What are regulated activities

Regulated activities within the context of financial services 

What are financial services

Financial services are services involving, advising, dealing with, arranging, managing some e.g. investments. Financial services are regulated by Financial Services Authority (FSA) which bares the responsibility for them. If a person  invests money in some sort of an investment he will  need some advice in relation to this as it is a very specific area which may not  be easily understood unless a professional adviser intervenes and gives you a professional advice in relation to them. Namely, he may  need advice with respect  to e.g. the types of investments, what will be the tax advantages and return from investment. He or she  should also be made aware of a potential risk he or she  is taking in relation to a particular investment.

Because of the complexity of the matter such professional advice is highly regulated and controlled in the UK. Therefore regulation is carried out in relation to  the work of e.g. banks, investment firms, building societies, insurance companies etc. Their  important objective is to maintain the following in al the circumstances: market confidence, understanding of  financial systems, protecting consumers and reducing financial crimes. Conduct of Business rules help to regulate and maintain these. However there are some other rules which assist in regulating the activities, these are FSA Handbook and in relation to carrying out of regulated activities by a law firm  further rules apply.

FSA Authorisation

It is essential to note that some law firms do not have authorisation with respect to this therefore they cannot give professional advise relating to  regulated activities. In fact generally there are only a few firms which obtained this authorisation. A person who would want to carry out regulated activity without authorisation, could be guilty of an offence on summary conviction he or she  would be liable for the following: the imprisonment for a term not more than 6 months or a fine not exceeding  statutory maximum. On conviction on indictment liability to imprisonment for a term not exceeding 2 years arises or a fine.

The activity can be mainstream and non-mainstream

Mainstream activity

If the firm is carrying out a mainstream activity, it must obtain authorisation from Financial Services Authority and must comply with and follow FSA Handbook.

Non –mainstream activity  

Non-mainstream activity needs authorisation from Solicitors Regulation Authority and must comply with and follow  SRA Code of Business Rules. In order for the regulated activity to be a non-mainstream activity, several conditions must be satisfied, these are e.g.  the person who is carrying out the activity is a member of a profession , no commission must be received by this person and this activity is merely incidental to carrying out normal professional service.

Activity is regulated for the purposes of and in accordance with   FSMA (Financial Services and Markets Act) if it is  an activity of a specified kind which is carried on by a way of business in the UK and  it relates to an investment of a specified kind.

Investment

e.g. regulated mortgage contracts, shares, units in investment scheme etc.

Regulated activities

e.g. dealing with investments, arranging, managing, administering and advising on investments

Excluded activities

Some activities are excluded from regulation e.g. dealing with or through persons who  obtained authorisation from FSA, if the regulated activity is a necessary part of some process or application carried out in the process of  profession, if person is acting as a personal representative or  a trustee, if the activity is connected with a sale of the body corporate.

Financial Promotions

Except for  a prohibition of carrying out regulated authorities without authorisation  the FSA also imposes restrictions and limitations on financial promotions. A person who is issuing  e.g. shares and who advertises them  is making a financial promotion. There are however some exemptions in relation to these.

How to double check whether the authorisation is needed

It is therefore of an immense importance that the business makes sure  that a full authorisation is obtained from Financial Services Authority  in relation to  carrying out regulated activities. Failure to do so may result in a firm being liable for an offence. Therefore in order to find out whether  a person or a firm can carry out such and such activity it is essential to ask  himself and consider the following issues. If a firm is  making some sort of an investment and this investment is specified in FSMA and the activity carried out with  it is regulated under FSMA and this activity is not specifically excluded under FSMA plus this activity does not  fulfil the requirements and conditions stated under  FSMA  then this person will need authorisation  from FSA in order to carry out this particular regulated activity. However if  the activity fulfils requirements and conditions stated  under FSMA (section 327) and the work is done by a law firm, this activity may be limited by the operation of  SRA Scope rules, in this instance the firm must only be authorised by SRA and must comply with Code of Business rules