Professional Conduct

What are the three direct involvement offences under PoCA?

• Section 327: Concealing, disguising, converting, transferring criminal property, or removing it from the UK.

• Section 328: Entering into or becoming concerned in an arrangement which facilitates the acquisition, retention, use, or control of criminal property by or on behalf of another person.

• Section 329: Acquiring, using, or possessing criminal property.

What are the defences under Sections 327-329 PoCA?

• Making an authorised disclosure under Section 338 PoCA.

• Having a reasonable excuse for not making a disclosure.

• Acting in an enforcement capacity related to PoCA or similar provisions.

• If the criminal conduct occurred outside the UK, was lawful in that territory, and not subject to a Secretary of State order.

What are the reporting requirements after making a disclosure to the MLRO?

If the MLRO submits a Suspicious Activity Report (SAR) to the NCA, you must wait:

1. For NCA authorisation.

2. Seven working days from the disclosure if no refusal is received.

Who is typically responsible for ensuring compliance with MLR in a law firm?

The Compliance Officer for Legal Practice (COLP) and the firm's managers (partners).

When did the MLR come into force?

26 June 2017.

Do the MLR apply to all types of legal work?

No, MLR do not apply to employment or most litigation cases, though firms often follow MLR procedures regardless.

When must CDD be applied under Regulation 27 of the MLR?

• Establishing a business relationship.

• Carrying out an occasional transaction.

• Suspecting money laundering or terrorist financing.

• Doubting the adequacy of identification documents.

What are the key steps of Standard CDD?

• Identify and verify the customer's identity using reliable and independent sources.

• Assess and obtain information about the purpose and nature of the relationship or transaction.

• Identify and verify the beneficial owner if applicable.

• Conduct ongoing monitoring of the business relationship.

When must enhanced CDD be conducted under Regulation 33?

• High risk of money laundering or terrorist financing.

• Relationships with persons in high-risk third countries.

• Correspondent relationships.

• Customers identified as PEPs, their family members, or close associates.

What factors may justify Simplified CDD under Regulation 37?

• Customers like public administrations or publicly listed companies.

• Low-risk products like child trust funds or junior ISAs.

• Geographical areas with effective anti-money laundering measures.

Identify whether the following scenario requires standard CDD, enhanced CDD or ongoing monitoring:

Your client, a British national, is purchasing a flat for her daughter for a price of £750,000. She is funding 50% of the purchase in cash from the sale of some shares, and 50% by a mortgage with a high street bank. You have not acted for the client before and you expect that this will be a one-off transaction for the client.

• Enhanced CDD

• Standard CDD

• Ongoing monitoring

Standard CDD

Identify whether the following scenario requires standard CDD, enhanced CDD or ongoing monitoring:

You have been instructed by a company Autolext Corporation (‘Autolext’) on the purchase of 60% of the shares in a data analytics company, Data Inc for £2 million. Data Inc is registered in the Cayman Islands. Autolext is registered in Bermuda and has a majority shareholder who is Iranian. Autolext has asked to you set up a wholly owned subsidiary, Autolext Data Limited which will be the vehicle that purchases the shares in the Data Inc. Autotext will pay cash for the shares.

• Enhanced CDD

• Ongoing monitoring

• Standard CDD

Enhanced CDD

Identify whether the following scenario requires standard CDD, enhanced CDD or ongoing monitoring:

Plaza Properties Limited is a private limited company and an existing client of your firm and regularly instructs you on the acquisition and sale of properties in its portfolio. You have received a new instruction to act for it on the acquisition of the freehold of an office building near Maidenhead for £10 million. Part of the acquisition is funded by a loan.

• Ongoing monitoring

• Standard CDD

• Enhanced CDD

Ongoing monitoring

How is simplified due diligence (SDD) applied to UK listed public companies?

By obtaining and verifying a dated page from the stock exchange's website showing the listing or a search of the company registry.

What are typical sources for verifying a UK private or unlisted company's details?

• Certificate of incorporation

• Filed audited accounts

• Details from the company registry

• Information from electronic verification providers

Your client, a British national, is purchasing a flat for her daughter for a price of £750,000. She is funding 50% of the purchase in cash from the sale of some shares, and 50% by a mortgage with a high street bank. You have not acted for the client before and you expect that this will be a one-off transaction for the client.

Which ONE of the following options correctly states the evidence of identity and verification you should obtain to demonstrate you have carried out the required level of CDD on this client?

• A utility bill or bank statement showing the client’s address for the last three years.

• Assuming you meet your client face to face, producing a valid passport or photocard ID should meet the CDD requirements.

• A copy of the title deeds for the client’s current address or if her accommodation is rented, a copy of the rental agreement.

Assuming you meet your client face to face, producing a valid passport or photocard ID should meet the CDD requirements.

You have been instructed by a company Autolext Corporation ('Autolext')on the purchase of 60% of the shares in a data analytics company, Data Inc for £2 million. Data Inc is registered in the Cayman Islands. Autolext is registered in Bermuda and has a majority shareholder who is Iranian. Autolext has asked to you set up a wholly owned subsidiary, Autolext Data Limited which will be the vehicle that purchases the shares in the Data Inc. Autolext will pay cash for the shares.

