FSMA 2000

Question 1

What are financial services?

Answer 1

• advising on investment products on behalf of clients
• dealing in investment products on behalf of clients
• arranging investment products on behalf of clients

Must be properly authorised to provide such services in the UK. Need FCA (financial conduct authority) approval.

• Financial Services and Markets Act 2000 (FSMA 2000)
• FSMA 2000 Regulated Activities Order (RAO)

Question 2

What is a regulated activity under FSMA?

Answer 2

General prohibition on regulated activities under s19(1)FSMA.

Regulated Activity = Specified Investment + Specified Activity

Question 3

Summary of FSMA steps

Answer 3

1) is the investment specified?

2) Is the activity specified?

3) is the activity excluded?

4) Does activity fulfil basic conditions in s. 327 of FSMA and SRA Scope Rule 2? yes - possible exemption, if no- need authorisation

Question 4

Is the investment specified?

Answer 4

includes:
- shares
- instruments of indebtedness (e.g. bonds)
- regulated mortgage contracts

Note: land is not a specified investment

Question 5

What is a specified activity?

Answer 5

• dealing in investments as principal or as agent (buying, selling, subscribing or underwriting)
• arranging deals in investments
• managing investments
• advising on [merits of] investments
• means giving opinion and recommendation as to a course of action
• giving generic advice such as legal rights attaching to classes of shares will not require FCA authorisation

Question 6

Exclusions under FSMA

Answer 6

• activities which are a ‘necessary part’
  e.g. when selling a flat and need to transfer share in a management company
• sale of a body corporate (50% or more)

Question 7

s327 basic conditions

Answer 7

• member of profession (eg solicitor)
• person must not receive commission from a third party unless he accounts to his client
• specified activity is incidental to the provision of professional services
• complies with relevant professional rules - SRA scope rules

Question 8

What is incidental?

Answer 8

Consider:

• scale of activity in proportion to other professional services at firm
• are these separate services to the ones offered by firm
• what is the firms impression of how it provides a regulated activity

Not incidental if: separate business in isolation to provision of professional service (although separate departments won’t count)

Question 9

SRA scope rules

Answer 9

Must ensure activity arises out of or is complementary to the provision of a particular professional service to a particular client.

• does it naturally arise out of the work the solicitor is doing for the client: if not the work is not complementary.