Introduction to Financial Services Regulation Flashcards
What are ‘financial services’?
- Advising on investment products on behalf of clients
- Dealing in investment products on behalf of clients
- Arranging investment products on behalf of clients
What is key statute governing Financial Services?
Financial Services and Markets Act 2000 (FSMA)
What are the key regulators of Financial Services?
Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA)
What does s19(1) FSMA outline?
No person may carry on a regulated activity in the UK … unless he is:
a) Authorised person
b) Exempt person
What is Regulated Activity?
Specified investment + Specified activity
What are the steps to consider in financial services?
1) Is the investment specified? If yes,
2) Is the activity specified? If yes,
3) Is the activity excluded? If no,
4) Does activity fulfil basic conditions?
a. If yes – exemption possible
b. If no – authorisation is required
What falls within specified investments?
- Shares
- Instruments creating / acknowledging indebtness (bonds)
- Regulated mortgage contracts
Which falls within specified activity?
- Dealing in investments as principal or as agent (buying, selling underwriting securities or contractually based investments)
- Arranging deals in investments
- Managing investments
- Advising on investments
Is giving generic advice specified activity?
Not generally
What are the elements of specified activity?
- Element of opinion on part of solicitor
- Recommendation as to a course of action
What must specified activity relate to?
- Buying, selling, subscribing for, exchanging, redeeming, holding or underwriting specified investments
Is a solicitor wrong if he says, this class of shares is better to invest in that that class of shares?
No, unless he says, XYZ Plc shares are a better investment than YMB Ltd
What are two general exclusions under FSMA?
1) Activities that are necessary part of other services
2) Regulated activities in connection with the sale of a body corporate
What is an example of necessary part of services in financial services?
Selling a leasehold flat, transaction might involve transfer of share.
What falls within regulated activities in connection with the sale of a body corporate?
1) Share consists of 50% or more voting shares
2) Object of transaction regarded as acquisition of day-to-day control of the affairs of body corporate
If FSMA applies, what should solicitor do?
Not act unless directly authorised, or supervised by a designated professional body
What are the basic conditions specified by s327 FSMA in order for regulated activities to be exempt?
1) Person is member of a profession (i.e. solicit0r)
2) Person must not receive commission from third party (unless he tells client)
3) Specified activity is incidental to provision of professional services
4) Person must comply with rules set out by relevant designated body (the Scope Rules for the SRA)
When is financial activity ‘incidental’?
Must not amount to a separate business conducted in isolation from the provision of their professional services
What is a further condition outlined by SRA in the Scope Rules on Financial Services Regulation?
Another condition for exemption is that activity is complementary to the provision of a particular professional service to client (i.e., can’t be a freehold transaction giving advice about pension)
