Chapter 3 Flashcards

Question

Specified investments - category 2: Structured deposits. What are structured deposits?

Answer 1

A structured deposit is a type of savings account where you deposit money for a fixed period of time, and at the end of the term, you will receive your initial deposit back along with either interest or a premium payment. However, the amount of interest or premium you receive may be linked to certain market conditions or performance indicators, meaning there is some level of risk involved in the potential returns. Structured deposits can be linked to a variety of underlying assets or indicators, such as stock market indices, interest rates, commodities, or foreign exchange rates. The return you receive on your structured deposit will be directly linked to the performance of these underlying assets or indicators. So, if the performance of the underlying asset is favorable, you may receive a higher return on your deposit, but if the performance is poor, you may receive a lower return or even risk losing some or all of your initial deposit.

Answer 2

Euro-denominated refers to financial instruments that are denominated in euros, which is the official currency of the eurozone. This means that the value of the financial instrument is expressed in euros, and any transactions or payments related to it are made in euros.

Answer 3

Euribor stands for the Euro Interbank Offered Rate, which is the interest rate at which eurozone banks lend to one another on an unsecured basis. It is the benchmark reference rate for euro-denominated financial instruments, including loans, bonds, and derivatives. Euribor rates are calculated and published daily based on submissions from a panel of banks, and there are different maturities available, ranging from overnight to 12 months. Euribor rates are used extensively in financial markets and can have a significant impact on borrowing costs and the performance of financial instruments.

Answer 4

"Unsecured basis" refers to the type of lending where there is no collateral or security for the loan. In other words, the borrower is not required to provide any assets or guarantees to the lender to obtain the loan. Instead, the loan is based solely on the borrower's creditworthiness and ability to repay the loan. So, in the case of Euribor, the interest rate is determined based on the creditworthiness of the borrowing bank and the prevailing market conditions, without any requirement for collateral or security.

Answer 5

LIBOR stands for London Interbank Offered Rate. It is a benchmark interest rate that is used to set the rates on various financial products, such as loans, mortgages, and derivatives. LIBOR is calculated by averaging the interest rates that a panel of banks based in London would be charged if they borrowed from other banks. The rates are published daily in different currencies and for different time frames, ranging from overnight to 12 months. LIBOR is one of the most widely used benchmark rates in the world, but its use has declined in recent years due to concerns over its reliability and accuracy.

Answer 6

LIBOR (London Interbank Offered Rate) and Euribor (Euro Interbank Offered Rate) are both interest rate benchmarks that indicate the average rate at which banks can borrow from each other in the interbank market. However, there are several differences between the two: 1) Geographical location: LIBOR is based in London, while Euribor is based in the eurozone. 2) Currencies: LIBOR rates are published for five different currencies: USD, EUR, GBP, CHF, and JPY, while Euribor is published only for euro-denominated loans. 3) Contributor banks: The contributor banks for LIBOR and Euribor are different. LIBOR has 11 to 16 banks contributing to its rate setting, while Euribor has a panel of 22 banks. 4) Calculation methodology: While both benchmarks are calculated based on the submissions of contributor banks, the methodologies are slightly different. For example, Euribor is calculated as the arithmetic mean of the submitted rates, while LIBOR is calculated as the trimmed mean after removing the highest and lowest 25% of submissions. Overall, both benchmarks are widely used in the financial industry, but the ongoing phase-out of LIBOR has led to an increased focus on Euribor as a replacement benchmark for euro-denominated loans.

Answer 7

No, structured deposits are typically not linked to variable rate deposits. Variable rate deposits are a type of savings account where the interest rate can change over time based on market conditions or other factors. In contrast, structured deposits are linked to specific underlying assets or indicators, such as stock market indices or commodity prices, and the return on the deposit is directly tied to the performance of these assets or indicators. The terms and conditions of a structured deposit are usually fixed at the time of the deposit and do not change over the term of the deposit. So, while variable rate deposits and structured deposits are both types of savings accounts, they are fundamentally different in terms of how they operate and what factors determine the return on your deposit.

Answer 8

Both LIBOR and EURIBOR are commonly used as reference rates for variable rate deposits, meaning that the interest rate paid on a variable rate deposit may be linked to one of these benchmark rates. For example, a bank may offer a variable rate deposit that pays an interest rate equal to the 3-month LIBOR rate plus a fixed spread. In this case, the interest rate paid on the deposit would change periodically based on changes in the 3-month LIBOR rate. Similarly, a bank may offer a variable rate deposit that pays an interest rate equal to the 6-month EURIBOR rate plus a variable spread. In this case, the interest rate paid on the deposit would change periodically based on changes in the 6-month EURIBOR rate.

Answer 9

In recent years, concerns have been raised about the integrity of some benchmark rates, such as LIBOR and EURIBOR. These concerns stem from allegations of manipulation and collusion among some banks that participate in the rate-setting process, as well as weaknesses in the underlying market data used to calculate the rates. Manipulation and collusion can occur when banks submit false or inaccurate data to the rate-setting process in order to benefit their own trading positions or to artificially influence the benchmark rate. Weaknesses in market data can arise when there are insufficient transactions or insufficient diversity in the types of transactions used to calculate the benchmark rate. The integrity of benchmark rates is important because inaccurate or unreliable rates can lead to mispricings of financial instruments, distortions in market outcomes, and harm to consumers and investors who rely on these rates to value and manage their financial exposures. As a result, regulators and market participants have been working to develop new, more robust benchmark rates and to strengthen the processes used to calculate and verify these rates.

