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Summary SQE 1 | LEGAL SERVICES
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FSMA 2000 / FCA / FSA 2012FSMA - was passed by parliament in 2000 - it only provides a framework, the majority of the
details are in secondary legislation (statutory instruments)
FCA (Financial Conduct Authority act) 2012 - replaced the FCA and PRA
• Ensures that regulated financial markets work well
• Secures an appropriate degree of protection for consumers
• Protects and enhances the integrity of UK financial system
• Promotes effective competition in the interests of consumers in the markets
It supervises all firms to ensure that business is conducted in a way that advances the interests of
all users and participants.
It considers in particular the proposed business models, governance and culture of applicants for
regulation as well as the systems and controls the firm intends to put in place.
FCA has responsibility for dealing with three offences which amount to market misconduct:
- insider dealing
- Market manipulation
- Market abuse
It exercises its extensive regulatory powers in relation to any of the statutory objectives.
“Product intervention power” enables it to act quickly to ban or impose restrictions on financial
products. It is more ready to intervene before any risks materialise and in order to prevent large
scale detriment.
FCA :
- directs firm to withdraw or amend misleading financial promotions with immediate effect
- Publishes the fact that.a warning has been issued ( however consults the person concerned
first to prevent any reputational damage from occuring)
Can take action against a parent undertaking which is itself not regulated but which control and
exerts influence over an authorised person
Responsible for consuemr credit regulation
Requires that firms provide appropriate information to consumers prior to purchase, about the
product or service being purchased in order for them to make an informed decision
• Retail consumers buying financial products/services for their own use
• Retail investors in financial instruments (shares/bonds/exchange traded
funds)
CONSUMER • Wholesale consumers
‣ Regulated firms buying product or service on behalf of another person
‣ Regulated firms making investments in their capacity as agient
‣ Investors in financial instruments (hedge funds/day traders)
‣ Regulated firms trading across markets to manage their own risk/
inventory of stock
‣ Non regulated corporates, oranisations or individuals buying financial
products for their own use
‣ Issuers looking to raise capital who may buy services and advice from
sponsors and services carried on by investment banks in the course of
regulated activities
- market infrastruture providers such as the London Stock Exchange
,The FCA is required to pursue a proactive approach:
- forward - looking assesment
- Intensive supervision of firms, earlier intervention
- Secure appropriate level of redress where failure occurs
- Take action against the firms that fail to meet the standards
A firm of solicitors interested in providing any financial services to clients must consider the
following:
IS IT CARRYING
OUT A
- Obtain authorisation COMMISSION
OR
REGULATED OF A CRIME
- Claim an exemption
ACTIVITY?
Criminal offences relevant to solicitors:
a) carrying out regulated activity without authorisation
- imprisonment for a max of 2 years + fine
- an agreement made in the course of carrying out a regulated activity in contravention of
the general prohibition is unenforceable against the other party
- the other party can recover any money/property paid/trasferred + compensation for any
loss sustained. This would result to the client’s liability in contract or tort.
b) A person who falsely describes himself or hold himself out to be either an authorised or
an exempt person
c) Making an unauthorised financial promotion
In the course of business a person must not communicate an invitiatoin or onducement to
engage in investment activity unless:
- the person is authorised , or
- The content of the communication has been approved by an authorised person
DEFENCE- the accused took all reasonable precautions and exercised all due diligence to
avoid committing the offence.
If the firm fails to obtain authorisation at all - this involves commision of a crime and any contract
made will be unenforceable
If the firm is authorised but carries out certain activities for which it does not have specific
permission - it may be subject to the disciplinary powers of the FCA but no crime will have been
committed.
A person who suffers loss may be able to bring an action for breach of statutory duty and the FCA
can apply for a restituion order.
Whenever the FCA wishes to take a decision that could adversely affect any person it must:
1. Issue warning notice
2. Decision notice against which the person concernced can appeal to the Financial Services
Tribunal
3. Further right of appeal, on a point of law only can be done to the CoA and UKSC
, EU’s second Markets in Financial Instruments Directive (MiFID II) / (MiFIR)
1. Passporting
2. rules on internal systems and control and on conflicts of interests should be
standardised across the Member States
MiFID ii MiFIR
- promotes use of electronic trading sets out requirements in respect of:
- Intoduces rules on algorithms and high frequency - disclosure of data in trading activity to the public
trading - Disclosure of transaction data to regulators and
- Improves transparency and oversight of financial supervisors
markets - Mandatory trading of derivatives on organised
- Enhances investor protection and improves venues
conduct of business rules - Removal of barriers between trading venues and
providers of clearing services to ensure more
competition
- Supervisory actions regarding financial
instruments and positions in derivatives
3. Free access to MS’s national securities exchange
Solicitors should be aware of the ongoing obligations of invesment firms to comply with the MiFID
II regime and financial regulators authorisation process for applications for authorisation under
SOLICITORS AND FINANCIAL SERVICES
MIFID II.
Solicitors can become involved with financial services through:
- arranging transactions
- Giving advice
- Referring a client to an independent financial adviser (IFA) for advice where such referrak gies
beyond merely introducing
WHAT IS A REGULATED ACTIVITY?
Conveyancing // corporate // tax // employment // matrimonial clients // litigation // trusts
“… an activity of a specified kind which is carried on by way of business and relates to an
invesment of a specified kind….”
A. IS YOUR FIRM CARRYING ANY BUSINESS?
Elements which help ascertain whether an activity is carried on by way of business :
- degree of continuity
- Existence of a commercial elements
- Scale of activity
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