Section 1 Flashcards
What is the general prohibition act (S19 FSMA 2000)?
“No person may carry on a regulated activity in the UK unless he is an authorised person or an exempt person”.
Regulated Activities Order:
Specified activity undertaken with a specified investment.
Legal person
The ‘person’ referred to in S19 is not generally an individual. It instead refers to a legal person, a company, a partnership or a trust. Individuals can get authorised if they were, for example, a local or sole trader.
Criminal penalties for contravening the General Prohibition
Criminal offences -> Crown court -> Two years’ imprisonment, and/or an unlimited fine.
Civil law consequences of contravening the general prohibition
- Injunctions
- Restitution orders
- Contracts are voidable at the discretion of the investor
Define injunction and restitution order:
‘Injunction’
Where a firm is prohibited from continuing activities.
‘Restitution order’
Where a firm is instructed to pay back any losses to a client.
Name a defence:
It is a defence to show that a person has taken all reasonable precautions and exercised all due diligence to avoid committing the offence.
Specified investments:
• Shares/Depositary receipts/Warrants • Debt instruments • Units in collective investment schemes • Options on: - Specified investments - Currencies - Precious metals (gold, silver, platinum and palladium) • Futures • Contracts for difference (CFDs) • Lloyd’s syndicates, insurance contracts and funeral plan contracts • Pensions • Regulated mortgages and home finance • Deposits and electronic money • Rights to specified investments, e.g. sale and repurchase agreements (repos) • Loans and other forms of credit • Emissions auction products • Benchmarks
Options are only specified investments if they are one of:
- Options on specified investments
- Options on precious metals
- Options on currency
Commercial purposes exclusion
Derivative used for ‘commercial purposes’ are excluded from specified
investments.
Regulated mortgages and home finance
‘Regulated mortgages’ are a first legal charge on residential property. They
do not include commercial mortgages or ‘buy-to-let’ mortgages.
‘Home Finance’ includes:
• Equity release/lifetime mortgage
• Home purchase plan (e.g. Sharia mortgage)
• Regulated sale and rent back
What do other forms of credit and debt instruments include?
- Other forms of credit includes consumer hire agreements.
2. Debt instruments include debentures and sukuk
Specified activities:
- Dealing in investments
- Arranging deals in investments
- Managing investments
- Advising on investments
- Operating a multilateral trading facility (MTF) or organised trading facility (OTF)
- Safeguarding and administering investments, e.g. acting as a custodian
- Sending dematerialised instructions, e.g. electronic money transfer
- Lloyd’s activities, insurance activities and providing funeral plan contracts
- Mortgages: provision, administration, advising and arranging
- Home finance activities
- Managing dormant account funds
- Accepting deposits by way of business and issuing electronic money
- Providing credit reference or credit information services
- Establishing, operating or winding up a collective investment scheme or pension scheme
- Agreeing to carry on most regulated activities
Insurance contracts
Most insurance contracts are covered under specified activities. A notable exception is car breakdown insurance.
Multilateral Trading Facility (MTF) and Organised Trading Facility
(OTF)
An MTF creates a formal marketplace for the trading of investments outside an exchange.
OTFs are similar and permits the trading of derivatives and other nonequity financial instruments.
Credit information services include
i. Debt adjusters
ii. Debt counsellors
iii. Debt collecting
iv. Debt administration.
Excluded investments
• Property
• Tangible assets (e.g. oil, metals, antiques, etc.)
• Currencies (spot and forward deals)
• Premium Bonds
• National Savings Certificates (all National Savings and Investment products)
Excluded activities
• Newspapers and other media (but not ‘tipsheets’)
• Providing information
• Unpaid trustees e.g. nominees, executors
• Employee share schemes
• Dealing as principal and end user, where no service is offered to others
Newspapers and ‘tip sheets’
Newspapers are only excluded for incidental activities. Those publications
that solely give advice, such as ‘tip sheets,’ are not excluded.