Answer 10

It is important for solicitors to be aware of LIBOR and EURIBOR because these benchmark rates are widely used as reference rates for financial instruments, including loans, derivatives, and structured deposits. As a result, they may have an impact on the terms of legal agreements and financial contracts that solicitors are involved in. For example, solicitors who advise clients on loan agreements or other financial contracts that reference LIBOR or EURIBOR need to understand how changes in these rates can affect the terms of the agreement, including the interest rate, payment schedule, and other key provisions. They may need to advise clients on strategies for managing interest rate risk, such as hedging or renegotiating the terms of the agreement. In addition, solicitors may need to be aware of the ongoing transition from LIBOR and EURIBOR to new benchmark rates, such as the Secured Overnight Financing Rate (SOFR) in the United States and the Euro Short-Term Rate (ESTR) in the eurozone. This transition may involve changes to legal agreements and financial contracts that reference LIBOR or EURIBOR, and solicitors may need to advise clients on how to navigate these changes. Overall, understanding the implications of LIBOR and EURIBOR for legal agreements and financial contracts is an important part of the work of solicitors who advise clients in the financial sector.

Answer 11

The term "securities" generally refers to tradable financial instruments such as stocks, bonds, and derivatives. These are typically regulated by the Financial Conduct Authority (FCA) as specified investments under the FSMA. "Relevant investments" is a broader term that includes both securities and other types of financial instruments such as options, futures, and contracts for difference. This category is also regulated by the FCA as specified investments under the FSMA. "Structured deposits" are a type of financial instrument that typically offers a combination of a deposit and a derivative component. These are regulated by the FCA as a subcategory of relevant investments. Finally, the category "none of these" is used to refer to transactions or investments that do not fall within any of the categories mentioned above and are therefore not regulated by the FCA.

Answer 12

A contract for difference (CFD) is a financial derivative that allows traders to speculate on the price movements of underlying financial assets such as stocks, commodities, currencies, and indices, without actually owning the underlying assets. With a CFD, a trader agrees to exchange the difference in price of the underlying asset between the opening and closing of the contract. If the price of the underlying asset increases during the contract period, the buyer of the CFD receives a profit from the seller equal to the difference in price. Conversely, if the price of the underlying asset decreases, the buyer of the CFD owes the seller the difference in price. CFDs are often used for short-term trading, as they allow traders to take advantage of small price movements in the underlying asset, without committing a large amount of capital.

Answer 13

Some financial instruments, such as stocks, can appear in more than one category. This is because the categories are not mutually exclusive and are instead designed to capture different aspects of the financial instruments or transactions they cover. For example, a stock can be classified as a "security" because it is a tradeable financial instrument representing ownership in a company. At the same time, it can also be considered a "relevant investment" because it is a type of financial instrument that is subject to regulation under the Financial Services and Markets Act 2000 (FSMA). Similarly, a stock can be a component of a "structured deposit" because the return on the deposit may be linked to the performance of the stock. In this case, the stock is not the primary financial instrument but is instead used as a reference point for determining the return on the structured deposit. Therefore, the categories are not mutually exclusive, and financial instruments and transactions can fall under multiple categories depending on their specific characteristics and features.

Answer 14

1) Physical commodities, such as gold, silver, copper, or oil, that are not traded as futures contracts or options. 2) Collectibles, such as art, antiques, stamps, or coins, that are not traded on a regulated market. 3) Currencies held for personal use or travel, as opposed to currency trading for investment purposes. 4) Money market deposits and certificates of deposit (CDs) that are not linked to other financial instruments. 5) Corporate bonds that are not traded on a regulated market and are not structured products. 6) Mortgage-backed securities and asset-backed securities that are not traded on a regulated market. 7) Real estate, including physical property, land, and real estate investment trusts (REITs). 8) Precious stones and metals, such as diamonds or platinum, that are not traded as futures contracts or options. 9) Agricultural commodities, such as wheat or corn, that are not traded as futures contracts or options. 10) Livestock and fisheries, such as cattle or salmon, that are not traded as futures contracts or options.

Answer 15

A Real Estate Investment Trust (REIT) is a type of investment company that owns and manages income-producing real estate properties. REITs are often publicly traded on stock exchanges, allowing individual investors to invest in real estate without owning physical property. In the UK, REITs are subject to specific tax rules that require them to distribute a minimum of 90% of their rental income to investors as dividends. This tax-efficient structure has made REITs an attractive investment vehicle for both individual and institutional investors. While REITs are a type of investment, they are not typically considered to be "specified investments" under the Financial Services and Markets Act 2000 (FSMA). This is because REITs are structured as companies, rather than as collective investment schemes or investment funds, and do not offer shares or units to the public for investment. As such, REITs are not subject to the same level of regulation as other types of investment funds or vehicles. However, they are subject to various corporate and tax regulations, as well as rules and standards set by the stock exchanges on which they are listed.

