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.