AUTH 2.9 Regulated activities: exclusions applicable into certain circumstances2

The various exclusions outlined below deal with a range of different circumstances.

1. (1)

   Each set of circumstances described in AUTH 2.9.3 G to AUTH 2.9.17 G has some application to several regulated activities relating to securities, relevant investments or regulated mortgage contracts. They have no effect in relation to the separate regulated activities of accepting deposits, issuing e-money, effecting or carrying out contracts of insurance, advising on syndicate participation at Lloyd's, managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's, or entering as provider into a funeral plan contract. Within each set of circumstances, the Regulated Activities Order, in Chapter XVII of Part II of the Order, makes separate provision for each regulated activity affected. This is necessary because each exclusion has to be tailored to reflect the different nature of the regulated activity involved and the different language required (for example, some activities involve entering directly into transactions while others relate to the provision of services).5

2. (2)

   The exclusion described in AUTH 2.9.18 G relates to electronic commerce activities provided by an incoming ECA provider. This exclusion applies to all regulated activities except effecting contracts of insurance or carrying out contracts of insurance.3241

The exclusions grouped together in the Regulated Activities Order are descr2.9.7ibed below in this chapter in general terms. The exact terms of each exclusion will need to be considered by any person who is considering whether they need authorisation. Each description is accompanied by an indication of which regulated activities are affected.

This group of exclusions applies, in specified circumstances, to the regulated activities of:

1. (1)

   dealing in investments as principal;

2. (2)

   arranging (bringing about) deals in investments, arranging (bringing about) regulated mortgage contracts, making arrangements with a view to transactions in investments and making arrangements with a view to regulated mortgage contracts;5

3. (3)

   managing investments;

4. (4)

   assisting in the administration and performance of a contract of insurance;5

5. (5)

   safeguarding and administering investments;5

6. (6)

   sending dematerialised instructions;5

7. (7)

   advising on investments or regulated mortgage contracts;5

8. (8)

   entering into regulated mortgage contracts; and5

9. (9)

   administering regulated mortgage contracts.5

The exclusion is, however, disapplied where a person is carrying on insurance mediation or reinsurance mediation. This is due to article 4(4A) of the Regulated Activities Order. Guidance on exclusions relevant to insurance mediation activities is in AUTH App 5 (Insurance mediation activities).5

A person carrying on certain regulated activities does not require authorisation in specified circumstances if he is acting in a representative capacity. The representative capacities covered by the exclusions depend on the regulated activity concerned but, in most cases, the focus is on persons who are acting as trustee or personal representative. In broad terms, the exclusions apply to specified transactions, or activities, that are part of the discharge of his general obligations by the trustee or representative when he is acting as such. Many of the exclusions require that the trustee or representative must not hold himself out as providing services consisting of the regulated activity in question. In addition, he must not receive remuneration that is additional to any he receives for acting in the representative capacity (although a person is not to be regarded as receiving additional remuneration merely because his remuneration as trustee or representative is calculated by reference to time spent). The exclusions for entering into and for administering regulated mortgage contracts, however, work on a different basis. They apply where the activity relates to a regulated mortgage contract under which the borrower is a beneficiary.5

This group of exclusions applies, in specified circumstances, to the regulated activities of:

1. (1)

   dealing in investments as agent;

2. (2)

   arranging (bringing about) deals in investments, arranging (bringing about) regulated mortgage contracts, making arrangements with a view to transactions in investments and making arrangements with a view to regulated mortgage contracts;5

3. (3)

   assisting in the administration and performance of a contract of insurance;5

4. (4)

   safeguarding and administering investments; and5

5. (5)

   advising on investments or regulated mortgage contracts.5

The exclusion is, however, disapplied where a person is carrying on insurance mediation or reinsurance mediation. This is due to article 4(4A) of the Regulated Activities Order. Guidance on exclusions relevant to insurance mediation activities is in AUTH App 5 (Insurance mediation activities).5

The exclusions apply where the regulated activity is carried out in the course of a profession or business which does not otherwise consist of the carrying on of regulated activities in the United Kingdom. However, activities are only excluded to the extent that they may reasonably be regarded as a necessary part of the other services provided in the course of the profession or business. The exclusion does not apply if separate remuneration is received in respect of any regulated activity that is carried on. (See separate guidance for authorised professional firms in PROF).4

This group of exclusions applies, in specified circumstances, to the regulated activities of:

1. (1)

   dealing in investments as principal;

2. (2)

   dealing in investments as agent;

3. (3)

   arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;5

4. (4)

   managing investments;

5. (5)

   safeguarding and administering investments; and

6. (6)

   advising on investments.