Answer 16

Money market deposits are a type of bank deposit that typically offer a higher interest rate than regular savings accounts. Money market deposits are also known as money market accounts or money market savings accounts. In the UK, money market deposits are not typically considered to be "specified investments" under the Financial Services and Markets Act 2000 (FSMA). This is because money market deposits are generally considered to be a type of bank deposit, rather than a separate investment product. Banks that offer money market deposits are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), which are responsible for ensuring that banks maintain adequate levels of capital, manage risk appropriately, and treat customers fairly. However, money market deposits are not subject to the same level of regulation as other investment products, such as stocks, bonds, or mutual funds. Money market deposits are generally considered to be lower-risk investments, as they are backed by the deposit insurance schemes that protect customers in the event of a bank failure. As such, they are often used by investors who are seeking a relatively safe place to park their cash and earn a higher interest rate than they would with a traditional savings account.

Answer 17

Money market deposits differ from regular savings accounts in a few key ways: 1) Interest rates: Money market deposits typically offer a higher interest rate than regular savings accounts. This is because they often require a higher minimum deposit and may limit the number of withdrawals or transfers you can make each month. 2) Minimum balance requirements: Money market deposits often require a higher minimum balance than regular savings accounts. If your balance falls below the minimum, you may be charged a fee or your interest rate may be reduced. 3) Check-writing privileges: Some money market deposits may offer check-writing privileges, allowing you to write checks against your account balance. This is not typically an option with regular savings accounts. 4) FDIC insurance limits: Like regular savings accounts, money market deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. However, the FDIC insurance limit for money market deposits is typically higher than it is for regular savings accounts, which can make them a more attractive option for investors with larger sums of money to invest. Overall, money market deposits are generally considered to be a more sophisticated savings option than regular savings accounts. They are often used by investors who are looking for a higher rate of return on their cash, but who want to avoid the risks associated with other types of investments, such as stocks or bonds.

Answer 18

1) Long-term insurance contracts 2) Options, futures, and contracts for differences 3) Future plan contracts

Answer 19

Endowment policies: These are life insurance policies that pay out a lump sum after a set period of time or upon the death of the policyholder, whichever comes first. Whole life policies: These are life insurance policies that provide coverage for the entire life of the policyholder, as long as the premiums are paid. They typically include a savings or investment component, which can provide a cash value that can be accessed by the policyholder during their lifetime. Annuities: These are financial products that provide a regular income stream in exchange for a lump sum payment or a series of payments. They are often used to provide a guaranteed income in retirement. Investment bonds: These are investment products that combine an insurance policy with an investment component. They typically offer tax advantages and can provide a lump sum payment at the end of a set period of time or upon the death of the policyholder. Pension fund management contracts: These are contracts that provide for the management of pension funds, which are retirement savings accounts that are designed to provide income during retirement. Long-term permanent health insurance: This is insurance coverage that provides for the payment of benefits if the policyholder becomes disabled or unable to work due to illness or injury. Term life policies: These are life insurance policies that provide coverage for a set period of time, typically 10 to 30 years. They pay out a death benefit if the policyholder dies during the term of the policy. General insurance contracts: These are insurance policies that provide coverage for specific risks, such as property damage, theft, or liability. They are typically short-term policies that are renewed annually. - can you make a list of the elements without the descriptions

Answer 20

Funeral plan contracts are regarded as specified investments because they involve the prepayment of funeral expenses. These contracts allow individuals to plan and pay for their funeral in advance, typically by making regular payments to a funeral plan provider. The provider invests the payments to generate a return, which is used to cover the cost of the funeral when the time comes. Since the provider is managing investments on behalf of the consumer, funeral plan contracts fall under the definition of a specified investment and are therefore subject to regulation by the FCA.

Answer 21

1) Deposits INCLUDING: Bank and building society share accounts and all ISAs EXCLUDING: Mini-cash ISAs 2) Regulated mortgage contracts

Answer 22

ISAs (Individual Savings Accounts) are tax-free savings and investment accounts available to UK residents. The money saved or invested in an ISA will not be subject to income tax or capital gains tax. There are several types of ISAs available, including cash ISAs and stocks and shares ISAs. Mini-cash ISAs, also known as cash ISAs, are a type of ISA that allows you to save up to a certain amount tax-free each year. They are similar to regular savings accounts, but with the added benefit of tax-free interest. The maximum amount you can save in a cash ISA each year is subject to change, and the amount varies depending on your age and other factors. Cash ISAs are not specified investments, stocks and shares ISAs (and other ISA types) are, according to the book.

