#16640 - Fsma - Business Law and Practice

Specified Investments (Part III RAO) include:

• art 74: deposits

• art 75: contracts of insurance

• art 76: shares and stock

• art 77: instruments creating or acknowledging indebtedness

• art 78: government and public securities

• art 79: instruments giving entitlements to investments

• art 80: certificates representing certain securities

• art 81: units in a collective investment scheme

• art 82: rights under a stakeholder pension scheme

• art 83: options

• art 88: regulated mortgage contracts

• art 89: rights to or interests in investments

The RAO defines each type of specified investment.

• Art 88 RAO: “Regulated mortgage contracts” are a “specified investment”.

• Art 61(3) RAO gives the definition of a regulated mortgage contract (RMC)

1. a contract is a “regulated mortgage contract” if, at the time it is entered into, the following conditions are met -

1. the contract is one under which a person (“the lender”) provides credit to an individual … (“the borrower”);

2. the contract provides for the obligation of the borrower to repay to be secured by a first legal mortgage on land in the UK;

3. at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling by the borrower …”

• Applying these conditions to the present scenario, the mortgage that Sonya and Francois require will fall within the definition of a RMC – the lender will provide credit to them as individuals, the loan will be secured by a first legal charge on the property in the UK and at least 40% of that property will be used as a dwelling.

• So, the answer to this first question is yes, there is a specified investment.

Specified activities (Part II RAO), include:

• art 14: dealing in investments as principal

• art 21: dealing in investments as agent

• art 25: arranging deals in investments

• art 25A: arranging regulated mortgage contracts

• art 39A: assisting in the administration and performance of a contract of insurance

• art 40: safeguarding and administering investments

• art 53: advising on investments

• art 53A: advising on regulated mortgage contracts

The RAO defines each specified activity.

• The clients have asked you to advise on which of the various possible mortgages they should apply for.

• Article 53A RAO “Advising on regulated mortgage contracts” states:

1. Advising a person is a specified kind of activity if the advice –

1. is given to a person in his capacity as a borrower or potential borrower; and

2. is advice on the merits of his doing any of the following –

1. entering into a particular regulated mortgage contract, …

• Advising on which of the various possible mortgages they should apply for would fall into this definition, and would therefore be a specified activity.

• “Specific Exclusions”: after each of the above definitions certain exclusions applicable to each specified activity are identified.

  • arts 15-20

  • arts 22-24

  • arts 26-36

  • arts 41-44

  • arts 54-55

• “General Exclusions”: Chapter XVII, Part II RAO identifies general exclusions applicable to several specified activities.

  • Arts 66-72J

• There are various exclusions to Art 53A contained in the RAO, in Arts 54, 54A, 66, 67, 72A. None of these are relevant on the facts. Remember Art 67 is the “necessary part of other services” exclusion, but should not be relied on here, as it is not necessary for the firm to provide RMC advice as part of the purchase of the property.

• As no exclusion applies under the RAO, we must therefore conclude that the advice will be a regulated activity.

Rule 5 contains other restrictions, including:

• Rule 5.2: personal pension schemes

• Rule 5.3: securities and contractually based investments

• Rule 5.7: regulated mortgage contracts