Legal Services 2 - FSMA Flashcards
Source materials
Main is FSMA 2000.
Secondary legislaiton;
FMSA 2000 (Regulated Activities)
FMSA Act 2000 (Professions) (Non-exempt activities)
FMSA Act 2000 (Financial Promotions)
FMSA Act 2000 (Prudential Regulation Authority-Regulated Activities)
Materials
SRA financial services (Scope Rules)
SRA financial services (Conduct of Business Rules)
Regulatory structure
FCA and Prudential Regulation Authority
FCA
Undertake market regulatory function and prudential regulation of firms not covered by PRA
FCA objectives
Securing appropriate degree of protection for consumers
protecting and enhancing integrity of financial system
promoting effective competition.
Can require firms to withdraw or amend misleading premonitions.
PRA
Subsidiary of BofE.
Regulation of firms which manage significant financial risks. building societies, credit unions, investment firms and Lloyds of London.
Dual-firms as also done by FCA.
General framework -
regulated activities need to be authorised by appropriate regulator.
Solicitors will be FCA.
Need for authority
Two main restrictions
-carrying out regulated activity
-making a financial promotion.
Must be authorised or exempt/
Up to two years imprisonment or unlimited fine.
Criminal offence to make unauthorised financial promotion
Regulated activity?
Four tests -
In business?
Specified investments
-company stocks and shares (but not shares in share capital of open-ended investment)
-debentures, loan stock and bond
-government securities
-OEICS (similar to unit trusts but use company structure)
-insurance contracts
-regulated mortgage contracts
-home reversion/home purchase plans
-deposits (cash ISAs) *only accepting deposits. Sums received in business exempt.
-credit arrangements (exempt if does not exceed 12 repayments to solicitor)
Not relevant - interests in land or national savings products.
Specified investment activities -
Dealing as agent;
buying, selling subscribing or underwriting investments on behalf of client
Arranging -
involved as contact between
Managing -
active participation beyond mere holding of investments. Only involving exercise of discretion.
E.g acting as a PR.
Safeguarding -
safeguarding and administering investments
Advising -
on merits of buying, selling, subscribing.
Must be about specific investment.
Exclusions
(act regarded as regulated no longer regarded as such, does not need to be authorised)
Introducing -
only to arranging.
Must simply introduce client to authorised person and have no further role.
Authorised third persons -
transaction entered into on advice from ATP. Cannot rely if gets pecuniary award or other advantage.
Not apply if insurance contract.
Execution-only client exclusion
only to agent and arranging.
Advice not been sought by solicitor.
Trustees or PRs-
acting as not for.
If member of firm is can be carried out by another.
Cannot be renumurated in addition.
Cannot be done if holds out as mainly managing or safeguarding.
Does not apply to insurance.
Activities carried on in course of profession of non-investment business advising, arranging, safeguarding and dealing as agent.
Reasonably be regarded as necessary part of other services provided in that course of profession or business.
Does not apply if renumerated separately.
Insurance not apply.
Activities carried out in connection with sale of body corporate -
takeover exclusion
Applies to arranging, advising and dealing as agent.
Transaction to acquire, dispose of shares or for transaction entree into for purposes of such acquisition if;
-consist of or include 50% or more of voting shares
-acquisition or disposal is between parties each of whom is a body corporate, partnership, single individual or group of connected individuals
Can add shares being acquired to those already held to reach 50%.
Permitted regulated activities only
SRA published COB when seeking to use above s237 exemption.
- Must not carry out activity in S327(6) FSMA -
recommending to client to dispose of rights under personal pension and advising to become member of particular Lloyd’s syndicate.
Creating or underwriting insurance.
-Must notify SRA, be registered in Financial Services Register and have appointed insurance distribution officer.
-further restrictions in context of corporate finance and credit-related regulated financial services activities
Cannot be used by firms authorised already by FCA.
Exemption for professional firms
S237 -
Undertake regulated actives in course of work.
Not apply if;
-firm must not receive from person other than client any pecuiniary advantage which it does not account to client
-manner of providing service must be incidental to the provision
-firm must only carry out regulated activities permitted by the DPB.
-activities must not be prohibited by an order made by the treasury, or any direction made by the FCA under s328 or s329.
-firm must not carry on any other regulated activities.
‘Incidental’
Specific - particular client concerned.
Professional service primary, regulated incidental.
Must be supplied to same person. (cannot be beneficiary under will for example if not acting for).
General test -
cannot be major part of firms activities
-scale of regulated activity in proportion
-whether and to what extent regulated activities held out as separate services and
-the impression given of how the firm provides those activities.
SRA COB rules
Regulate professional exemption rule s237.
Status disclosure (2.1 and 2.2) -
provide information about status. E.g. not authorised and explain complaints and redress through legal ombudsman.
Best execution (3.1) -
carry out transactions as soon as possible unless not in best interest
Transaction (4.1 and 4.2) -
keep records of
Commission (5.1) - keep records of commissions
Execution-only client (7.1) -
must send letter where acting for execution only confirming client not relying on advice.
Insurance distribution (Part 3) -
clear, fair and not misleading.
Will have to rely on s237 for this one.
Entails - assisting in getting insurance, introducing to broker, involved in insurance claim.
Consumer credit activity -
will need to be exempt (s237) or FCA authorised. Can represent in litigation.
Payment by credit (instalments)
- does not exceed 12 repayments
-term does not exceed 12 months
-credit provided without interest or other charges.
Financial Promotions Order (FPO 2005)
Cannot make promotion (invite to others) unless approved by authorised person.
- In business
-Making invitation or inducement
-Connection with investment
-Connection with investment activity?
Exclusion test not applicable.
Real time communication ‘solicited’ when -
initiated by recipient
takes place in response to express request from recipient
Exemptions -
trustees and PRS
takeover of body corporate
Real-time promotions -
solicitor who cares on exempt regulated activities may make real-time promotion -
if made to client who has engaged solicitor
where controlled activity is exempt because of exemption being ‘necessary’
where controlled activity to which communication relates is incidental.
Effect - if activity excluded from being regulated other than necessary art 55 does not apply.
Non-real time promotions - letters, emails etc..
One-off promotions - exempt if;
client understands risks associated with engaging in activity
-at time of communication client would be expected to be contacted by solicitor in relation to investment activity.
Introduces -
may make real-time to introduce to ATP if;
solicitor not connected to ATP
solicitor does not receive other than from client any pecuniary reward or other advantage out of making introduction. and
client not seeking and has not sought advice from solicitor as to merits of engaging in investment activity .
