AUTH App 5.2 Introduction

This guidance is based on the statutory instruments made as part of implementing the IMD in the United Kingdom. This legislation includes the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2003 (SI 2003/1476), which amends among others the Regulated Activities Order, the Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001 (SI 2003/1217), the Non-Exempt Activities Order and the Business Order. Other legislation that forms the basis of this guidance includes the Financial Services and Markets Act 2000 (Exemption) (Amendment) (No.2) Order 2003 (SI 2003/1675), the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2003 (SI 2003/1676) and the Insurance Mediation Directive (Miscellaneous Amendments) Regulations 2003 (SI 2003/1473). For ease of reference, references to the Regulated Activities Order below adopt the revised Regulated Activities Order numbering indicated in the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2003.

Any person who carries on a regulated activity in the United Kingdom by way of business must either be an authorised person or exempt from the need for authorisation. Otherwise, the person commits a criminal offence and certain agreements may be unenforceable. AUTH 2.2 (Authorisation and regulated activities) has further guidance on these consequences. To be authorised, a person must either:

1. (1)

   hold a Part IV permission given by the FSA (see AUTH 1.3 (The Authorisation Manual) and AUTH 3 (Applications for Part IV Permission)); or

2. (2)

   qualify for authorisation (see AUTH 5 (Qualifying for Authorisation under the Act)); for example, if the person is an EEA firm or a Treaty firm.

A person who is concerned to know whether his proposed insurance mediation activities may require authorisation will need to consider the following questions (these questions are a summary of the issues to be considered and have been reproduced, in slightly fuller form, in the flow chart in AUTH App 5.15.2 G (Flow chart: regulated activities related to insurance mediation - do you need authorisation?):

1. (1)

   will the activities relate to contracts of insurance (see AUTH App 5.3 (Contracts of insurance)?

2. (2)

   if so, will I be carrying on any insurance mediation activities (see AUTH App 5.5 (The regulated activities: dealing in contracts as agent) to AUTH App 5.11 (Other aspects of exclusions))?

3. (3)

   if so, will I be carrying on my activities by way of business (see AUTH App 5.4 (The business test))?

4. (4)

   if so, is there the necessary link with the United Kingdom (see AUTH App 5.12 (Link between activities and the United Kingdom))?

5. (5)

   if so, will any or all of my activities be excluded (see AUTH App 5.3.7 G (Connected contracts of insurance) to AUTH App 5.3.8 G (Large risks); AUTH App 5.6.5 G (Exclusion: article 72C provision of information on an incidental basis) to AUTH App 5.6.23 G (Other exclusions); AUTH App 5.7.7 G (Exclusions); AUTH App 5.8.24 G (Exclusion: periodical publications, broadcasts and web-sites) to AUTH App 5.8.26 G (Other exclusions); AUTH App 5.11 (Other aspects of exclusions) and AUTH App 5.12.9 G to AUTH App 5.12.10 G (Overseas persons))?

6. (6)

   if it is not the case that all of my activities are excluded, am I a professional firm whose activities are exempted under Part XX of the Act (see AUTH App 5.14.1 G to AUTH App 5.14.4 G (Professionals))?

7. (7)

   if not, am I exempt as an appointed representative (see AUTH App 5.13 (Appointed representatives))?

8. (8)

   if not, am I otherwise an exempt person (see AUTH App 5.14.5 G (Other exemptions))?

If a person gets as far as question (8) and the answer to that question is "no", that person requires authorisation and should refer to AUTH 3 (Application for Part IV Permission). The order of these questions considers firstly whether a person is carrying on insurance mediation activities before dealing separately with the questions "will I be carrying on my activities by way of business?" (3) and "if so, will any or all of my activities by excluded?" (5).

It is recognised pursuant to section 22 of the Act that a person will not be carrying on regulated activities in the first instance, including insurance mediation activities, unless he is carrying on these activities by way of business. Similarly, where a person's activities are excluded he cannot, by definition, be carrying on regulated activities. To this extent, the content of the questions above does not follow the scheme of the Act. For ease of navigation, however, the questions are set out in an order and form designed to help persons consider more easily, and in turn, issues relating to:

1. (1)

   the new activities;

2. (2)

   the business test; and

3. (3)

   the exclusions.

The IMD imposes requirements upon EEA States relating to the regulation of insurance and reinsurance mediation. The IMD defines "insurance mediation" and "reinsurance mediation" as including the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance and reinsurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim (the text of article 2.3 IMD is reproduced in full in AUTH App 5.16.2 G (Article 2.3 of the Insurance Mediation Directive)).

The United Kingdom's approach to implementing the IMD by domestic legislation is, in part, through secondary legislation, which will apply pre-existing regulated activities (slightly amended) in the Regulated Activities Order to the component elements of the insurance mediation definition in the IMD (see AUTH App 5.2.5 G and the text of article 2.3 IMD in AUTH App 5.16.2 G (Article 2.3 of the Insurance Mediation Directive)).

The effect of the IMD and its implementation described in AUTH App 5.2.5 G to AUTH App 5.2.6 G is to vary the application of the existing regulated activities set out in AUTH App 5.2.8 G (1) to (3), (5) and (6), principally by applying these regulated activities to general insurance contracts and pure protection contracts and by making changes to the application of the various exclusions to these regulated activities. These regulated activities apply prior to 14 January 2005 to qualifying contracts of insurance (as defined by article 3 of the Regulated Activities Order and referred to in the Handbook as life policies (which includes pension policies)). The legislation implementing the IMD also introduces a new regulated activity set out in AUTH App 5.2.8 G (4), which potentially applies to all contracts of insurance.

It follows that each of the regulated activities below potentially apply to any contract of insurance:

1. (1)

   dealing in investments as agent (article 21 (Dealing in investments as agent));

2. (2)

   arranging (bringing about) deals in investments (article 25(1) (Arranging deals in investments));

3. (3)

   making arrangements with a view to transactions in investments (article 25(2) (Arranging deals in investments));

4. (4)

   assisting in the administration and performance of a contract of insurance (article 39A (Assisting in the administration and performance of a contract of insurance));

5. (5)

   advising on investments (article 53 (Advising on investments));

6. (6)

   agreeing to carry on any of the above regulated activities (article 64 (Agreeing to carry on specified types of activity)).

It is the scope of the Regulated Activities Order rather than the IMD which will determine whether a person requires authorisation or exemption. However, the scope of the IMD is relevant to the application of certain exclusions under the Regulated Activities Order (see, for example, the commentary on article 67 in AUTH App 5.11.9 G (Activities carried on in the course of a profession or non-investment business)).

An unauthorised person who intends to carry on activities connected with contracts of insurance will need to comply with section 21 of the Act (Restrictions on financial promotion). This guidance does not cover financial promotions that relate to contracts of insurance. Persons should refer to the general guidance on financial promotion in AUTH App 1 (Financial promotion and related activities). (See in particular AUTH App 1.17 (Financial promotions concerning insurance mediation activities) for information on financial promotions that relate to insurance mediation activities.)