Legal System 7 - Financial services Flashcards
What is the main purpose of the Financial Services and Markets Act 2000?
To
* regulate financial services activities in the UK
* ensure consumer protection.
What is the “general prohibition” in the Financial Services and Markets Act 2000?
It prevents anyone from conducting regulated financial activities unless they are
(a) authorised; or
(b) exempt.
When is a person classified as “authorised” under the FMSA?
When they have obtained authorisation from the appropriate regulator
What does “specified investment” refer to in the FSMA?
Types of financial products that are regulated under the FSMA, such as stocks, bonds, insurance contracts.
Who must comply with the Financial Services and Markets Act 2000?
Any individual or entity conducting regulated financial services activities in the UK.
What are “regulated activities” under the FSMA?
- any activities involving
- specified investments
- carried on by way of business that require FCA authorisation.
… those activities that have been “…” by the FSMA are regulated activities
Only
specified
What are some examples of “specified investments”?
Examples include company shares, bonds, regulated mortgage contracts, and insurance policies.
Which investments are notable exceptions from the list of specified investments under the FSMA?
- interest in land
- certain National Savings products
What does carried on by way of business under the FSMA mean?
The solicitor must carry on the relevant activity in the course of his business (i.e., he provides services to his clients)
Who are the two primary financial regulators in the UK?
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
What are the key objectives of the FCA?
- consumer protection
- integrity of the financial system
- promoting competition.
What is a “designated professional body” (DPB)?
A professional body, like the SRA, that can exempt certain regulated activities from requiring FCA authorisation.
What does the DPB exemption allow solicitors to do?
To conduct regulated financial activities incidentally to their legal work without FCA authorisation.
What conditions must be met for a firm to rely on the DPB exemption?
The firm’s regulated activities must be incidental to its main business, among other conditions in s.327 of the FSMA.
Which regulatory body oversees solicitors using the DPB exemption?
The Solicitors Regulation Authority (SRA).
What happens if a firm breaches the general prohibition?
It could face criminal charges, regulatory penalties, or both.
What are “exempt regulated activities”?
Activities that a DPB-regulated professional firm can conduct without FCA authorisation.
What activities are excluded from FCA regulation for solicitors?
Activities such as arranging introductions or dealing through authorised third parties without giving advice.
What is the SRA Financial Services (Scope) Rules 2001?
Rules that outline which exempt regulated activities solicitors can perform.
What is the “financial promotion prohibition”?
It restricts non-FCA-authorised persons from promoting financial investments to clients.
What must a solicitor disclose under the Conduct of Business Rules when dealing with financial services?
Information about the firm’s regulatory status and services related to financial services.
Can a solicitor advise on investments under the DPB exemption?
Yes, if the advice is incidental to their legal services.
What are “specified activities” as per the Regulated Activities Order?
Activities like:
* dealing in investments as agent
* arranging deals in investments
* managing investments
* advising on investments
* safeguarding and administering investments
What must solicitors do when receiving commission from third parties?
They must disclose and account for this commission to clients.
How long must solicitors retain records of regulated financial transactions?
For at least six years.
What is a “client-based scenario” as related to the SQE exam?
A hypothetical scenario involving client advice that tests knowledge of regulated activities.
What is an “execution-only” transaction?
A transaction where a solicitor acts on a client’s instructions without giving investment advice.
What happens if a solicitor fails to disclose a referral fee?
They would be in breach of the SRA Conduct of Business Rules.
What does the “general prohibition” protect against?
Unauthorised or unqualified persons providing financial services to consumers.
What role does the Prudential Regulation Authority (PRA) play?
It regulates financial institutions like banks and insurance companies.
What is “specified investment advice”?
Specific advice on the merits of buying or selling certain financial products.
What is the “Financial Promotion Order 2005”?
Legislation specifying which investment promotions can only be conducted by FCA-authorised persons.
Under the DPB exemption, can solicitors carry out financial promotions?
No, unless an exemption applies, they are prohibited from making financial promotions.
What kind of exclusions are relevant for solicitors under the Regulated Activities Order?
Exclusions for activities like acting as a trustee or arranging introductions without giving investment advice.
When is FCA authorisation required for a solicitor?
When they engage in regulated activities not covered by DPB exemptions or exclusions.
What happens if a solicitor promotes investment in a company without FCA authorisation?
They may commit a criminal offence under the financial promotion prohibition.
A solicitor introduces a client to an authorised person. Is this a regulated activity?
No. It is excluded if the solicitor only makes the introduction without further arranging.
A solicitor acts as a trustee for a client and receives no additional remuneration. Is this regulated?
No. Acting as a trustee without extra remuneration is an excluded activity.
A solicitor provides a client with basic advice about buying a property. Is this a regulated activity?
No. General advice on property purchases is not regulated under FSMA.
A client asks a solicitor to arrange a transaction for buying stocks based on a recommendation from an authorised stockbroker. Is this regulated?
No. If an authorised third party provides the investment advice, the solicitor’s role is excluded.
A solicitor arranges for a client to buy shares in a private company, covering more than 50% of voting shares. Is FCA authorisation required?
No. FCA authorisation is not required as the transaction involves more than 50% voting shares.
A solicitor handles the sale of shares as part of a client’s divorce settlement. Is this a regulated activity?
No. Managing shares in a settlement is not regulated if incidental to legal services.
A solicitor provides specific advice on buying shares in a particular company. Is FCA authorisation required?
Yes. Specific investment advice generally requires FCA authorisation.
A solicitor advises a client on taking out a specific insurance policy. Does this require FCA authorisation?
Yes. Advising on specific insurance products is a regulated activity.
A solicitor advises a client on investments in certain National Savings products. Is this considered regulated?
No. National Savings products are not specified investments under FSMA.
A solicitor drafts a power of attorney and is asked to manage the client’s investments under that power. Is FCA authorisation required?
Yes. FCA authorisation is required for managing investments on behalf of a client.
