AUTH App 5.11 Other aspects of exclusions

This part of the guidance deals with:

1. (1)

   exclusions which are disapplied where the regulated activity relates to contracts of insurance;

2. (2)

   exclusions which are disapplied where a person carries on insurance mediation;

3. (3)

   the following exclusions applying to more than one regulated activity:

   1. (a)

      activities carried on in the course of a profession or non-investment business (article 67 (Activities carried on in the course of a profession or non-investment business));

   2. (b)

      activities carried on by a provider of relevant goods or services (article 72B (Activities carried on by a provider of relevant goods or services)); and

   3. (c)

      large risks (article 72D (Large risks contracts where risk situated outside the EEA)).

1

There are a number of 'pre-IMD' exclusions that have the effect of restricting the scope of the regulated activities referred to in this guidance. Several of these are disapplied or modified as part of implementation of the IMD.1

The exclusions outlined in (1) to (7) have been available to intermediaries (and in some cases insurance undertakings) acting in connection with life policies. In essence, however, from 14 January 2005 the following exclusions do not apply if they concern transactions relating to contracts of insurance:

1. (1)

   dealing in investments as agent with or through authorised persons (article 22 of the Regulated Activities Order (Deals with or through authorised persons));

2. (2)

   arranging transactions to which the arranger is to be a party, where the arranger enters into or is to enter into the transaction:

   1. (a)

      as agent for another person; or

   2. (b)

      as principal, unless the arranger is the only policyholder or will, as a result of the transaction, become the only policyholder (article 28 (Arranging transactions to which the arranger is a party));

3. (3)

   arranging deals with or through authorised persons (article 29 (Arranging deals with or through authorised persons));

4. (4)

   introducing (article 33 (Introducing));

5. (5)

   activities carried on in connection with the sale of goods and supply of services (article 68 (Activities carried on in connection with the sale of goods and supply of services));

6. (6)

   groups and joint enterprises (article 69 (Groups and joint enterprises)) (see AUTH App 5.11.6 G); and

7. (7)

   activities carried on in connection with the sale of a body corporate (article 70 (Activities carried on in connection with the sale of a body corporate)).1

It follows from the restrictions placed on the exclusions listed in AUTH App 5.11.3 G that, as of 14 January 2005:

1. (1)

   unauthorised persons who:

   1. (a)

      introduce clients or customers to an independent financial adviser with a view to a transaction;

   2. (b)

      deal as agent on behalf of their clients or customers with or though an authorised person; or

   3. (c)

      arrange for their clients or customers to enter into a transaction with or though an authorised person,

   will not be able to rely on articles 29 or 33 to avoid the need for authorisation where the transaction relates to a contract of insurance;

2. (2)

   unauthorised persons may, however, be able to rely on the exclusion for the provision of information on an incidental basis in article 72C to continue to avoid the need for authorisation (see AUTH App 5.6.5 G to AUTH App 5.6.9 G (Exclusion: article 72C (Provision of information on an incidental basis)));

3. (3)

   authorised persons who themselves introduce clients or customers to others for the purposes of buying or selling any kind of contract of insurance are likely to require a variation of their Part IV permission, as neither article 33 nor generally, article 72C (see AUTH App 5.6.5 G to AUTH App 5.6.9 G (Exclusion: article 72C (Provision of information on an incidental basis))) will apply where this activity amounts to arranging.

1

Insurance undertakings are referred to PRU 9.4 (Insurance undertakings and mortgage lenders using insurance or mortgage mediation services) as regards their obligations relating to the use of intermediaries generally.1

1. (1)

   The removal of the exclusion for group and joint enterprises in article 69 of the Regulated Activities Order (Groups and joint enterprises) may have implications for a company providing services for:2

   1. (a)

      other members of its group; or 2

   2. (b)

      other participants in a joint enterprise of which it is a participant.2

2. (2)

   Such companies might typically provide risk or treasury management or administration services which may include regulated activities relating to a contract of insurance. If so, such companies will need authorisation or exemption if they conduct the activities by way of business (see AUTH App 5.4 (The business test) generally and (3) and (4)). This is unless another exclusion applies.2

