This appendix applies principally to any person who needs to know whether he carries on insurance mediation activities and is thereby subject to FSA regulation. As such it will be of relevance among others to:

1. (1)

   insurance brokers;

2. (2)

   insurance advisers;

3. (3)

   insurance undertakings; and

4. (4)

   other persons involved in the sale and administration of contracts of insurance, even where these activities are secondary to their main business.1

With effect from 14 January 2005 certain pre-contractual sales and post-contractual administration activities relating to contracts of insurance will become regulated by the FSA for the first time as part of the implementation by the United Kingdom of the Insurance Mediation Directive (IMD).1

The insurance mediation activities apply to all contracts of insurance, but the implementation of the IMD brings the mediation of general insurance contracts and pure protection contracts within the scope of FSA regulation for the first time.1

The FSA already regulates certain activities carried on by intermediaries in relation to life policies (see the guidance contained in AUTH 2 (Authorisation and regulated activities)). However, the changes to FSA regulation in force from 14 January 2005 will also potentially affect the regulatory position of firms already carrying on regulated activities in connection with life policies including insurers. These firms should therefore consider whether or not they need to apply for a variation of their Part IV permission.1

Insurance mediation activities will typically be carried out by insurance and reinsurance brokers, financial advisers, agents, consultants and outsourcers. In addition, persons whose principal business is not insurance mediation may also carry on these activities and will need to consider whether they require authorisation or can benefit from an exclusion or exemption.1

The purpose of this guidance is to help persons consider whether they need authorisation or a variation of their Part IV permission. Businesses new to regulation who act only as introducers of insurance business are directed in particular to AUTH App 5.6.2 G (Article 25(1): arranging (bringing about) deals in investments) to AUTH App 5.6.9 G (Exclusion: article 72C provision of information on an incidental basis) and AUTH App 5.15.6 G (Flow chart: introducers) to help consider whether they require authorisation. This guidance also explains the availability to persons carrying on insurance mediation activities of certain exemptions from FSA regulation, including the possibility of becoming an appointed representative (see AUTH App 5.13.1 G to AUTH App 5.13.6 G (Appointed representatives)).1

This guidance is issued under section 157 of the Act (Guidance). It is designed to throw light on particular aspects of regulatory requirements, not to be an exhaustive description of a person's obligations. If a person acts in line with the guidance and the circumstances contemplated by it, then the FSA will proceed on the footing that the person has complied with aspects of the requirement to which the guidance relates.1

Rights conferred on third parties cannot be affected by guidance given by the FSA. This guidance represents the FSA's view, and does not bind the courts, for example, in relation to the enforceability of a contract where there has been a breach of the general prohibition on carrying on a regulated activity in theUnited Kingdom without authorisation (see sections 26 to 29 of the Act (Enforceability of Agreements)).1

A person reading this guidance should refer to the Act and the various Orders that are referred to in this guidance. These should be used to find out the precise scope and effect of any particular provision referred to in this guidance. A person may need to seek his own legal advice.1

The text in AUTH App 5.1.2 G to AUTH App 5.1.6 G, AUTH App 5.2.6 G, AUTH App 5.11.2 G, AUTH App 5.13.5 G and AUTH App 5.13.6 G relates only to the period prior to the implementation of the Insurance Mediation Directive, that is before 14 January 2005.1

A person may wish to carry on activities related to other forms of investment in connection with contracts of insurance, such as advising on and arranging regulated mortgage contracts. Such a person should also consult the guidance in AUTH 2 (Authorisation and Regulated Activities), AUTH App 1 (Financial Promotion and Related Activities) and AUTH App 4 (Regulated activities connected with mortgages).1

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 2003.1

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.

1

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. (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.

1

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)).1

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)).1

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.1

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)).1

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)).1

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.)1

A person who is concerned to know whether his proposed activities may require authorisation will wish to consider whether those activities relate to contracts of insurance or contracts of reinsurance, or to insurance business or reinsurance business, which is the business of effecting or carrying out contracts of insurance or reinsurance as principal.1

The Regulated Activities Order does not attempt an exhaustive definition of a 'contract of insurance'. Instead, article 3(1) of the order (Interpretation) makes some specific extensions and limitations to the general common law meaning of the concept. For example, article 3(1) expressly extends the concept to fidelity bonds and similar contracts of guarantee, which are not contracts of insurance at common law, and it excludes certain funeral plan contracts, which would generally be contracts of insurance at common law.1

One consequence of this is that common law judicial decisions about whether particular contracts amount to 'insurance' or their being effected or carried out amounts to 'insurance business' are relevant in defining the scope of the FSA's authorisation and regulatory activities.1

As with any other contract, a contract of insurance that is not effected by way of a deed will only be legally binding if, amongst other things, it is entered into for valuable consideration. Determining what amounts to sufficient consideration in any given case is a matter for the courts. In practice, however, the legal definition of consideration is very wide. In particular, just because a contract of insurance is 'free' in the colloquial sense does not mean that there is no consideration for it. In the vast majority of cases, therefore, 'free' insurance policies (such as policies that act as loss leaders for an insurance undertaking) will be binding contracts and will amount to specified investments and therefore be subject to FSA regulation.1

The Regulated Activities Order does not define a reinsurance contract. The essential elements of the common law description of a contract of insurance are also the essential elements of a reinsurance contract. Whilst the IMD addresses insurance and reinsurance separately, throughout this guidance the term 'contract of insurance' (italicised or otherwise) also applies to contracts of reinsurance.11

Guidance describing how the FSA identifies contracts of insurance is in AUTH App 6 (Guidance on the Identification of Contracts of Insurance).21

Article 72B of the Regulated Activities Order (Activities carried on by a provider of relevant goods or services) excludes from FSA regulation certain regulated activities carried on by providers of non-motor goods and services related to travel in relation to contracts of insurance that satisfy a number of conditions. Details about the scope of this exclusion can be found at AUTH App 5.11.13 G to AUTH App 5.11.15 G (Activities carried on by a provider of relevant goods or services).1

Large risks situated outside the EEA are also excluded (described in more detail at AUTH App 5.11.16 G (Large risks)). The location of the risk or commitment may be determined by reference to the EEA State in which the risk is situated, defined in article 2(d) of the Second Non-Life Directive (88/357/EEC) or the EEA State of the commitment, defined in article 1(1)(g) of the Consolidated Life Directive (2002/83/EC). Broadly put, this is:

1. (1)

   for insurance relating to buildings and/or their contents, the EEA State in which the property is situated;

2. (2)

   for insurance relating to vehicles, the EEA State of registration;

3. (3)

   for policies of four months or less duration covering travel or holiday risks, where the policy was taken out;

4. (4)

   in all other cases (including those determined by reference to the EEA State of the commitment), the EEA State where the policyholder has his habitual residence, or if the policyholder is a legal person, where his establishment, to which the contract relates, is situated.1

For an activity to be a regulated activity, it must be carried on in relation to 'specified investments' (see section 22 of the Act Regulated activities) and Part III of the Regulated Activities Order (Specified investments)). For the purposes of insurance mediation activity, specified investments include the following 'relevant investments' defined in article 3(1) of the Regulated Activities Order (Interpretation):

1. (1)

   rights under any contract of insurance (see article 75 (Contracts of insurance)); and

2. (2)

   rights to or interests in life policies (see article 89 (Rights to or interests in investments)).

