AUTH 2.8 Exclusions applicable to particular regulated activities

Most regulated activities are subject to exclusions that are set out in the Regulated Activities Order directly following each activity.

Only one exclusion applies to the regulated activity of accepting deposits. A deposit taker providing its services as an electronic commerce activity from another EEA State into the United Kingdom (see AUTH 2.9.18 G) does not carry on a regulated activity. In addition to the situations that are excluded from being 'deposits' (see AUTH 2.6.2 G to AUTH 2.6.4 G), several persons are exempt persons in relation to the regulated activity of accepting deposits (see AUTH 2.10.8 G (2)).2

Certain 'small issuers' of e-money may apply to the FSA for a certificate to be excluded from the regulated activity of issuing e-money. To be eligible, the issuer must be a body corporate or a partnership (other than a full credit institution) with its head office in the United Kingdom and it must meet certain conditions. The FSA must give that issuer a certificate if it appears to the FSA that the issuer meets those conditions. Further guidance on those conditions and how the application is made is given in ELM 8.4 (The conditions for giving a small e-money issuer certificate).1

The following activities are excluded from both the regulated activities of effecting and carrying out contracts of insurance.

1. (1)

   In specified circumstances, the activities of an EEA firm when participating in a Community co-insurance operation are excluded. A Community co-insurance operation is defined in the Community Co-insurance Directive.

2. (2)

   Activities that are carried out in connection with the provision of on-the-spot accident or breakdown assistance for cars and other vehicles (such as repairs, vehicle retrieval, delivery of parts or fuel) are excluded.

3. (3)

   Electronic commerce activities provided by an incoming ECA provider where those activities are outside the scope of the Insurance Directives (see AUTH 2.9.18 G).2

The regulated activity of dealing in investments as principal applies to specified transactions relating to any security or to any contractually based investment (apart from rights under funeral plan contracts or rights to or interests in such contracts). The activity is cut back by exclusions as follows.

1. (1)

   Of particular significance is the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc). This applies where dealing in investments as principal involves entering into transactions relating to any security or assigning rights under a life policy (or rights or interests in such a contract). In effect, it superimposes an additional condition that must be met before a person's activities become regulated activities. The additional condition is that a person must hold himself out as making a market in the relevant specified investments or as being in the business of dealing in them, or he must regularly solicit members of the public with the purpose of inducing them to deal. This exclusion does not apply to dealing activities that relate to any contractually based investment except the assigning of rights under a life policy.

2. (2)

   Entering into a transaction relating to a contractually based investment is not regulated if the transaction is entered into by an unauthorised person and it takes place in either of the following circumstances (a transaction entered into by an authorised person would be caught). The first set of circumstances is where the person with whom the unauthorised person deals is either an authorised person or an exempt person who is acting in the course of a business comprising a regulated activity in relation to which he is exempt. The second set of circumstances is where the unauthorised person enters into a transaction through a non-UK office (which could be his own) and he deals with or through a person who is based outside the United Kingdom. This non-UKperson must be someone who, as his ordinary business, carries on any of the activities relating to securities or contractually based investments that are generally treated as regulated activities.

3. (3)

   A person (for example, a bank) who provides another person with finance for any purpose can accept an instrument acknowledging the debt (and as security for it) without risk of dealing as principal as a result.

4. (4)

   A company does not deal as principal by issuing its own shares or share warrants and a person does not deal as principal by issuing his own debentures or debenture warrants.

5. (5)

   Risk-management activities involving options, futures and contracts for differences will not require authorisation if specified conditions are met. The conditions include the company's business consisting mainly of unregulated activities and the sole or main purpose of the risk management activities being to limit the impact on that business of certain kinds of identifiable risk.

