AUTH 2.5 Investments and activities: general

In addition to the requirements as to the business test and the link to the United Kingdom, two other essential elements must be present before a person needs authorisation under the Act. The first is that the investments must come within the scope of the system of regulation under the Act (see AUTH 2.6). The second is that the activities, carried on in relation to those specified investments, are regulated under the Act (see AUTH 2.7). Both investments and activities are defined in the Regulated Activities Order made by the Treasury under section 22 of the Act.

The Regulated Activities Order contains exclusions. Exclusions may exist in relation to both the element of investment and the element of activity. Each should therefore be checked carefully. The exclusions that relate to specified investments are considered in AUTH 2.6, together with the outline of the specified investments. The exclusions that relate to activities are considered separately from the outline of activities (see AUTH 2.8 and AUTH 2.9).

2The application of certain of the exclusions considered in AUTH 2.8 (Exclusions applicable to certain regulated activities) and AUTH 2.9 (Regulated activities: exclusions applicable to certain circumstances) is modified in relation to persons who are subject to the Investment Services Directive or the Insurance Mediation Directive. The reasons for this and the consequences of it are explained in AUTH 2.5.4 G, as respects the Investment Services Directive, and AUTH App 5 (Insurance mediation activities), as respects the Insurance Mediation Directive.

2It remains the Government's responsibility to ensure the proper implementation of the Investment Services Directive. In this Directive, persons (called 'investment firms') who are caught by the Directive must be brought within the scope of regulation under the Act. An investment firm is any person whose ordinary business involves the provision to third parties on a professional basis of core investment services (these services are described in the extract from the Directive in Schedule 2 to the Regulated Activities Order). The Investment Services Directive does not apply in the circumstances described in the extract from the Directive in Schedule 3 to the Regulated Activities Order. A person will need to consider whether he is an investment firm to which the Directive applies, having due regard to the provisions in Schedule 3 to the Regulated Activities Order.

For persons who are investment firms, the activities that must be caught by the Regulated Activities Order are those that are caught by the Investment Services Directive. To achieve this result, some of the exclusions in the Order (that will apply to persons who are not caught by the Directive) have been made unavailable to investment firms. Article 4(4) of the Regulated Activities Order (Specified activities: general) lists a number of exclusions that must be disregarded. These relate to the exclusions concerned with:

1. (1)

   the absence of holding out (see AUTH 2.8.4 G (1));

2. (2)

   transactions or arrangements with or through certain persons (see AUTH 2.8.4 G (2), AUTH 2.8.5 G (1) and AUTH 2.8.6 G (4));

3. (3)

   risk management (see AUTH 2.8.4 G (5) and AUTH 2.8.5 G (2));

4. (4)

   persons acting under powers of attorney (see AUTH 2.8.7 G);

5. (5)

   sale of goods (see AUTH 2.9.7 G);

6. (6)

   groups and joint enterprises (see AUTH 2.9.9 G); and

7. (7)

   sale of a body corporate (see AUTH 2.9.11 G).1

2The Insurance Mediation Directive has in part been implemented through various amendments to the Regulated Activities Order. These include article 4(4A) (Specified activities: general) which precludes a person who, for remuneration, takes up or pursues insurance mediation or reinsurance mediation in relation to a risk or commitment situated in an EEA State from making use of certain exclusions. In other cases, some of the exclusions provided in relation to particular regulated activities are unavailable where the activity involves a contract of insurance. This is explained in more detail in AUTH App 5 (Insurance mediation activities).