Regulation of Financial Services

Question 1

what are the 4 steps to the FSMA decision tree?

Answer 1

1. is the investment specified under FSMA?
2. is the activity specified under FSMA?
3. Is the activity excluded under FSMA>
4. member of a profession, receiving commission and incidental to overall provision of services?
5. scope rule 2- ensure that the activity you are doing arises out of and is complementary to the work that you are doing for that particular client.

Question 2

what are specified investments?

Answer 2

shares, mortgage contracts, contracts of insurance and bonds, pensions.

Question 3

excluded activity under FSMA?

Answer 3

if you are introducing the client to another authorised person that is fine! Or if activity is a ‘necessary part’ of the other services that are being provided by the law firm that is fine too! If a sale of a body corporate (sale of a company) so if you are working on a sale or purchase of a company where there is a transfer of 50% or more in that company that is excluded (do not have to be authorised by FSMA). Or the shares being brought together with the shares already owned by the individual is more than 50% of the voting share.

if acting on advice of the authorised person.

Question 4

what is s21 FSMA and financial promotions?

Answer 4

Under section 21 FSMA it is a criminal offence for an unauthorised person to communicate a financial promotion unless an authorised person has approved its contents or a relevant exemption applies.

Exemptions to the restriction on financial promotions that are commonly used are:
- Sale of a body corporate- shares consist of 50% or more of the voting shares in body sold.
- Distribution to investment professionals, high net worth companies and high net worth individuals

Question 5

what is s84 FSMA anf offer shares to public?

Answer 5

Under section 85 FSMA it is a criminal offence to offer shares to the public in the United Kingdom without issuing a prospectus approved by the relevant regulatory authority.
Exemptions on the requirement for a prospectus that are commonly used are:
- the offer is directed at fewer than 150 persons
- the offer is sent only to qualified investors