AUTH App 1.7 Engage in investment activity

A communication must be an invitation or inducement to engage in investment activity for the restriction in section 21 to apply. Section 21(8) defines this phrase as:

1. (1)

   entering or offering to enter into an agreement the making or performance of which by either party is a controlled activity; or

2. (2)

   exercising any rights conferred by a controlled investment to acquire, dispose of, underwrite or convert a controlled investment.

Controlled activity and controlled investment are defined in Schedule 1 to the Financial Promotion Order and are listed in AUTH App 1.36.4 G and AUTH App 1.36.5 G. Broadly speaking, controlled activities and controlled investments are similar to regulated activities and specified investments under the Regulated Activities Order However, with controlled activities, the exclusions set out in the Regulated Activities Order do not, in most cases, apply. It is important to note, however, that there are certain differences between controlled activities and regulated activities and between controlled investments and specified investments. This is most notable where the financial promotion is about: 2

1. (1)

   certain credit agreements (see AUTH App 1.17 (Financial promotions concerning agreements for qualifying credit));2

2. (2)

   funeral plan contracts (see AUTH App 1.16 (Financial promotions concerning funeral plans)); and2

3. (3)

   contracts of insurance other than life policies (see AUTH App 1.17A (Financial promotions concerning insurance mediation activities)).2

So, it is quite possible for a person to be carrying on a business in the United Kingdom for which he does not require authorisation because the business activity either is not connected with financial services or falls within one of the exclusions in the Regulated Activities Order but find that the restriction in section 21 applies to his communications. It should also be noted that e-money is not a controlled investment. This means that the restriction in section 21 does not apply to the communication of an invitation or inducement that concerns e-money. This is unless the communication is a financial promotion for some other reason. 1

The overall effect is that a financial promotion must relate in some way to a controlled investment and may be summarised as the communication, in the course of business, of an invitation or inducement to:

1. (1)

   acquire, dispose of or underwrite certain investments or exercise rights conferred by such an investment for such purpose or for the purpose of converting it; or

2. (2)

   receive or undertake investment services such as dealing in investments as principal or as agent, managing investments, advising on investments or safeguarding and administering investments.

So a financial promotion will not include an invitation or inducement to:

1. (1)

   refrain from doing any of the things in AUTH App 1.7.3 G; or

2. (2)

   exercise rights conferred by an investment other than to acquire, dispose of, underwrite or convert an investment.

This means that most invitations or inducements to exercise voting rights will not be financial promotions.

In the FSA's opinion, section 21 will apply to a communication (made in the course of business) if it contains an invitation or inducement to engage in investment activity which is addressed to a particular person or to persons generally. Where this is the case, it will not matter that the communication may be physically delivered to someone other than the person who is intended to engage in investment activity. AUTH App 1.6.10 G gives more guidance on this.