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

Foor 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.