SAMPLE NOTES FROM OUR CORE MODULES GUIDE: Civil Litigation: Pre-Action Considerations Business Law & Practice: o General Procedure Plans o Procedure Plan for Allotment of Shares and Pre-Emption Rights Professional Conduct: General Prohibition under Section 19 FSMA
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CIVIL LITIGATION
PRE-ACTION CONSIDERATIONS
PRE-ACTION CONDUCT:
First consider the Practice Direction – Pre-Action Conduct and Protocols (“PDPAC”):
Litigation should be a last resort
Potential claimants must comply with the CPRs
The Letter Before Claim must meet the requirements set out in the PDPAC
The aim and spirit of the CPRs is to resolve disputes as cheaply and as quickly as possible. Parties should exchange information, consider Alternative Dispute Resolution (“ADR”) and attempt to resolve issues without beginning proceedings (PDPAC para 8)). The parties should always try to settle where they can: courts are very keen on pushing parties into ADR. Before pursuing litigation, always explain the various types of ADR to your client and identify where it may be better for them to engage in ADR over litigation à see the chapter “Arbitration and Alternative Dispute Resolution” at the end of this book for more detail. Claimants must comply with the CPRs if they wish to avoid costs sanctions against them (or even strike out of their claims). Any potential claimant should therefore first send a Letter Before Claim to the potential defendant. The potential defendant should reply within a reasonable time – no more than 3 months in most cases (PDPAC para 6). The Letter Before Claim should be a genuine attempt to settle. There is no point in sending an aggressive letter demanding enormous sums at short notice. This will look bad for the potential claimant: it would appear that he did not genuinely intend to settle and simply wanted to drag the other party to court. A party's silence or refusal in response to a Letter Before Claim or ADR proposal may also be considered unreasonable (PGF II v OMFS). Aggressiveness or silence could lead to costs sanctions. It is almost always in the interests of your client to really try to settle a dispute before issuing a claim. The purpose of the PDPAC is to encourage early settlement and ensure the smooth running of the litigation.
NOTE that the costs of pre-action conduct should be minimal. The parties should only take “reasonable and proportionate steps” to identify, narrow and resolve any issues, and they cannot recover any disproportionately high costs incurred in doing so (PDPAC paras 4 - 5).
If the parties have complied with the PDPAC and made genuine attempts to resolve the dispute, but have not settled, they must review their case, consider the evidence and attempt to avoid court proceedings or at least narrow the issues between them before going to court (PDPAC para 12). Note that if a party makes an interim application, the court can order pre-action disclosure (CPR 31.16) and/or pre-action inspection of property (CPR 25.1). NOTE that it is possible to make Part 36 settlement offers during the pre-action phase (CPR 36.7(1). For more information see the chapter on Part 36 offers. If the case doesn’t settle during the pre-action stage then there are various issues to consider, including which court to bring the action in and how to fund the claim (see overleaf).
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CIVIL LITIGATION
CHOICE OF COURT:
The County Court and the High Court have a concurrent jurisdiction over most matters, meaning that a claim could be brought in either court, subject to the below. Consider the following factors to decide which court your client’s claim should be brought in:
COUNTY COURT
If a claim is for £100,000 or less (PD 7A para 2.1). The following factors point to using the High Court (PD 7A para 2.4):
HIGH COURT
•
High value claims;
•
Claims involving complex facts or law;
•
Where the outcome is important to the public; or
•
If the Claimant believes that the High Court is the suitable venue for the action.
Claims founded in certain causes of action must be brought in the High Court. These include claims in relation to libel, judicial review and the Human Rights Act.
EITHER
If the claim is worth more than £100,000, it can be brought in either court (PD 7A para 2.1). For personal injury claims the threshold is lower, at £50,000 (PD 7A para 2.2).