Answer 23

Regulated mortgage contracts are a type of mortgage that is regulated by the Financial Conduct Authority (FCA) in the UK. They are mortgages that are secured against a borrower's home, where the borrower is an individual or a trustee of a trust and the property is located in the UK. Regulated mortgage contracts offer a higher level of consumer protection than unregulated mortgages, as lenders are required to follow certain rules and guidelines when offering and managing these mortgages. Yes, they fall under the category "none of these"

Answer 24

A gilt is a type of government bond issued by the UK government. The term "gilt" comes from the fact that the original certificates were issued with a gilt (gold) edge. Gilt-edged securities, or gilts, are generally considered to be low-risk investments, as they are backed by the creditworthiness of the government. They are often used as a benchmark for other fixed-income securities, such as corporate bonds. Yes, they fall under the category "securities"

Answer 25

A regulated mortgage contract

Answer 26

1) Shares 2) Debentures 3) Gilts 4) Unit trusts and OEICs 5) Long-term and general insurance policies 6) Non-investment insurance contracts (since January 2005) 7) Regulated mortgage contracts

Answer 27

A defective title refers to a situation where there are legal issues or disputes surrounding ownership or rights to the property. This can create problems for the buyer, as they may not have clear ownership of the property, or may face legal challenges to their ownership in the future. Defective title issues may be covered by non-investment insurance contracts such as title insurance. Title insurance provides protection against financial loss resulting from defects in title to real property. Non-investment insurance contracts are specified investments, category "none of these".

Answer 28

A restrictive covenant is typically made between the property owner and a third party, such as a neighboring property owner, to restrict certain uses or developments of the property in question. In some cases, restrictive covenants may also be included in contracts between a buyer and seller of a property, or in agreements between landlords and tenants. A restrictive covenant indemnity policy is a type of insurance policy that provides protection to property owners or buyers against financial losses resulting from the enforcement of a restrictive covenant. The policy covers the cost of any legal action taken against the owner or buyer in relation to the restrictive covenant and any loss in property value resulting from the enforcement of the covenant. It is often used in the context of property transactions, where a restrictive covenant is discovered that was not disclosed during the sale process. A restrictive covenant indemnity policy is a non-investment insurance and non-investment insurance contracts are specified investments, category "none of these".

Answer 29

National Savings products

Answer 30

The acceptance of deposits, an act that is usually performed by banks and building societies, and not solicitors.

Answer 31

1) Acceptance of Deposits 2) Effecting and Carrying out contracts of Insurance 3) Dealing in investments as a principal 4) Dealing in contractually based investments 5) Dealing in investments as an agent 6) Arranging deals in investments 7) Managing investments 8) Safeguarding and administration ("custody" of investments) 9) Managing, Acting as Trustee or Depository of a Undertaking for collective investment in transferable securities (UCITS) or Alternative Investment Fonds (AIF), establishing a collective investment scheme, and operating a collective investment scheme in relation to a UCITS or AIF 10) Establishing a pension scheme 11) Advising on investments 12) Mortgage Lending, Administration, Advice or Arranging

Answer 32

No (hence, it is not a regulated activity)

Answer 33

1) Banks and building societies 2) Insurance companies and their agents

Answer 34

1) Filling in whole or significant parts of claim forms on behalf of a claimant 2) Notification of the insurer of a claim on behalf of a client 3) Receiving funds on behalf of a policyholder in settlement of a claim

Answer 35

In the context of UK law, the term "hold himself out" generally means presenting oneself to others as possessing a particular status, qualification, or authority. It can refer to a person's words, actions, or even their appearance, that suggest they have a particular skill or expertise. For example, if someone claims to be a qualified accountant and offers accounting services to the public, they are holding themselves out as an accountant. If a person refers to themselves as a doctor or lawyer without having the necessary qualifications or licenses, they are also holding themselves out as such. Holding oneself out can have legal implications, particularly if it is done fraudulently or misleads others. In such cases, it may be considered a criminal offense or a civil wrongdoing that can result in legal action against the person who held themselves out falsely.

Answer 36

In the context of Article 14 of FSMA, "subscribing for" means agreeing to purchase securities or contractually based investments before they are issued or made available to the public. It is a way for companies or issuers to raise capital by offering securities or investments to a select group of investors, who agree to buy them at a predetermined price before they are publicly available for purchase. This process is often used for initial public offerings (IPOs) or other offerings of securities or investments.

Answer 37

The reason for the difference in the types of investments that are regulated for principals and agents in Articles 14 and 21 of FSMA is that they serve different roles in the investment transaction. Article 14 applies to the activity of dealing in securities and contractually based investments as a principal, which means that the person is trading on their own account. On the other hand, Article 21 applies to the activity of dealing in securities, structured deposits, and relevant investments as an agent, which means that the person is trading on behalf of another person or entity. Structured deposits and relevant investments are specifically included in Article 21 because they are types of investment products that require additional regulation to ensure that investors are protected.