'Relevant investments' is the term used in articles 21 (Dealing in investments as agent), 25 (Arranging deals in investments) and 53 (Advising on investments) of the Regulated Activities Order to help define the types of investment to which the activities in each of these articles relate.1

A person will have rights under a contract of insurance when he is a policyholder. The question of whether a person has rights under a contract of insurance may require careful consideration in the case of group policies (with reference to the Glossary definition of policyholder). In the case, in particular, of general insurance contracts and pure protection contracts, the existence or otherwise of rights under such policies may be relevant to whether a person is carrying on insurance mediation activities.1

A person may also have rights or interests in a life policy where he is not a policyholder, but this will again depend on the terms of the individual policy.1

A person will only need authorisation or exemption if he is carrying on a regulated activity 'by way of business' (see section 22 of the Act (Regulated Activities)).1

There is power in the Act for the Treasury to specify the circumstances in which a person is or is not to be regarded as carrying on regulated activities by way of business. The Business Order has been made using this power (partly reflecting differences in the nature of the different activities). As such, the business test for insurance mediation activity is distinguished from the standard test for 'investment business' in article 3 of the Business Order. Under article 3(4) of the Business Order, a person is not to be regarded as carrying on by way of business any insurance mediation activity unless he takes up or pursues that activity for remuneration. Accordingly, there are two principal elements to the business test in the case of insurance mediation activities:

1. (1)

   does a person receive remuneration for these activities?

2. (2)

   if so, does he take up or pursue these activities by way of business?

1

As regards AUTH App 5.4.2 G (1), the Business Order does not provide a definition of 'remuneration', but, in the FSA's view, it has a broad meaning and covers both monetary and non-monetary rewards. This is regardless of who makes them. For example, where a person pays discounted premiums for his own insurance needs in return for bringing other business to an insurance undertaking, the discount would amount to remuneration for the purposes of the Business Order. Remuneration can also take the form of an economic benefit which the person expects to receive as a result of carrying on insurance mediation activities. In the FSA's view, the remuneration does not have to be provided or identified separately from remuneration for other goods or services provided. Nor is there a minimum level of remuneration.1

As regards AUTH App 5.4.2 G (2), in the FSA's view, for a person to take up or pursue insurance mediation activity by way of business, he will usually need to be carrying on those activities with a degree of regularity. The person will also usually need to be carrying on the activities for commercial purposes. That is to say, he will normally be expecting to gain a direct financial benefit of some kind. Activities carried on out of friendship or for altruistic purposes will not normally amount to a business. However, in the FSA's view:

1. (1)

   it is not necessarily the case that services provided free of charge will not amount to a business; for example, advice (including advice available on a website) may be provided free of charge to potential policyholders but in the course of a business funded by commission payments; and

2. (2)

   the 'by way of business' test may very occasionally be satisfied by an activity undertaken on an isolated occasion (provided that the activity would be regarded as done 'by way of business' in other respects, for example, because of the size of reward received or its relevance to other business activities).1

It follows that whether or not any particular person is acting 'by way of business' for these purposes will depend on his individual circumstances. However, a typical example of where the applicable business test would be likely to be satisfied by someone whose main business is not insurance mediation activities, is where a person recommends or arranges specific insurance policies in the course of carrying on that other business and receives a fee or commission for doing so.1

Some typical examples of where the business test is unlikely to be satisfied, assuming that there is no direct financial benefit to the arranger, include:

1. (1)

   arrangements which are carried out by a person for himself, or for members of his family;

2. (2)

   where employers provide insurance benefits for staff;

3. (3)

   where affinity groups or clubs set up insurance benefits for members.

1

AUTH App 5.4.8 G contains a table that summarises the main issues surrounding the business test as applied to insurance mediation activities and that may assist persons to determine whether they will need authorisation or exemption. The approach taken in the table involves identifying factors that, in the FSA's view, are likely to play a part in the analysis. Indicators are then given as to the significance of each factor to the person's circumstances. By analysing the indicators as a whole, a picture can be formed of the likely overall position. The table provides separate indicators for the two elements of remuneration and by way of business. As a person has to satisfy both elements, a clear overall indication against either element being satisfied should mean that the test is failed. This approach cannot be expected to provide a clear conclusion for everyone. But it should enable persons to assess the relevant aspects of their activities and to identify where changes could, if necessary, be made so as to make their position clearer. The person to whom the indicators are applied is referred to in the table as 'P'.1

Article 21 of the Regulated Activities Order (Dealing in investments as agent) makes dealing in contracts of insurance as agent a regulated activity. The activity is defined in terms of buying, selling, subscribing for or underwriting contracts as agent, that is, on behalf of another. Examples include:

1. (1)

   where an intermediary, by accepting on the insurance undertaking's behalf to provide the insurance, commits an insurance undertaking to provide insurance for a prospective policyholder; or

2. (2)

   where the intermediary agrees, on behalf of a prospective policyholder, to buy an insurance policy.1

Intermediaries with delegated authority to bind insurance undertakings are likely to be dealing in investments as agent. It should be noted, in particular, that this is a regulated activity:

1. (1)

   whether or not any advice is given (see AUTH App 5.8 (The regulated activities: advising on contracts of insurance); and

2. (2)

   whether or not the intermediary deals through an authorised person (for example, where he instructs another agent who is an authorised person to enter into a contract of insurance on his client's behalf).

1

There are also certain exclusions which are relevant to whether a person is carrying on the activity of dealing in investments as agent (see AUTH App 5.11 (Other aspects of exclusions)).1

Article 25 of the Regulated Activities Order (Arranging deals in investments) describes two types of regulated activities concerned with arranging deals in respect of contracts of insurance. These are:

1. (1)

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

2. (2)

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

1

The activity in article 25(1) is carried on only if the arrangements bring about, or would bring about, the transaction to which the arrangement relates. This is because of the exclusion in article 26 of the Regulated Activities Order (Arrangements not causing a deal) Article 26 excludes from article 25(1) arrangements which do not bring about or would not bring about the transaction to which the arrangements relate. In the FSA's view a person would bring about a contract of insurance if his involvement in the chain of events leading to the contract of insurance were important enough that, without it, there would be no policy. Examples of this type of activity would include negotiating the terms of the contract of insurance on behalf of the customer with the insurance undertaking and vice versa, or assisting in the completion of a proposal form and sending it to the insurance undertaking. Other examples include where an insurance undertaking enters into a contract of insurance as principal or an intermediary enters into a contract of insurance as agent.1

The activity within article 25(2) contrasts with article 25(1) in that it is not limited by the requirement that the arrangements would bring about the transaction to which they relate.1

Article 25(2) may, for instance, include activities of persons who help potential policyholders fill in or check application forms in the context of ongoing arrangements between these persons and insurance undertakings. A further example of this activity would be a person introducing customers to an intermediary either for advice or to help arrange an insurance policy. The introduction might be oral or written. By contrast, the FSA considers that a mere passive display of literature advertising insurance (for example, leaving leaflets advertising insurance in a dentist's or vet's waiting room and doing no more) would not amount to the article 25(2) activity.1

The Regulated Activities Order provides an important potential exclusion, however, for persons whose principal business is other than insurance mediation activities.1

In broad terms, article 72C of the Regulated Activities Order excludes from the activities of arranging and assisting in the administration and performance of a contract of insurance:

1. (1)

   activities that consist of the provision of information to the policyholder or potential policyholder;

2. (2)

   by a person carrying on any profession or business which does not otherwise consist of regulated activities;

3. (3)

   if the provision of information may reasonably be regarded as being incidental to that profession or business.