Broadly speaking, the exclusions focus on cases where the main business of a person is to sell goods or supply services but where certain activities may have to be carried on for the purposes of that business which would otherwise be regulated activities. The exclusions are not available where the customer to whom goods are sold or services are supplied is an individual. They are also not available where what is at issue is a transaction entered into, or service provided, in relation to rights under a contract of insurance or units in a collective investment scheme (or rights to, or interests in, either).65

This group of exclusions applies, in specified circumstances, to the regulated activities of:

1. (1)

   dealing in investments as principal;

2. (2)

   dealing in investments as agent;

3. (3)

   arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;5

4. (4)

   managing investments;

5. (5)

   safeguarding and administering investments;

6. (6)

   sending dematerialised instructions; and

7. (7)

   advising on investments.5

These exclusions apply to intra-group dealings and activities and to dealings or activities involving participators in a joint enterprise which take place for the purposes of, or in connection with, the enterprise. The general principle here is that, as long as activities that would otherwise be regulated activities take place wholly within a group of companies, then there is no need for authorisation. The same principle applies to dealings or activities that take place wholly within a joint enterprise entered into for commercial purposes related to the participators' unregulated business. The exclusions in (2), (3), (4) and (7) are disapplied where they concern a contract of insurance. Guidance on exclusions relevant to insurance mediation activities is in AUTH App 5 (Insurance mediation activities).5

This group of exclusions applies, in specified circumstances, to the regulated activities of:

1. (1)

   dealing in investments as principal;

2. (2)

   dealing in investments as agent;

3. (3)

   arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;5

4. (4)

   advising on investments.

The exclusions only apply where the object of the transaction may reasonably be regarded as being the acquisition of day-to-day control of the affairs of a body corporate. Whether or not day-to-day control is at stake is a question of fact based on an objective test. The Regulated Activities Order contains a non-exhaustive list of circumstances in which the day-to-day control requirement will be regarded as satisfied. These include the case where it is the acquisition or disposal of at least 50 per cent of the voting shares in the body corporate that is at issue. Certain additional requirements must also be satisfied. These exclusions do not have effect in relation to shares in an open-ended investment company. The exclusions in (2), (3), (4) and (7) are disapplied where they concern a contract of insurance. Guidance on exclusions relevant to insurance mediation activities is in AUTH App 5 (Insurance mediation activities).5

This group of exclusions applies, in specified circumstance, to the regulated activities of:

1. (1)

   dealing in investments as principal;

2. (2)

   dealing in investments as agent;

3. (3)

   arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;5

4. (4)

   safeguarding and administering investments.5

In broad terms, the exclusions apply to activities which further an employee share scheme, or are carried on in operation of such a scheme. They apply to activities carried on by the company whose securities or debentures (which are given an extended meaning for this exclusion) are the subject of the scheme. They also apply to activities of any company in the same group or of any trustee who holds certain types of securities or debentures under the scheme.

This group of exclusions applies, in specified circumstances, to the regulated activities of:

1. (1)

   dealing in investments as principal;

2. (2)

   dealing in investments as agent;

3. (3)

   arranging (bringing about) deals in investments, making arrangements with a view to transactions in investments, arranging (bringing about) regulated mortgage contracts and making arrangements with a view to regulated mortgage contracts;5

4. (4)

   advising on investments;

5. (5)

   entering into regulated mortgage contracts;5

6. (6)

   administering regulated mortgage contracts;5

7. (7)

   agreeing to carry on the regulated activities of managing investments, arranging (bringing about) deals in investments, making arrangements with a view to transactions in investments, safeguarding and administering investments or sending dematerialised instructions.5

An overseas person is defined as a person who carries on what would be regulated activities (including any activity that is excluded from being a regulated activity) but who does not do so, or offer to do so, from a permanent place of business maintained by him in the United Kingdom. Where a person does not have a permanent place of business in the United Kingdom, he will not, in any event, need to rely on these exclusions unless what he does is regarded as carried on in the United Kingdom (see AUTH 2.4).

