Regulated Activities, Authorisation and MIFID Flashcards
General Prohibition
S19 FSMA 2000
No person carry out a regulated activity unless
Authorised person or exempt person
Offence is punishable with two years in prison unlimited fine
Prohibition Order
FSMA gave FCA power to bar an individual from performing specified function
Specified Activities can be divided into
- Designated Investment Business
COBS applies too
Stockbroking, investment advice, fund management
- Other Specified Activities
Activities covered under other FCA sourcebooks not COBS
Retail banking, mortgages, general insurance
Specified Activities
Designated Investment Business - COBS Apply
Dealing/Arranging/Managing/Advising on Investments
Operating a MTF or OTF
Safeguarding and administering investments
Sending dematerialised instructions (electronic money transfer - CREST)
Life Assurance
Activities relating to setting of benchmarks
Acting as trustee of an AUT
Establishing/operating or winding up collective investment scheme or pension scheme
Other Specified Activities
NOT COBS
1) General insurance activities and funeral plan contracts
2) Lloyd’s activities (Insurance brokers)
3) Mortgages; provision, administration, advising and arranging
4) Other Home finance activities
5) Accepting deposits by way of business and issuing electronic money (Retail Banks)
Specified Investments
Shares Bonds Gilts Warrants Units in funds Options Futures CFDs
Contracts of insurance Lloyds syndicates Deposits Loans and other forms of credit Contracts for hire of goods Rights to specified investments Electronic money
FMSA does not cover commodities, nor tangible assets
e.g. gold, houses
Currencies also excluded
NS&I Products such as premium bonds
UK Process for Authorisation
(FMSA, S20)
Part 4A permission
UK Firms apply to regulator for permission to carry on one or more regulated activities
BREXIT meant no passporting to/from UK to EEA
Statutory routes to authorisation
FSMA (S31)
1) Person with Part 4A permission
2) Treaty firm qualifying under schedule 4
UK Trade agreements with foreign countries
3) Person otherwise authorised under the act
treasury grant authorisation directly to anyone
Threshold Conditions for FCA - authorised firms
- Location of offices
- Effective supervision
- Appropriate resources
- Suitability (fit + proper person)
- Business Model
COND Sourcebook - contains threshold conditions
PRA Conditions
1 + 4 of threshold Conditions (Loc of Office + - Suitability (fit + proper person)
Business Conducted in prudent manner
Appropriate financial + non- financial resources
Variation + Cancelling of Permission/authorisation
Variation (amend/limit)
1) Regulators own powers
Failure to satisfy COND
No reg activity for 12 months
Advance regulators objective (e.g. policy change)
2) Change in control of authorised person
3) Request by overseas regulator
Cancelling
Regulator gives warning notice and decision notice - RDC
Authorised person may appeal to upper tribunal
MIFID
Markets in Financial Instruments Directive
Common standards of business for investment firms and investment markets in financial services
Reg is affected
- Conduct of firms
- Transparency of markets
- Investor protection
- Product intervention
MIFID Business = Core MIFID Activity + MIFID Instrument
EU MIFID
Harmonises regulations across EEA
Allows passporting of MIFID business across EEA
UK MIFID
Part of UK Law - applies to UK firms
UK Firms cannot use the MIFID Passport
MIFID CORE Activities
Core Activities
Reception + transmission of orders Execution of orders Portfolio management Investment advice Underwriting and placing Operating MTF or OTF
MIFID ANCILLARY Services
1) Safekeeping and administration
2) Loans to carry out transactions
3) Investment research and financial analysis
- Cannot be passport on their own
Passporting can happen if with a core MIFID activity
MIFID INSTRUMENTS
Shares, Bonds, Derivatives
Transferable Securities
Money Market instruments
Units in collective investment schemes
Derivatives relating to securities, currencies, interest rates
Commodity derivatives
Credit derivatives
Financial CFDs
Other variable derivatives (Climate)
EEA Passport
Covers EEA firms authorisation in own member state who wish to carry out regulated activities in other EEA States
European Economic Area
27 EU countries plus ICELAND NORWAY LIECHTENSTEIN
HOME State Regulator
Authorisation
Prudential Supervision (financial resources client assets)
COBS for Cross border services
HOST State Regulator
COBS by BRANCH in host state
Types of Office in EEA HOST State
Representative office
- office in host state, marketing and client development
- No transactions carried out, no passport rights
- not separately reg no reg activities
Branch
- office in host state, under name of home state parent company ( HAS PASSPORT)
- Undertake reg activities under parent company passport
Subsidiary
- separately created company in host state with separate legal personality
- Undertake reg activities under own local authorisation
NOT limited to Passport
Exempt Persons
1) Appointed Representatives (+TIED Agents)
2) Lloyd’s syndicate members
3) Member of Designated Professional Bodies (accountants, Actuaries, Solicitors)
4) Recognised Investment Exchanges
5) Recognised Clearing Houses
6) Other exited bodies e.g. BoE , Central banks, Government Bodies
Regulated activity
Regulated Activities Order 2001
Specified activity undertaken with a specified investment
EEA Process for Authorisation
EEA applies for MIFID Passport
to Local Regulator
Four categories of Authorised Person set out in the FSMA.
a) Persons holding a Part 4A permission to carry on one or more regulated activities;
b) EEA firms (authorised under Schedule 3);
c) EU Treaty firms (authorised under Schedule 4); or
d) Any person otherwise authorised under FSMA (s31 (1)).
main requirements that apply to becoming an exempt appointed
representative of an authorised person.
A person (other than an authorised person) may act as an appointed representative where:
a) They are a party to a contract with an authorised person (the principal);
b) The contract permits or requires the person to carry on business of a prescribed
description and complies with any requirements that may be prescribed under relevant
Regulations;
c) The principal accepts responsibility in writing for the carrying on of those activities in
respect of the whole or part of that business s39 (1) (a) (i) and (ii) and (b)).
List the various panels that the Financial Conduct Authority (FCA) has a statutory duty to consult.
The FCA is required to consider representations that are made to it by any of the four panels set out below:
a) The FCA Practitioner Panel;
b) The Smaller Business Practitioner Panel;
c) The Markets Practitioner Panel;
d) The Consumer Panel.
the ‘relevant persons’ who must be represented on the FCA’s Markets Practitioner Panel.
a) Authorised firms;
b) Persons who issue financial instruments (e.g. listed companies)
c) Sponsors (of listed companies);
d) RIEs;
e) Primary information providers (PIPs).
Give examples of excluded activities.
Acting as a trustee, nominee or personal representative
- Activities in the course of carrying on a profession or business
- Activities in connection with the supply of goods or services
- Groups and joint enterprises
- Activities in conjunction with the sale of a body corporate
- Employee share schemes