Answer 38

Art. 14: Buying and selling and subscribing for or underwriting securities or contractually based investments Art. 21: Buying and selling and subscribing for or underwriting securities, structured deposits and relevant investments

Answer 39

In the United Kingdom, a "money maker" is generally referred to as a "market maker," and a "broker dealer" is typically called a "stockbroker" or "investment dealer." Market makers and stockbrokers operate differently and have distinct roles in the financial markets. A market maker is a financial institution that provides liquidity to a particular market by buying and selling securities at quoted prices. Market makers are typically designated as principals, meaning they buy and sell securities for their own account. They are not agents for clients, although they may act as counterparties to transactions with clients. Market makers earn a profit by buying securities at the bid price and selling them at the ask price, which is known as the "spread." In the UK, market makers are typically regulated by the Financial Conduct Authority (FCA). A stockbroker or investment dealer, on the other hand, acts as an intermediary between buyers and sellers of securities. Stockbrokers are typically designated as agents, meaning they act on behalf of their clients to buy or sell securities (in theory, they can also act as principals though). They do not buy or sell securities for their own account. Instead, they earn a commission or fee for their services. In the UK, stockbrokers are typically regulated by the FCA or the Prudential Regulation Authority (PRA), depending on their specific activities and the types of clients they serve.

Answer 40

In the context of financial markets, a person who deals as a "principal" is someone who buys or sells securities for their own account, rather than as an agent for another party. When a person acts as a principal, they assume the risk of the transaction and are responsible for the profits or losses that result from it. In the statement you provided, the phrase "hold himself out" means that the person does not advertise or represent themselves as willing to buy or sell investments to others. This is sometimes referred to as "holding oneself out as a market maker." Essentially, the person is acting as a principal in a private capacity, rather than as a professional market maker or dealer. For example, if someone owns a large amount of a particular stock and wants to sell some of it, they may approach others to see if they are interested in buying. If they sell the stock to another person, they are acting as a principal. However, if they were to advertise that they are willing to buy or sell that stock regularly, they would be considered a market maker or dealer and would be subject to certain regulatory requirements.

Answer 41

A person doesn't carry out the activity of dealing in investments as a principal if they don't publicly state that they are willing to buy, sell, or subscribe to investments at specific prices. A person doesn't carry out the activity of dealing in investments as a principal if they don't buy investments with the intention of selling them later. A person doesn't carry out the activity of dealing in investments as a principal if they don't insure investments (which is called underwriting). A person doesn't carry out the activity of dealing in investments as a principal if they don't frequently approach members of the public to convince them to buy or sell investments, and the investment transaction is not a result of this persuasion.

Answer 42

"When a person holds himself out as willing to buy, sell or subscribe to investments at specific prices," it means that the person has publicly stated the prices at which they are willing to buy or sell the investments. For example, if a person publicly advertises that they are willing to buy 100 shares of Company A at $10 per share, they are holding themselves out as being willing to buy those shares at a specific price. If they were to publicly advertise that they are willing to buy 100 shares of Company A without specifying a price, that would not count as holding themselves out as willing to buy at specific prices.

Answer 43

Article 15 of the Financial Services and Markets Act 2000 (FSMA) provides exceptions to the general rule that a person who deals in investments as a principal is carrying out a regulated activity .The exceptions to this rule include situations where a person does not hold themselves out as willing to buy or sell investments at specific prices, where they do not buy investments with the intention of selling them later, where they do not insure investments, or where they do not solicit members of the public to buy or sell investments. In this case, the exception applies if the solicitor does not publicly state that they are willing to buy, sell, or subscribe to investments at specific prices. The phrase "hold himself out" means that the person does not advertise or represent themselves as willing to buy or sell investments to others at specific prices. This is sometimes referred to as "holding oneself out as a market maker." Essentially, the person is acting as a principal in a private capacity, rather than as a professional market maker or dealer.

Answer 44

Article 15 of the Financial Services and Markets Act 2000 (FSMA) provides exceptions to the general rule that a person who deals in investments as a principal is carrying out a regulated activity .The exceptions to this rule include situations where a person does not hold themselves out as willing to buy or sell investments at specific prices, where they do not buy investments with the intention of selling them later, where they do not insure investments, or where they do not solicit members of the public to buy or sell investments. In this case, the exception applies if the solicitor does not publicly state that they are willing to buy, sell, or subscribe to investments at specific prices. The phrase "hold himself out" means that the person does not advertise or represent themselves as willing to buy or sell investments to others at specific prices. This is sometimes referred to as "holding oneself out as a market maker." Essentially, the person is acting as a principal in a private capacity, rather than as a professional market maker or dealer.

Answer 45

If a solicitor is dealing in investments in the course of administering an estate, but only as a one-off transaction, this represents an exception according to Article 15 of the Financial Services and Markets Act 2000. The exception applies because the solicitor is not holding himself out as a person who regularly deals in such investments, nor is he holding himself out as engaging in the business of buying or selling such investments. The transaction is simply a one-off occurrence as part of administering the estate, and the solicitor is not carrying out a regulated activity in the course of doing so. Therefore, the solicitor is not required to be authorized by the Financial Conduct Authority (FCA) to carry out this activity.