FEE ARRANGEMENTS:
You should clearly explain to your client that he will be bound to pay your legal fees and disbursements, whether or not he is successful at trial. Even if your client is successful at trial and the court orders the other side to pay your client’s legal fees, there may often be some legal fees (approximately 10 – 30%) which the other side will not be ordered to pay. Nonetheless, your client will still owe you that money.
Aside from the traditional model, where your client pays your fees as they arise, usually on a monthly basis, with hourly rates agreed in advance, conditional or contingency fee arrangements are possible. NOTE that there are only two possible types, despite what they might be called:
Conditional Fee Arrangements (“CFAs”)
DamagesBased Agreements (“DBAs”)
A.k.a. “no win, no fee” agreements. Under a CFA your fees are conditional on your client’s success. If your client loses, then no fees (or reduced fees) are due. If your client wins, then he will have to pay your fees plus a success fee. It is important to note that whilst the court may order the other side to pay your client’s costs, it will never order the other side to pay the success fee – that will be paid by your client, and so effectively reduces the amount of compensation they take home. Also known as a contingency fee arrangement, under a DBA if your client is successful, he will have to pay you a percentage of the damages awarded to him. This cannot be higher than 50%, and must be less in personal injury and employment tribunal cases. If your client loses, then he will not be liable for your fees.
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CIVIL LITIGATION
COMMUNITY LEGAL SERVICE (“CLS”)
Often informally referred to as “Legal Aid”, CLS is a loan from the state to allow less affluent clients to pursue litigation.
It is important to stress that CLS is a loan, not a grant: if a party which is CLS-funded wins their case, then they will have to repay the loan. They may have to pay this out of their damages if necessary, but will never have to pay back more than was lent. If the fees and damages awarded are less than the amount of the CLS funding, then they will not have to pay more than what they were awarded. A CLS-funded party will never end up out of pocket.
Beware if your opponent is CLS-funded because you will not get your costs awarded if you win. The state will not pay your legal fees – the only exception is where your client is a defendant who would suffer hardship unless his reasonable costs were paid.
A claimant can never recover his legal fees from a state-funded defendant, but he will still owe you his legal fees, so advise a claimant who is considering suing a CLS-funded defendant that your legal fees could substantially reduce the amount of compensation he takes home.
INSURANCE:
Claimants can get the following types of insurance policy to cover the cost of litigation: • Before the event (“BTE”): taken out as a general policy against the risk of future claims before a specific claim is begun; or • After the event (“ATE”): taken out after a specific claim has been made solely to cover the cost of that litigation, particularly if the insured party loses. The premium is higher than for BTE and is only available if the insurance company judges that the risk of losing is low.
LIMITATION PERIODS
You should beware of limitation periods. The Claim Form must be issued within:
Breach of contract claims:
6 years from when the cause of action accrued, which means 6 years from the date when the contract was breached, even if nobody was aware of the breach and the damage was not suffered until later on.
Breach of contract claims where the contract was made under a deed: Tortious claims:
12 years from when the cause of action accrued.
6 years from when the loss/damage was suffered (or, for latent damage, 3 years from the claimant’s date of knowledge with a 15-year long stop).
COURT ISSUE FEES
Claimants have to pay issue fees to the court when commencing proceedings. You may not need to know the exact figures for your exam. Note that these fees are constantly changing. Example fees:
COUNTY
HIGH
£35
£35
For a money claim worth £300 or less;
£355
£528
For repossession of land; or
£10,000
£10,000
7
For an unlimited money claim.
CIVIL LITIGATION
TIMELINE OF AN ACTION PROFESSIONAL CONDUCT POINT:
Before agreeing to represent/advise any potential client, first check that your firm is not conflicted, i.e. that the firm does not represent another party in the same matter or is otherwise involved in a way which might lead to a conflict of interest.
Note: to understand the details of this flowchart, see the following chapters Follow the PreAction Protocol: send out a Letter Before Claim and consider ADR
Cause of action accrues: for a tort this will be when the damage was suffered, and for a breach of contract this will be when breach occurred, even if the damage occurred later. CF is deemed served. The CF must be served with the Particulars of Claim (“PoC”) and a Response Pack (which contains forms for the Defendant to admit, acknowledge or defend the claim). If the CF does not include the and Response Pack, the claimant PoC has 14 clear days to serve these.
