6. Regulated and Prohibited Activities.

Prohibition Order. An order which may be exercised by__?

by FCA.

Prohibition Order essence:

It PROHIBITS the individual | from carrying out CONTROLLED FUNCTIONS | on the grounds that they are NOT FIT AND PROPER.

FSMA is subdivided in how many parts?

into 30 parts.

Which part of FSMA contains The General Prohibition?

Part II, Regulated and Prohibited Activities.

The general prohibition, states that that no person can carry out a regulated activity in the UK unless ___?

... unless they are AUTHORISED | or EXEMPT.

Contravention of the general prohibition is punishable by ___?

up to 2 years imprisonment, | and an unlimited fine.

General prohibition. X bought shares in ABC plc on UNA’s recommendation. It later emerged that UNA was not FSMA-authorised. What options does X now have?

1. X can keep her shares in ABC and take no action against UNA.| 2. X can sue UNA handing back shares in ABC.

Section 39 FSMA is for __?

for appointed representatives (ARs).

Section 285 FSMA is for __?

Recognised Investment Exchanges.

Section 312A FSMA is for __?

multilateral trading systems operators.

Section 316 FSMA is for __?

Society of Lloyd’s members.

FSMA Exemption Order 2001 subjects:

Charities, | Local Authorities, | Supranational bodies, | Central banks.

Part 20 FSMA is for...?

... professional firms.

Separately from the general prohibition, the regulators have the power to...?

... to make a prohibition order.

The prohibition order may relate to a particular regulated activity or...?

... all regulated activities.

Can the general prohibition be imposed on exempt persons?

Yes.

When can a private person sue a firm for damages under Section 71 FSMA?

If an individual acts in breach of the Prohibition Order, Section 56 |||||||||||| An individual performs a Controlled Function with no approval, Section 59.

Section 138D of the Financial Services Act 2012 sets out the circumstances in which a...?

... a person who suffers losses, as a result of a breach of FCA rule, has the right to claim for damages.

FSMA 2000 - Regulated Activities Order 2001 - 2 sets of criteria?

A range of INVESTMENTS. | A range of ACTIVITIES which may be carried on in connection with those investments.

RAO - A range of investments PRODUCTS examples:

Bonds, | Insurance contracts, | Deposits, | Shares.

RAO - A range of Investment aCTIVITIES examples:

Dealing, | Insurance contracts effecting, | Managing, | Advising.

How many Specified Investments are set out in RAO?

26

Deposits are...

... money paid by one person to another, with or without interest being earned on it, and on terms that it will be repaid when a specified event occurs (eg, when a demand is made).

Electronic money is...

... an electronic substitute for notes and coins.

Rights under contracts of insurance categories:

General insurance contracts. | Long-term insurance contracts

Shares widely defined by RAO as ...?

stock in any incorporated company, | or in any unincorporated body abroad.

Shares defined by RAO exclusions:

OEICs, | some building society shares.

Debentures are...

... instruments creating or acknowledging indebtedness.

Government and public securities examples:

Gilts, | US treasuries (bonds), | Local authority loan stocks.

Government and public securities exclusion by RAO example:

NS and I products.

Warrants entitling the holder to ...?

... to subscribe for shares, debentures and public securities at a set price, | and on or between set date in the future.

Certificates representing certain securities covers...?

... certificates which confer rights in (but are not themselves) other instruments such as shares or debentures.

Units in a Collective Investment Scheme (CIS) covers holdings in...?

... in ANY collective investment scheme.

Collective Investment Scheme (CIS) example:

shares in OEIC

Rights under a STAKEHOLDER Pension Scheme. Stakeholder pensions are pension schemes set up under the what Act?

Welfare Reform and Pensions Act 1999.

Rights under a PERSONAL Pension Scheme are pensions designed for...?

for individuals who do not belong to a company scheme,

Options are covered by RAO if they relate to:

Metals*, | Futures contracts, | Currencies, | Securities.

Futures are contracts for...?

... for the sale or purchase of an asset where delivery and settlement will be made at a future date, at a price agreed when the contract is made.

Futures contracts. RAO excludes...

excludes futures agreed for commercial purposes as opposed to those made for investment/speculative purposes.

Contracts for differences (CFDs) example:

interest rate swaps (a derivative type).

Contracts for differences (CFDs) are contracts where...?

... where the investor’s aim is to secure a profit by making money by considerin market fluctuations.

Lloyd’s syndicate capacity and syndicate membership relates to

global insurance market

Rights under a Funeral Plan Contract are certain plans under which...

which the customer pays for benefits which will pay for funeral upon death.

Rights under a Regulated Mortgage Contract. Mortgage loans secured by charge on property, at least __% of which is to be used for the borrower’s dwelling.

at least 40%

Rights under a Home Reversion Plan, whereby the customer sells their home to the plan provider in return for...?

a lump sum, | or series of payments;

Alternatives to mortgages. Rights under a Home Purchase Plan, which allow people to buy their homes while complying with, __ principles?

Islamic principles

Rights under a Regulated Sale and Rent-Back Agreement whereby a person sells all or part of qualifying interest in property, but remains in occupation of at least...?

at least 40% of the property.

Credit Agreements. Entering or __ lender’s rights and duties under a regulated credit agreement.

exercising

Alternative bonds or debentures are form of

Shariah-compliant bond

Informative. Other types of RAO:

Consumer hire agreement*. | Greenhouse gas emission allowance. | Emission allowances.

RAO. Specified Activities. An activity which is listed, but which is carried out in relation to an asset which is not a specified investment, is not...?

is not a regulated activity.

How many Specified Activities are set out by RAO?

27 Specified Activities

Which organizations mainly carry on the RAO specified activity of accepting deposits?

banks and building societies.