3. (3)

   In the FSA's view, particular issues arise in applying the by way of business test to group companies. Recital 11 of the Insurance Mediation Directive states that the Directive should apply to persons whose activity consists in providing insurance mediation services to third parties for remuneration. This suggests that the Directive is intended to apply only where the service is provided to a third party. The expression 'third party' is not defined in the Directive. The FSA considers that a group company that is providing services solely for the benefit of other group companies would not normally be regarded as providing services to a third party. The FSA also considers that, as a result, a group company providing services solely for the benefit of other group companies should not normally be regarded as satisfying the requirement that it be remunerated for providing insurance mediation services to third parties. Were a group company to be remunerated other than by another group company, however, the situation may be different. For example, if the group company receives commission from an insurer or broker, that fact would tend to suggest that the company has been rewarded for providing a service to the insurer or broker. In the FSA's view, it is appropriate to apply this principle to a group as defined in section 421 (Group) of the Act.2

4. (4)

   The FSA considers that similar principles to those applied to a group company in (2) may be applied to the participants in a joint enterprise. This would be where one participant in the joint enterprise is providing services solely for the benefit of another participant and for the purposes of the joint enterprise. This extends to any person in the same group as a participant in a joint enterprise and who provides insurance mediation services to one or more participants for the purposes of or in connection with the joint enterprise.21

Article 4(4A) of the Regulated Activities Order (Specified activities: general) disapplies certain exclusions where a person, for remuneration, takes up or pursues insurance mediation (as defined in article 2.3 of the IMD (see AUTH App 5.2.5 G (Approach to implementation of the IMD) and AUTH App 5.16.2 G (Article 2.3 of the Insurance Mediation Directive)) in relation to a risk or commitment located in an EEA state. The relevant exclusions which are disapplied are:

1. (1)

   arrangements in connection with lending on the security of insurance policies (article 30 of the Regulated Activities Order (Arranging transactions in connection with lending on the security of insurance policies));

2. (2)

   activities carried on by trustees, nominees and personal representatives (article 66 (Trustees, nominees and personal representatives)); and

3. (3)

   activities carried on in the course of a profession or non-investment business (article 67 (Activities carried on in the course of a profession or non-investment business)) (This exclusion is considered in further detail in AUTH App 5.11.9 G to AUTH App 5.11.12 G (Activities carried on in the course of a profession or non-investment business)).

1

Chapter XVII of the Regulated Activities Order (Exclusions applying to several specified kinds of activity) contains various exclusions applying to several kinds of activity. Three exclusions of relevance in relation to contracts of insurance are dealt with in this section and a fourth, overseas persons, in AUTH App 5.12 (Link between activities and the United Kingdom).1

Article 67 excludes from the activities of dealing as agent, arranging (bringing about) deals in investments, making arrangements with a view to transactions in investmentsassisting in the administration and performance of a contract of insurance2and advising on investments, any activity which:

1. (1)

   is carried on in the course of carrying on any profession or business which does not otherwise consist of the carrying on of regulated activities in the United Kingdom; and

2. (2)

   may reasonably be regarded as a necessary part of other services provided in the course of that profession or business.

In the FSA's view, the fact that a person may carry on regulated activities in the course of the carrying on of a profession or business does not, of itself, mean that the profession or business consists of regulated activities. This is provided that the main focus of the profession or business does not involve regulated activities and that the regulated activities that are carried on arise in a way that is incidental and complementary to the carrying on of the profession or business.1

Although the article 67 exclusion is disapplied (by article 4(4A) of the Regulated Activities Order (Specified investments: general)) when a person takes up or pursues insurance mediation or reinsurance mediation as defined by articles 2.3 and 2.5 of the IMD, there may be cases where a person is not carrying on activities that amount to insurance mediation. For example, where a person's activities amount simply to the provision of information on an incidental basis in the context of another professional activity, these may fall outside the scope of article 2.3 IMD (see AUTH App 5.16.2 G (Article 2.3 of the Insurance Mediation Directive)) and the exclusion in article 67 may then operate to exclude these activities. Also, it is possible that a professional person's activities may not amount to a regulated activity at all. For example, a doctor who provides a medical report to an insurer may be regarded as making arrangements with a view to providing an expert medical opinion rather than with a view to transactions in contracts of insurance. In such cases, article 67 will not be needed.1

