Detailed lecture notes laid out in an exam structure format
- Easy to follow
- Very concise outlining the key details required in the exam
- Tips on how to apply the law to the facts in the exam
- Covers questions 1, 2 and 3, as well as tips for MCQs
- Ready to print out and use in your open...
1. Explain s.19 FSMA (1 mark). “As we are in business, the general prohibition in s.19 FSMA
2000 will apply if we undertake regulated activities in relation
to specified investments.”
2. Analyse the specified investments Shares
in the scenario (3 marks). “Shares are regulated as a security under Article 76 of the
Shares and/or, (table A, pg 7) Regulated Activities Order.”
General protection insurance
(table C, pg 8) And/or
Regulated mortgage contract
(table B, pg 8)
General Protection Insurance
“General protection insurance policies are regulated under
Article 75 of the RAO.”
Insurance is likely to relate to directors of a
company (income protection/illness etc). Or
Regulated Mortgage Contract
“A regulated mortgage contract is regulated under Article 88
of the RAO. A mortgage is defined under Article 61 RAO as
entered into as a borrower in relation to land in the UK which
will be used at least 40% as a dwelling.”
Exam tip: redemptions of mortgages will not be subject to the
regulations and FSMA will not apply. We can also not select a
new mortgage product for the client.
State if investments don’t apply: “NSI/ISA/premium
bonds/transfer of property e.g., are not specified investments,
therefore the FSMA regime does not apply to them.”
3. Consider the proposed activity (2 “We will be arranging (A25) and advising (A53) in this scenario
marks). [apply to facts, e.g., advising on sales] and both of these are
Advising and/or arranging are most regulated activities and thus the FSMA/RAO regime will require
common. the firm to be authorised or exempt.”
4. Identify any available and likely RAO Shares (security)
exclusions (14 marks). Arranging exclusion: A29, A66, A67, A70
Ignore irrelevant ones. Advising exclusion: A66, A67, A70
General Protection Insurance
“By arranging or advising anything in relation to insurance, we
are carrying out an insurance distribution activity.”
Arranging exclusion: A72C only (provision of information
on incidental basis about insurance and directing them to
a provider or advisor)
Advising exclusion: none (see Scope Rules)
General exclusions and A29 do not apply to contracts of
insurance.
RMC
Arranging exclusion: A29, A67
Advising exclusion: A67
5. Consider the exempt regime (10 1. Does the proposed activity satisfy s.327 FSMA/the basic
marks). conditions in Scope Rule 2?
2. Do any specific rules apply?
Shares: Scope rule 2 Scope Rule 5 (Insurance Distribution Acitvity)
General protection insurance: scope
rule 2 and 5 3. Consider compliance requirements (CoB Rules) if asked to
Regulated mortgage contract: scope do so.
rule 2 in the alternative 4. Always consider SRA Code of Conduct: Principle 7 –
“we must always act in our client’s best interest so if we
think that our client requires advice from a financial
advisor, we should refer them.”
5. Poor decision making in a financial services transaction
, can offend CCS 3.2 and 3.3 which requires solicitors to
provide service with competence.
DETAIL TO ASSIST WITH PART 4 OF Q1: EXCLUSIONS
Specific Exclusion
Article 29 via AP/execution only “Any arrangement of [shares/RMC] will be excluded if we
Applies to arrangement of shares or RMC. [sell the shares with or through a stockbroker] / [the unit
Does not apply to insurance policies. trust units to the fund manager or through an IFA, on their
Page 101 advice] and account to the client for any pecuniary award,
if any.”
“The other instance under which the exclusion will apply is
if we act on the client’s instructions on an execution only
basis so they cannot rely on our firm’s advice. We must
account to the client for any pecuniary award.”
General Exclusions
The following apply to both (i) arranging and (ii)
advising
Article 66 – Trustee/PR (unlikely to be in Q1) “Because we are the PR in this scenario, any arranging or
Applies to arranging & advising shares. advising in relation to these regulated investments
Remember we must be appointed as a trustee undertaken by someone acting as PR, but not merely for a
or personal representative of the estate. We PR, is also excluded so long as there is no additional
cannot be acting for a Trustee/PR for the remuneration for the PR (A66(7)). This does not prevent us
exclusion to apply. charging our standard hourly rate for the time spent on the
work.”
Article 67 – Reasonably Necessary “Any advice or arrangements on the sales may be excluded
Exclusion if they may reasonably be regarded as a necessary part of
Applies to arranging & advising shares & RMC. our professional [type of] service. As our instructions are to
In Q1 you will be told the (i) practice area and [insert service], it would be hard to do X without Y so it
(ii) why the services to allow you to make a would seem necessary to do both. There must also be no
conclusion of the link between the two activities. separate remuneration for the work.”
E.g., criminal defence client and offering them
property insurance = no active link.
Article 70 – Company Take Over “Any advice or arranging on the sale of the shares will be
Applies to arranging & advising shares only. excluded if it’s provided to a permitted party and one of the
three criteria is satisfied.”
If the scenario indicates that the client will take [Don’t list the criteria, just say which one applies or if none
a smaller % of shares [e.g., 20%] but will make apply].
major changes of the management board =
indicates day to day control = condition 3 of Criteria (one must apply):
exclusion. 50% or more of the voting shares in a company are
being transferred, or
The shares being transferred together with those
already owned by the transferee amount to 50% or
more of the voting shares, (the acquired already
hold shares in the company, so the additional
shares they acquire will amount to 50%) (if the
exam doesn’t give you two %, state the
possibilities, e.g., if the purchaser already holds
additional shares, if they acquire 30%, they will
meet 50% and this exclusion ill apply) or
The transferred can reasonably be regarded as
having the objective of acquiring day to day control
of the company.
Example if the company is a plc:
“Here, the client has a modest shareholding in a plc, and it
does not satisfy any of the criteria under A70.”
“This is unlikely here given the size of the companies.
Example if not enough info provided:
“I need to ask the purchaser for further information in
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