1

In the FSA's view, 'incidental' in this context means that the activity must arise out of, be complementary to or otherwise be sufficiently closely connected with the profession or business. In other words, there must be an inherent link between the activity and the firm's main business. For example, introducing dental insurance may be incidental to a dentist's activities; introducing pet insurance would not be incidental to his activities. In addition, to be considered 'incidental', in the FSA's view, the activity must not amount to the carrying on of a business in its own right.1

This exclusion applies to a person whose profession or business does not otherwise consist of 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. So, the exclusion may be of relevance to exempt professional firms. It might also, for example, be relied on by doctors, vets and dentists as well as many businesses in the non-financial sector, even if they have permission to carry on regulated activities or are appointed representatives. This is assuming that their activities for which they are seeking to use the exclusion in article 72C are limited to providing information in a way which is incidental to their main profession or business. The exclusion only extends to information given to the policyholder or potential policyholder and not to the insurance undertaking An intermediary who forwards a proposal form to an insurance undertaking would not be able to take the benefit of the exclusion. Similarly, where a person does more than provide information (for example, by helping a potential policyholder fill in an application form), he cannot take the benefit of this exclusion. Nor does it cover the activity of advising a customer under article 53 of the Regulated Activities Order (Advising on investments).1

The exclusion will be of assistance to introducers who would otherwise be carrying on the regulated activity of making arrangements with a view to transactions in investments (assuming, as mentioned in AUTH App 5.6.8 G, that they provide information only to policyholders or potential policyholders, and not to the intermediary or insurance undertaking to whom they introduce these policyholders or potential policyholders). In order to assist such introducers determine whether or not they are likely to require authorisation, a simplified flowchart is included in AUTH App 5.15.6 G (Flow chart: introducers). Introducers may also find the guidance at AUTH App 5.9.2 G (The regulated activities: agreeing to carry on a regulated activity) helpful. AUTH App 5.6.17 G (Exclusion from article 25(2) for introducing) has guidance to assist persons determine whether their introducing activities amount to making arrangements with a view to transactions in investments.1

Article 27 of the Regulated Activities Order (Enabling parties to communicate) contains an exclusion that applies to arrangements which might otherwise bring within article 25(2) those who merely provide the means by which one party to a transaction (or potential transaction) is able to communicate with other parties. Simply providing the means by which parties to a transaction (or potential transaction) are able to communicate with each other is excluded from article 25(2) only. This will ensure that persons such as internet service providers or telecommunications networks are excluded if all they do is provide communication facilities (and these would otherwise be considered to fall within article 25(2)).1

In the FSA's view, the crucial element of the exclusion in article 27 is the inclusion of the word 'merely'. When a publisher, broadcaster or internet website operator goes beyond what is necessary for him to provide his service of publishing, broadcasting or otherwise facilitating the issue of promotions, he may well bring himself within the scope of article 25(2). Further detailed guidance relating to the scope of the exclusion in article 27 is contained in AUTH 2.8.6 G(2) (Arranging deals in investments) and AUTH App 1.32.6 G to AUTH App 1.32.11 G (Arranging deals in investments).1

Article 28 of the Regulated Activities Order (Arranging transactions to which the arranger is a party) excludes from the regulated activities in article 25(1) and 25(2) arrangements made for or with a view to contracts of insurance when:

1. (1)

   the person (P) making the arrangements is the only policyholder; or

2. (2)

   P, as a result of the transaction, would become the only policyholder.

1

Market makers in traded endowment policies may be able to rely on this exclusion to avoid the need to be authorised. They must ensure, however, that where they are carrying on the regulated activity of dealing in investments as principal (article 14) they are also able to rely on the exclusions in articles 15 or 16 (see the guidance in AUTH 2.8.4 G (Dealing in investments as principal)).1

Insurance undertakings do not fall within the terms of this exclusion and so will be arranging contracts of insurance, in addition to effecting and carrying out contract of insurance.1

In some cases, a person may make arrangements to enter into a contract of insurance as policyholder on its own behalf and also arrange that another person become a policyholder under the same contract of insurance. If so, the person should be aware that the effect of the narrower exclusion in article 28 as part of implementation of the IMD is that he may be arranging on behalf of the other policyholder. This may be relevant, for example, to a company which arranges insurance for itself (not arranging) as well as other companies in a group or loan syndicate (potentially arranging).1

The restriction in the scope of article 28 raises an issue where there is a trust with co-trustees, where each trustee will be a policyholder with equal rights and obligations. If the activities of one of the trustees include arranging in respect of contracts of insurance, that trustee could be viewed as arranging on behalf of his co-trustees who will also be policyholders. Similar issues also arise in respect of trustees assisting in the administration and performance of a contract of insurance. The FSA is of the view, however, that trustees should not be regarded as carrying on regulated activities where they are acting as joint policyholders in arranging or assisting in the administration and performance of a contract of insurance. In this respect, trustees differ from policyholders under a group policy, where each person covered under the group policy may make claims on the policy in relation to his own risks. In that situation, a policyholder who is providing services to other policyholders of arranging or assisting in the administration and performance of a contract of insurance will be carrying on a regulated activity.1

Article 33 of the Regulated Activities Order (Introducing) excludes arrangements which would otherwise fall under article 25(2) where:

1. (1)

   they are arrangements under which persons will be introduced to another person;

2. (2)

   the person to whom introductions are to be made is:

   1. (a)

      an authorised person; or

   2. (b)

      an exempt person acting in the course of business comprising a regulated activity in relation to which he is exempt; or

   3. (c)

      a person who is not unlawfully carrying on regulated activities in the United Kingdom and whose ordinary business involves him in engaging in certain activities; and

3. (3)

   the introduction is made with a view to the provision of independent advice or the independent exercise of discretion in relation to investments generally or in relation to any class of investments to which the arrangements relate;

4. (4)

   the arrangements do not relate to transactions relating to contracts of insurance.

1

The effect of AUTH App 5.6.17 G (4) is that some persons who, in making introductions, are making arrangements with a view to transactions in investments under article 25(2) of the Regulated Activities Order, cannot use the introducing exclusion. This is if, in general terms, the arrangements for making introductions relate to contracts of insurance (AUTH App 5.6.19 G has further guidance on when arrangements for introductions may be regarded as relating to contracts of insurance). However, this does not mean that all introducers whose introductions relate directly or indirectly to contracts of insurance will necessarily require authorisation if they cannot use the exclusion in article 72C of the Regulated Activities Order for merely passing information. For this to be the case, a person must first be carrying on the business of making arrangements with a view to transactions in investments. In the FSA's view, the following points will be relevant in determining whether this is the case.

1. (1)

   Article 25(2) applies to ongoing arrangements made with a view to transactions taking place from time to time as a result of persons having taken part in the arrangements. So, they will not apply to one-off introductions or introductions that are not part of an ongoing pre-existing arrangement between introducer and introducee. An introducer who merely suggests to a person that he seeks advice or assistance from an authorised person or an exempt person with whom the introducer has no pre-existing agreement that anticipates introductions will be made, will not be making arrangements at all. He will simply be offering general advice or information.

2. (2)

   The purpose of the arrangements must be for the person who is introduced to, in general terms, enter into a transaction to buy or sell securities or relevant investments. So, arrangements for introducing persons for advice only will not be caught (for example, introductions to a financial planner or to the publisher of an investment newsletter). In other cases, it may be likely that transactions will be entered into following the provision of advice. Provided the introducer is completely indifferent as to whether or not a contract of insurance may ultimately be bought (or sold) as a result of the advice given to the person he has introduced, the introducer will not be making arrangements with a view to transactions in investments. This is likely to be the case where the introducer does not receive any pecuniary reward that is linked to the volume of business done as a result of his introductions.

1

Where a person is making arrangements with a view to transactions in investments by way of making introductions, and he is not completely indifferent to whether or not transactions may result, it may still be the case that the exclusion in article 33 will apply. In the FSA's view, this is where:

1. (1)

   the introduction is for independent advice on investments generally; and

2. (2)

   the introducer is indifferent as to whether or not a contract of insurance may ultimately be bought (or sold) rather than any other type of investment.