Which ONE of the following options correctly states the evidence of identity and verification you should obtain to demonstrate you have carried out the required level of CDD on this client?

• There is a high risk of money laundering here, so you will need to examine the background and purpose of the transaction, to determine whether the transaction or relationship appear suspicious. This would involve making enquiries to understand the background and financial situation of Autolext, getting additional independent sources to verify the information you obtain and satisfying yourself that the transaction is legitimate.

• You should identify the name, registered number and address of the registered office of Autolext, and verify it, for example by a search of the relevant company registry in Bermuda. You must also take reasonable measure to determine and verify the law to which the company is subject, its constitution, and the full names of the board of directors (or equivalent management body) and senior persons responsible for its operations. In addition you will need to examine the background and purpose of the transaction, to determine whether the transaction or relationship appear suspicious. This would involve making further enquiries to understand the financial situation of the company, getting additional independent sources to verify the information you obtain and satisfying yourself that the transaction is legitimate.

• You should identify the name, registered number and address of the registered office of Autolext, and verify it, for example by a search of the relevant company registry in Bermuda. You must also take reasonable measure to determine and verify the law to which the company is subject, its constitution, and the full names of the board of directors (or equivalent management body) and senior persons responsible for its operations.

You should identify the name, registered number and address of the registered office of Autolext, and verify it, for example by a search of the relevant company registry in Bermuda. You must also take reasonable measure to determine and verify the law to which the company is subject, its constitution, and the full names of the board of directors (or equivalent management body) and senior persons responsible for its operations. In addition you will need to examine the background and purpose of the transaction, to determine whether the transaction or relationship appear suspicious. This would involve making further enquiries to understand the financial situation of the company, getting additional independent sources to verify the information you obtain and satisfying yourself that the transaction is legitimate.

Regency Investment PLC is listed on the London Stock Exchange and is an existing client of your firm. It regularly instructs you on the acquisition and sale of properties in its portfolio. You have received a new instruction to act for it on the acquisition of the freehold property for £7 million.

Which ONE of the following options correctly states the evidence of identity and verification you should obtain and CDD you should carry out on this client?

• As Regency Investment PLC is an existing client, you should already have carried out CDD on it. As a listed company, it is likely that you will have carried out simplified CDD for example by obtaining a copy of the dated page of the website of the relevant stock exchange showing the listing, and verifying it by a search of the company registry. You will need to conduct ongoing monitoring by checking that the identification documents you hold are up to date and checking the transaction is consistent with your firm’s knowledge of the client.

• As Regency Investment PLC is a listed public company, you should carry out simplified CDD for example by obtaining copy of the dated page of the website of the relevant stock exchange showing the listing, and verifying it by a search of the company registry.

• You should carry out standard CDD by identifying the name, registered number and address of the registered office of Regency Investment PLC, and verifying it, for example by a search of the company registry. You must also take reasonable measure to determine and verify the law to which the company is subject, its constitution, and the full names of the board of directors (or equivalent management body) and senior persons responsible for its operations.

As Regency Investment PLC is an existing client, you should already have carried out CDD on it. As a listed company, it is likely that you will have carried out simplified CDD for example by obtaining a copy of the dated page of the website of the relevant stock exchange showing the listing, and verifying it by a search of the company registry. You will need to conduct ongoing monitoring by checking that the identification documents you hold are up to date and checking the transaction is consistent with your firm’s knowledge of the client.

A solicitor in a law firm has received a phone call from the managing director of a private limited company incorporated in the UK, which is a new client. The managing director wants to know why the solicitor’s firm is asking for documents to verify the identity of the company’s shareholder. The company’s shareholder lives in Russia and owns and holds the entire shareholding of the company.

Which of the following responses best explains the advice the solicitor should give to the managing director?

• The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder lives outside the UK.

• The structure of the company and the way the shares are held by the shareholder may raise issues about tax evasion.

• The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder owns more than 25% of the shares.

• The solicitor is considering making a suspicious activity report to the firm’s nominated officer.

• The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder lives in Russia.

The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder owns more than 25% of the shares.

Your client, a British national, is purchasing a flat for her daughter for a price of £750,000. She is funding 50% of the purchase in cash from the sale of some shares, and 50% by a mortgage with a high street bank. You have not acted for the client before and you expect that this will be a one-off transaction for her.

Which of the following best explains the action you should take with regard to customer due diligence?

• You should carry out standard CDD on the client and identify and verify the beneficial owner of the high street bank.

• You should carry out simplified CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.

• You should carry out standard CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.

• You should carry out ongoing monitoring on the client because you have not acted for her before.

• You should carry out enhanced CDD on the client because she presents a high risk of money laundering.

You should carry out standard CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.

