Unit 2 Financial services Flashcards
Financial services regulatory structure
Regulation mainly in hands of 2 bodies:
1. Financial Conduct Authority
Undertakes market regulatory functions, including responsibility for the conduct of business regulation of all firms.
- Prudential Regulation Authority.
Subsidiary of the Bank of England and is responsible for the authorisation, prudential regulation and general supervision of those firms which manage significant financial risks.
The need for authority - The general prohibition
- The general prohibition
Must be authorised by FCA or exempt.
If not criminal offence. Two years’ imprisonment or unlimited fine.
- The financial promotion prohibition
An unauthorised person cannot engage in a financial promotion.
Is an activity regulated?
- Are you in business?
- Is there a specified investment, or does the specified activity relate to information about a person’s financial standing or administering a benchmark?
- Is there a specified activity?
- Is there an exclusion?
Is an activity regulated? - specified investment
(a) company stocks and shares (but not shares in the share capital of open- ended investment companies (OEICs) or building societies incorporated in the UK);
(b) debentures, loan stock and bonds;
(c) government securities, such as gilts;
(d) OEICs. These are similar to unit trusts, but use the structure of a company rather than a trust;
(e) insurance contracts
(f) regulated mortgage contracts (most residential mortgages);
(g) home reversion/ home purchase plans
(h) deposits
(i) credit agreements
Investments that will not be relevant include:
(a) interests in land;
(b) certain National Savings products.
Is an activity regulated? - specified investment activities
(a) dealing as agent;
(b) arranging;
(c) managing;
(d) safeguarding;
(e) advising;
(f) lending money on/ administering a regulated mortgage contract.
Is an activity regulated? - specified investment activities - exclusions
(a) introducing;
(b) using an Authorised Third Party;
(c) acting for an execution- only client;
(d) acting as trustee or personal representative;
(e) the ‘professional/ necessary’ exclusion
( a necessary part of other services provided)
(f) the ‘takeover’ exclusion
Applies to a transaction to acquire or dispose of shares in a body corporate
(other than an OEIC), or for a transaction entered into for the purposes of such an acquisition or disposal, if:
* the shares consist of or include 50% or more of the voting shares in the body
corporate; and
* the acquisition or disposal is between parties each of whom is a body corporate, a
partnership, a single individual or a group of connected individuals.
Is an activity regulated? - specified investment activities - exclusions - which apply when
Dealing as agent
* ATP
* Execution- only
* Professional/ necessary
* Takeover
Arranging
* Introducing
* ATP
* Execution- only
* Professional/ necessary
* Acting as trustee/ PR
* Takeover
Advising
* Professional/ necessary
* Acting as trustee/ PR
* Takeover
Managing
* Acting as trustee/ PR
Safeguarding
* Professional/ necessary
* Acting as trustee/ PR
Exemption for professional firms – s 327
Where professional firms are able to carry out certain regulated activities without FCA authorisation. Supervised by SRA.
Conditions:
a) the firm must not receive from a person other than its client any pecuniary or other advantage arising out of the activity for which it does not account to its client;
(b) the manner of providing ‘any service in the course of carrying on the activities must be incidental to the provision’ by the firm of professional services, ie services regulated by the SRA;
(c) the firm must only carry out regulated activities permitted by the DPB;
(d) the activities must not be prohibited by an order made by the Treasury, or any direction made by the FCA under s 328 or s 329;
(e) the firm must not carry on any other regulated activities.
SRA Financial Services (Conduct of Business) Rules
Regulate the way in which a firm may undertake financial services under the professional exemption.
Firm must disclose status of firm.
Firm must carry out transactions for clients as soon as possible unless it reasonably believes that it is in the client’s best interest not to.
The firm must keep records of:
(a) instructions from clients to carry out transactions; and
(b) instructions to third parties to carry them out.
Firm must keep records of commissions received.
All information about insurance distribution must be communicated to clients.
Consumer credit activity
E.g. credit brokerage, debt collecting under a consumer credit or hire agreement, debt advice.
Solicitors need to be authorised by FCA or s327 exemption.
Could be carrying out activity by allowing clients time to pay. Exempt if:
(a) the number of repayments does not exceed 12;
(b) the payment term does not exceed 12 months; and
(c) the credit is provided without interest or other charges.
Insurance distribution
Working on contracts of insurance.
= specified activity.
Seek authorisation or s327 exemption. Main exclusions do not apply.
Financial Promotions Order (FPO) 2005 - The prohibition
A solicitor who is not authorised by the FCA will be unable to make a financial promotion (ie ‘communicate an invitation or inducement to engage in investment activity’) unless its contents are approved by an authorised person.
Financial Promotions Order (FPO) 2005 - test
Same tests as for regulated activities:
(a) Are you in business?
(b) Are you making an invitation or inducement?
(c) In connection with an investment?
(d) In connection with an investment activity?
Financial Promotions Order (FPO) 2005 - exemptions
(a) trustees and PRs
(b) takeover of body corporate
Exemption for exempt professional firms:
(a) Real time promotions
- if made to a client who has, prior to the communication being made, engaged the solicitor to provide professional services; and
- where the controlled activity to which the communication relates is exempt because of the exemption for professional firms, or is excluded from being a regulated activity by the ‘necessary’ exclusion; and
- where the controlled activity to which the communication relates would be undertaken for the purposes of, and be incidental to, the provision of professional services to or at the request of the client.
(b) Non real time promotions
Applies to letters, e- mails, brochures, websites.
One off promotions if personal to the client - understand risks and expect to be contacted in relation to that investment activity.
Introducing fine if solicitor is not connected to ATP, does not receive other than from client any reward/advantage, client does not seek/sought advice from solicitors on merits of investing.