This is because the arrangements for making introductions do not specifically relate to a contract of insurance or to any other type of investment but to investments generally. Whether or not a person is making arrangements for introductions for the purpose of the provision of independent advice on investments generally will depend on the facts in any particular case. But, in the FSA's view, it is very unlikely that article 33 could apply where introductions are made to a person for the purposes of that person giving advice on and then arranging general insurance.1

The table in AUTH App 5.6.21 G has examples of the application of article 33 to arrangements for making introductions.1

An unauthorised person who makes arrangements with a view to a person who participates in the arrangements buying or selling contracts of insurance may be excluded from article 25(2) by article 32 of the Regulated Activities Order (Provision of finance). This is provided the sole purpose of the arrangements is the provision of finance to enable the person to buy the contract of insurance. Premium finance companies may be able to rely on this exclusion provided the arrangements they put in place, taken as a whole, have as their sole purpose the provision of finance to fund premiums.1

The Regulated Activities Order contains some other exclusions which have the effect of narrowing or limiting the application of regulated activities within article 25 by preventing certain activities from amounting to regulated activities. These are referred to in AUTH App 5.11.8 G (Exclusions applying to more than one regulated activity).1

The regulated activity of assisting in the administration and performance of a contract of insurance (article 39A) relates, in broad terms, to activities carried on by intermediaries after the conclusion of a contract of insurance and for or on behalf of policyholders, in particular in the event of a claim. Loss assessors acting on behalf of policyholders in the event of a claim are, therefore, likely in many cases to be carrying on this regulated activity. By contrast, claims management on behalf of certain insurers is not a regulated activity (see AUTH App 5.7.7 G (Exclusions)).1

Neither assisting in the administration nor assisting in the performance of a contract alone will fall within this activity. Generally, an activity will either amount to assisting in the administration or assisting in the performance but not both. Occasionally, however, an activity may amount to both assisting in the administration and performance of a contract of insurance. For example, where a person assists a claimant in filling in a claims form, in the FSA's view this amounts to assisting in the administration of a contract of insurance. In some instances, however, this may also amount to assisting in the performance of a contract of insurance. In the FSA's view, an example of when a person may be assisting in the performance of a contract is where a person fills in the whole or a significant part of a claims form on behalf of a claimant. This is because, by helping complete a claims form, a person may be assisting the policyholder to perform his contractual obligation to notify the insurance undertaking in the event of a claim and provide details of the claim in the manner and form required by the contract.1

Put another way, where an intermediary's assistance in filling in a claims form is material to whether performance takes place of the contractual obligation to notify claims, it is more likely to amount to assisting in the administration and performance of a contract of insurance. Conversely, in the FSA's view, a person who merely gives pointers about how to fill in the claims form or merely supplies information in support of a claim will not be assisting in the performance of a contract of insurance. Instead, the person will only be facilitating rather than assisting in the performance of a contract of insurance.1

More generally, an example of an activity that, in the FSA's view, is likely to amount to assisting a policyholder in both the administration and the performance of a contract of insurance is notifying a claim under a policy and then providing evidence in support of the claim, or helping negotiate its settlement on the policyholder's behalf. Notifying an insurance undertaking of a claim assists the policyholder in discharging his contractual obligation to do so (assisting in the performance); providing evidence in support of the claim or negotiating its settlement assists management of the claim (assisting in the administration).1

On the other hand, where a person does no more than advise a policyholder generally about making a claim or provide evidence in support of a claim, this is unlikely to amount to both assisting in the administration and performance. Similarly, the mere collection of premiums from policyholders is unlikely, without more, to amount to assisting in the administration and performance of a contract of insurance. The collection of premiums from customers or clients at the pre-contract stage, however, may amount to arranging (see example in AUTH App 5.15.4 G (Types of activity - are they regulated activities and, if so, why?)).1

Where a person receives funds on behalf of a policyholder in settlement of a claim, in the FSA's view, the act of receipt is likely to amount to assisting in the performance of a contract. By giving valid receipt, the person assists the insurance undertaking to discharge its contractual obligation to provide compensation to the policyholder. He may also be assisting the policyholder to discharge any obligations he may have under the contract to provide valid receipt of funds, upon settlement of a claim. Where a person provides valid receipt for funds received on behalf of the policyholder, he is also likely to be assisting in the administration of a contract of insurance (for example, making prior arrangements relating to transmission and receipt of payment).1

By article 39B of the Regulated Activities Order (Claims management on behalf of an insurer etc):

1. (1)

   loss adjusting on behalf of a relevant insurer (see AUTH App 5.7.8 G);

2. (2)

   expert appraisal; and

3. (3)

   managing claims for a relevant insurer;

are also excluded from the regulated activity of assisting in the administration and performance of a contract of insurance. This is where the activity is carried on in the course of carrying on any profession or business (see also AUTH App 5.14 (Exemptions)). In determining whether they are carrying on the regulated activity of assisting in the administration and performance of a contract of insurance, therefore, persons should consider whether they are acting on behalf of the relevant insurer and not the policyholder.1

A 'relevant insurer' for the purposes of article 39B means:

1. (1)

   an authorised person who has permission for effecting and carrying out contracts of insurance; or

2. (2)

   a member of the Society of Lloyd's or the members of the Society of Lloyd's taken together; or

3. (3)

   an EEA firm that is an insurer; or

4. (4)

   a reinsurer, being a person whose main business consists of accepting risks ceded by a person falling under (1), (2) or (3) or a person who is established outside the United Kingdom and who carries on the activity of effecting and carrying out contracts of insurance.

So, a person whose activities are excluded under article 12 of the Regulated Activities Order (Breakdown insurance) will not be a relevant insurer for these purposes and any person who performs loss adjusting or claims management on behalf of such a person will not be able to use the exclusion in article 39B.1

Article 53 of the Regulated Activities Order (Advising on Investments) makes advising on contracts of insurance a regulated activity. This covers advice which is both:

1. (1)

   given to a person in his capacity as an insured or potential insured, or as agent for an insured or a potential insured; and

2. (2)

   advice on the merits of the insured or his agent:

   1. (a)

      buying, selling, subscribing for or underwriting a particular contract of insurance; or

   2. (b)

      exercising any right conferred by a contract of insurance to buy, sell, subscribe for or underwrite a contract of insurance.

1

For advice to fall within article 53, it must:

1. (1)

   relate to a particular contract of insurance (that is, one that a person may enter into);

2. (2)

   be given to a person in his capacity as an investor or potential investor;

3. (3)

   be advice (that is, not just information); and

4. (4)

   relate to the merits of a person buying, selling, subscribing for or underwriting (or exercising any right to do so) a contract of insurance or rights to or interests in life policies.

1

Each of these aspects is considered in greater detail in the table in AUTH App 5.8.5 G. Where an activity is identified as not amounting to advising on investments it could still form part of another regulated activity. This will depend upon whether a person's activities, viewed as a whole, amount to arranging. Additionally, it should be borne in mind that the provision of advice or information may involve the communication of a financial promotion (see AUTH App 1 (Financial promotion and related activities)).1

Advice about contracts of insurance will come within the regulated activity in article 53 of the Regulated Activities Order only if it relates to a particular contract of insurance. So, generic or general advice will not fall under article 53. In particular:

1. (1)

   advice would come within article 53 if it took the form of a recommendation that a person should buy the ABC Insurers motor insurance;

2. (2)

   advice would not relate to a particular contract if it consists of a recommendation only that a person should take out insurance of a particular class without identifying any particular insurance undertaking, or with ABC Insurers provided that the kind of insurance is not specified (either expressly or by implication): a recommendation only that a person should buy insurance from ABC Insurers could amount to advice if a specific insurance policy would be implied from the context;

3. (3)

   the table in AUTH App 5.8.5 G identifies several typical recommendations and indicates whether they will be regarded as advice under article 53.

1

For the purposes of article 53, advice must be given to a person in his capacity as an investor or potential investor (which, in the context of contracts of insurance, will mean as policyholder or potential policyholder). So, article 53 will not apply where advice is given to persons who receive it as:

1. (1)

   an adviser who will use it only to inform advice given by him to others; or

2. (2)

   a journalist or broadcaster who will use it only for journalistic purposes.