A solicitor acts for a client in relation to the acquisition of a private limited company. Two days before the transaction is due to complete the solicitor suspects that his client will be using the transaction to launder money. The solicitor reports this to the nominated officer who makes a suspicious activity report to the relevant authority.

What action should the solicitor now take?

• Explain to the client that a suspicious activity report has been made and then proceed with the transaction.

• Proceed with the transaction only after receiving authorisation from the relevant authority.

• Explain to the client that he cannot act as a suspicious activity report is pending.

• Proceed with the transaction after a period of three days if no response is received from the relevant authority.

• Proceed with the transaction as the solicitor has made the disclosure to the nominated officer.

Proceed with the transaction only after receiving authorisation from the relevant authority.

You are the only apprentice solicitor working in the property department of a law firm solely based in London.

Last week a new client, James, specifically asked to speak to you. James told you that he is currently living in Manchester and that his close friend, Raj, has offered to give him £750,000 in cash to help James buy his first property. This sum will cover the purchase price, together with all legal costs and disbursements.

James has now found a suitable property in Manchester and he would like you to act for him on the purchase. James told you Raj will send the £750,000 to your firm’s client account within seven days.

Earlier today you were contacted by your firm’s accounts department regarding the sum of £7,500,000 which had arrived from Raj. You have just received an email from James apologising that his friend has made an overpayment, requesting that the sum of £6,750,000 is transferred to Raj’s solicitors in Birmingham.

Which ONE of the following statements is CORRECT?

• You need to report the matter immediately to the MLRO at your firm and instruct the accounts department to transfer all of the money (ie £7,500,000) to Raj so that you do not alert James to your suspicions.

• You need to report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. You must ensure that you do not inadvertently alert James to your suspicions.

• You should forward the money in full (ie £7,500,000) to James to ensure that you are not involved in any money laundering offences.

• You do not need to report that matter to the MLRO at your firm but you are required to notify Raj’s solicitors in Birmingham that he may be laundering money through their bank account.

• You need to report that matter immediately to the MLRO at your firm and instruct the accounts department to transfer £6,750,000 to Raj as soon as possible so that it is not considered the proceeds of crime.

You need to report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. You must ensure that you do not inadvertently alert James to your suspicions.

Which ONE of the following statements is CORRECT?

• There are two regulators of financial services in the UK, the Prudential Regulation Authority and the Financial Conduct Authority.

• There are two regulators of financial services in the UK, the Bank of England and the Financial Services Authority.

• There are two regulators of financial services in the UK, the Bank of England and the Financial Conduct Authority.

There are two regulators of financial services in the UK, the Prudential Regulation Authority and the Financial Conduct Authority.

What is the general prohibition under s 19 FSMA?

No person may carry on a regulated activity in the UK unless they are:

• An authorised person (authorised by the FCA), or

• An exempt person.

When is an activity considered a regulated activity under s 22 FSMA?

It is a regulated activity if:

1. It is an activity of a specified kind, and

2. It relates to an investment of a specified kind, and

3. It is carried on by way of business.

What are some examples of specified investments under Part III of the RAO?

Rights under a contract of insurance (Article 75)

• Shares in a company (Article 76)

• Instruments creating or acknowledging indebtedness (Article 77)

• Government and public securities (Article 78)

• Rights under a pension scheme (Article 82)

• Regulated mortgage contracts (Article 88)

What conditions must a contract meet to qualify as a regulated mortgage contract under Article 61(3) RAO?

1. The lender provides credit to an individual or trustee.

2. The borrower’s obligations are secured by a mortgage on land in the EEA.

3. At least 40% of the land is used as a dwelling

What are some examples of specified activities under Part II RAO?

• Dealing in investments as principal or agent (Articles 14 and 21).

• Arranging deals in investments (Article 25).

• Managing investments (Article 37).

• Advising on the merits of investments (Article 53).

Shares in a company

What constitutes advising on the merits of investments under Article 53?

• Giving advice with an element of opinion, and

• Making a recommendation as to a course of action.

What types of advice are not regulated under Article 53?

• Generic advice (e.g., to invest in a specific sector).

• Providing information without giving a recommendation.

Provide examples of regulated vs non-regulated advice under Article 53.

• Regulated: Recommending a client buy ABC plc shares.

• Non-Regulated: Explaining the rights attached to different classes of shares.

What is the penalty for carrying out a regulated activity without being authorised or exempt?

It is a criminal offence under s 19 FSMA.

Which ONE of the following IS a specified investment under Part III of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (‘RAO’)?

• Freehold property

• A loan to a company to purchase an office

• Rights under a contract of insurance

Rights under a contract of insurance

Which ONE of the following statements is CORRECT?

• Advising a client to use the sale proceeds from their sale of shares in a company to purchase shares in British Gas plc would be a specified activity under article 53 RAO.

• Arranging the sale of a client’s shares in a company to their business partner would be a specified activity under article 53 RAO.

• Giving a client advice on the legal rights attaching to two different classes of shares in a company would be a specified activity under article 53 RAO.

