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SQE1_06-2026 > Legal System 7 - Financial services > Flashcards

Legal System 7 - Financial services Flashcards

1
Q

What is the main purpose of the Financial Services and Markets Act 2000?

A

To
* regulate financial services activities in the UK
* ensure consumer protection.

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2
Q

What is the “general prohibition” in the Financial Services and Markets Act 2000?

A

It prevents anyone from conducting regulated financial activities unless they are
(a) authorised; or
(b) exempt.

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3
Q

When is a person classified as “authorised” under the FMSA?

A

When they have obtained authorisation from the appropriate regulator

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4
Q

What does “specified investment” refer to in the FSMA?

A

Types of financial products that are regulated under the FSMA, such as stocks, bonds, insurance contracts.

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5
Q

Who must comply with the Financial Services and Markets Act 2000?

A

Any individual or entity conducting regulated financial services activities in the UK.

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6
Q

What are “regulated activities” under the FSMA?

A
  • any activities involving
  • specified investments
  • carried on by way of business that require FCA authorisation.
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7
Q

… those activities that have been “…” by the FSMA are regulated activities

A

Only

specified

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8
Q

What are some examples of “specified investments”?

A

Examples include company shares, bonds, regulated mortgage contracts, and insurance policies.

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9
Q

Which investments are notable exceptions from the list of specified investments under the FSMA?

A
  • interest in land
  • certain National Savings products
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10
Q

What does carried on by way of business under the FSMA mean?

A

The solicitor must carry on the relevant activity in the course of his business (i.e., he provides services to his clients)

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11
Q

Who are the two primary financial regulators in the UK?

A

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

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12
Q

What are the key objectives of the FCA?

A
  • consumer protection
  • integrity of the financial system
  • promoting competition.
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13
Q

What is a “designated professional body” (DPB)?

A

A professional body, like the SRA, that can exempt certain regulated activities from requiring FCA authorisation.

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14
Q

What does the DPB exemption allow solicitors to do?

A

To conduct regulated financial activities incidentally to their legal work without FCA authorisation.

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15
Q

What conditions must be met for a firm to rely on the DPB exemption?

A

The firm’s regulated activities must be incidental to its main business, among other conditions in s.327 of the FSMA.

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16
Q

Which regulatory body oversees solicitors using the DPB exemption?

A

The Solicitors Regulation Authority (SRA).

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17
Q

What happens if a firm breaches the general prohibition?

A

It could face criminal charges, regulatory penalties, or both.

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18
Q

What are “exempt regulated activities”?

A

Activities that a DPB-regulated professional firm can conduct without FCA authorisation.

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19
Q

What activities are excluded from FCA regulation for solicitors?

A

Activities such as arranging introductions or dealing through authorised third parties without giving advice.

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20
Q

What is the SRA Financial Services (Scope) Rules 2001?

A

Rules that outline which exempt regulated activities solicitors can perform.

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21
Q

What is the “financial promotion prohibition”?

A

It restricts non-FCA-authorised persons from promoting financial investments to clients.

22
Q

What must a solicitor disclose under the Conduct of Business Rules when dealing with financial services?

A

Information about the firm’s regulatory status and services related to financial services.

23
Q

Can a solicitor advise on investments under the DPB exemption?

A

Yes, if the advice is incidental to their legal services.

24
Q

What are “specified activities” as per the Regulated Activities Order?

A

Activities like:
* dealing in investments as agent
* arranging deals in investments
* managing investments
* advising on investments
* safeguarding and administering investments

25
Q

What must solicitors do when receiving commission from third parties?

A

They must disclose and account for this commission to clients.

26
Q

How long must solicitors retain records of regulated financial transactions?

A

For at least six years.

27
Q

What is a “client-based scenario” as related to the SQE exam?

A

A hypothetical scenario involving client advice that tests knowledge of regulated activities.

28
Q

What is an “execution-only” transaction?

A

A transaction where a solicitor acts on a client’s instructions without giving investment advice.

29
Q

What happens if a solicitor fails to disclose a referral fee?

A

They would be in breach of the SRA Conduct of Business Rules.

30
Q

What does the “general prohibition” protect against?

A

Unauthorised or unqualified persons providing financial services to consumers.

31
Q

What role does the Prudential Regulation Authority (PRA) play?

A

It regulates financial institutions like banks and insurance companies.

32
Q

What is “specified investment advice”?

A

Specific advice on the merits of buying or selling certain financial products.

33
Q

What is the “Financial Promotion Order 2005”?

A

Legislation specifying which investment promotions can only be conducted by FCA-authorised persons.

34
Q

Under the DPB exemption, can solicitors carry out financial promotions?

A

No, unless an exemption applies, they are prohibited from making financial promotions.

35
Q

What kind of exclusions are relevant for solicitors under the Regulated Activities Order?

A

Exclusions for activities like acting as a trustee or arranging introductions without giving investment advice.

36
Q

When is FCA authorisation required for a solicitor?

A

When they engage in regulated activities not covered by DPB exemptions or exclusions.

37
Q

What happens if a solicitor promotes investment in a company without FCA authorisation?

A

They may commit a criminal offence under the financial promotion prohibition.

38
Q

A solicitor introduces a client to an authorised person. Is this a regulated activity?

A

No. It is excluded if the solicitor only makes the introduction without further arranging.

39
Q
A
39
Q

A solicitor acts as a trustee for a client and receives no additional remuneration. Is this regulated?

A

No. Acting as a trustee without extra remuneration is an excluded activity.

40
Q

A solicitor provides a client with basic advice about buying a property. Is this a regulated activity?

A

No. General advice on property purchases is not regulated under FSMA.

41
Q

A client asks a solicitor to arrange a transaction for buying stocks based on a recommendation from an authorised stockbroker. Is this regulated?

A

No. If an authorised third party provides the investment advice, the solicitor’s role is excluded.

42
Q
A
42
Q

A solicitor arranges for a client to buy shares in a private company, covering more than 50% of voting shares. Is FCA authorisation required?

A

No. FCA authorisation is not required as the transaction involves more than 50% voting shares.

43
Q
A
43
Q

A solicitor handles the sale of shares as part of a client’s divorce settlement. Is this a regulated activity?

A

No. Managing shares in a settlement is not regulated if incidental to legal services.

44
Q

A solicitor provides specific advice on buying shares in a particular company. Is FCA authorisation required?

A

Yes. Specific investment advice generally requires FCA authorisation.

45
Q
A
46
Q

A solicitor advises a client on taking out a specific insurance policy. Does this require FCA authorisation?

A

Yes. Advising on specific insurance products is a regulated activity.

47
Q

A solicitor advises a client on investments in certain National Savings products. Is this considered regulated?

A

No. National Savings products are not specified investments under FSMA.

48
Q
A
48
Q

A solicitor drafts a power of attorney and is asked to manage the client’s investments under that power. Is FCA authorisation required?

A

Yes. FCA authorisation is required for managing investments on behalf of a client.

SQE1_06-2026 (17 decks)

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