Professional Conduct - 5. Financial Services

Question 1

What is the general prohibition under the Financial Services and Markets Act 2000?

Answer 1

No person may carry on a regulated activity in the UK unless they are authorised or exempt from authorisation

Question 2

What is a regulated activity?

Answer 2

A specified activity in relation to a specified investment carried out in the course of business to which no exclusions apply

Question 3

What are the five specified activities which are regulated?

Answer 3

1. Advising
2. Dealing as Agent
3. Arranging
4. Managing
5. Safeguarding

Question 4

What is advising?

Answer 4

Giving advice to an investor on the merits of buying, selling, subscribing for, or underwriting a particular investment

Question 5

What is dealing as an agent?

Answer 5

Actually buying, selling, subscribing for, or underwriting a particular investment for another person

Question 6

What is arranging?

Answer 6

Making arrangements for another person to buy, sell, subscribe for, or underwrite a particular investment

Question 7

What is managing?

Answer 7

Managing assets belonging to another person in circumstances which involve the exercise of discretion

Question 8

What is safeguarding?

Answer 8

Protecting and administering assets belonging to another person

Question 9

What are the six specified investments most relevant to a solicitor which are regulated?

Answer 9

1. Insurance contracts
2. Shares/securities
3. Debentures
4. Mortgage contracts
5. Pension schemes
6. Funeral plans

Question 10

What are two things which are not specified investments?

Answer 10

1. Interests in land
2. National savings products, e.g. Premium Bonds

Question 11

When must the conduct be carried out to breach the general prohibition?

Answer 11

In the course of business

Question 12

What is the Designated Professional Bodies exemption which means a regulated activity would not violate the general prohibition at all?

Answer 12

If a solicitor provides a regulated activity incidentally to the provision of legal advice and does not receive compensation for this from anyone else without accounting to the client for it, it is exempted

Question 13

How is whether an activity is incidental determined for the purposes of the Designated Professional Bodies exemption?

Answer 13

By considering whether the activity is incidental:

1. To the work the firm does as a whole, and
2. To the client’s particular matter

Question 14

What are some limitations of the Designated Professional Bodies exemption?

Answer 14

It does not apply to activities contained in the SRA Financial Services (Scope) Rules

Question 15

What are some activities in the SRA Financial Services (Scope) Rules to which the Designated Professional Bodies exemption does not apply?

Answer 15

1. Recommending a client get rid of any rights under a personal pension scheme
2. The firm entering into a regulated credit agreement as lender (except in relation to the firm’s fees)

Question 16

In order to provide incidental financial services under the Designated Professional Bodies exemption, what two special rules does the SRA impose on firms?

Answer 16

Firms must:

1. Let clients know at the outset that the firm is regulated by the SRA and not the FCA, and
2. Confirm that the client is coming to the firm for this incidental service and has not sought/relied upon any advice from the firm in relation to the transaction

Question 17

What are four exclusions that will render a specified activity in a specified investment not a regulated activity?

Answer 17

1. Takeover exclusion
2. Acting as trustee, nominee, or personal representative
3. Introducing or acting through an authorised person
4. The necessary exclusion

Question 18

What is the takeover exclusion that will render a specified activity in a specified investment not a regulated activity?

Answer 18

A solicitor can deal as agent, arrange, or advise with respect to a client who is buying/selling 50% or more of the voting shares of a company, or when the object of the transaction is taking control of the company

Question 19

What is the introducing/acting through exclusion that will render a specified activity in a specified investment not a regulated activity?

Answer 19

A solicitor may arrange/act as an agent with respect to specified investments if the client receives advice from an authorised person and the solicitor is merely assisting the client in acting on this advice

Question 20

In what two circumstances is the introducing/acting through exclusion that would render a specified activity in a specified investment not a regulated activity not available?

Answer 20

1. Where the specified investment is an insurance contract
2. Where the solicitor received payment/commission from the authorised person/any source other than the client

Question 21

What is the necessary exclusion that will render a specified activity in a specified investment not a regulated activity?

Answer 21

It is not a violation of the general prohibition to carry on an activity (other than managing) if the activity is reasonably regarded as a necessary part of providing legal services

Question 22

In what three circumstances is the necessary exclusion that would render a specified activity in a specified investment not a regulated activity not available?

Answer 22

1. Where the activity is managing
2. Where the activity relates to insurance policies
3. Where the activity is billed separately from the main legal advice

Question 23

What is the difference between an exemption and an exclusion?

Answer 23

An exemption is from the requirement to be authorised under the general prohibition, so all conduct would be excusable under this. An exclusion goes to whether or not the conduct is a regulated activity and therefore caught by the general prohibition, but is not available in all circumstances.

Question 24

Even though they are very similar, what is the key advantage of the Designated Professional Bodies exemption over the necessary exclusion?

Answer 24

The Designated Professional Bodies exemption is available for managing, and for activities related to insurance policies, but the necessary exclusion cannot be used in these circumstances.

DPB will always be a better answer choice, but note the instances when it is not available.

Question 25

If a firm wishes to carry out activities in relation to insurance policies, what additional requirements does the SRA impose?

Answer 25

1. Notify SRA that the firm is carrying out activities related to insurance policies
2. Be put on a register of providers
3. Appoint an insurance distribution officer