Advising a client to use the sale proceeds from their sale of shares in a company to purchase shares in British Gas plc would be a specified activity under article 53 RAO.

When does the 'necessary part' exclusion apply under Article 67 for FSMA rules?

If the regulated activity:

1. Is carried out in the course of a profession or business that does not otherwise involve regulated activities; and

2. Is a necessary part of the other services being provided.

E.g - A solicitor arranging the transfer of a share in a management company when selling a leasehold flat. This activity is a necessary part of the property transaction.

When does the Article 70 exclusion apply - FSMA - the sale / purchase of shares ?

When the regulated activity relates to the purchase or sale of shares in a company, provided:

1. The shares involve at least 50% of voting rights; or

2. The purpose of the transaction is to acquire control of the company.

E.g - Acting for a company selling its 100% shareholding in a subsidiary to another company.

When can a solicitor rely on exclusions under Articles 22 or 29 - FSMA (acting through an agent)?

If the solicitor refers the client to an FCA-authorised person and:

1. The transaction is entered into based on the authorised person’s advice; or

2. The solicitor did not and refused to give advice on the merits of the transaction.

Which ONE of the following statements is CORRECT?

• A solicitor who arranges for their client to buy 50% of the shares in a private company would NOT need to be authorised by the FCA because they fall within the exclusion in Article 70 RAO.

• A solicitor who sells 50% of their client’s shares in a company as agent for their client would need to be authorised by the FCA because they would not fall within the exclusion in Article 70.

• A solicitor who advises their client to buy 10% of the shares in ABC Limited would not need to be authorised by the FCA because they fall within the exclusion in Article 70 RAO.

A solicitor who arranges for their client to buy 50% of the shares in a private company would NOT need to be authorised by the FCA because they fall within the exclusion in Article 70 RAO.

Which ONE of the following statements is CORRECT?

• A solicitor does not need to be authorised by the FCA to arrange for their client to buy shares in a company if the client is entering the transaction on advice given by an advisor who is authorised by the SRA.

• A solicitor does not need to be authorised by the FCA to arrange for their client to buy shares in a company if the client is entering the transaction on advice given by a financial advisor who is authorised by the FCA.

• A solicitor can only arrange for their client to buy shares in a company if the solicitor is authorised by the FCA or exempt.

A solicitor does not need to be authorised by the FCA to arrange for their client to buy shares in a company if the client is entering the transaction on advice given by a financial advisor who is authorised by the FCA.

What is the FSMA Decision Tree process?

• Is there a ‘specified investment’?

• Is there a ‘specified activity’?

• Is there an exclusion available?

• Can both s 327 FSMA and SRA Scope Rule 2 be satisfied?

What are the key conditions of s 327 FSMA? (Step 4 of FSMA)

• The person must be a member of a profession (e.g., solicitor).

• No commission from third parties unless accounted to the client.

• Activities must be incidental to professional services.

• Activities must comply with the rules of the designated professional body (e.g., SRA Scope Rules).

How does the FCA determine if an activity is "incidental"?

• The activity must not be a major part of the firm’s practice.

• The scale of regulated activities is small compared to other services.

• Activities should not be held out as separate services.

What are the basic conditions under SRA Scope Rule 2?

• Meet the conditions in s 327(2)–(5) FSMA.

• The activity must arise out of or be complementary to the provision of professional services.

• No FCA orders or directions preventing the activity.

• Activities must not be prohibited by the rules.

Give an example of an activity that is both incidental and complementary. (FSMA)

A property lawyer advising on a restrictive covenant insurance policy after title investigation.

Which section of the Financial Services and Markets Act 2000 (‘FSMA’) sets out the exemption from the general prohibition that no one may carry out a regulated activity unless they are either authorised or exempt?

• Section 19 FSMA

• Section 327 FSMA

• Section 325 FSMA

Section 327 FSMA

Which ONE of the following statements CORRECTLY sets out step 4 of the FSMA decision tree?

• Does the activity fulfil the basic conditions in s 19 of FSMA and the SRA Financial Services (Conduct of Business) Rules 2019?

• Does the activity fulfil the basic conditions in s 327 of FSMA and the SRA Financial Services (Conduct of Business) Rules 2019?

• Does the activity fulfil the basic conditions in s 327 of FSMA and the SRA Financial Services (Scope) Rules 2019?

Does the activity fulfil the basic conditions in s 327 of FSMA and the SRA Financial Services (Scope) Rules 2019?

A property solicitor has recently completed the sale of a property for a client. The client asks the solicitor for advice on whether she should use the sale proceeds from the property to invest in shares in British Telecom PLC.

Which ONE of the following statements is CORRECT?

• The solicitor cannot give the advice without breaching the general prohibition under s 19 FSMA because giving the advice would not arise out of or be complementary to the provision of a particular professional service to a particular client for the purposes of Rule 2 of the SRA Financial Services (Scope) Rules 2019.

• The solicitor cannot give the advice without breaching the general prohibition under s 19 FSMA because giving the advice would not be incidental for the purposes of s 327 FSMA.