1

Advice will still be covered by article 53 even though it may not be given to any particular policyholder (for example, advice given in a periodical publication or on a website).1

In the FSA's view, advice requires an element of opinion on the part of the adviser. In effect, it is a recommendation as to a course of action. Information, on the other hand, involves statements of facts or figures.1

In general terms, simply giving information, without making any comment or value judgement on its relevance to decisions which a person may make, is not advice. In this respect, it is irrelevant that a person may be providing information on a single contract of insurance or on two or more. This means that a person may provide information on a single contract of insurance without necessarily being regarded as giving advice on it. AUTH App 5.8.11 G has guidance on the circumstances in which information can assume the form of advice.1

In the case of article 53, information relating to buying or selling contracts of insurance may often involve one or more of the following:

1. (1)

   an explanation of the terms and conditions of a contract of insurance whether given orally or in writing or by providing leaflets and brochures;

2. (2)

   a comparison of the features and benefits of one contract of insurance compared to another;

3. (3)

   the production of pre-purchase questions for a person to use in order to exclude options that would fail to meet his requirements; such questions may often go on to identify a range of contracts of insurance with characteristics that appear to meet the person's requirements and to which he might wish to give detailed consideration (pre-purchase questioning is considered in more detail in AUTH App 5.8.15 G to AUTH App 5.8.19 G (Pre-purchase questioning (including decision trees));

4. (4)

   tables that compare the costs and other features of different contracts of insurance;

5. (5)

   leaflets or illustrations that help persons to decide which type of contract of insurance to take out;

6. (6)

   the provision, in response to a request from a person who has identified the main features of the type of contract of insurance he seeks, of several leaflets together with an indication that all the contracts of insurance described in them have those features.1

In the FSA's opinion, however, such information is likely to take on the nature of advice if the circumstances in which it is provided give it the force of a recommendation. Examples of situations where information provided by a person (P) might take the form of advice are given below.

1. (1)

   P may provide information on a selected, rather than balanced and neutral, basis that would tend to influence the decision of a person. This may arise where P offers to provide information about contracts of insurance that contain features specified by the person, but then exercises discretion as to which complying contract of insurance to offer to that person.

2. (2)

   P may, as a result of going through the sales process, discuss the merits of one contract of insurance over another, resulting in advice to enter into a particular one. In contrast, advice on how to complete an application form, without an explicit or implicit recommendation on the merits of buying or selling the contract of insurance whilst 'advice' in the general sense of the word, is not, in the view of the FSA, advice within the meaning of article 53. Such advice may, however, amount to arranging (for which see AUTH App 5.6.1 G to AUTH App 5.6.4 G (The regulated activities: arranging deals in, and making arrangements with a view to transactions in, contracts of insurance)).

1

Advice under article 53 relates to the advantages and disadvantages of buying, selling, subscribing for or underwriting a particular contract of insurance. It is worth noting that, in this context, 'buying' and 'selling' are defined widely under article 3 of the Regulated Activities Order (Interpretation). 'Buying' includes acquiring for valuable consideration, and 'selling' includes surrendering, assigning or converting rights under a contract of insurance.1

The requirements imposed by the IMD (see AUTH App 5.2.5 G (Approach to implementation of the IMD) and the text of article 2.3 IMD in AUTH App 5.16.1 G (Article 2.3 of the Insurance Mediation Directive) are narrower than the scope of the Regulated Activities Order (see AUTH App 5.2.7 G (Approach to implementation of the IMD)). This is that, unlike the Regulated Activities Order, they do not relate to the assignment of contracts of insurance. This is of relevance to, amongst others, persons involved in the 'second-hand' market for contracts of insurance such as traded endowment policies and certain viatical instruments (that is, arrangements by which a terminally ill person can obtain value from his life policy) (see also AUTH App 5.6.12 G (Exclusion from article 25(2): transactions to which the arranger is a party). Persons advising on or arranging assignments of these contracts of insurance are therefore potentially carrying on regulated activities although they may be able to take the benefit of article 67 of the Regulated Activities Order (Activities carried on in the course of a profession or non-investment business) in certain circumstances (see 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

Generally speaking, advice on the merits of using a particular insurance undertaking, broker or adviser in their capacity as such, does not amount to advice for the purpose of article 53. It is not advice on the merits of buying or selling a particular contract of insurance (unless, in the circumstances, the advice amounts to an implied recommendation of a particular policy).1

Pre-purchase questioning involves putting a sequence of questions in order to extract information from a person with a view to facilitating the selection by that person of a contract of insurance or other product that meets his needs. A decision tree is an example of pre-purchase questioning. The process of going through the questions will usually narrow down the range of options that are available.1

A key issue for those firms proposing to use pre-purchase questioning is whether the specific questioning used may amount to advice. There are two main aspects:

1. (1)

   advice must relate to a particular contract of insurance (see AUTH App 5.8.4 G (Advice must relate to a particular contract of insurance)); and

2. (2)

   the distinction between information and advice (see AUTH App 5.8.8 G to AUTH App 5.8.11 G (Advice or information)).

Whether or not pre-purchase questioning in any particular case is advising on contracts of insurance will depend on all the circumstances. The process may involve identifying one or more particular contracts of insurance. If so, to avoid advising on contracts of insurance, the critical factor is likely to be whether the process is limited to, and likely to be perceived by the person as, assisting the person to make his own choice of product which has particular features which the person regards as important. The questioner will need to avoid providing any judgement on the suitability of one or more products for that person and in this respect should have regard to the factors set out in AUTH App 5.8.2 G to AUTH App 5.8.4 G (Advice must relate to a particular contract of insurance) and the table in AUTH App 5.8.5 G. See also AUTH App 5.8.12 G to AUTH App 5.8.14 G (Advice must relate to the merits (of buying or selling a contract of insurance)) for other matters that may be relevant.1

The potential for variation in the form, content and manner of prepurchase questioning is considerable, but there are two broad types. The first type involves providing questions and answers which are confined to factual matters (for example, the amount of the cover). In the FSA's view, this does not itself amount to advising on contracts of insurance, if it involves the provision of information rather than advice. There are various possible scenarios, including the following:

1. (1)

   the questioner may go on to identify one or more particular contracts of insurance which match features identified by the pre-purchase questioning; provided these are selected in a balanced and neutral way (for example, they identify all the matching contracts of insurance available without making a recommendation as to a particular one) this need not involve advising on contracts of insurance;

2. (2)

   the questioner may go on to advise a person on the merits of one particular contract of insurance over another; this would be advising on contracts of insurance.1

The second type of pre-purchase questioning involves providing questions and answers incorporating opinion, judgement or recommendation. There are various possible scenarios, including the following:

1. (1)

   the pre-purchase questioning may not lead to the identification of any particular contract of insurance; in this case, the questioner has provided advice, but it is generic advice and does not amount to advising on contracts of insurance;

2. (2)

   the pre-purchase questioning may lead to the identification of one or more particular contracts of insurance; the key issue then is whether the advice can be said to relate to a particular contract of insurance (see further AUTH App 5.8.4 G (Advice must relate to a particular contract of insurance)).

1

In the case of AUTH App 5.8.18 G(2) and similar scenarios, the FSA considers that it is necessary to look at the process and outcome of prepurchase questioning as a whole. It may be that the element of advice incorporated in the questioning can properly be viewed as generic advice if it were considered in isolation. But although the actual advice may be generic, the process has ended in identifying one or more particular contracts of insurance. The combination of the generic advice and the identification of a particular or several particular contracts of insurance to which it leads may well, in the FSA's view, cause the questioner to be advising on contracts of insurance. Factors that may be relevant in deciding whether the process involves advising on contracts of insurance may include:

1. (1)

   any representations made by the questioner at the start of the questioning relating to the service he is to provide;

2. (2)

   the context in which the questioning takes place;

3. (3)

   the stage in the questioning at which the opinion is offered and is significant;

4. (4)

   the role played by the questioner who guides a person through the pre-purchase questions;

5. (5)

   the outcome of the questioning (whether particular contracts of insurance are highlighted, how many of them, who provides them, their relationship to the questioner and so on);

6. (6)

   whether the pre-purchase questions and answers have been provided by, and are clearly the responsibility of, an unconnected third party, and all that the questioner has done is help the person understand what the questions or options are and how to determine which option applies to his particular circumstances.