6. (6)

   A person will not be treated as carrying on the activity of dealing in investments as principal if, in specified circumstances (outlined in AUTH 2.9), he enters as principal into a transaction:

   1. (a)

      while acting as bare trustee (or, in Scotland, as nominee);

   2. (b)

      in connection with the sale of goods or supply of services;

   3. (c)

      that takes place between members of a group or joint enterprise;

   4. (d)

      in connection with the sale of a body corporate;

   5. (e)

      in connection with an employee share scheme;

   6. (f)

      as an overseas person;

   7. (g)

      as an incoming ECA provider (see AUTH 2.9.18 G).5324

The regulated activity of dealing in investments as agent applies to specified transactions relating to any security or to any relevant investment (apart from rights under funeral plan contracts or rights to or interests in such contracts). In addition, the activity is cut back by exclusions as follows.5

1. (1)

   An exclusion applies to certain transactions entered into by an agent who is not an authorised person which depend on him dealing with (or through) an authorised person. It does not apply if the transaction relates to a contract of insurance. There are certain conditions which must be satisfied for the exclusion to apply. These are that the agent must not give any relevant advice on the transaction and that he must not receive any remuneration from the transaction unless account is made to his client.5

2. (2)

   There is an exclusion for risk-management transactions where the agent is dealing on behalf of a group company or a co-participant in a joint enterprise.

3. (3)

   In addition, exclusions apply in specified circumstances (outlined in AUTH 2.9 (Regulated activities: exclusions available in certain circumstances)) where a person enters as agent into a transaction:5

   1. (a)

      in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see AUTH 2.9.5 G);5

   2. (b)

      in connection with the sale of goods or supply of services (see AUTH 2.9.7 G);5

   3. (c)

      that takes place between members of a group or joint enterprise (see AUTH 2.9.9 G);5

   4. (d)

      in connection with the sale of a body corporate (see AUTH 2.9.11 G);5

   5. (e)

      in connection with an employee share scheme (see AUTH 2.9.13 G);5

   6. (f)

      as an overseas person (see AUTH 2.9.15 G);5

   7. (g)

      as an incoming ECA provider (see AUTH 2.9.18 G);5

   8. (h)

      as a provider of non-motor goods or travel services where the transaction involves a general insurance contract that satisfies certain conditions (see AUTH 2.9.19 G);5

   9. (i)

      that involves a contract of insurance covering large risks situated outside the EEA (see AUTH 2.9.19 G).5

   More detailed guidance on the exclusions that relate to contracts of insurance is in AUTH App 5 (Insurance mediation activities).52

The exclusions in relation to the regulated activities of arranging are of particular relevance in the context of raising corporate finance. Many of the exclusions outlined below relate to both the elements of the activity; that is, arranging (bringing about) deals in investments (under article 25(1) of the Regulated Activities Order) and making arrangements with a view to transactions in investments (under article 25(2) of the Regulated Activities Order). But several exclusions relate only to one of those activities.

1. (1)

   Under article 26, arrangements that do not or would not bring about the transaction to which they relate are excluded from article 25(1) and article 25A(1) only. A person will bring about an investment transaction only if his involvement in the chain of events leading to a transaction is of sufficient importance that without that involvement the transaction would not take place. This will require something more than the mere giving of advice (although giving such advice may be the regulated activity of advising on investments).5

2. (2)

   Under article 27, simply providing the means by which parties to a transaction (or possible transaction) are able to communicate with each other is excluded from article 25(2) and article 25A(2) only. This will ensure that persons such as Internet service providers or telecommunications networks are excluded if all they do is provide communication facilities (and these would otherwise be considered to be arrangements made with a view to the participants entering into transactions). If a person makes arrangements that go beyond providing the means of communication, and add value to what is provided, he will lose the benefit of this exclusion.5

3. (3)

   Under article 28, arranging investment transactions to which the arranger is to be a party is excluded from both article 25(1) and (2). The main purpose is to ensure that a person is not regarded as arranging deals for another when the transaction in question is one to which he intends to be a party. As a result, a person cannot both be engaging in a dealing activity (as principal or agent) and arranging deals for another as regards any particular transaction. But where the transaction involves a contract of insurance, article 28 will not apply if the person making the arrangements:5