Answer 46

Article 16 of FSMA has exceptions for some activities related to investments that don't need to be authorized. Basically, if someone is not authorized to do these activities, they won't be breaking any rules if they do one of two things: They make the investment transaction with someone who is authorized to do it, or someone who doesn't need to be authorized because of their work (exception). They make the investment transaction with someone outside of the United Kingdom who is in the business of doing these types of transactions. This is because the company they're working with might already have permission to do those activities. This relates to the following regulated activities: Article 14: dealing in investments as principal or agent Article 21: dealing in investments as matched principal Article 25: arranging deals in investments Article 37: operating a multilateral trading facility Article 40: advising on investments Article 45: managing investments Article 51ZA: dealing in investments as principal or agent Article 51ZB: arranging deals in investments Article 51ZC: advising on investments Article 51ZD: managing investments Article 51ZE: safeguarding and administering investments Article 52: communicating invitations or inducements to engage in investment activity Article 53: establishing, operating, or winding up a collective investment scheme Article 64: managing a UCITS (a type of investment fund)

Answer 47

A probate solicitor is a lawyer who specializes in handling legal matters related to a person's estate after they have passed away.

Answer 48

Yes, an insurance policy is considered a relevant investment.

Answer 49

A bare trustee is a legal concept where the trustee holds the legal title of a property or asset, but has no other duties or powers related to the trust. The bare trustee holds the asset for the benefit of the beneficiary, and has no discretion or authority to make any decisions about the asset. Essentially, the bare trustee is a passive holder of legal title, and must follow the directions of the beneficiary regarding the asset. The beneficiary is the one who has the right to use, control, or dispose of the asset, while the bare trustee has only the duty to follow the beneficiary's instructions.

Answer 50

Dealing as principal as a bare trustee (art. 67 FSMA) Sale of a body corporate (art. 70 FSMA)

Answer 51

A body corporate is a legal entity that has a separate identity from its owners, shareholders or members. It is often created for the purposes of conducting business or other activities, and can be established as a company, corporation, partnership, or other type of organization. A body corporate can own property, enter into contracts, sue or be sued, and engage in various other activities, similar to an individual person.

Answer 52

1) Authorized Third Person exclusion 2) Execution-Only exclusion 3) Reasonably necessary work done in the course of a profession 4) Sale of a body corporate

Answer 53

Making arrangements for another person, either as principal or agent, to buy, sell, subscribe for or underwrite a security, structured deposit or relevant investment. It's the same provision as Art. 21 - Dealing in Investments as Agent.

Answer 54

No, he is involved in the process that leads up to the eventual transaction, e.g., he instructs someone else to do the deal.

Answer 55

1) Arrangements that do not result in a transaction (art. 26) 2) Simply introducing a client to an authorized or exempt person who is likely to provide independent financial advice or independent discretionary management of investments with no further contact in relation to the regulated activity 3) Authorized Third Person exclusion 4) Execution-Only Client exclusion 5) Assisting a company to issue its own shares or bonds or any person issue debentures 6) Trustees, nominees and personal representatives (art. 66) 7) Reasonably necessary work done in the course of a profession (art. 67) 8) Sale of a body corporate (art. 70)

Answer 56

1) Consider a broad range of products (retail investment products) 2) Provide unbiased and unrestricted advice based on a comprehensive and fair analysis of the relevant market 3) Inform their clients, before providing advice, that they provide independent advice

Answer 57

It needs to call itself restricted.

Answer 58

Art. 21 - Dealing in investments as agent Art. 25 - Arranging Deals in an Investment

Answer 59

Dealing as an agent or arrange a deal on behalf of a client with or through an Authorized Third Person, but only AFTER the client has actually received advice from an ATP. It allows us to contact an ATP and retain an ongoing role in our client's affairs by acting as the link between the client and the ATP (e.g., by attending meetings, providing information to the ATP, and presenting ATP's advice to the client)

Answer 60

This condition means that if a firm receives a commission or other financial reward from a third party for selling a product or service to a client, the firm must disclose this to the client and pay it to the client. In other words, the firm cannot keep any commission received from a third party for itself and must pass it on to the client. This condition is designed to ensure that the firm acts in the best interests of the client and does not have any conflicts of interest that might influence the advice given to the client. It applies to the Authorized Third Party exclusion and the Execution-only exclusion.

Answer 61

When dealing as an agent or arranging with or through an ATP. It applies in two situations: 1) When it is clear that the client, in his capacity as an investor, has not sought advice from the solicitor as to the merits of entering into the transaction 2) When the client has sought advice from the solicitor but the latter has declined to give it and has recommended that the client should seek advice from an authorized person

Answer 62

1) When the investments belong to another person 2) When we exercise discretion 3) The assets include any investment which is a security, structured deposit or contractually based investment

Answer 63

It implies a long-term relationship, where the solicitor himself makes the decisions to buy or sell investments within a portfolio.

Answer 64

1) Person managing the investments has power of attorney. This assumes that all routine or day to day decisions relating to regulated investments are taken by a person who is authorized to carry on managing investments or is exempt. 2) Trustees, nominees, personal representatives.