1

With the exception of:

1. (1)

   periodicals, broadcasts and other news or information services (see AUTH App 5.8.24 G to AUTH App 5.8.25 G (Exclusion: periodical publications, broadcasts and web-sites)); and

2. (2)

   situations involving an overseas element (see, generally, AUTH App 5.12 (Link between activities and the United Kingdom) and, in particular, AUTH App 5.12.8 G (Where is insurance mediation carried on?));

The use of the medium itself to give advice should make no material difference to whether or not the advice is caught by article 53.1

Advice can be provided in many ways including:

1. (1)

   face to face;

2. (2)

   orally to a group;

3. (3)

   by telephone;

4. (4)

   by correspondence (including e-mail);

5. (5)

   in a publication, broadcast or web-site; and

6. (6)

   through the provision of an interactive software system.

1

Taking electronic commerce as an example, the use of electronic decision trees does not present any novel problem. The same principles apply as with a paper version (see AUTH App 5.8.15 G to AUTH App 5.8.19 G (Prepurchase questioning (including decision trees))).1

Advice in publications, broadcasts and web-sites is subject to a special regime (see AUTH App 5.8.24 G (Exclusion: periodical publications, broadcasts and web-sites) and AUTH 7 (Periodical publications, news services and broadcasts: applications for certification).1

An important exclusion from advising on contracts of insurance relates to advice given in periodical publications, regularly updated news and information services and broadcasts (article 54 of the Regulated Activities Order (Advice given in newspapers etc)). The exclusion applies if the principal purpose of the publication or service taken as a whole (including any advertising content) is neither to give advice of a kind mentioned in article 53 (Advising on investments) or article 53A (Advising on regulated mortgage activities) nor to lead or enable persons to buy, sell, subscribe for or underwrite relevant investments or, as borrower, to enter into or vary the terms of a regulated mortgage contract.1

This is explained in greater detail, together with the provisions on the granting of certificates by the FSA on the application of the proprietor of a periodical publication or news or information service or broadcast, in AUTH 7 (Periodical publications, news services and broadcasts: applications for certification).1

The Regulated Activities Order contains other limited exclusions which have the effect of preventing certain activities from amounting to advice on contracts of insurance. These are referred to in AUTH App 5.11.8 G (Exclusions applying to more than one regulated activity) to AUTH App 5.11.16 G (Large risks).1

Under article 64 of the Regulated Activities Order (Agreeing to carry on specified kinds of activity), in addition to the regulated activities of:

1. (1)

   dealing in investments as agent;

2. (2)

   arranging (bringing about) deals in investments;

3. (3)

   making arrangements with a view to transactions in investments;

4. (4)

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

5. (5)

   advising on investments;

agreeing to do any of these things is itself a regulated activity. In the FSA's opinion, this activity concerns the entering into of a legally binding agreement to provide the services to which the agreement relates. So, a person is not carrying on a regulated activity under article 64 merely because he makes an offer to do so.1

To the extent that an exclusion applies in relation to a regulated activity, 'agreeing' to carry on an activity within the exclusion will not be a regulated activity. This is the effect of article 4(3) of the Regulated Activities Order (Specified activities: general). So, for example, a vet can, without carrying on a regulated activity, enter into an agreement with an insurance undertaking to distribute marketing literature provided that the vet can rely on the exclusion in article 72C (Provision of information on an incidental basis) in relation to the activity of distributing the literature (see also AUTH App 5.6.6 G and AUTH App 5.6.9 G (Exclusion: article 72C (Provision of information on an incidental basis))). However, to be able to rely on the exclusion in article 72C, the vet must not be viewed as providing information to the insurance undertaking. More specifically, an unauthorised introducer can enter into standing arrangements with insurance undertakings or brokers to make introductions, provided that these arrangements do not envisage subsequent provision of information to these insurance undertakings or brokers with a view to arranging (bringing about) deals in investments or making arrangements with a view to transactions in investments.1

It must be emphasised that activities which concern invitations to renew policies and the subsequent effecting of renewal of policies are likely to fall within insurance mediation activity. Those considering the need for authorisation or variation of their permissions will wish to consider whether a process of tacit renewal operates: that is, where a policyholder need take no action if he wishes to maintain his insurance cover by having his policy 'renewed'. This process will typically result in the issue of a new contract of insurance, not an extension of the period of the existing one. It may involve the activities of advising on investments, arranging and dealing in investments as agent. More specifically, preparing a 'tacit renewal' letter on behalf of an insurance undertaking is likely to amount to arranging. Where it contains a recommendation to renew existing cover this is likely to constitute advising on investments (under article 53 of the Regulated Activities Order). If the contract takes effect on the date stipulated in the renewal letter, a contract is concluded with the effect that the letter writer may be dealing in investments as agent. The process may also involve a regulated activity under article 64 (Agreeing to carry on a regulated activity). 1

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

Section 19 of the Act (The general prohibition) provides that the requirement to be authorised under the Act only applies in relation to regulated activities which are carried on 'in the United Kingdom'. In many cases, it will be quite straightforward to identify where an activity is carried on. But, when there is a cross-border element, for example because a customer is outside the United Kingdom or because some other element of the activity happens outside the United Kingdom, the question may need careful consideration. AUTH App 5.15.8 G (Flow chart: am I carrying on regulated activities in the United Kingdom?) has a flow chart setting out the questions a person needs to consider in determining whether or not his regulated activities are carried on 'in the United Kingdom '.1

Even if a person concludes that he is not carrying on a regulated activity in the United Kingdom, he will need to ensure that he does not contravene other provisions of the Act that apply to unauthorised persons. These include the controls on financial promotion (section 21 (Financial promotion) of the Act) (see AUTH App 1 (Financial promotion and related activities)), and on giving the impression that a person is authorised (section 24 (False claims to be authorised or exempt)).1

The table in AUTH App 5.12.4 G is a very simplified summary of territorial issues relating to overseas insurance intermediaries carrying on the business of insurance mediation activities in or into the United Kingdom for remuneration.1

Persons carrying on insurance mediation activities from a registered office or head office in the United Kingdom will clearly be carrying on regulated activities in the United Kingdom. However, a person may be considered to be carrying on regulated activities in the United Kingdom even where not carrying on the activity from a registered office or head office in the United Kingdom. This is explained further in AUTH App 5.12.5 G to AUTH App 5.12.7 G.1

In determining the location of an activity, and hence whether it is carried on in the United Kingdom, various factors need to be taken into account in turn, notably:

1. (1)

   section 418 of the Act (Carrying on regulated activities in the United Kingdom);

2. (2)

   the nature of the activity; and

3. (3)

   the overseas persons exclusion (see AUTH App 5.12.9 G to AUTH App 5.12.10 G (Overseas persons)).

1

Section 418 of the Act extends the meaning that 'carry on regulated activity in the United Kingdom' would normally have by setting out additional cases in which a person who would not otherwise be regarded as carrying on the activity in the United Kingdom is to be regarded as doing so. Each of the following cases thus amounts to carrying on a regulated activity in the United Kingdom:

1. (1)

   where a UK based person carries on a regulated activity in another EEA State in the exercise of rights under a Single Market Directive;

2. (2)

   where a UK-based person carries on a regulated activity and the day-to-day management of the activity is the responsibility of an establishment in the United Kingdom;

3. (3)

   where a regulated activity is carried on by a person who is not based in the United Kingdom but is carried on from an establishment maintained by him in the United Kingdom;

4. (4)

   where an electronic commerce activity is carried on with or for a person in an EEA State from an establishment in the United Kingdom.