2nd business day after relevant step
Have the Court issue the Claim Form (“CF”) – the Court will then serve it unless you opt otherwise, in which case you have 4 months to take the “relevant step”
The parties’ solicitors can further agree to extend the time for service of the defence by up to 28 clear days (or longer with permission of the court).
Defendant then has 14 clear days to file and serve:
An Admission
or
An Acknowledgement of Service
and /or
A Defence
Acknowledging gives the Defendant an extra 14 clear days to file and serve a defence
Or, if there is no response, then on day 15, apply for Judgment in Default under CPR 12.
Preparations for trial – further directions and deadlines will be agreed between the parties’ solicitors and/or ordered by the court (e.g. at a Case Management Conference).
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BUSINESS LAW AND PRACTICE
PROCEDURE PLANS Exam technique for creating a procedure plan: First work out how many board meetings (“BMs”) and shareholder meetings (“GMs”) are needed. The examples below require a BM, followed by a GM and then another BM. This procedure is typical for a simple matter such as changing the company name. Then, go through each meeting in turn. Consider memorising the acronym “NQAV” – Notice, Quorum, Agenda, and Voting – in order to work through the requirements for each BM and GM in a logical manner:
Notice:
Who can call the meeting and what are the notice requirements?
Quorum:
How many people need to be present at the meeting in order for it to be validly constituted (“quorate”)?
Agenda:
What matters will be discussed and voted on?
Voting:
Who can vote? How will voting take place and how will votes be counted?
Include detailed references to the model articles (“MAs”) and sections of the Companies Act 2006 that you are referring to at every possible stage, as has been done below. Remember to always go through the post-meeting matters as well. The skeleton below sets out a general procedure plan that you can base the structure of your answers on. Specific procedure plans for particular matters are set out later in this guide.
GENERAL PROCEDURE PLAN SKELETON FIRST BOARD MEETING
1:
Any director can call a board meeting (MA 9)
2:
On “reasonable notice” (Browne v La Trinidad)
3:
Quorum is 2 (MA 11(2)) Agenda – the following need board resolutions:
4:
• • • • • • • •
Appoint new directors (MA 17(1)(b)) Appoint a chair (MA 12(1)) Authorise someone to act as corporate representative at shareholder meetings (s. 323) Change the registered office (s. 87) Change the Accounting Reference Date (“ARD”) (s. 392) Appoint the auditors (s. 485) Approve the transfer of shares from old to new members (ss. 112, 113, 544, 770 & MA 26) Approve notice of a GM and any draft resolutions (and any consent to short notice) – call GM on 14 clear days’ notice (ss. 307 & 360) unless “special notice” of 28 days is required (s. 312).
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Notice of a GM should contain: o Exact wording of the special resolution (s. 283(6)) o Time, date and place of meeting (s. 311(1)) o Proxy notice (s. 325(1)) 5:
Voting is unanimous or by a simple majority on a show of hands (MAs 7 & 8)
GENERAL MEETING
1:
Notice period is 14 clear days (s. 307) The written resolution procedure is a possibility (ss. 289 - 291, 296, 297 & 300). For more information return to the chapter on “Company Decision-Making”, but as a reminder:
2:
• • • • •
The written resolution should be circulated to all eligible members immediately. Abstentions (non-votes) count as votes against the resolution. Votes in favour of the resolution may not be revoked. The resolution will lapse if the necessary threshold of votes in favour is not met by a set date. All votes on written resolutions are on a poll
3:
The short notice procedure reduces the standard notice period to the time it takes to gather the required consents. At least 90% of eligible shareholders must agree to the short notice procedure being used (s. 307(4)-(6)).
