionals: only distributed to
- High net worth: only distributed to

20
Q

Restriction on financial promotions: Sale of a body corporate exception

A

Exemption where the communication relates to a transaction to acquire 50% or more of the shares (or purchaser will hold 50% or more of such shares) or day to day control of the company

21
Q

What are the exceptions for getting a prospectus approved by the FCA?

A

It is a criminal offence to offer shares to the public in the UK without issuing a prospectus approved by the relevant authority unless:

  • Offer is made to or directed at fewer than 150 persons
  • The offer is sent only to qualified investors (banks, investment institutions and national and regional governments)

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