Introduction to Financial Services Regulation Flashcards
Q: Why are financial services regulated in the UK?
A) To increase business opportunities for solicitors
B) To protect consumers from negligent or dishonest advisers
C) To ensure all financial advice comes from solicitors
D) To encourage more investment in high-risk financial products
B) To protect consumers from negligent or dishonest advisers
Q: What is the main legislation governing financial services in the UK?
A) Companies Act 2006
B) Financial Services and Markets Act 2000 (FSMA)
C) Consumer Rights Act 2015
D) Solicitors Act 1974
B) Financial Services and Markets Act 2000 (FSMA)
Q: Which of the following is NOT a function of the Financial Conduct Authority (FCA)?
A) Supervising financial markets and protecting consumers
B) Approving authorised financial service providers
C) Investigating financial crime
D) Regulating professional legal conduct for solicitors
D) Regulating professional legal conduct for solicitors
Q: Under Section 19(1) FSMA, who can legally provide regulated financial services?
A) Anyone, as long as they act honestly
B) Only individuals with a law degree
C) Authorised persons (FCA/PRA approved) or exempt persons
D) Any solicitor with over five years of experience
C) Authorised persons (FCA/PRA approved) or exempt persons
Q: What is the consequence of carrying out regulated activities without FCA authorisation?
A) A fine but no further consequences
B) A criminal offence under FSMA
C) The firm must apply for FCA approval retroactively
D) A warning letter from the FCA
B) A criminal offence under FSMA
Q: Which of the following is a specified investment under Part III RAO?
A) A business lease agreement
B) A share in a public company
C) A simple contract for legal services
D) A private loan between friends
B) A share in a public company
Q: Which of the following is a specified activity under Part II RAO?
A) Providing legal advice on business structures
B) Dealing in investments (buying, selling, underwriting securities)
C) Assisting a client in drafting a will
D) Handling non-financial regulatory compliance
B) Dealing in investments (buying, selling, underwriting securities)
Q: Under Section 327 FSMA, when can solicitors provide financial services without FCA approval?
A) When the activity is incidental to legal work and not separately remunerated
B) When the client signs a waiver agreeing to the solicitor’s advice
C) When the solicitor registers with the Law Society
D) Only in corporate law matters
A) When the activity is incidental to legal work and not separately remunerated
Q: What is a key factor in determining if a solicitor’s financial activity is incidental?
A) The solicitor’s intent when offering the service
B) Whether the activity is minor relative to overall legal work
C) The value of the transaction involved
D) The complexity of the financial advice
B) Whether the activity is minor relative to overall legal work
Q: Which of the following requires FCA authorisation unless exempt?
A) Arranging a sale of company shares for a client
B) Providing general legal advice on corporate structuring
C) Explaining pension rights in a divorce case
D) Acting as an independent mediator in financial disputes
A) Arranging a sale of company shares for a client
Scenario: A solicitor advises a client to invest in a specific unit trust without FCA authorisation.
What is the potential consequence?
A) No issue, as the advice is part of their legal service
B) The solicitor commits a criminal offence under Section 19(1) FSMA
C) The FCA will require the solicitor to become authorised retroactively
D) The solicitor can continue advising if they provide a written disclaimer
B) The solicitor commits a criminal offence under Section 19(1) FSMA
Scenario: A solicitor handling a corporate sale assists the client in selling shares as part of the transaction.
Is this a regulated financial activity?
A) Yes, because share sales are always regulated
B) No, because it qualifies for exemption under Article 70 RAO
C) Yes, unless the solicitor is FCA-authorised
D) No, because corporate clients are not considered consumers
B) No, because it qualifies for exemption under Article 70 RAO
Scenario: A solicitor arranges a mortgage for a client purchasing a business property.
Does this activity require FCA approval?
A) Yes, because mortgages are regulated investments
B) No, because all business transactions are exempt
C) Yes, unless the mortgage is not for investment purposes
D) No, because mortgages are not considered financial services
A) Yes, because mortgages are regulated investments
Scenario: A solicitor’s firm markets itself as offering investment advisory services alongside legal advice.
What is the FCA likely to conclude?
A) The firm’s financial activity is not incidental and requires FCA approval
B) The firm can continue as long as it does not charge separately for financial advice
C) The firm is exempt because its main service is legal advice
D) The FCA has no authority over law firms
A) The firm’s financial activity is not incidental and requires FCA approval
Scenario: A solicitor helps a client manage an investment portfolio, making active investment decisions on their behalf.
Does this require FCA approval?
A) Yes, because investment management is a regulated activity
B) No, because solicitors can manage investments for clients
C) Yes, unless the solicitor does not charge a separate fee
D) No, if the solicitor does not advertise this service
A) Yes, because investment management is a regulated activity
Scenario: A solicitor buys and sells shares on behalf of a client as part of a business transaction.
What must the solicitor do?
A) Register with the FCA or ensure exemption applies
B) Continue as long as the client consents
C) Only proceed if the shares are privately held
D) Ensure the client signs a risk disclosure statement
A) Register with the FCA or ensure exemption applies
Avoiding Misrepresentation
Scenario: A law firm advertises itself as providing expert financial planning alongside legal services.
Why might this be an issue?
A) It may mislead clients and suggest the firm is an FCA-authorised financial provider
B) The firm can offer financial services under its law firm licence
C) It is acceptable as long as the firm does not charge separately for advice
D) The FCA does not regulate law firm marketing
A) It may mislead clients and suggest the firm is an FCA-authorised financial provider
Scenario: A solicitor helps a client manage and adjust their investment portfolio on an ongoing basis.
Why is this problematic?
A) It is classified as investment management, a regulated activity requiring FCA approval
B) It does not require FCA approval if the solicitor does not charge separately
C) It is permissible as part of corporate legal advice
D) The FCA only regulates retail investments
A) It is classified as investment management, a regulated activity requiring FCA approval
