Regulated Activities & Authorisation

• Topic 01

  Regulated Activities & Authorisation

  64 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. An overseas investment firm carries on investment advice in the UK by visiting clients at their homes. The firm has no FCA authorisation. One client suffers a £80,000 loss from bad advice and seeks to enforce the agreement in court. What is the legal outcome under FSMA 2000?

   • A
     The client cannot enforce the agreement because the firm was overseas and outside UK court jurisdiction
   • B
     The agreement is unenforceable by the unauthorised firm; the client can enforce it and recover money paid plus compensation for loss under s.26(2)
     Correct answer
   • C
     The agreement is enforceable by both parties because investment advice contracts are governed by contract law, not FSMA 2000
   • D
     The client can claim from the FSCS up to £85,000 because the loss resulted from regulated investment advice
   Explanation

   Section 26 FSMA 2000 provides that an agreement made in breach of the General Prohibition (i.e. by an unauthorised person) is unenforceable by the unauthorised party but CAN be enforced by the innocent party (the client). Under s.26(2), the client can recover money paid under the agreement and compensation for any loss. The contract is not void — it is merely unenforceable by the unauthorised firm. There is no FSCS protection because the firm was unauthorised.

2. What is an 'appointed representative' (AR) and how does an AR obtain the right to carry on regulated activities?

   • A
     An AR is a consumer-facing adviser who has been registered with the FCA under the Financial Services Register
   • B
     An AR is a firm that is temporarily authorised while its full authorisation application is pending with the FCA
   • C
     An AR is any employee of an FCA-authorised firm who is certified under the SM&CR Certification Regime
   • D
     An AR is a firm or individual that carries on regulated activities on behalf of an FCA-authorised 'principal' firm, which takes regulatory responsibility for the AR's conduct
     Correct answer
   Explanation

   Under FSMA 2000 section 39, an appointed representative is a firm or individual that acts as agent for an FCA-authorised 'principal'. The principal is responsible for ensuring the AR complies with FCA rules for the regulated activities it carries out. The AR does not hold its own FCA authorisation — it is exempt from the General Prohibition by virtue of its relationship with the principal. The principal must have accepted responsibility for the AR's conduct under a written agreement.

3. Which of the following is a 'specified investment' under the Regulated Activities Order: government gilts, commercial property, or foreign currency?

   • A
     Government gilts
     Correct answer
   • B
     Foreign currency held in a bank account
   • C
     Classic cars
   • D
     Commercial property
   Explanation

   Government gilts (UK government securities) are listed as specified investments in Part III of the Regulated Activities Order (RAO). Commercial property and foreign currency (in itself) are not specified investments under the RAO, which means dealing in or advising on them is not a regulated activity under FSMA 2000. This is a common exam distinction: real property and most commodities are not RAO specified investments.