AUTH 7.3 Does the activity require authorisation?

Under article 53 of the Regulated Activities Order (Advising on investments), advising a person is a specified kind of activity if :1

1. (1)

   the advice is given to the person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor; and

2. (2)

   it is advice on the merits of his doing any of the following (whether as principal or agent) :

   1. (a)

      buying, selling, subscribing for or underwriting a particular investment which is a security or a relevant investment; or 1

   2. (b)

      exercising any right conferred by such an investment to buy, sell, subscribe for or underwrite such an investment.

1Under Article 53A of the Regulated Activities Order (Advising on regulated mortgage contracts), advising a person is a specified kind of activity if:

1. (1)

   the advice is given to the person in his capacity as a borrower or potential borrower; and

2. (2)

   it is advice on the merits of his doing any of the following:

   1. (a)

      entering into a particular regulated mortgage contract; or

   2. (b)

      varying the terms of a regulated mortgage contract entered into by him after mortgage day in such a way as to vary his obligations under that contract.

Articles 53 and 53A of the Regulated Activities Order contain a number of elements, all of which must be present before a person will require authorisation. For guidance on whether a person is carrying on these regulated activities, see AUTH App 1 (Financial promotion and related activities) and AUTH App 4 (Guidance on regulated activities connected with mortgages).1

Under section 22 of the Act (Regulated activities), for an activity to be a regulated activity it must be carried on 'by way of business'. There is power in the Act for the Treasury to change the meaning of the business test by including or excluding certain things. It has exercised this power (see the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 (SI No 2001/1177) (the Business Order). This has been amended by Article 18 of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2003 (SI No 2003/1476) as explained in AUTH 7.3.3A G. 1

The result of the amendments made to the meaning of the business test in section 22 of the Act is that the test differs depending on the activity in question. Where the regulated activities of advising on investments and advising on regulated mortgage contracts are concerned, the business test is not to be regarded as satisfied unless a person carries on the business of engaging in those activities. This is a narrower test than that of carrying on regulated activities by way of business (as required by section 22 of the Act), as it requires the regulated activities to represent the carrying on of a business in their own right. Where the advice relates to a contract of insurance, the business test is not be regarded as satisfied unless the person carrying on the activity of giving the advice is taking up or pursuing the activity for remuneration. AUTH 2.3 (The Business element) and AUTH 2.4 (Link between activities and the United Kingdom) together with AUTH App 5.4 (The business test) provide further detail on this.1

In the FSA's view, for a person to be carrying on the business of advising on investments or advising on regulated mortgage contracts he will usually need to be doing so with a degree of regularity and for commercial purposes - that is to say, he will normally be expecting to gain some kind of a direct or indirect financial benefit. But, in the FSA's view it is not necessarily the case that advice provided free of charge will not amount to a business. Advice is often given 'free' by a journalist or presenter, or in a publication or website, in the sense that no charge is made or commission received. For example, a newspaper may reply to readers' letters to generate goodwill or to generate a supply of further material that it can publish or a website that is 'free' to the user will be sponsored or paid for by advertising. In such cases, if advice on securities, relevant investments or regulated mortgage contracts is given, then in the FSA's view the business of advising on investments or advising on regulated mortgage contracts is being carried on. In addition, non-commercial motives may be relevant in determining whether a person can be said to be carrying on the business of giving advice. For example, an investigative journal or journalist may occasionally feel that it is necessary to warn investors against the purchase of a particular investment because there are suspicions of fraud in connection with that investment. The FSA takes the view that, in such circumstances, the journal or journalist would not be regarded as carrying on the business of advising on investments or advising on regulated mortgage contracts as he would be acting to prevent crime rather than in the carrying on of a business.1

Advice given in periodicals published from an establishment in the United Kingdom is regarded by the FSA as given in the United Kingdom. A similar approach is taken to advice given in, or by way of, a service provided from such an establishment.

In other circumstances, advice issued remotely may still be given in the United Kingdom. For example, the FSA considers that advice is given in the United Kingdom if :

1. (1)

   it is contained in a non-UK periodical that is posted in hard copy to persons in the United Kingdom;

2. (2)

   it is contained in a non-UK periodical (or given in or by way of a service) which is made available electronically to such persons.

But even if advice is given in the United Kingdom, the general prohibition will not be contravened if the giving of advice does not amount to the carrying on, in the United Kingdom, of the business of advising on investments or advising on regulated mortgage contracts. Also, the general prohibition will not be contravened if the exclusion for overseas persons in article 72 of the Regulated Activities Order (Overseas persons) applies. That exclusion applies in relation to the giving of advice on securities or relevant investments by an overseas person as a result of a 'legitimate approach' (defined in article 72(7)). In many cases where publications or services are provided from outside the United Kingdom it is likely that they will fall within the terms of this exclusion. For example, this will exclude any advice in a publication or service from being a regulated activity if it is given in response to an approach that has not been solicited in any way. It should be noted, however, that the exclusions in Article 72 only apply to the regulated activity of advising on regulated mortgage contracts where both the lender and the borrower are outside the United Kingdom. The effect of this is that, where the principal purpose of an overseas periodical publication is to offer advice on securities or relevant investments and regulated mortgage contracts, the exclusion for an overseas person who provides advice to persons in the United Kingdom as a result of a legitimate approach will not apply to the advice concerning regulated mortgage contracts.1

If a person is carrying on the business of advising on investments in the United Kingdom, he will not require authorisation if:

1. (1)

   he is able to rely on an exclusion; in addition to the exclusions already mentioned (in articles 54 and 72 of the Regulated Activities Order), other exclusions that may be relevant are in Chapter XVII of Part II of the Regulated Activities Order; or

2. (2)

   he is an exempt person (see AUTH 2.11 (What to do Now?)); since persons are exempt only in relation to specified regulated activities, his exemption must apply to the regulated activity of advising on investments.

Many people may be involved in the production of a periodical publication, news service or broadcast. But if the regulated activity of advising on investments is being carried on so that authorisation is required, the FSA's view is that the person carrying on the activity (and who will require authorisation) is the person whose business it is to have the editorial control over the content. In the case of a periodical publication, this will often be the proprietor. But particular circumstances may vary so that the responsibility for content and editorial control rests with a freelance journalist rather than with the proprietor. In such cases it may well be that the journalist may properly be viewed as carrying on his own business, using the periodical publication as the vehicle for doing so - in which case it is likely to be the journalist alone who needs the authorisation.

Similar principles apply to news services and broadcasts.