4:
Quorum is 1 qualifying person for a single member company (s. 318(1)). Otherwise the quorum is 2 qualifying persons (s. 318(2)) or as many as specified in the company’s articles. A “qualifying person” is a shareholder, an authorised representative under s. 323 or a proxy of either (s. 318(3)). Agenda – the following require shareholder approval:
5:
6:
• • • • •
Change name of company – special resolution (s. 77(1)) Change the articles of association – special resolution (s. 21) Remove a director – ordinary resolution (s. 168) Security/guarantee/loan/SPTs with a director/connected person – ordinary resolution (ss. 190, 197, 200) Directors’ long term service contracts – ordinary resolution (s. 188)
•
Approval of contract to buy own shares (s. 696)
Check the articles for voting requirements. Unless the Articles specify otherwise, voting is on a show of hands, or on a poll vote if one is demanded (MA 42).
SECOND BOARD MEETING
1:
Convene BM as above (same notice, quorum and voting requirements)
2:
Agenda: Chairman reports what resolutions were passed at the GM
3:
Any necessary action is taking e.g. entering a transaction that has just been approved by the shareholders.
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4:
Secretary instructed (or a director if no secretary) to file documents set out under post meeting matters.
POST MEETING MATTERS
File the following forms – if relevant – at Companies House: 1:
AP01
for appointing directors (s. 167)
within 14 days
2:
AP03
for appointing secretaries (s. 270)
within 14 days
3:
TM01
termination of appointment of directors (s. 167)
within 14 days
4:
TM02
termination of appointment of secretary (s. 276)
within 14 days
5:
AD01
change of address of registered office (s. 87)
6:
AD02
nominating a SAIL (s. 1136)
7:
AD03
change of SAIL
8:
AA01
change of ARD (s. 392)
9:
NM01
change of name (s. 78)
within 15 days
10:
Copy of any special resolution (ss. 29(1)(a) & 30(1))
within 15 days
11:
Register the transfer of shares received on a Stock Transfer Form (ss. 544, 770, 711)
Remember to pay any fees due to CH when making a filing (e.g. for a change of name). Update the following internal records, where relevant:
1:
Update register of Directors (s. 162)
2:
Update register of Secretaries (s. 275)
3:
Update register of members (ss. 112, 113, 123)
4:
Update PSC Register (s. 790E)
5:
Draw up the minutes of the BMs and GM, and enter them into the company’s minute books, where they must be kept for at least 10 years (ss. 248 & 355)
6:
Keep a copy of all meetings and resolutions (s. 355), even if a sole member company (s. 357).
On the following pages are a series of example procedure plans for the typical matters that you may be likely to encounter in your exam. Bear in mind that these procedure plans are skeletons to show you the correct structure to follow – you will need to flesh them out.
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BUSINESS LAW AND PRACTICE
SUGGESTED PROCEDURE PLAN FOR SHARE ALLOTMENT & PRE-EMPTION RIGHTS APPROVAL FIRST BOARD MEETING NOTICE QUORUM
Any director can call (MA 9) on “reasonable notice” (Browne v La Trinidad). 2 (MA 11(2)). Board must agree to call a GM using their powers in s. 302. They should approve notice of the GM – call GM on 14 clear days’ notice (ss. 307 & 360). Notice of a GM should contain: a) Time, date and place of meeting (s. 311(1))
AGENDA
b) Proxy notice (s. 325(1)) c) Exact wording of any special resolutions (s. 283(6)). An SR may be required either to disapply any pre-emption rights and/or to amend the company’s articles to allow for the allotment. May also need to draft an ordinary resolution for the shareholders authorising the allotment of shares.
VOTING
Unanimous or by a simple majority show of hands (MAs 7 & 8).
GENERAL MEETING
Notice period is 14 clear days (ss. 307, 360), but if there is insufficient time: •
The written resolution procedure is a possibility (ss. 289 – 291, 296, 297, 300) – see section chapter on “Company Decision-Making” for more detail; or
•
The short notice procedure reduces notice time to the time it takes to acquire the necessary level of consent – needs at least 90% of shareholders to agree (s. 307(4)-(6)).
