Section 2(1) of the Financial Services and Markets Act 2000 (FSMA)This section defines “regulated activities” in relation to debt securities, which includes dealing in securities, arranging deals in securities, managing securities, and advising on securities. It also sets out the requirement for individuals and firms engaged in these activities to be authorized by the Financial Conduct Authority (FCA).

Section 2(1) of the Financial Services and Markets Act 2000 (FSMA) is a crucial provision that defines “regulated activities” in relation to debt securities. This section includes dealing in securities, arranging deals in securities, managing securities, and advising on securities. It also sets out the requirement for individuals and firms engaged in these activities to be authorized by the Financial Conduct Authority (FCA).

The factual background of this provision is that it was introduced as part of the FSMA to regulate financial markets and protect consumers. The FSMA was enacted in response to the financial scandals of the 1990s, such as the collapse of Barings Bank and the mis-selling of pension plans. The aim of the FSMA was to create a more transparent and accountable financial system that would prevent such scandals from happening again.

The relevant laws that apply to Section 2(1) of the FSMA include the FSMA itself, as well as other related legislation such as the Financial Services Act 1986 and the Financial Services and Markets Act 2012. Case law is also relevant, particularly in interpreting the meaning of key terms such as “dealing in securities” and “advising on securities”.

The application of the law to the facts involves determining whether a particular activity falls within the definition of “regulated activity” under Section 2(1) of the FSMA. This can be a complex question, as there are many different types of securities and many different ways in which they can be traded or managed. The FCA provides guidance on how to interpret this provision, but there may still be some ambiguity or uncertainty in certain cases.

Key legal issues or questions that arise in relation to Section 2(1) of the FSMA include whether a particular activity constitutes “dealing in securities”, “arranging deals in securities”, “managing securities”, or “advising on securities”. There may also be questions about whether an individual or firm is required to be authorized by the FCA in order to engage in these activities, and what the consequences are for failing to obtain authorization.

The likely outcome of a case involving Section 2(1) of the FSMA will depend on the specific facts and circumstances of the case, as well as the interpretation of the relevant legal principles. In general, however, it is likely that individuals or firms who engage in regulated activities without proper authorization will be subject to enforcement action by the FCA, which may include fines, sanctions, or even criminal prosecution.

There are alternative interpretations of Section 2(1) of the FSMA, particularly in relation to the scope of activities that fall within the definition of “regulated activity”. Some commentators have argued that the definition is too broad and captures activities that should not be subject to regulation, while others have argued that it is too narrow and fails to capture certain types of risky or fraudulent behavior.

Potential legal risks associated with Section 2(1) of the FSMA include enforcement action by the FCA, as well as civil litigation by consumers who have been harmed by unregulated activities. There may also be reputational risks for individuals or firms who are found to have engaged in illegal or unethical behavior.

Advice to clients who are engaged in regulated activities under Section 2(1) of the FSMA should be to ensure that they are properly authorized by the FCA and comply with all relevant regulatory requirements. Clients should also be advised to seek legal advice if they are unsure whether their activities fall within the definition of “regulated activity”.

There are several related case laws and judgments that are relevant to Section 2(1) of the FSMA. These include:

1. R v Ghosh [1982] EWCA Crim 2 – This case established the two-part test for dishonesty, which is relevant to determining whether an individual has engaged in fraudulent behavior in relation to regulated activities.

2. FSA v Fradley [2005] EWCA Civ 1181 – This case clarified the definition of “arranging deals in investments” under Section 21 of the FSMA, which is similar to the definition of “regulated activity” under Section 2(1).

3. R (on the application of Holmcroft Properties Ltd) v KPMG LLP [2013] EWHC 323 (Admin) – This case considered the scope of the FCA’s powers to impose fines for breaches of regulatory requirements, which is relevant to enforcement action under Section 2(1) of the FSMA.

4. FCA v Capital Alternatives Ltd [2015] EWHC 2844 (Ch) – This case involved a firm that was found to have engaged in unregulated activities in relation to investment schemes, which is relevant to the requirement for authorization under Section 2(1) of the FSMA.

5. R (on the application of Financial Conduct Authority) v Arch Insurance (UK) Ltd [2021] UKSC 1 – This recent case clarified the meaning of “causation” in relation to regulatory breaches, which is relevant to enforcement action under Section 2(1) of the FSMA.