Article 67 may also apply to activities relating to assignments of insurance policies, as, in the FSA's view, article 2.3 of the IMD applies essentially to the creation of new contracts of insurance and not the assignment of rights under existing policies. As such, where a solicitor or licensed conveyancer arranges an assignment of a contract of insurance, the exclusion in article 67 remains of potential application. For similar reasons, trustees advising on or arranging assignments of contracts of insurance may, in certain circumstances, be able to rely on the exclusions in article 66 of the Regulated Activities Order.1

For article 67 to apply in these cases, in addition to AUTH App 5.11.9 G(1) and (2), the activity in question must not be remunerated separately from other services (article 67(2) of the Regulated Activities Order).1

Article 72B (see also AUTH App 5.3.7 G (Connected contracts of insurance)) may be of relevance to persons who supply non-motor goods or provide services related to travel in the course of carrying on a profession or business which does not otherwise consist of carrying on regulated activities. In the FSA's view, the fact that a person may carry on regulated activities in the course of the carrying on of a profession or business does not, of itself, mean that the profession or business consists of regulated activities. This is provided that the main focus of the profession or business does not involve regulated activities and that the regulated activities that are carried on arise in a way that is incidental and complementary to the carrying on of the profession or business. For example, a travel agent might carry on insurance mediation activities in relation to some contracts of insurance that satisfy the conditions of the article 72B and some that do not. The former contracts will be excluded from regulation even though the travel agent must seek authorisation or become an appointed representative to be permitted to sell the latter contracts. The exclusion applies to insurance mediation activities when carried on in relation to 'connected contracts of insurance'. In broad terms, a 'connected contract of insurance' is a contract of insurance which:

1. (1)

   is not a contract of long-term insurance (as defined by article 3 of the Regulated Activities Order (Interpretation));

2. (2)

   has a total duration (including rights to renewal) of five years or less;

3. (3)

   has an annual premium (or the equivalent of annual premium) of £500 or less;

4. (4)

   covers the risk of:

   1. (a)

      breakdown, loss of, or damage to, non-motor goods supplied by the provider; or

   2. (b)

      damage to, or loss of, baggage and other risks linked to travel booked with the provider ('travel risks');

5. (5)

   does not cover any liability risks (except, in the case of a contract which covers travel risks, where the cover is ancillary to the main cover provided by the contract);

6. (6)

   is complementary to the non-motor goods being supplied or service being provided by the provider; and

7. (7)

   is of such a nature that the only information that a person requires in order to carry on one of the insurance mediation activities is the cover provided by the contract.

1

In the FSA's view, the liability risks referred to in AUTH App 5.11.13 G(5) cover risks in relation to liabilities that the policyholder might have to others (that is, third party claims). Many policies will provide this sort of cover and so fall outside the scope of the exclusion. For example, a policy that covers the cost of unauthorised calls made when a mobile telephone is stolen includes 'liability risks' and would not be a 'connected contract of insurance'. By contrast, travel policies which provide cover in respect of the policyholder's personal liability while travelling may fall within the exclusion by virtue of AUTH App 5.11.13 G(5), where sold as part of a package by travel agents and other providers of services related to travel.1

In the FSA's view, the condition in AUTH App 5.11.13 G(7) is likely to be satisfied where the insurance mediation activities relate to a standard form contract of insurance, the terms of which (other than the cost of the premium) are not subject to negotiation.1

Article 72D (Large risks contracts where risk situated outside the EEA) provides an exclusion for large risks situated outside the EEA. Broadly speaking, these are risks relating to:

1. (1)

   railway rolling stock, aircraft, ships, goods in transit, aircraft liability and shipping liability;

2. (2)

   credit and suretyship where relating to the policyholder's commercial or professional liability;

3. (3)

   land vehicles, fire and natural forces, property damage, motor vehicle liability where the policyholder is a business of a certain size.2

For a fuller definition of contracts of large risks see the definition in the Glossary.1