• Provided they comply with the rules set down by the SRA, the solicitor can give the advice without breaching the general prohibition under s 19 FSMA because the activity meets the conditions of s 327 FSMA and the SRA Financial Services (Scope) Rules 2019.

The solicitor cannot give the advice without breaching the general prohibition under s 19 FSMA because giving the advice would not arise out of or be complementary to the provision of a particular professional service to a particular client for the purposes of Rule 2 of the SRA Financial Services (Scope) Rules 2019.

What are the key restrictions and exemptions under FSMA for share sales?

1. Section 21 FSMA – Financial Promotions:

   • Prohibits unauthorised persons from communicating financial promotions unless approved by an FCA-authorised person or exempt.

2. Section 85 FSMA – Prospectus Requirement:

   • Criminal offence to offer shares to the public in the UK without an FCA-approved prospectus.

Exemptions to s 21 FSMA (Financial Promotions):

• Sale of a body corporate (Article 62 FPO): Applies if 50%+ of voting shares or day-to-day control is transferred.

• Investment Professionals (Article 19 FPO): Includes FCA-authorised persons or other investment professionals.

• High Net Worth Companies (Article 49 FPO): Applies to companies with significant called-up share capital.

• High Net Worth/Sophisticated Individuals (Articles 48 & 50 FPO): Applies to certified high net worth or sophisticated investors.

Exemptions to s 85 FSMA (Prospectus Requirement):

• Offer directed at fewer than 150 persons.

• Offer sent only to qualified investors (e.g., banks or investment institutions).

Which ONE of the following statements is CORRECT

• It is a criminal offence to offer shares to the public in the United Kingdom without issuing a prospectus approved by the SRA.

• It is a criminal offence to offer shares to the public in the United Kingdom without issuing a prospectus approved by the relevant regulatory authority.

• It is a civil offence to offer shares to the public in the United Kingdom without issuing a prospectus approved by the FCA.

• It is a civil offence to communicate a financial promotion unless you are authorised to do so by the SRA.

It is a criminal offence to offer shares to the public in the United Kingdom without issuing a prospectus approved by the relevant regulatory authority.

Which ONE of the following statements is CORRECT?

• An exemption to the rule that you cannot offer shares to the public without an approved prospectus arises where the offer is made to fewer than 50 persons.

• An exemption to the rule that you cannot offer shares to the public without an approved prospectus arises where the offer is made to fewer than 150 persons.

• An exemption to the rule that you cannot offer shares to the public without an approved prospectus arises where the offer is made to fewer than 100 persons who are qualified investors.

An exemption to the rule that you cannot offer shares to the public without an approved prospectus arises where the offer is made to fewer than 150 persons.

A man instructs his solicitor to act for him in the purchase of the entire issued share capital of a private limited company from another company. The solicitor advises on the share purchase and helps to prepare and negotiate all the necessary documentation. Neither the solicitor nor his firm is authorised by the Financial Conduct Authority to carry on a ‘regulated activity’ as defined in the Financial Services and Markets Act 2000 and related secondary legislation.

Has the solicitor breached the general prohibition against carrying on a regulated activity?

• No, because an exclusion applies if the transaction involves at least 50% of the voting shares in the company.

• Yes, because the transaction involves the purchase of the entire issued share capital of the company and no exclusion or exemption applies.

• Yes, because the solicitor has given advice on the purchase of shares in a specific company and no exclusion or exemption applies.

• No, because an exemption applies to professional firms which are supervised by the Solicitors Regulation Authority when they engage in corporate work.

• No, because an exclusion applies if the transaction relates to the purchase of any number of shares in a private limited company.

No, because an exclusion applies if the transaction involves at least 50% of the voting shares in the company.

A solicitor acts for a client who is raising finance secured against his home to fund his new business. The solicitor will be providing advice and preparing all the necessary documentation in connection with the mortgage. The client asks the solicitor to explain the key differences between a repayment mortgage and an endowment mortgage. Neither the solicitor nor his firm is authorised by the Financial Conduct Authority to carry on a regulated activity.

Can the solicitor give the explanation requested about the types of mortgages?

• No, because he is not authorised by the Financial Conduct Authority to give advice in respect of either type of mortgage.

• Yes, because he is subject to the SRA Financial Services (Scope) Rules 2019 and therefore falls within an exemption from the Financial Services and Markets Act 2000.

• Yes, because such advice is a necessary part of the provision of his legal services.

• Yes, because the provision of generic advice is outside the scope of the Financial Services and Markets Act 2000.

• No, because such advice does not fall within an exemption from the Financial Services and Market Acts 2000.

Yes, because such advice is a necessary part of the provision of his legal services.

You are an apprentice solicitor in the property department at a law firm. Your supervisor has been advising Mr and Mrs Smith (‘the Smiths’) in relation to the purchase of a property. The property will be a new home for occupation by the Smiths which is to be secured by a first legal mortgage over it. The Smiths have obtained advice from a mortgage broker who is authorised by the Financial Conduct Authority (‘FCA’) and they have decided to take out a repayment mortgage with a high street bank (the ‘Bank’). The Smiths have asked your supervisor to liaise with their mortgage broker to make arrangements for them to enter into the mortgage with the Bank. Your supervisor is due to receive £250 commission from the Bank for making these arrangements on the Smiths’ behalf.

