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.