NOTICE
QUORUM
AGENDA
2 (s. 318(2)), unless a single member company, then 1 (s. 318(1)). Where the company seeking to make the allotment has more than one class of share, the shareholders must pass an ordinary resolution authorising the directors to make the allotment (s. 551(1)). This must specify the maximum number of shares that may be allotted and have an expiry date of less than 5 years (s. 551(3)). If any articles relating to the allotment of shares need amending the company must pass a special resolution (s. 21). If the company is disapplying or amending statutory pre-emption rights, a special resolution must be passed (s. 569(1)).
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Ordinary resolutions require more than 50% of votes in favour (s. 282). VOTING
Special resolutions require 75% or more votes in favour (s. 283). Voting is on a show of hands, unless a poll vote is demanded (MA 42).
SECOND BOARD MEETING
NOTICE
QUORUM
Any director can call (MA 9) on “reasonable notice” (Browne v La Trinidad). 2 (MA 11(2)). Note that if any of the directors are being allotted shares in the transaction they will still be able to count towards the quorum, as the transaction relates to a subscription for shares in the company (MA 14(4)(b)). Chairman reports on the resolutions passed at the GM.
AGENDA
The board must now allot the shares, complying with any pre-emption rights in the articles or statutory rights under s. 561 if necessary. Secretary instructed (or a director if no secretary) to file documents set out under post meeting matters. Unanimous or by a simple majority show of hands (MAs 7 & 8).
VOTING
Note that if any of the directors are being allotted shares in the transaction they will still be able to vote on the transaction, as it relates to subscribing for shares in the company (MA 14(4)(b)).
POST MEETING MATTERS
1) File any special resolutions with CH (ss. 29 & 30) EXTERNAL REPORTING
2) If the company has amended its articles using s. 21, they must send CH a copy of the amended articles within 15 days (s. 26) 3) The company must register a return of allotment with CH on form SH01 within 1 month (s. 555). 1) The allotment must be registered as soon as possible but within a maximum of 2 months s. 554(1) by updating the register of members (s. 113(1)).
UPDATE INTERNAL RECORDS
2) The company must issue share certificates within 2 months of the allotment (ss. 554(5) & 769(1), see also MA 24). 3) The PSC Register will also need updating (s. 790E). 4) Draw up minutes of BMs and GM, and enter them into the company’s minute books where they must be kept for at least 10 years (ss. 248 & 355) 5) Keep a copy of all meetings and resolutions (s. 355), even if a sole member company (s. 357).
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PROFESSIONAL CONDUCT & REGULATION
THE GENERAL PROHIBITION – SECTION 19 FSMA Section 19(1) of the Financial Services and Markets Act 2000 (“FSMA”) states that only authorised or exempt persons may carry on a “regulated activity.” If an unauthorised and non-exempt person carries on a regulated activity, that person commits a criminal offence. Solicitors must consider whether they might be in breach of the general prohibition when carrying out an activity.
SECTION 19:
1) No person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is: a) an authorised person; or
THE GENERAL PROHIBITION
b) an exempt person. 2) The prohibition is referred to in this Act as the general prohibition.
A “regulated activity” means a “specified activity” which relates to a “specified investment” (s. 22(1) FSMA). The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“RAO”) sets out exactly what “specified” means.
EXAM TECHNIQUE
Go through the following steps to answer a problem question on the general prohibition:
STEP 1:
Does the activity relate to a “specified investment” under FSMA?
If no, then FSMA does not apply and no authorisation is needed. If yes, go to Step 2 below. “Investment” is widely defined to include any asset, right or interest (s. 22(4)). Section 22(5) refers to “an order made by the Treasury”: this means the RAO. The RAO sets out a list of “specified” investments in Part III. They include:
•
Art. 75: “Rights under a contract of insurance” (this should cover any insurance contract that arises in your exam – such as life assurance, home insurance, after-the-event legal costs insurance, mortgage protection policies, etc.)