   1. (a)

      is the only policyholder; or5

   2. (b)

      as a result of the transaction, would become the only policyholder.5

   Under article 28A, a person is excluded from article 25A(1) and (2) if he is to enter into the contract to which the arrangements relate. The article also excludes from article 25A(1) a person who arranges a variation to a contract to which he is or is to become a party.5

4. (4)

   Under article 29, an unauthorised person who arranges investment transactions, with a view to a transaction between a third party and an authorised person, is excluded from article 25(1) and (2) and article 25A(1) and (2) if specified conditions as to advice and remuneration are satisfied. For example, the exclusion is dependent on the third party not receiving any advice on the transactions from the unauthorised person making the arrangements. The exclusion does not apply where the investment is a contract of insurance.5

5. (5)

   Under article 29A, an unauthorised person is excluded from the regulated activity of arranging for another person to vary the terms of a regulated mortgage contract entered into after 31 October 2004 (article 25A(1)(b)). This is if the arranging is the result of:5

   1. (a)

      anything done in the course of the administration of a regulated mortgage contract by an authorised person under article 62(a); or

      5
   2. (b)

      anything done by the person making the arrangements in connection with the administration of a regulated mortgage contract under article 62(b).

      5
6. (6)

   Under article 30, arranging investment transactions in connection with lending on the security of contracts of insurance is excluded from article 25(1) and (2) but only where a person is not carrying on insurance mediation or reinsurance mediation.5

7. (7)

   Under article 31, making arrangements for finance (in whatever form) to be supplied to a person by a third party is excluded from article 25(1) and (2) if the finance is given in exchange for an instrument acknowledging the debt. This mirrors the exclusion from dealing in investments as principal in similar circumstances (see AUTH 2.8.4 G (3)).5

8. (8)

   Under article 32, arrangements the only purpose of which is to provide finance to enable persons to enter into investment transactions are excluded from article 25(2) only. There is no equivalent exemption from article 25(1). But arrangements for the provision of finance will only be caught by that provision if the arrangements actually bring about the transaction.5

9. (9)

   Under article 33, making arrangements under which clients will be introduced to third parties who will provide independent services (consisting of advice or the exercise of discretion in relation to certain investments) is excluded from article 25(2) and article 25(2A) only. The person to whom the introduction is made must be of a specified standing (including that of an authorised person). The exclusion does not apply where the arrangements relate to a contract of insurance.5

10. (10)

    Under article 33A, making arrangements for introducing persons to:5

    1. (a)

       an authorised person who has permission to carry on certain regulated activities concerned with regulated mortgage contracts; or5

    2. (b)

       an appointed representative who is able to carry on any of those activities without breaching the general prohibition; or5

    3. (c)

       an overseas person who carries on any of those activities;5

    is excluded from article 25A(2) subject to certain conditions related to the holding of client money and the disclosure of certain information.5

11. (11)

    Under article 34, a company is not carrying on a regulated activity under article 25(1) or (2) of the Regulated Activities Order (Arranging deals in investments) by arranging for the issue of its own shares or share warrants and a person is not doing so by arranging for the issue of his own debentures or debenture warrants.5

12. (12)

    Under article 35, a body carrying out international securities business of a specified type can apply to the Treasury for approval as an international securities self-regulating organisation (ISSRO). Arrangements made in order to carry out the functions of an ISSRO are excluded from article 25(1) and (2). The exclusion applies whether the arrangements are made by the ISSRO or by a person acting on its behalf.5

13. (13)

    The following exclusions from both article 25(1) and (2) (outlined in AUTH 2.9) apply in specified circumstances where a person makes arrangements:5

    1. (a)

       while acting as trustee or personal representative (see AUTH 2.9.3 G);5

    2. (b)

       in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see AUTH 2.9.5 G);5

    3. (c)

       in connection with the sale of goods or supply of services (see AUTH 2.9.7 G);5

    4. (d)

       in connection with certain transactions by a group member or by a participator in a joint enterprise (see AUTH 2.9.9 G);5