Answer 65

- Securities or relevant investments (but NOT structured deposits) - Includes holding and keeping safe the client's paper documents - Includes holding investments in uncertificated form - Receiving dividends for investing a trust fund on behalf of a client

Answer 66

Art. 14: Securities and Contractually Based Investments Art. 21: Securities, structured deposits, relevant investments Art. 25: Securities, structured deposits, relevant investments Art. 37: Securities, structured deposits, contractually based investments Art. 40: Securities and Contractually Based Investments Art. 53: Securities, structured deposits, relevant investments

Answer 67

No. In accordance with article 3(1) of the Regulated Activities Order (Interpretation), contractually based investments are: (a) a life policy (except a long-term care insurance contract which is not a qualifying contract of insurance); (b) an option, future, contract for differences or funeral plan contract; (c) rights to or interests in an investment falling within (a) or (b). Source: FCA Handbook

Answer 68

In UK law, investments in uncertificated form refer to securities that are held and transferred electronically rather than through physical certificates. The most common form of uncertificated securities in the UK is through the use of a system called the "CREST" (Certificateless Registry for Electronic Share Transfer) system, which is operated by Euroclear UK and Ireland. This system allows investors to hold and transfer securities electronically without the need for physical share certificates. Securities that can be held in uncertificated form include shares in a company, bonds, and other types of financial instruments. These securities are recorded and transferred through electronic bookkeeping entries, rather than through the physical delivery of paper certificates.

Answer 69

1) If the person safeguarding the assets is a "qualifying custodian" - i.e. the person themselves is qualified or exempt (art. 42) 2) Safeguarding without administration 3) Merely providing the client information (e.g., on value of assets) 4) Converting currency 5) Receiving documents solely for the purpose of transferring those to the owner of the investments 6) Trustees, nominees, and personal representatives (art. 66) 7) Reasonably necessary work done in the course of a profession (art. 67)

Answer 70

Establishing, operating, or winding up a stakeholder pension scheme and/or personal pension scheme.

Answer 71

Securities, structured deposits, relevant investments

Answer 72

1) Giving generic advice, without mentioning which specific investment is suitable 2) Authorized person exclusion - the advice stems from them 3) Execution-only client exclusion - client has not sought advice or solicitor has declined and recommended to get advice from ATP 4) Trustees, nominees, and personal representatives (art. 66) 5) Reasonably necessary work done in the course of a profession (art. 67) 6) Sale of a corporate body (art. 70)

Answer 73

All other exceptions are not applicable, but there is art. 72C Provision of Information on Incidental Basis In simple terms, the exception means that if someone provides information about insurance policies as part of their regular job, but does not actively arrange or assist in buying insurance, then they are not subject to the regulations that govern insurance brokers or intermediaries. The term "incidental" here means that providing such information is not the main focus of their job. For instance, the solicitor can hand a client the name and information of an ATP when dealing with a matter that requires it.

Answer 74

Regulated mortgage contract

Answer 75

1) Arranging RMCs or making arrangements for a person to vary the terms of an RMC 2) Making arrangements with a view to a person entering into an RMC 3) Advising a client on entering or varying an RMC 4) Entering into an RMC as a lender 5) Administrating an RMC 6) Agreeing to carry on any of the above

Answer 76

1) Arrangement which do not bring about the RMC in question (the solicitor played a very minor role in the chain of events leading up to the transaction) 2) RMC arranged with or through ATP 3) Introducing a client to an ATP or person who is exempt 4) Generic advice 5) Exercising a right to take action to enforce the contract (e.g., recover debt on behalf of lenders) 6) Dealing as principal as a bare trustee, where trustee merely acts on the other person's instruction and does not hold himself out as providing a service in buying and selling securities or contractually based investments

Answer 77

They do not belong to any of these categories.

Answer 78

The regulated activities of dealing, arranging, managing, safeguarding and advising will only apply to regulated mortgage contracts as they are specifically prohibited by the RAO (not the FSMA).

Answer 79

A bare trustee is a legal term used to describe a trustee who holds assets on behalf of the beneficiary but has no powers or duties other than to transfer those assets to the beneficiary upon request. The bare trustee is not responsible for managing or investing the assets, making decisions about how they are used or distributed, or providing any other kind of oversight or support. In the context of a bare trustee dealing as a principal in the UK, the "other person" referred to in the statement would typically be the beneficiary of the trust. The bare trustee would be acting on the instructions of the beneficiary to buy or sell securities or contractually-based investments on their behalf. It's important to note that when a bare trustee acts as a principal in buying and selling securities, they are assuming the risk and responsibility for any gains or losses that may result. As such, the bare trustee must ensure that they have the authority to engage in such transactions and that they are acting in accordance with their fiduciary duties to the beneficiary. In the context of the statement, the fact that the bare trustee does not hold himself out as providing a service in buying and selling securities or contractually-based investments means that they are not engaging in investment business as defined by UK law. This means that they are not subject to the regulatory requirements that apply to firms that provide investment services, such as the need to be authorized and regulated by the Financial Conduct Authority (FCA). However, even if a bare trustee is not subject to regulatory requirements, they still have a duty to act in the best interests of the beneficiary and to exercise due care and diligence in carrying out their duties. If a bare trustee is uncertain about their obligations or the legal implications of a particular transaction, it is advisable to seek professional advice from a qualified legal or financial professional.

Answer 80

1) Arranging deals 2) Managing investments 3) Safeguarding and administration 4) Advising on investments The basic condition is that the trustee or PR does not receive remuneration for work in addition to any remuneration he receives as a trustee or PR.