Your firm is not directly authorised by the FCA to carry out any regulated activities under the Financial Services and Markets Act 2000 (‘FSMA’). It does not advertise the carrying out of any regulated activities separately from the other professional services provided by the law firm and any regulated activities carried out form a small part of the overall work done by the law firm.

Which ONE of the following statements BEST states the CORRECT position?

• Your supervisor cannot advise on the purchase of the property because the purchase does not involve a regulated mortgage contract.

• Your supervisor could not advise the Smiths in relation to the purchase of the property as he will be giving advice as to the merits of entering into the mortgage under Article 53 RAO.

• Your supervisor can advise on the purchase of the property because property is not a specified investment.

• Your supervisor could advise the Smiths in relation to the purchase of the property as long as he accounts to the client for the commission he is due to receive from the Bank.

• Your supervisor can advise on the purchase of the property because the Smiths are making their investment on the advice of their mortgage broker who is authorised by the FCA.

Your supervisor could advise the Smiths in relation to the purchase of the property as long as he accounts to the client for the commission he is due to receive from the Bank.

You are a solicitor in the corporate department of Price Prior. You recently acted for Herbert in connection with the sale of his personal training business and that sale has now concluded.

Today Herbert has come to see you. Herbert tells you that following the sale, he now has £50,000 cash and he would like some advice about how to invest this money.

He is considering using all the money to buy shares in Magwitch Enterprises PLC (‘MEP’). He would like your advice on whether shares are generally a good investment at the moment and, in particular, whether or not he should buy the shares in MEP.

Which ONE of the following statements is CORRECT in relation to the above scenario?

• You would be able to give Herbert the advice without being authorised by the FCA, because buying shares is not a specified activity.

• You would not be able to advise Herbert without being authorised by the FCA because the advice would not arise out of or be complementary to the provision of professional services to Herbert.

• You would not be able to give the advice to Herbert without being authorised by the FCA because the advice is not incidental to the provision of professional services to Herbert.

• You would be able to give the advice to Herbert without being authorised by the FCA because giving this advice to Herbert could reasonably be regarded as necessary to the other non-regulated work you are doing for him.

• You would be able to give Herbert the advice without being authorised by the FCA because you would not be advising on the merits of Herbert buying the shares in MEP.

You would not be able to advise Herbert without being authorised by the FCA because the advice would not arise out of or be complementary to the provision of professional services to Herbert.

A solicitor acts for a company that is selling all the shares in its wholly owned subsidiary by way of auction. The solicitor is preparing the information memorandum to send to potential buyers, some of whom are companies, some of whom are wealthy individuals.

Neither the solicitor nor the firm is authorised by the Financial Conduct Authority (‘FCA’).

Which one of the following statements is correct?

• The solicitor can send the information memorandum to the potential buyers without getting it approved by an authorised person because the information memorandum is a necessary part of the auction process.

• The solicitor can only send the information memorandum to high net worth companies and high net worth individuals, otherwise she would have to get the document approved by an authorised person.

• The solicitor can send the information memorandum to the potential buyers because it is not a financial promotion.

• The solicitor cannot send the information memorandum to the potential buyers unless she gets the document approved by an authorised person.

• The solicitor can send the information memorandum to the potential buyers without getting it approved by an authorised person because the transaction is to sell 50% or more of the shares in the subsidiary.

The solicitor can send the information memorandum to the potential buyers without getting it approved by an authorised person because the transaction is to sell 50% or more of the shares in the subsidiary.

Who is responsible for compliance with the SRA Accounts Rules?

• The managers of an authorised body are severally responsible.

• All managers and employees of an authorised body are jointly and severally responsible.

• Only the authorised body’s compliance manager is responsible.

• The managers of an authorised body are jointly and severally responsible.

The managers of an authorised body are jointly and severally responsible.

Which one of the following statements is correct with regard to accountants’ reports?

• An accountant discovering a minor breach of the SRA Accounts Rules arising from an administrative error at a law firm will not necessarily have to prepare a qualified report in relation to that law firm’s accounts.

• It is entirely up to a firm to decide the matters which are incorporated into the terms on which an accountant is engaged.

• All law firms are obliged to submit their accountant’s reports to the SRA within six months of the end of that law firm’s accounting period.

An accountant discovering a minor breach of the SRA Accounts Rules arising from an administrative error at a law firm will not necessarily have to prepare a qualified report in relation to that law firm’s accounts.

Which one of the following statements is correct with regard to accountants’ reports

• If a firm’s balance of client money does not exceed an average of £10,000 and a maximum of £250,000 during an accounting period, it will not have to obtain an accountant’s report.

• No law firms are exempt from the requirement to obtain an accountant’s report.