In each of these cases it is irrelevant where the person with whom the activity is carried on is situated.1

Otherwise, where the cases in AUTH App 5.12.7 G (1) to (4) do not apply, it is necessary to consider further the nature of the activity in order to determine where insurance mediation is carried on. Persons that arrange contracts of insurance will usually be considered as carrying on the activity of arranging in the location where these activities take place. As for dealing activities, the location of the activities will depend on factors such as where the acceptance takes place, which in turn will depend on the method of communication used. In the case of advising, this is generally considered to take place where the advice is received.1

Article 72 of the Regulated Activities Order (Overseas persons) provides a potential exclusion for persons with no permanent place of business in the United Kingdom from which regulated activities are conducted or offers to conduct regulated activities are made. Where these persons carry on insurance mediation activities in the United Kingdom, they may be able to take advantage of the exclusions in article 72 of the Regulated Activities Order. In general terms, these apply where the overseas person either:

1. (1)

   deals or arranges deals with or through authorised or exempt persons only; or

2. (2)

   enters into deals with (or on behalf of) a person in the United Kingdom or gives advice on investments in the United Kingdom, in each case as a result of a 'legitimate approach'.

A 'legitimate approach', for the purposes of (2), is one that results from an unsolicited approach by a person (for example, a customer) or otherwise is a result of an approach by, or on behalf of, an overseas person which complies with the restriction on financial promotion under section 21 of the Act (see AUTH App 1.3.1 G (Financial promotion)).1

The overseas person exclusion is available to persons who do not have a permanent place of business in the United Kingdom and so is of relevance to third country intermediaries (that is, non EEA-based intermediaries) who carry on insurance mediation activities in, or into, the United Kingdom (for example with or through authorised insurance brokers and insurance undertakings operating in the Lloyd's market).1

UK-based persons must obtain Part IV permission in relation to their insurance mediation activities in the United Kingdom as one of the following:

1. (1)

   a body corporate whose registered office is situated in the United Kingdom;

2. (2)

   a partnership or unincorporated association whose head office is situated in the United Kingdom;

3. (3)

   an individual (that is, a sole trader) whose residence is situated in the United Kingdom.

The United Kingdom will, in each case, be the Home State for the purposes of the IMD for insurance or reinsurance intermediaries (see further in connection with the E-Commerce Directive in AUTH App 5.12.15 G to AUTH App 5.12.17 G (E-Commerce Directive)).1

Non-UK-based persons wishing to carry on insurance mediation activities in the United Kingdom must:

1. (1)

   qualify for authorisation by exercising passport rights (see section 31 (Authorised persons) and schedule 3 (EEA passport rights) to the Act and AUTH App 5.12.13 G to AUTH App 5.12.14 G (Passporting)); or

2. (2)

   make use of the overseas persons exclusion (which then has the effect that activities are deemed not to be regulated activities carried on in the United Kingdom); or

3. (3)

   seek Part IV permission.

1

The effect of the IMD is that any EEA-based insurance intermediaries must first be registered in their home EEA State before carrying on insurance mediation in that EEA State or other EEA States. For these purposes, an EEA-based insurance intermediary is either:

1. (1)

   a legal person with its registered office or head office in an EEA State other than the United Kingdom; or

2. (2)

   a natural person resident in an EEA State other than the United Kingdom.

Registered EEA-based insurance intermediaries wishing to establish branches in the United Kingdom or provide services on a cross-border basis into the United Kingdom can do so by notifying their Home State regulator which in turn notifies the FSA. This enables the intermediary to acquire passporting rights under Schedule 3 to the Act (EEA passporting rights) (see Schedule 3(13) and (14) of the Act as amended by the Insurance Mediation Directive (Miscellaneous Amendments) Regulations 2003). AUTH 5 (Qualifying for authorisation under the Act) has general guidance on the exercise of passporting rights by EEA firms.1

On the other hand, non-EEA-based insurance intermediaries wishing to establish a branch in the UK for the purpose of carrying on insurance mediation activities may only do so with Part IV permission.1

The E-Commerce Directive removes restrictions on the cross-border provision of services by electronic means, introducing a country of origin approach to regulation. This requires EEA States to impose certain requirements on the outward provision of such services and to lift them from inward providers. The E-Commerce Directive defines an e-commerce service (termed an information society service) as any service, normally provided for remuneration, at a distance, by electronic means, and at the individual request of the recipient of the service. So, for example, it includes services provided over the internet, by solicited e-mail, and interactive digital television. Further guidance is contained in ECO.1

The E-Commerce Directive does not remove the IMD requirement for persons taking up or pursuing insurance mediation for remuneration to be registered in their Home State. Nor does it remove the requirement for EEA-based intermediaries to acquire passporting rights in order to establish branches in the United Kingdom (see AUTH App 5.12.7 G (Where is insurance mediation carried on?) in relation to electronic commerce activity carried on from an establishment in the United Kingdom) or provide services on a cross-border basis into the United Kingdom where the relevant activity is carried on in the United Kingdom. An example of electronic commerce activity provided on a cross-border basis into the United Kingdom could be a recommendation in a (solicited) e-mail from an EEA-based intermediary to a UK-based customer to buy a particular contract of insurance.1

Put shortly, the E-Commerce Directive relates to services provided into the United Kingdom from other EEA States and from the United Kingdom into other Member States. In broad terms, such cross-border insurance mediation services provided by an EEA firm into the United Kingdom (via electronic commerce activity or distance means) will generally be subject to IMD registration in, and conduct of business regulation of, the intermediary's EEA State of origin. By contrast, insurance mediation services provided in the United Kingdom will be subject to UK conduct of business regulation, although the requirement for registration will again depend upon the intermediary's EEA State of origin.1

Section 39 of the Act (Exemption of appointed representatives) exempts appointed representatives from the need to obtain authorisation. An appointed representative is a person who is party to a contract with an authorised person which permits or requires him to carry on certain regulated activities (see Glossary for full definition). SUP 12 (Appointed representatives) contains rules and guidance relating to appointed representatives.1

A person who is an authorised person cannot be an appointed representative (see section 39(1) of the Act (Exemption of appointed representatives)).1

An appointed representative can carry on only those regulated activities which are specified in the Appointed Representatives Regulations. With effect from 14 January 2005, the regulated activities set out in the table in AUTH App 5.13.4 G will be included in those regulations. As set out in the table, the insurance mediation activities that can be carried on by an appointed representative differ depending on the type of contracts of insurance in relation to which the activities are carried on.1

A person who is not already an appointed representative may wish to become one in relation to the regulated activities specified in the Appointed Representatives Regulations (see table in AUTH App 5.13.4 G). If so, he must be appointed under a written contract by an authorised person, who has permission to carry on those regulated activities and who accepts responsibility for the appointed representative's actions when acting for him. SUP 12.4 (What must a firm do when it appoints an appointed representative?) and SUP 12.5 (Contracts: required terms) set out the detailed requirements that must be met for an appointment to be made. In particular, an appointed representative will not be able to commence an insurance mediation activity until he is included on the FSA Register for such activities.1

Where a person is already an appointed representative and he proposes to carry on, with effect from 14 January 2005, any insurance mediation activities, he will need to consider the following matters.

1. (1)

   He must become authorised if his proposed insurance mediation activities include activities that do not fall within the table in AUTH App 5.13.4 G (for example, dealing as agent in pure protection contracts) and he wishes to carry on these activities. The Act does not permit any person to be exempt for some activities and authorised for others. He will, therefore, need to apply for permission to cover all the regulated activities that he proposes to carry on from 14 January 2005.

