Professional Conduct (Financial Services)

Question 1

Who can give financial advice?

Answer 1

• Provision of financial advice and services is regulated by the PRA and FCA
• Under FSMA, no person can carry out a regulated activity unless authorised to do so.
• Lawyers must ensure they do not give advice relating to finance unless authorised to do so.

Question 2

Step 1: Is the activity a specified investment?

FSMA Decision Tree (Financial Advice)

Answer 2

• Shares
• Pensions
• Bonds
• Insurance Contract Rights

If yes > Step 2

Question 3

Step 2: Is there a specified activity?

FSMA Decision Tree (Financial Advice)

Answer 3

Is the activity relating to the investment specified?

• Dealing in investment
• Arranging deals in investment
• Advising on the merits of investment

For example, to ‘advise on the merits’ you must give advice requiring an element of opinion and recommendation. Generic advice on investment (e.g. explaining types of share classes) is not advice on merits.

If yes > Step 3

Question 4

Step 3: Is there an exclusion available?

FSMA Decision Tree (Financial Advice)

Answer 4

A. Necessary Part Exclusion: The activity is a necessary part of other services provided as a lawyer - You cannt use this exclusion for contracts of insurance.

*for example, when selling a leasehold flat it may involve a transfer of a share, although this is a specified investment, arranging the sale is needed for the property work.
….

B. Sale of a Body Corproate Exclusion - Excluded if the activity is for the sale of a corporate body where…

i. Shares being sold are 50% or moreof the voting shares; or

ii. The shares, together with shares already held by the purchases are t0% or more of the voting shares; or

iii. The object may be regarded as an acquision of day to day control of the affairs of the body.
….

C. Authorised Persons Exception: The client is entering the transaction on advice given by a financial advisor who is authorised by the FCA.

If yes > Step 4

Question 5

Step 4: What happens if FSMA seems to state authoirisation is needed?

FSMA Decision Tree (Financial Advice)

Answer 5

1. Obtain direct authorisarion by FCA; or

This isn’t needed if…
a. The person is a member of a profession
b. Does not recieve payment/commission unless client otherwise agrees
c. Activities are incidental

If (a)-(b) are satisied, no direct authorisation is needed and need only act in accordance with below….

If (a)-(b) are not satisfied (for example, the advise is not incidental but about the entire investment, authorisation by FCA is needed)

2. Be supervised by Designated Professional Body (SRA)

• Comply with SRA scope of rules
• authorised by SRA
• comply with code of conduct

Question 6

You cannot offer shares to the public without an approved prospectus. When can you bypass this?

Answer 6

Where the offer is made to fewer than 150 persons.

Question 7

Your client has decided to purchase bonds in a public listed company on the advice of her FCA authorised financial advisor.

Can you make the necessary arrangements if neither you nor your firm are authorised by the Financial Conduct Authority to carry on a ‘regulated activity’?

Answer 7

Yes

The specified investment is arranging deals in investments

However the exclusion of arranging deals through an authorised person applies because the client is entering the transaction on the advice of her financial advisor who is authorised by the FCA.

Question 8

Your client recently sold a business for a substantial profit.

She is seeking advice on two issues.

• Firstly, she would like you to assist her with a cash purchase of a holiday cottage in Cornwall.
• Secondly, she would like some advice in relation to setting up a personal pension scheme.

Neither you nor your firm are authorised by the Financial Conduct Authority to carry on a regulated activity.

Are you able to give the client the advice requested?

Answer 8

You can only advise the client about purchasing the holiday cottage, provided you are competent to do so.

The pension scheme is a specified investment under Article 82 ROA, therefore you cannot advise on the pension scheme unless one of the exemptions applies or you are an authorised person.

Question 9

If a solicitor is instructed in relation to a will trust, who should CDD be carried out in relation to?

Answer 9

Trustees and also the beneficiaries of the trust.

Question 10

Can solicitors manage share portfolios for trustees of a trust?

Answer 10

The Regulated Activities Order 2001 provides an exclusion for the management of investments by trustees, provided the trustees comply with the conditions of the exclusion. correct

Question 11

If beneficiaries wish to collapse a trust formed of shares, can a solicitor sell the shares?

Answer 11

Yes

The sale of the shares is a necessary part of the winding up of the trust and is therefore an exempt activity. correct

Question 12

Are tangible assets specified investment under the RAO?

Answer 12

No

For example, advising a client to invest the proceeds of sale in a yacht would not constitute a regulated activity.

Question 13

Are premium bonds specified investments?

Answer 13

No.

A solciitor can assist with investments relating to premium bonds.

Question 14

What is a GILT and can a solicitor assist with sale/purchase?

Answer 14

Government bonds (also known as gilts in the UK) are a specified investment

Therefore, if the client decided to invest in gilts—that is, government bonds—this could constitute a regulated activity.

Question 15

Can a solicitor arrange an inruance policy for a client?

Answer 15

Arranging an insurance policy is considered a regulated activity.

Question 16

When can a law firm relty on the FSMA ‘sale of a body corporate’ exclusion?

Answer 16

If the shares being acquired consist of at least 50% of the voting shares in the company.