• If a firm only holds client money which has been received during an accounting period from the Legal Aid Agency, it must obtain an accountant’s report.

If a firm’s balance of client money does not exceed an average of £10,000 and a maximum of £250,000 during an accounting period, it will not have to obtain an accountant’s report.

How long must accounting records be retained?

At least six years.

When is an authorised body exempt from obtaining an accountant’s report?

• If all client money held is from the Legal Aid Agency.

• If the average client account balance is ≤ £10,000 AND the maximum balance is ≤ £250,000 during the accounting period.

What is a joint account in the context of Rule 9.1 of the SRA Accounts Rules?

• A joint account in Rule 9.1 is an account which is in the names of the solicitor/authorised body and the client or a third party.

• A joint account in Rule 9.1 is an account which is in the name of two clients.

• A joint account in Rule 9.1 is an account which holds both client money and money belonging to the authorised body.

A joint account in Rule 9.1 is an account which is in the names of the solicitor/authorised body and the client or a third party.

Which one of the following statements about third party managed accounts is correct?

• Money held in a third party managed account is not client money (as defined in the SRA Accounts Rules).

• An authorised body needs the SRA’s permission to use a third party managed account instead of/ as well as a client account.

• An authorised body does not have any obligations under the SRA Accounts Rules with regard to statements or records relating to any third party managed accounts.

Money held in a third party managed account is not client money (as defined in the SRA Accounts Rules).

When does money received for unpaid disbursements become non-client money?

Once the disbursement has been paid by the law firm, any money received from the client to reimburse the law firm is non-client money.

What happens to money received for fees once a bill has been sent to the client?

The money is no longer considered client money and becomes non-client money, belonging to the law firm.

What type of money is client money under Rule 2.1(d)?

Money received in respect of unpaid disbursements, such as a company search fee not yet paid by the solicitor, is considered client money.

What is the difference between client money and non-client money when it comes to company search fees?

If the solicitor has paid the company search fee, the money received from the client to reimburse the solicitor is non-client money. If the fee has not been paid by the solicitor yet, the money is client money.

A client is selling a property. You receive the deposit money for the property from the buyer’s solicitor before exchange and hold it to their order, as requested.

Which one of the following best explains whether the money is client money or not?

• The money is not client money because it does not belong to a client of yours.

• The money is client money because it is held by you on behalf of a third party in relation to regulated services delivered by you.

• The money is not client money because you do not provide regulated services to the sender of the money (the buyer’s solicitor).

The money is client money because it is held by you on behalf of a third party in relation to regulated services delivered by you.

Your client is buying a property and prior to completion of the purchase sends you a cheque in respect of the stamp duty land tax which will be paid on the purchase after completion.

Which one of the following best explains what kind of money this cheque represents and why?

• It is non-client money as a bill has not yet been delivered to the client for the stamp duty land tax.

• It is non-client money as the stamp duty land tax is a paid disbursement.

• It is client money because it has been received in respect of an unpaid cost or expense.

It is client money because it has been received in respect of an unpaid cost or expense.

Which one of the following is correct in respect of non-client money?

• If you receive money from a client in respect of a paid disbursement, it is non-client money.

• If you receive money from a client in respect of an unpaid disbursement, it is non-client money.

• If you receive money generally on account of costs in a transaction from a client, it will be non-client money as it is not for a specific cost.

If you receive money from a client in respect of a paid disbursement, it is non-client money.

How quickly must client money be paid into a client account?

• Within 7 days

• As soon as practicable.

• Promptly

• Within 2 working days

Promptly

Can client money be paid into the authorised body’s business account?

• No, the SRA Accounts Rules do not permit this.

• Yes, provided it is moved out of the business account and into the client account within 5 days.

• Yes, if it is part of a mixed payment and is then promptly moved out of the business account and into the client account.

Yes, if it is part of a mixed payment and is then promptly moved out of the business account and into the client account.

Which one of the following statements, regarding the use of the client account, is correct under the Solicitors Accounts Rules?

• You may only withdraw money from the client account following receipt of instructions to do so from your client.

• Withdrawals from an authorised body’s client account must be in respect of the delivery of regulated services – your legal and professional services.

• Provided you have acted on a transaction for a client, you may retain any remaining client money belonging to them in your client account, earning interest, until the client requests that the money is returned to them.

Withdrawals from an authorised body’s client account must be in respect of the delivery of regulated services – your legal and professional services.

In which one of the following scenarios can the solicitor properly withdraw money from their firm’s client account, in accordance with the Solicitors Accounts rules?

The client account currently holds £15,000, your client currently has £500 held in the client account. Their £500 was sent three days ago on account of costs generally for their property purchase transaction.

• You withdraw £250 from the client account to pay for the desktop environmental search which needs to be carried out in connection with the client’s property purchase.

• You withdraw £550 from the client account, on receipt of instructions from your client to pay Land Registry fees for registering their purchase of the property.

• You withdraw £1,500 from the client account to pay stamp duty land tax on your client’s property purchase.