•
Art. 76: Shares
•
Art. 77: Instruments “creating or acknowledging indebtedness” (notably bonds, among other loan instruments, such as certificates of deposit)
•
Art. 88: “Regulated mortgage contracts” – which are defined in Art. 61(3) as mortgage contracts which, at the time they are entered into, are: o
contracts under which a lender provides credit to an individual or trustee borrower(s);
o
a first legal mortgage over land; and
o
where at least 40% of that land is used/intended to be used as a dwelling by the borrower.
Essentially, this means typical homeowner mortgages, but generally not buy-to-let mortgages, second mortgages, or mortgages to companies. If in doubt, go through the conditions above.
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PROFESSIONAL CONDUCT & REGULATION
STEP 2:
Is the activity a “specified activity” under FSMA?
If no, then FSMA does not apply and no authorisation is needed. If the answer to both Steps 1 and 2 is “yes”, then the activity in question is a regulated activity (remember that specified activity + specified investment = regulated activity) and you should go to Step 3 below. Part II RAO sets out what qualifies as a “specified activity”. It has a broad definition:
•
Art. 14: Dealing in investments as principal (buying, selling, underwriting or subscribing for investments on your own behalf – which includes solicitors acting as trustees
•
Art 21: Dealing in investments as agent (as above, but doing so as agent on behalf of the principal – which includes solicitors who are acting under powers of attorney)
•
Art. 25: Arranging deals in investments
•
Art. 37: Managing investments (this is distinct from the above because it requires the exercise of discretion – this is more like the kind of role that a fund manager would play, rather than a solicitor)
•
Art. 40: Safeguarding and administering investments (note that this requires both safeguarding and administering, not one or the other)
•
Art. 53: Advising on the merits of investments. Note that giving generic advice and information (such as explaining how a bond works or the rights and liabilities attached to owning shares) is not “advising”, but giving specific advice (such as recommending the bonds or shares of one company over that of another) does count as advising, as giving specific advice is the role of a financial adviser and not a solicitor.
NOTE: the activity in the exam question may not fit neatly into one category, and may well cover two or more categories – discuss all the relevant Articles that apply.
STEP 3:
Is the activity “excluded” under FSMA?
If yes, then FSMA does not apply and no authorisation is needed. If no, then FSMA applies: see Step 4 below. Part II RAO sets out the exclusions to each activity. The key ones to know for your exam are set out over the page. The ones most likely to be relevant are explained immediately below:
•
Art. 66: Acting as a trustee, nominee or personal representative. The solicitor must simply be acting as a bare trustee, as the exclusion will not apply if he receives any extra remuneration for advising, managing, arranging or safeguarding and administering the trust’s investments.
•
Art. 67: Regulated activities that are a necessary part of other professional services which are themselves not regulated (which means that it must not be possible for the solicitor to carry out their everyday duties without carrying out the regulated activity as well – but this regulated activity must be a minor part of the legal services as a whole (see s. 327 in Step 4 below) – for example, recommending after-the-event insurance to a litigation client, or recommending restrictive covenant insurance to a client purchasing land).
•
Art. 70: Regulated activities undertaken in connection with the sale of body corporate (e.g. solicitors engaged in corporate M&A will not be breaching s. 19(1) by transferring the shares in the target company to the buying company, as long as the shares transferred are at least 50% of the target’s voting shares or the purpose of the share transfer is to give the buyer day-to-day control of the target company).
