Recognition of Relevant Financial Services Issues (Investments, Activities, Exemptions) Flashcards
(16 cards)
Which of these is always a regulated activity under FSMA unless exempted?
A. Drafting a will
B. Advising on share purchases
C. Reviewing a lease agreement
D. Conducting litigation
B. Advising on share purchases
Explanation: Investment advice (e.g. recommending shares) is a regulated activity requiring FCA permission
The statutory “incidental to legal practice” exemption applies when a financial step is:
A. The main purpose of the engagement
B. Merely a by-product of legal advice
C. Carried out by a non-solicitor
D. Outsourced to another firm
B. Merely a by-product of legal advice
Explanation: If the financial service is incidental to the legal work, it’s exempt from FCA rules
Which role is responsible for mapping a firm’s regulated vs exempt activities?
A. COLP
B. COFA
C. MLRO
D. COCO
B. COFA
Explanation: The Compliance Officer for Finance oversees which activities need FCA permission or rely on exemption
Under FSMA, “arranging deals” in securities for clients is classified as:
A. A permitted legal activity
B. An exempt activity if incidental
C. A regulated investment service
D. A payment service
C. A regulated investment service
Explanation: Arranging investments is a regulated activity requiring FCA permission
A conveyancer completes a bank transfer form to move sale proceeds. This is:
A. Investment advice (regulated)
B. Insurance distribution (regulated)
C. Incidental legal work (exempt)
D. Consumer credit broking (regulated)
C. Incidental legal work (exempt)
Explanation: Filling transfer forms as part of conveyancing is incidental and exempt .
A firm separately recommends a client buy a particular pension fund. They must:
A. Rely on the incidental exemption
B. Obtain FCA permission for investment advice
C. Refer only if the client requests
D. Only document the recommendation
B. Obtain FCA permission for investment advice
Explanation: Standalone investment advice is regulated and needs FCA authorization
The firm offers to arrange clients’ home insurance directly. To comply, they should:
A. Use the SRA exemption
B. Obtain FCA insurance distribution permission
C. Redraft the policy wording only
D. Refer to an appointed representative without agreement
B. Obtain FCA insurance distribution permission
Explanation: Insurance mediation is regulated; exemption does not cover standalone insurance advice
When drafting a mortgage deed without commenting on its merits, the firm is:
A. Providing payment services
B. Engaging in consumer credit activity
C. Arranging deals (regulated)
D. Exempt as incidental legal practice
D. Exempt as incidental legal practice
Explanation: Drafting security documents without advising on their financial merits is exempt
An “appointed representative” model means your firm:
A. Holds its own FCA permissions
B. Carries the compliance risk of its FCA principal
C. Is exempt from all financial regulations
D. Can self-authorise new services
B. Carries the compliance risk of its FCA principal
Explanation: As an appointed rep, your principal firm’s permissions cover you, but compliance liability sits with them
To decide if a service is exempt, you ask: “Would I offer this financial activity on its own?” If the answer is yes, it is:
A. Exempt
B. Unclear
C. Prohibited
D. Regulated
D. Regulated
Explanation: If the service stands alone, it’s not incidental and thus regulated
Which of these services would never be exempt under the incidental exemption?
A. Holding client funds under SRA rules
B. Drafting a mortgage deed
C. Offering discretionary portfolio management
D. Completing settlement cheques
C. Offering discretionary portfolio management
Explanation: Portfolio management is a regulated activity, not incidental legal work
According to the simple flowchart, the final step when a service is regulated is to:
A. Assume SRA authorisation suffices
B. Obtain FCA permission or refer to an authorised partner
C. Outsource the entire legal work
D. Only train the COFA
B. Obtain FCA permission or refer to an authorised partner
Explanation: Regulated activities require FCA permission or referral arrangements
Which specific exemption allows solicitors to pay interest on client money without FCA permission?
A. Incidental to legal practice (SRA Accounts Rules)
B. Simplified Due Diligence exemption
C. PoCA threshold exemption
D. Arrangements exemption
A. Incidental to legal practice (SRA Accounts Rules)
Explanation: Paying interest on client balances held under SRA Accounts Rules is treated as incidental legal work and is FCA-exempt
In the COFA’s Permissions Matrix, which step comes immediately after identifying a potentially regulated activity?
A. Map exemptions
B. Check whether it’s “incidental” to legal advice
C. File an SAR
D. Train fee-earners
B. Check whether it’s “incidental” to legal advice
Explanation: Once a service is noted as potentially regulated, COFA must first test the incidental-to-legal-practice exemption before seeking permission
How is “arranging deals” by solicitors defined under FSMA?
A. Any conveyancing transaction
B. Merely drafting document templates
C. Bringing together parties in share or bond transactions
D. Offering legal representation in court
C. Bringing together parties in share or bond transactions
Explanation: “Arranging” means facilitating the introduction or execution of deals in investments, which is FCA-regulated if not incidental
Which is a key advantage of using an Appointed Representative model for a law firm?
A. The AR can self-authorise new regulated services
B. The firm retains full FCA permission without oversight
C. The AR’s principal bears the compliance risk for regulated activities
D. No need to document exemptions or referrals
C. The AR’s principal bears the compliance risk for regulated activities
Explanation: By acting as an AR, the firm’s regulated work sits under the FCA authorisation of its principal, which assumes the compliance burden