You withdraw £250 from the client account to pay for the desktop environmental search which needs to be carried out in connection with the client’s property purchase.

Which one of the following would be in accordance with the Solicitors Accounts Rules?

• Transferring money from the client account to your business account to pay a bill which has been sent to the client where they have authorised the transfer of the costs and have sufficient funds in the client account.

• Paying a mixed payment into your business account and leaving the client money element in the business account for seven days whilst you prepare and send a bill to the client, to prevent the need to transfer the client money element into the client account and then back to the business account to pay the bill later.

• Transferring money from the client account to your business account following a phone call with your client where you let them know that you would shortly be sending them a bill and they authorised the transfer of costs and have sufficient funds in the client account.

Transferring money from the client account to your business account to pay a bill which has been sent to the client where they have authorised the transfer of the costs and have sufficient funds in the client account.

A firm of solicitors is acting on behalf of a client who is selling their property and purchasing a new property. A deposit of £35,000 has been received from the buyer’s solicitor in respect of the sale and is held as stakeholder. The firm of solicitors has not sent a bill of costs to the client yet.

Which one of the following best explains whether the £35,000 is client money?

• No, it is not client money because it is held as stakeholder and has not been released to the client.

• No, it is not client money because it has been received from a third party and not from the client.

• Yes, it is client money.

• No, it is not client money because a bill of costs has not yet been sent to the client.

• No, it is not client money because it has been received by the firm of solicitors and not by the client.

Yes, it is client money.

A firm of solicitors holds £20,000 in their client account and £30,000 in their business account. A large proportion of the client money in the client account belongs to the firm’s client Adam, who the firm hold £15,000 for. Of the remaining £5,000, £4,500 was sent to the firm generally on account of costs by Vijaya, a client who is purchasing a property and £500 was sent to the firm generally on account of costs by Sandra, a client who the firm are defending in a litigation case.

The firm needs to pay £900 in court fees for Sandra.

Which one of the following best sets out the steps the firm will take to pay the court fees?

• The firm will pay the court fees from the client account but must then transfer £300 from the business account to the client account.

• The firm will pay the court fees from the client account but must obtain Sandra’s instructions to pay the court fees first.

• The firm will pay the court fees from the client account but the SRA’s prior written authorisation is required first.

• The firm will pay the court fees from the business account.

• The firm will pay the court fees from the client account but the withdrawal must be appropriately authorised and supervised.

The firm will pay the court fees from the business account.

A firm of solicitors is acting on behalf of the executors of a will. The administration of the estate will be completed shortly and the executors have asked the firm to pay the legacies due under the will. As a separate matter the firm also acts for one of the beneficiaries of the will in connection with the beneficiary’s purchase of a property. The beneficiary is entitled to a legacy of £20,000 from the will. The beneficiary intends to use their £20,000 legacy to repay the £2,000 the firm has already incurred in surveyor’s fees and searches (for which the firm has billed the beneficiary) and intends the balance of £18,000 to be retained by the firm as part of the purchase price.

Which one of the following statements best explains the action the firm should take?

• The firm can transfer £2,000 from the executors’ client account ledger to the firm’s business account but must send a cheque for £18,000 to the beneficiary.

• The firm can transfer £20,000 from the executors’ client account ledger to the beneficiary’s client account ledger and then transfer £2,000 to the firm’s business account.

• The firm cannot transfer the funds from the executors’ client account ledger to the beneficiary’s client account ledger. The firm must send a cheque to the beneficiary for £20,000.

• The firm can transfer £2,000 from the executors’ client account ledger to the firm’s business account and then transfer £18,000 to the beneficiary’s stakeholder account ledger

• The firm can transfer £20,000 from the executors’ client account ledger to the beneficiary’s client account ledger but cannot transfer £2,000 to the firm’s business account until the purchase of the property is completed.

The firm can transfer £20,000 from the executors’ client account ledger to the beneficiary’s client account ledger and then transfer £2,000 to the firm’s business account.

A firm of solicitors during its most recent accounting period has held client money. 90% of that client money is from the Legal Aid Agency. During that accounting period the average balance on the firm’s client account has not exceeded £8,000 and the maximum balance was £45,000. The firm is ceasing to operate as an authorised body. They have asked you whether the SRA will require them to obtain an accountant’s report for their most recent accounting period.

Which one of the following is the best advice to your client?

• They are not required to obtain an accountant’s report as an exemption applies because the firm is ceasing to operate as an authorised body.

• They are not required to obtain an accountant’s report as an exemption applies because 90% of the client money is from the Legal Aid Agency.

• They are required to obtain an accountant’s report within 12 months of the end of the accounting period.

• They are not required to obtain an accountant’s report as an exemption applies because the amounts of client money held in the accounting period do not exceed the limits set out in the SRA Accounts Rules.

• They are required to obtain an accountant’s report within six months of the end of the accounting period.

They are not required to obtain an accountant’s report as an exemption applies because the amounts of client money held in the accounting period do not exceed the limits set out in the SRA Accounts Rules.