The exclusions are available for regulated activities other than those that relate to regulated mortgage contracts, in the two broad cases set out below. For some of these regulated activities, the exclusions apply in each case. In others, they apply in only one.5

1. (1)

   The first case is where the nature of the regulated activity requires the direct involvement of another person and that person is authorised or exempt (and acting within the scope of his exemption). For example, this might occur where the person with whom an overseas person deals is an authorised person or where the arrangements he makes are for transactions to be entered into by such a person;

2. (2)

   The second case is where a particular regulated activity is carried on as a result of what is termed a 'legitimate approach'. An approach to an overseas person that has not been solicited by him in any way, or has been solicited in a way that does not contravene the restrictions on financial promotion in section 21 of the Act, is a legitimate approach. An approach that is made by him in a way that does not contravene section 21 of the Act is also a legitimate approach. In such circumstances, the overseas person can, without requiring authorisation, enter into deals with (or on behalf of) a person in the United Kingdom, give advice in the United Kingdom or enter into agreements in the United Kingdom to carry on certain regulated activities. The exemptions to the financial promotion restrictions made by the Treasury under section 21 of the Act (Restrictions on financial promotion) will be relevant to the question of whether those restrictions have been contravened (see separate guidance on financial promotion in AUTH App 1 (Financial promotion and related activities)).3

5The exclusions for overseas persons who carry on certain regulated activities related to regulated mortgage contracts work in a different way. They depend on the residency of the borrower or borrowers. Guidance on these exclusions is in AUTH App 4.11 (Link between activities and the United Kingdom).

1. (1)

   In accordance with article 3(2) of the E-Commerce Directive, all requirements on persons providing electronic commerce activities into the United Kingdom from the EEA are lifted, where these fall within the co-ordinated field and would restrict the freedom of such a firm to provide services. The coordinated field includes any requirement of a general or specific nature concerning the taking up or pursuit of electronic commerce activities. Authorisation requirements fall within the coordinated field. The services affected are generally those provided electronically, for example through the Internet or solicited e-mail.

2. (2)

   The Regulated Activities Order was amended by the Financial Services and Markets Act 2000 (Regulated Activities)(Amendment)(Electronic Commerce Directive) Order 2002 (SI 2002/[number to be added later]). This Order creates a general exclusion from regulated activities (except for the regulated activities of effecting or carrying out contracts of insurance). Where activities consist of electronic commerce activities, an incoming ECA provider will not require authorisation for such activities in the United Kingdom. This does not extend to the regulated activity of effecting or carrying out contracts of insurance falling under the Insurance Directives (see AUTH 2.8.3 G). However, services provided off-line in the United Kingdom (that is, other than as an electronic commerce activity) by such a firm which amount to regulated activities still require authorisation. ECO provides guidance and sets out rules that are relevant to both incoming and outgoing ECA providers. Incoming ECA providers have also to comply with any authorisation requirements in the country of origin of the services.

3. (3)

   Incoming ECA providers should note that notification requirements under the Single Market Directives still apply (see AUTH 5 ).2

5The exclusions in this group apply to certain regulated activities involving certain contracts of insurance. The exclusions and the regulated activities to which they apply are as follows.

1. (1)

   The first exclusion of this kind relates to certain activities carried on by a provider of non-motor goods or services related to travel in connection with general insurance contracts only. The contracts must be for five years duration or less and have an annual premium of no more than ?500. The contract must cover breakdown or loss of or damage to non-motor goods supplied by the provider or risks linked to travel services booked with the provider. There must not be any liability risk cover. The insurance must be complementary to the goods or services being supplied by the provider in the course of his carrying on a business or profession not otherwise consisting of regulated activities. This exclusion applies where the regulated activities concerned are:

   1. (a)

      dealing in investments as agent;

   2. (b)

      arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

   3. (c)

      assisting in the administration and performance of a contract of insurance; and

   4. (d)

      advising on investments.

2. (2)

   The second exclusion applies where information is provided to a policyholder by a person on an incidental basis in the course of that person's profession or business that does not otherwise consist of regulated activities. This exclusion applies where the regulated activities are:

   1. (a)

      arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

   2. (b)

      managing investments;

   3. (c)

      assisting in the administration and performance of a contract of insurance; and

   4. (d)

      safeguarding and administering investments;

3. (3)

   The third exclusion applies to certain general insurance contracts covering large risks where the risk is situated outside the EEA. This exclusion applies where the regulated activities concerned are:

   1. (a)

      dealing in investments as agent;

   2. (b)

      arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

   3. (c)

      assisting in the administration and performance of a contract of insurance; and

   4. (d)

      advising on investments.

Guidance on these and other exclusions relevant to insurance mediation activities is in AUTH App 5 (Insurance mediation activities).