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PROFESSIONAL CONDUCT & REGULATION
NOTE: not all exclusions apply to all activities – it varies. There are also other exclusions. The table below summarises which exclusions apply to which activities. The number refer to the Articles. ACTIVITY
RELEVANT EXCLUSIONS 15 – Absence of holding out
14 – Dealing as principal
16 – Dealing in contractually-based investments 66 – Trustees and Personal Representatives 70 – Sale of a body corporate 22 – Dealing with/through authorised persons
21 – Dealing as agent
67 – Necessary in the course of a profession 70 – Sale of a body corporate 29 – Dealing with/through authorised persons
25 – Arranging deals
33 – Introducing your client to an independent authorised person 66 – Trustees and Personal Representatives 67 – Necessary in the course of a profession 70 – Sale of a body corporate
37 – Managing
66 – Trustees and Personal Representatives
53 – Advising
70 – Sale of a body corporate
NOTE: Articles 66 and 67 do not apply as exclusions where the activity in question is “insurance mediation”, which includes most work to do with insurance (“introducing, proposing or carry out work preparatory to the conclusion of contracts, or concluding such contracts” (Art.4(4A)). Therefore, be wary when applying exclusions – first look out for whether insurance is involved in your exam question and consider carefully whether it prevents an exclusion applying. STEP 4:
Is the activity “exempt”?
In other words, are the conditions in s. 327 FSMA and SRA Scope Rule 4 met? If yes, then the activity in the question is an “exempt regulated activity.” Requirements of s. 327: a) The person carrying on the activity must be a member of a profession regulated by a professional body (e.g. a solicitor); b) That person must not receive any benefit from a third party for his services which he does not account to his client for; c) The specified activity must be a minor, incidental part of the professional services (which ties in with the “necessary” point in Art. 67 RAO); and d) That person must comply with the rules of their professional body (which in this case means complying with the Scope Rules.
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PROFESSIONAL CONDUCT & REGULATION
Requirements of Rule 4 of the Scope Rules: a) The activity must arise out of or be complementary to the provision of particular professional services to a particular client (for example: recommending after-the-event insurance to a litigation client, or recommending restrictive covenant insurance to a client purchasing land); b) The activity must be incidental to the provision of professional services (consider what the scale of the specified activity is in relation to the professional services, whether the firm holds itself out as offering specified activities, and how it advertises itself); and c) The firm must account to the client for any benefit it receives from a third party. In addition, the law firm must:
a) Continue to comply with the SRA’s Scope Rules (not just Rule 4) on an ongoing basis in order to ensure that the activity remains exempt; b) Be authorised by the SRA to carry out the activity; and c) Comply with the SRA’s Financial Services (Conduct of Business) Rules (the “COB Rules”). NOTE: it is likely that you will only need to mention these points very briefly in the exam question. If so, the detail above will suffice. You do not need to know the COB Rules in detail. However, if the answer to the question in step 4 is “no”, i.e. the activity is not exempt, then the law firm has two choices: 1) Be authorised by the PRA (Prudential Regulation Authority) or FCA (Financial Conduct Authority) and comply with the relevant PRA or FCA handbook regarding the activity; OR 2) Refuse to carry out the activity in order not to breach s. 19(1). NOTE: in reality, hardly any law firms will be authorised by the PRA or FCA, so if there is not an exemption available, they will probably not be able to carry out the activity in question.
STEP 5:
Conclude
•
Is this a regulated activity?
•
Is there an exclusion?
•
Is there an exemption?
•
What must the firm do to comply?
•
In other words, can the law firm carry out the activity or not? Come to a clear answer: yes or no.
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SUMMARY FLOWCHART
NO
(1) SPECIFIED INVESTMENT?
YES
(5) FSMA DOES NOT APPLY AND SO NO AUTHORISATION IS REQUIRED
NO
(2) SPECIFIED ACTIVITY?
YES
YES
(3) EXCLUDED ACTIVITY?
NO
(4) IS THE ACTIVITY EXEMPT?
(and does the firm comply with s. 327 FSMA, the Scope Rules & the COB Rules?) YES (5) THE FIRM MAY CARRY OUT THE ACTIVITY
NO YES
(4) IS THE FIRM PRA/FCA AUTHORISED?
314
NO
(5) THE FIRM MAY NOT CARRY OUT THE ACTIVITY