Penalties for breaching FSMA 2000 & Collective Invest Scheme

Question 1

FSMA Penalties ; Authorisation Offences

Answer 1

Section 23 - unauthorised regulated activity (breach of s19 General prohibition or s21 financial promotion restriction)

Section 24 - false claim to be authorised/ exempt

Section 26 - Civil consequences of breaching 19/21

Question 2

Section 23 - unauthorised regulated activity (breach of s19 General prohibition or s21 financial promotion restriction)

Answer 2

Summary (Magistrates court) = 6 months in jail / 5,000 fine

Indictment (Crown Court) = 2 years jail / unlimited fine

Question 3

Section 24 - false claim to be authorised/ exempt

Answer 3

6 months jail / 5,000 fine

Question 4

Section 26 - Civil consequences of breaching 19/21

Answer 4

Additional civil powers of breaching sections 19/21

Contract unenforceable (firm)

Money/ other property recoverable (client)

Compensation for any loss arising (client)

court may allow agreement to be enforced by customer
- Allowing client to liquidate investments and withdraw capital from firm if firm trading without licence

Question 5

FSMA Penalties ; Breaches of Statutory Duty

Answer 5

Section 56 ; Prohibition Order

Section 59; Controlled Functions

Section 71; Suing firms for breaching s56 or s59

Section 138D; Suing Firms for breaching rules

Question 6

Section 56 ; Prohibition Order

Answer 6

Reg can issue prohibition order if individual is not fit and proper

Question 7

Section 59; Controlled Functions

Answer 7

Firm must ensure individual does not perform controlled function unless they approved person

fit and proper test required

Question 8

Section 71; Suing firms for breaching s56 or s59

Answer 8

Private Person sue a firm for breach - employing a prohibited individual or
allowing unapproved person to perform controlled function

Question 9

Section 138D; Suing Firms for breaching rules

Answer 9

Private Person sue a firm for breach of a rule (COBS rule) if they suffer loss as a result

Question 10

Collective Investment Scheme

Answer 10

S235 FSMA

Open ended Funds

arrangement under which persons collectively agree to pool property and to receive returns,
but are not involved in managing of the fund

Question 11

Regulated investment schemes in UK

Answer 11

• Authorised = retail funds + Qualified Investor schemes
  ( aimed/marketed at retail clients)

- Recognised (Offshore) = 
Designated territories (UK Tax-haven Isle of Wight) + individual application

Question 12

Unregulated investment schemes in UK

Answer 12

Hedge Funds

• Unauthorised UK funds
• Unrecognised overseas funds

Question 13

UCITS directive

Answer 13

Common set regulatory standards applied to open-ended funds (REGULATED)

Allows passporting of UCITS- compliant funds

EEA UCITS schemes can be marketed throughout the EEA = Passporting

Question 14

How should Promotion of unregulated CIS

Answer 14

HEDGE FUNDS

Heavily restricted
- existing participants in same/similar scheme

• Professional clients (whether or not existing clients)
• Persons on mailing list willing to accept details of unregulated schemes

Question 15

Two Types of Funds

Answer 15

Closed Ended Funds

Fixed number of shares
No expansion (NOT CIS)

Open Ended Funds

Regulated (CIS)
Unregulated