Main sentence of General Prohibition (S19 of FSMA 2000)
“no person (refers to firm) may carry on a REGULATED ACTIVITY in the UK, unless he is either AUTHORISED or EXEMPT”
Regulated activity is defined by the Regulated Activities Order 2001 as…
specified investments & specified activities
If you do a regulated activity without being authorised or exempt (unauthorised investment business) the punishments you can get include….
- Criminal offence (max penalty is two years jail or unlimited fine) - civil remedies (the only person that can enforce the contract is the investor)
Specified investments include:
- deposits,
- electronic money,
- contracts of insurance,
- shares,
- instruments creating or acknowledging indebtedness,
- government and public securities,
- alternative finance investment bonds/alternative debentures,
- instruments giving entitlements to investments,
- certificates representing certain securities,
- unites in a collective investment scheme (CIS) (AUT/OEIC/ICVC)
- stakeholder pension schemes and personal pension schemes,
- options on: securities/currencies/precious metals/futures
- futures for investment/speculative purposes (unless they are used to hedge or for commercial purposes, then it is not speculative)
- contracts for differences (CFDs)
- Lloyds syndicate capacity and membership
- funeral plans
- home finance transactions: mortgage contracts, home reversion plans, home purchase plans, sale and rent-back agreements (retaining occupation of at least 40% of the lad/property)
- emissions auction products
- credit agreements/consumer agreements
Specified investments do NOT include:
- property deals (but it can capture the financing of it)
- currency deals (FX is less regulated)
- national savings (NS&I products)
Specified activities include:
- accepting deposits,
- issuing electronic money
- effecting\administrating\performing contracts of insurance
- dealing in investments as principal or agent/arranging deals in investments/advising on investments
- arranging/advising on home finance transactions
- operating a multilateral trading facility (MTF)
- managing investments safeguarding and administering investments
- sending dematerialised instructions
- establishing/operating/winding up a collective investment scheme (CIS)
- establishing/operating a pension scheme
- Lloyds market activities
- entering into a funeral plan contract
- dormant account funds
- activities relating to consumer credit and credit reference services
- the setting of benchmarks
- agreeing to carry on a specified activity
Specified activities do NOT include:
- dealing as a principal (except holding out (buying shares for yourself, mkt maker)
- media: newspapers, TV, radio, information providers (except it is a tip sheet)
- trustees, nominees and personal representatives
- employee share contracts
Exemptions
- appointed representatives
- recognised investment exchanges (RIEs) and recognised clearing houses (RCHs)
- FSMA Exemption Order 2001 ( supranational bodies and national banks (e.g. BoE and IMF))
- syndicate members of Lloyd’s of London (Underwriters)
- Members of the professions: designated professional bodies (DPBs): (accountants, solicitors, actuaries, chartered surveyors, licensed conveyancers) (these are all not the real sellers, they are just assisting in some way.)
The permissions regime, name the 2 authorisation routes
- FSMA Part 4A Permissions (route for UK firms)
- ‘Passporting’ under MiFID (EEA member firm)
Threshold Conditions
These are the minimum standards for being and remaining authorised.
- LEGAL STATUS (PRA)
- LOCATION OF OFFICES (PRA) need to have an office registered in the UK
- business CONDUCTED in a PRUDENT MANER (PRA) (resources etc.)
- effective SUPERVISION (FCA/PRA)
- APPROPRIATE RESOURCES (FCA)
- SUITABILITY (FCA/PRA) ‘fit and proper’
- BUSINESS MODEL (FCA) suitable business strategy
- APPOINTMENT OF CLAIMS REPRESENTATIVES (PRA) for motor insurers only
Supervision, purpose and tools
Purpose: to mitigate and manage risks to statutory objectives being met
Tools: 4
- Monitoring
- Diagnostic
- Preventive
- Remedial
The Process of Approved Persons (people!)
Must be fit and proper to fulfil a controlled function
The Fit and Proper Test factors
- honesty, integrity, and reputation (old employment and criminal past)
- competence and capability (take exam)
- financial soundness (ever been bankrupt?)
Prohibitions Orders
FSMA S56 (FCA can issue prohibition orders agains people who are not fit and proper) don’t want a person doing things!!!
FSMA S59 (People cannot perform a controlled function unless approved! starting point, need to be approved)
FSMA S71 (a private person can sue a firm when a prohibited individual carries out a function (S56) or an a unproved person performs a controlled function (S59) happens)
FSMA S138D a private person can sue a firm if they suffer losses as a result of the firm breaching an FCA rule
Controlled Functions
Assessing Competence
- pass examination
- or are exempt from examination if
- 3 years of up-to-date relevant experience outside of UK ( but still have to do REGULATION module)
- if you are overseaes (out of UK) less than 30 days a year
Whistleblowing Regime
Public Interest Disclosure Act 1998 (PIDA)
- cannot have in the contract that you cannot blow the whistle
FCA Rules
- appoint a non-executive director as WHISTLEBLOWING CHAMPION
- put internal WHISTLEBLOWING ARRANGEMENTS in place
- TELL UK employees about FCA and PRA whistleblowing services
- present a REPORT ON WHISTLEBLOWING annually to the board
Enforcement Decision-Making Process
Regulatory Decision Committee (RDC)
- independent, outside FCA
- Accountable to FCA
- Chairman is FCA employee
Enforcement Decision Making Committee (EDMC)
- PRA’s committee at BoE
- is executive does not sit on other committee, panel, or board of the bank
The Upper Tribunal (Tax and Chancery Chamber)
(UTTCC)
- independent of FCA (appointed by the government’s ministry of justice)
- considers appeals in relation to:
- decision notices
- supervisory notices
- individuals have 28 DAYS to appeal
Statutory Notices
PRIVATE WARNING
- NOT a disciplinary measure. NO further action needed
WARNING NOTICE
- details action the FCA proposes and why
- gives the recipient the right to make representations
DECISION NOTICE
- details action the FCA has decided to take, leaning room for the appeal by the recipient
SUPERVISORY NOTICES
- alternative to a warning notice
- details action the FCA proposes, normally with immediate effect
Additional Notices
FURTHER DECISION NOTICE
- if the regulater agrees to take different action from in the warnings notice, this will follow. It requires consent from the recipient.
NOTICE OF DISCONTINUANCE
- FCA decides NOT to proceed following a warning/decision notice.
FINAL NOTICE
- sets out the terms of final action
- includes the date it takes effect from
Regulatory Enforcement Measures
