Regulation of Financial Services Flashcards
What do ‘financial services’ include?
- Advising on the merits of investments
- Dealing in investments
- Arranging deals
- Managing investments
What do investments include?
- shares
- pensions
- endowment policies
- bonds
- bank deposits
- unit trusts
- insurance policies
Why are financial services regulated?
- to ensure that those providing services are approved and authorised
- to protect consumers from negligent advisers
How are financial services regulated in the UK?
REGULATORS
- Prudential Regulation Authority (PRA)
- Financial Conduct Authority (FCA)
LEGISLATION
Main 2:
- Financial Services and Markets Act 2000 (‘FSMA’)
- Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO)
Why do financial services matter to solicitors?
- a solicitor may deal with FCA/PRA regulated clients or may have to advise client on investments or financial transactions
- imp for solicitors so they don’t commit an offence
- Few law firms are FCA authorised
How can a solicitor avoid criminal liability in relation to financial services
a solicitor must always asses whether or not the activity they are proposing to carry out is regulated by s19 FSMA (person may carry a regulated activity in the UK if he is authorised AND exempt)
What is a regulated activity? s22 FSMA
‘an activity of a specified kind which is carried on by way of business and related to a specified investment’
FSMA Decision Tree steps
- is there a ‘specified investment’? (eg shares, pensions etc)
- is there a ‘specified activity’?
(arranging, dealing in, managing investments etc) - is there an exclusion available?
if NO = can both s327 FSMA and SRA Scope Rule 2 be satisfied?
if these steps do not apply, then FSMA does not apply and no authorisation is required
Conditions under the authorised person exclusion
- transaction is entered into on the advice of the authorised person
OR - the client is not seeking advice from the solicitor as to the merits of entering the transaction
Who does the authorised person exclusion apply to?
- dealing in investments as agent
- arranging deals in investment
Who does the authorised person exclusion NOT apply to?
- solicitor receives commission for which does not account to client
- contracts of insurance
Requirements of s327 FSMA
- must be a member of a profession (met if its a solicitor)
- must not receive a commission from a third party in respect of the regulated activities
- specified activity must be provided in a way that is incidental to the provision of professional services
SRA Scope Rule 2 conditions
Rule 2: the activities arise out of OR are complementary to the provision of a particular professional service to a particular client
What is the test for Scope Rule 2?
does the specified activity arise naturally out of the work the solicitor is doing for the client?
if it does not - the work is not complementary