Informative. RAO Specified Activities other types:

Issuing e-money | Bidding in emission auctions. | Lloyd’s market activities. | Funeral plan contract. | Advising on home finance transactions. | Specified benchmarks.

Effecting or carrying out contracts of insurance as p-

... as principal.

Insurance risk transformation. Taking on a third party’s risk through an insurance contract in exchange for...?

for a premium.

When a firm deals as principal (on its own account), it applies only to those investments that are Securities or...

... contractually-based investments

Arranging Home Finance Transactions example:,... contract.

regulated mortgage contract

Operating a Multilateral Trading Facility (MTF), which brings together multiple __ __ buying and selling interests in in financial instruments.

third party

Operating an Organised Trading Facility. OTFs permit the trading of...?

Derivatives and other non-equity instruments.

Credit broking - activities relating to entering forms of consumer credit as lender. Rights under which one person provides another with credit for hire of goods, rights under a contract for the __or hiring of goods.

the bailment

Operating an electronic system in relating to lending activities relating to consumer credit. Operating an electronic system in relation to, for example___?

debt adjusting;

Managing investments. This applies in respect of investments belonging to someone other than...

other than the manager

Activities in relation to debt examples (consumer credit):

debt Adjusting*, | debt Counselling**, | debt Collecting, | debt administration

Safeguarding and administering investments. This applies in the context of Securities and...?

Contractually-based investments (CBI)

Advising on Investments. This is NOT tailored to...?

not tailored to constitute a recommendation – instead of advice.

Sending dematerialised instructions. This covers firms which operate systems that allow for...?

... for the electronic transfer of title.

Managing a Undertakings for Collective Investment in Transferable Securities (UCITS); acting as a __ or __ of a UCITS;

as trustee |or depository* of a UCITS;

acting as a trustee or depository of an AIF? What does stand for AIF?

Alternative Investment Fund

Establishing, operating and winding up a pension scheme. This activity captures those who set up, administer and wind up Stakeholder Pension schemes and__?

and SIPPs.

Providing basic advice on stakeholder products. Stakeholder products conform to certain criteria for cost and __?

and accessibility.

Advising on the conversion or transfer of pension benefits this covers advising people on the transfer of funds from ____?

occupational pension schemes.

What is a Dormant account fund operator?

An entity that manages and recovery of funds from inactive accounts (reclaim funds).

Activities in connection with a contract of insurance, collectively known as ___?

Insurance Mediation Activity.

Exemptions. The authorised person becomes the, __ and accepts legal responsibility.

the principal,...

FCA and PRA rules do not apply to appointed representatives because...?

... they are not authorised persons.

The ARs regulations only allow certain regulated activities to be conducted by appointed representatives on an exempt basis:

Home finance transactions Arranging. | Advising on investments. | Deals Arranging. | Acting as agent for investments dealing.

In particular, appointed representatives are NOT permitted to deal in investments as principal or to__?

... or to manage investments.

What are firms operating systems that settle trades on exchanges such as the LSE referred to as __?

as clearing houses.

In order to be recognised by FCA, the Exchanges need to be fit and proper. Once recognised, the exchanges are referred to as ___?

Recognised Investment Exchanges (RIEs).

In order to be recognised by FCA, Clearing Houses need to be fit and proper. Once recognised, the they are referred to as ___?

Recognised Clearing Houses (RCHs)

RIEs and RCHs are __ __ in that they do not need to seek authorisation from the FCA.

are exempt persons

FSMA Exemption Order 2001 has established certain exemptions from the need to be authorised to carry on ANY REGULATED ACTIVITY,. Examples are:

BoE, | ECB

Certain persons are able to perform limited regulated activities without the need to be authorised or exempt. Such persons include:

Lloyd’s insurance market. | Designated professional bodies* (DPBs).

Several activities carried on in connection with business at Lloyd’s are regulated activities, such as ____?

advising on syndicate participation.

Several activities carried on in connection with business at Lloyd’s are regulated activities. However, FSMA disapplies the general prohibition for Lloyd’s members in relation to ____?

to contracts of insurance written at Lloyd’s.

Part 20 of FSMA provides for 5 professions where firms are permitted to carry on particular regulated activities without the need to apply to the regulators for authorisation. The individual professions are...?

accountants, | solicitors, |actuaries, | surveyors*, |and conveyancers**.

The professional bodies that are able to grant permissions are known as ____?

as designated professional bodies (DPBs).

The activities carried out by DPBs' member are restricted examples:

Deposits acceptance. | Dealing in investments as principal*. | CIS operating. | Pension schemes operating.

Market Maker

A firm which quotes bid and offer prices for a named list of securities in the market.

firms which are professional dealers, such as market makers, and which hold themselves out as such, are __?

are excluded.

I which invest only for themselves in the hope of making a profit, are __?

are excluded.

When may an unauthorised person deal in futures, options or CFDs without UK authorisation?

If dealing with an authorised/exempt person | or dealing through a non-UK office.

There is an xclusions where dealing as principal is not classified as a regulated activity, eg. a company issuing its own shares, accordance with ___?

Companies Act 1985 (Treasury shares).

What is a trustee equivalent in Scotland?

nominee

Principal not treated as a regulated activty when, for example, tansactions are entered in connection with an emplyee...?

an employee share scheme.

Firms undertaking Intra-Group dealing or where there are __ __ relationship, also benefit from the exclusion of these activities being regulated activities.

joint enterprise relationship

Exclusions for Advice in Newspapers essence:

The exclusion applies to investment advice given through newspapers, or news services where the main purpose is not investment advice. | However, authorisation is required where the publication mainly promotes or recommends investments.

Who can benefit an exclusion status when active as the representative?

Trustees, | Nominees, | Personal Representatives

Informative. Threshold Conditions table:

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