Answer 81

Intestacy refers to the situation where a person dies without leaving a valid will or other legal document specifying how their assets and property should be distributed after their death. When someone dies intestate, the laws of intestacy in the jurisdiction where the person lived will determine how their assets and property will be distributed among their heirs.

Answer 82

If a solicitor is acting as a trustee or personal representative (PR) of an estate, certain transactions they enter into are not considered as conflicts of interest and are allowed. Specifically, if the transaction is between the solicitor and another trustee or PR of the same trust or estate, or if the transaction involves a beneficiary under the trust, will or intestacy, then it is not considered a conflict of interest.

Answer 83

1) The solicitor does not hold himself out as providing a discretionary investment service 2) The assets in question are not held for the purposes of an occupational scheme which the trustee or PR manages by way of business For safeguarding and administrating, number 1 applies as well.

Answer 84

In many cases, the provision allows them to operate under these 4 exclusions.

Answer 85

Only C is not exempt Like in the case of art. 66 (activities of trustees and personal representatives), the services cannot be remunerated separately.

Answer 86

A joint endowment insurance policy is a type of life insurance policy that is taken out by two or more individuals, usually spouses or partners. It is designed to provide a lump sum payment to the policyholders or their beneficiaries at the end of a specified term or upon the death of one or more of the policyholders.

Answer 87

1) Matrimonial work 2) Conveyancing work 3) Litigation work 4) Probate work 5) Work related to regulated mortgage contracts (RMCs)

Answer 88

I can be used when advising and/or arranging the sale or transfer of a joint endowment insurance policy by finding a buyer at the best price and then arranging the deal. A joint endowment insurance policy may be considered an asset of the couple. In some cases, one spouse may wish to sell or transfer their share of the policy to the other spouse, or to a third party. Therefore, in the context of matrimonial work, the activity of "advising and/or arranging the sale or transfer of a joint endowment insurance policy" refers to finding a buyer or transferee who is willing to purchase the policy at the best price possible, and then helping to facilitate the transfer of ownership. This may involve evaluating the policy's current value, assessing the potential risks and benefits of transferring ownership, and negotiating with potential buyers or transferees to ensure that the best possible deal is achieved for the client.

Answer 89

In conveyancing work: (a) advising on or arranging the assignment of a life policy in connection with a mortgage transaction ; (b) buying or selling shares in a management or service company in connection with a conveyancing transaction In conveyancing work, "advising on or arranging the assignment of a life policy in connection with a mortgage transaction" refers to the process of transferring ownership of a life insurance policy from the borrower to the lender as part of a mortgage transaction. This is often done to provide additional security for the lender in case the borrower is unable to repay the loan. The conveyancing solicitor may advise the borrower on the implications of assigning the policy and the impact it may have on their coverage. They may also assist in the preparation and execution of the necessary documentation. Regarding "buying or selling shares in a management or service company in connection with a conveyancing transaction", this may occur when a property being sold is part of a larger development or complex managed by a management or service company. The shares in the management or service company may be sold along with the property. The conveyancing solicitor may advise the client on the implications of buying or selling the shares, such as potential liabilities or benefits associated with the management or service company. They may also assist in the preparation and execution of the necessary documentation to effect the transfer of the shares.

Answer 90

In litigation work: after brokering a settlement for the specific performance of a contract (in which your client will purchase a certain number of shares in the other side's company), you may then present the other party with a cheque on behalf of your client, drawing up a stock transfer form and submitting the completed form to the company secretary for registration of the transfer of ownership (all these activities should reasonably be regarded as a necessary part of the litigation services).

Answer 91

In probate work: a solicitor acting as PR, who advises on and arranges for the sale of ALL the assets of an estate to pay Inheritance Tax debts or beneficiaries.

Answer 92

No, since January 2005 this exclusion no longer applies to those.

Answer 93

The provision of legal services may involve you advising on the legal effects and consequences of entering into a particular RMC. To the extent that this may involve advice on the merits of entering into this particular contract, it is likely to be a necessary part of the legal service. However, it would not be necessary for you to go on to recommend that your client would be better to enter into a different RMC.

Answer 94

This exclusion applies to dealing as principal or agent, arranging deals and giving advice in connection with the sale or purchase of shares in a body corporate, including public and private limited companies. The purpose of the exclusion is to avoid unnecessary regulation of certain activities that do not pose a significant risk to consumers. The conditions that must be met for the exclusion to apply help to ensure that the activities are carried out between parties who are capable of making informed decisions and have the resources to do so. By requiring that the shares being sold or purchased constitute (A) at least 50% of the voting shares in the body corporate, or (B) that the acquisition or disposal will give the purchaser day-to-day control over the running of the company's affairs, the exclusion is intended to limit the scope of the activities to those where the parties involved have a significant stake and a real interest in the outcome. Additionally, limiting the exclusion to transactions between certain types of parties, such as bodies corporate, partnerships, and individuals, helps to ensure that the exclusion is not being used to circumvent the regulatory regime for activities that should be subject to regulation. This condition only applies to (A) though.

Chapter 3 Flashcards

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