    5. (e)

       in connection with the sale of a body corporate (see AUTH 2.9.11 G);5

    6. (f)

       in connection with an employee share scheme (see AUTH 2.9.13 G);5

    7. (g)

       as an overseas person (see AUTH 2.9.15 G);5

    8. (h)

       as an incoming ECA provider (see AUTH 2.9.18 G);5

    9. (i)

       as a provider of non-motor goods or services related to travel (see AUTH 2.9.19 G);5

    10. (j)

        involving the provision, on an incidental basis, of information to policyholders or potential policyholders about contracts of insurance (see AUTH 2.9.19 G);5

    11. (k)

        that involve a contract of insurance covering large risks situated outside the EEA (see AUTH 2.9.19 G).5

    More detailed guidance on the exclusions that relate to contracts of insurance is in AUTH App 5 (Insurance mediation activities).5324

The activities of persons appointed under a power of attorney are excluded, under article 38 of the Regulated Activities Order, from the regulated activity of managing investments, if specified conditions are satisfied. The exclusion only applies where a person is not carrying on insurance mediation or reinsurance mediation. In addition, the following exclusions (outlined in AUTH 2.9) apply in specified circumstances where a person manages assets:5

1. (1)

   while acting as trustee or personal representative;

2. (2)

   in connection with the sale of goods or supply of services;

3. (3)

   that belong to a group member or participator in a joint enterprise.

4. (4)

   as an incoming ECA provider (see AUTH 2.9.18 G).2

The exclusions from the regulated activity of safeguarding and administering investments are as follows.

1. (1)

   Safeguarding and administration activities carried on by one person are excluded if a specified third party undertakes a responsibility for the assets which is no less onerous than it would have if he were doing the safeguarding and administration himself. The effect of this is that an authorised person with permission to carry on this regulated activity (or in certain circumstances an exempt person) can delegate all or part of the activities without the delegate needing to be authorised and without loss of protection to the owner of the assets.

2. (2)

   Introductions to an authorised person, or to an exempt person acting within the scope of his exemption and in the course of a business, are excluded from that aspect of this regulated activity which consists of arranging safeguarding and administration of assets by another person (see AUTH 2.7.9 G).

3. (3)

   Certain specified activities (such as currency conversion and document handling) are excluded from being the administration of investments. A person who safeguards and administers assets will not be carrying on regulated activities if these are the only administration activities in which he engages. This is because a person must be carrying on both the activity of safeguarding and that of administration, or be arranging for both to be carried on by another, before he requires authorisation (see AUTH 2.7.9 G).

4. (4)

   The following exclusions apply in specified circumstances where a person safeguards and administers assets (or arranges for another to do so):5

   1. (a)

      while acting as trustee or personal representative (see AUTH 2.9.3 G);5

   2. (b)

      in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see AUTH 2.9.5 G);5

   3. (c)

      in connection with the sale of goods or supply of services (see AUTH 2.9.7 G);5

   4. (d)

      which belong to a group member or participator in a joint enterprise (see AUTH 2.9.9 G);5

   5. (e)

      in connection with an employee share scheme (see AUTH 2.9.13 G).5

   6. (f)

      as an incoming ECA provider (see AUTH 2.9.18 G); and5

   7. (g)

      that are contracts of insurance and, in so doing, provides information to policyholders or potential policyholders on an incidental basis in the course of his carrying on a business or profession not otherwise consisting of regulated activities (see AUTH 2.9.19 G (2)).52

Exclusions from the regulated activity of sending dematerialised instructions apply in relation to certain types of instructions sent in the operation of the system maintained under the Uncertificated Securities Regulations 2001. The various exclusions relate to the roles played by participating issuers, settlement banks and network providers (such as Internet service providers) and to instructions sent in connection with takeover offers (as long as specified conditions are met). In addition, the following exclusions (outlined in AUTH 2.9) apply in specified circumstances where a person sends dematerialised instructions:5