2. (2)

   If he proposes to carry on other regulated activities specified in the Appointed Representatives Regulations in relation to contracts of insurance (see the table in AUTH App 5.13.4 G), he may be able to do so as an appointed representative bearing in mind the following.

   1. (a)

      He will need to be appointed by an authorised person prepared to accept responsibility for his insurance mediation activities when acting for him. The authorised person must have permission to carry on these regulated activities.

   2. (b)

      If these insurance mediation activities are to be carried on for the same authorised person who has already appointed him for his other regulated activities, the contract between them will need to be amended to reflect the additional activities. Other amendments to the contract will be required (see SUP 12.5.6A R).

   3. (c)

      The effect of amendments to the Appointed Representatives Regulations is that an appointed representative cannot commence an insurance mediation activity until he is included on the FSA Register as carrying on such activities.

   4. (d)

      An appointed representative would be entitled to have more than one principal subject to certain restrictions. In relation to non-investment insurance contracts (general insurance contracts and pure protection contracts), an appointed representative may have an unlimited number of principals. In relation to regulated mortgage contracts and designated investment business, an appointed representative is limited in the number of principals he may have. In any case where an appointed representative has multiple principals, those principals are required to enter into a multiple- principal agreement (see SUP 12.4.5D G to SUP 12.4.5G G (Appointment of an appointed representative (other than an introducer appointed representative)).

   5. (e)

      If the activities of the appointed representative are limited to introducing, he should consider the specific Handbook provisions relating to introducer appointed representatives (see SUP 12 (What must a firm do when it appoints an appointed representative?)).

1

Professional firms (broadly firms of solicitors, accountants and actuaries) may carry on insurance mediation activities in the course of their professional activities. Exempt professional firms carrying on insurance mediation activities may continue to be able to use the Part XX exemption to avoid any need for authorisation. PROF 2 (Status of exempt professional firm) contains guidance on the Part XX exemption. They will, however, need to be shown on the FSA Register as carrying on insurance mediation activities, in order to benefit from this exemption. The task of registration is the responsibility of the designated professional bodies who will need to inform the FSA both of member firms carrying on insurance mediation activities and individuals within firms' management responsible for these activities. 1

Professional firms with practices that involve acting for claimants in litigation against insurance undertakings are likely to be carrying on the regulated activity of assisting in the administration and performance of a contract of insurance. Exempt professional firms whose practices contain a material element of such activity should consider whether they can continue to take advantage of the Part XX exemption to avoid any need for authorisation, having regard to the relevant provisions of the Act, in particular section 327 (Exemption from the general prohibition) and the guidance in PROF 2.1.14 G (Exempt regulated activities).1

Professional firms should be aware of the disapplication of the exclusions for trustees (article 66) and activities carried on in the course of a profession or non-investment business (article 67) outlined in AUTH App 5.11.7 G (Exclusions disapplied in connection with insurance mediation) where their activities would amount to insurance mediation. Where they do not, they will still be able to rely upon article 67. Otherwise, the Nonexempt Activities Order imposes limitations on the extent to which professional firms can give advice to individuals. In particular, a professional firm cannot recommend to a private client that he buy a life policy, unless he is endorsing a corresponding recommendation given to the client. The recommendation he endorses must be one given by an authorised person permitted to advise on life policies, or an exempt person for these purposes. No such restrictions apply, however, in relation to contracts of insurance other than life policies.1

Professional firms relying (prior to 14 January 2005) on the exclusions in articles 29 (Arranging deals with or through authorised persons) and 33 (Introducing) when introducing clients to authorised persons in connection with the purchase of life policies are directed to AUTH App 5.11.3 G (Exclusions disapplied where activities relate to contracts of insurance). More generally, as indicated in AUTH App 5.6.8 G, the article 72C exclusion (Provision of information on an incidental basis) is potentially available to unauthorised professional firms including exempt professional firms. This may be relevant to professional firms arranging contracts of insurance for clients on an individual basis.1

In addition to certain named persons exempted by the Exemption Order from the need to obtain authorisation, the following bodies are exempt in relation to insurance mediation activities that do not relate to life policies:

1. (1)

   local authorities but not their subsidiaries;

2. (2)

   registered social landlords in England and Wales within the meaning of Part I of the Housing Act 1996 but not their subsidiaries;

3. (3)

   registered social landlords in Scotland within the meaning of the Housing (Scotland) Act 2001 but not their subsidiaries;2

4. (4)

   the Housing Corporation;

5. (5)

   Scottish Homes;

6. (6)

   The Northern Ireland Housing Executive.

1

This flow chart sets out the matters a person will need to consider to see if he will need authorisation for carrying on insurance mediation activities. It is referred to in AUTH App 5.2.3 G (Questions to be considered to decide if authorisation is required).1

Flow chart: regulated activities related to insurance mediation activities - do you need authorisation?

1

The table in AUTH App 5.15.4 G is designed as a short, user-friendly guide but should be read in conjunction with the relevant sections of the text of this guidance. It is not a substitute for consulting the text of this guidance or seeking professional advice as appropriate (see AUTH App 5.1.4 G to AUTH App 5.1.6 G on the effect of this guidance). References in this Annex to articles are to articles of the Regulated Activities Order In this table, it is assumed that each of the activities described is carried on by way of business (see AUTH App 5.4). Save where otherwise indicated, it is assumed that the intermediary is carrying on activities in respect of policies where he is not the policyholder. Note also that this table does not provide an exhaustive list of all of the exclusions or exemptions that are of relevance to each type of activity. For a full explanation of the exclusions and exemptions under Regulated Activities Orderand their applicability see generally AUTH App 5.3.7 G to AUTH App 5.3.8 G, AUTH App 5.6.5 G to AUTH App 5.6.23 G, AUTH App 5.7.7 G, AUTH App 5.8.24 G to AUTH App 5.8.26 G, AUTH App 5.11, AUTH App 5.12.9 G to AUTH App 5.12.10 G, AUTH App 5.13 and AUTH App 5.14. This Table is referred to in AUTH App 5.7.5 G (The regulated activities: assisting in the administration and performance of a contract of insurance).1

The flow chart in AUTH App 5.15.6 G sets out the matters a person whose introducing activities potentially amount to making arrangements with a view to transactions in investments will need to consider to see if he can use the exclusion in article 72C (Provision of information on an incidental basis). It is referred to in AUTH App 5.1.6 G (Purpose of guidance) and AUTH App 5.6.9 G (Exclusion: article 72C (Provision of information on an incidental basis)).1

Flow Chart: Introducers.

1

The flow chart in AUTH App 5.15.8 G sets out the questions a person needs to consider in determining whether or not his regulated activities are carried on 'in the United Kingdom'.1

Flow chart: am I carrying on regulated activities in the United Kingdom?

1

AUTH App 5.16.2 G sets out the text of article 2.3 of the Insurance Mediation Directive. It is referred to in AUTH App 5.2.5 G and AUTH App 5.2.5 G (Approach to implementation of the IMD), AUTH App 5.11.7 G (Exclusions disapplied in connection with insurance mediation) and AUTH App 5.11.10 G (Activities carried on in the course of a profession or non-investment business).1

Text of article 2.3 of the Insurance Mediation Directive "'Insurance mediation' means the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim.

These activities when undertaken by an insurance undertaking or an employee of an insurance undertaking who is acting under the responsibility of the insurance undertaking shall not be considered as insurance mediation.

The provision of information on an incidental basis in the context of another professional activity provided that the purpose of that activity is not to assist the customer in concluding or performing an insurance contract, the management of claims of an insurance undertaking on a professional basis, and loss adjusting and expert appraisal of claims shall also not be considered as insurance mediation." 1