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.
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
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.
e.g. regulated mortgage contracts, shares, units in investment scheme etc.
e.g. dealing with investments, arranging, managing, administering and advising on investments
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.
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