1. (1)

   while acting as trustee or personal representative (see AUTH 2.9.3 G);5

2. (2)

   on behalf of a group member (see AUTH 2.9.3 G);5

3. (3)

   as an incoming ECA provider (see AUTH 2.9.18 G).324

There is only one exclusion from the range of activities specified as being regulated in relation to collective investment schemes. This exclusion relates to incoming ECA providers (see AUTH 2.9.18 G). In other cases, the key issue is whether or not what is being done relates to something that is a collective investment scheme. Exclusions exist in relation to that issue (see AUTH 2.6.18 G).2

The only exclusion from the range of activities specified as being regulated in relation to stakeholder pension schemes relates to incoming ECA providers (see AUTH 2.9.18 G).2

In certain circumstances, advice that takes the form of a regularly updated news or information service and advice which is given in one of a range of different media (for example, newspaper or television) is excluded from the regulated activity of advising on investments and advising on regulated mortgage contracts (see AUTH 7 (Periodical publications: news services and broadcasts: applications for certification)). Advice given in the course of the administration of a regulated mortgage contract by an authorised person is also excluded subject to certain conditions. In addition:5

1. (1)

   the following exclusions apply in specified circumstances where a person is advising on investments or regulated mortgage contracts:5

   1. (a)

      while acting as trustee or personal representative (see AUTH 2.9.3 G);5

   2. (b)

      in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see AUTH 2.9.5 G); and5

   3. (c)

      as an incoming ECA provider (see AUTH 2.9.18 G);524

2. (2)

   the following exclusions apply in specified circumstances where a person is advising on investments:5

   1. (a)

      in connection with the sale of goods or supply of services (see AUTH 2.9.7 G);5

   2. (b)

      to a group member or participator in a joint enterprise (see AUTH 2.9.9 G);5

   3. (c)

      in connection with the sale of a body corporate (see AUTH 2.9.11 G);5

   4. (d)

      as an overseas person (see AUTH 2.9.15 G);5

   5. (e)

      that are limited to certain contracts of insurance covering risks to non-motor goods or related to travel (see AUTH 2.9.19 G); 5

   6. (f)

      that are contracts of insurance covering large risks situated outside the EEA (see AUTH 2.9.19 G).5

   More detailed guidance on certain of these exclusions is in AUTH App 4 (Regulated activities connected with mortgages) and AUTH App 5 (Insurance mediation activities).5

Electronic commerce activities provided by an incoming ECA provider are excluded from the regulated activities that relate expressly to business carried on at Lloyd's (see AUTH 2.9.18 G). Otherwise the only exclusions that apply concern the regulated activity of arranging deals in its application to business carried on at Lloyd's.2

Entering as provider into a funeral plan contract is not treated as a regulated activity where:

1. (1)

   the contract is one under which the sums received from the customer will be applied towards a contract of insurance on the life of the person whose funeral is to be provided or be held on trust for the purpose of providing a funeral; in each case certain specified conditions must be met for the exclusion to apply;

2. (2)

   the customer and the provider intend or expect that the funeral will be provided within one month of the contract being entered into;

3. (3)

   the contract is entered into before 1 January 2002.

4. (4)

   it is provided as an electronic commerce activity by an incoming ECA provider (see AUTH 2.9.18 G).52

A person who agrees to carry on certain other regulated activities (which is itself a regulated activity - see AUTH 2.7.21 G) does not require authorisation where the person concerned is an overseas person and the agreement is reached as a result of a legitimate approach (see AUTH 2.9.12 G). For this exclusion to apply, the agreement must be one to arrange deals, manage investments, safeguard and administer investments or send dematerialised instructions. The provision of electronic commerce activities by an incoming ECA provider is also excluded from the regulated activity of agreeing to carry on certain other regulated activities (see AUTH 2.7.21 G). But this is not the case where the agreement relates to the regulated activity of effecting or carrying out contracts of insurance falling under the Insurance Directives (see AUTH 2.8.3 G). This is still a regulated activity when provided as an electronic commerce activity.2

To the extent that an exclusion applies in relation to a regulated activity, then 'agreeing' to carry on an activity falling within the exclusion will not be a regulated activity. This is the effect of article 4(3) of the Regulated Activities Order.