GEN 2.2 Interpreting the Handbook

The purpose of any provision in the Handbook is to be gathered first and foremost from the text of the provision in question and its context among other relevant provisions. The guidance given on the purpose of a provision is intended as an explanation to assist readers of the Handbook. As such, guidance may assist the reader in assessing the purpose of the provision, but it should not be taken as a complete or definitive explanation of a provision's purpose.

1. (1)

   The rules to which section 138C36 of the Act applies ("evidential provisions") are identified in the Handbook by the status letter "E" in the margin or heading.

   36
2. (2)

   Other provisions in the Handbook, although also identified by the status letter "E" in the margin or heading, are actually not rules but provisions in codes and GEN 2.2.3 R does not apply to them.17

   361313

Chapter 6 of the Reader's Guide contains an explanation of the significance of the status letters R, E, G, D, UK, EU, P and C6, and includes further information on Handbook provisions, including6 evidential provisions.1

Expressions with defined meanings appear in italics in the Handbook, unless otherwise stated in individual sourcebooks or manuals11.

Examples of related expressions are:

1. (1)

   "advice on investments" and "advise on investments", which should be interpreted by reference to "advising on investments";

2. (2)

   "closely linked", which should be interpreted by reference to "close links";

3. (3)

   "controls" and "controlled", which should be interpreted by reference to "control";19

4. (4)

   "effect", as for example in "effect a life policy", which should be interpreted by reference to "effecting contracts of insurance"; and19

5. (5)

   “employment”, which should be interpreted by reference to “employee”.19

Unless the context otherwise requires or unless otherwise stated in a particular sourcebook or manual11, where italics have not been used, an expression bears its natural meaning (subject to the Interpretation Act 1978; see GEN 2.2.11 R to GEN 2.2.12 G).

The Interim Prudential sourcebooks (IPRU) have individual arrangements for defined terms and each contains rules or guidance on its own arrangements. In respect of those sourcebooks, reliance should not be placed on the definitions which appear in the Glossary unless otherwise indicated.

The application of the Interpretation Act 1978 to the Handbook has the effect, in particular, that:

1. (1)

   expressions in the Handbook used in the Act have the meanings which they bear in the Act, unless the contrary intention appears;

2. (2)

   where reference is made in the Handbook to an enactment, it is a reference to that enactment as amended and includes a reference to that provision as extended or applied by or under any other enactment, unless the contrary intention appears; and

3. (3)

   unless the contrary intention appears:

   1. (a)

      words in the Handbook importing the masculine gender include the feminine and words importing the feminine gender include the masculine;

   2. (b)

      words in the Handbook in the singular include the plural and words in the plural include the singular.

4 GEN 2.2.12A R and sections 246 and 247 of the Civil Partnership Act 2004 amend each reference in the Handbook to a stepchild, step-parent and certain related expressions to take account of civil partnerships. As a result a reference (for example) to a stepchild of a person (A) includes a reference to the child of the civil partner of A where that child is not A's child.

15The purpose of GEN 2.2.13AR is to ensure that cross references in the FCA Handbook to provisions outside the FCA Handbook are effective, including cross references to material that was formerly in the PRA Handbook but which the PRA has now deleted.

GEN 2.2.14 R means that, for example, electronic media may be used to make communications which are required by a provision of the Handbook to be "in writing", unless a contrary intention appears, or the use of electronic media would contravene some other requirement. GEN 2.2.14 R does not, however, affect any other legal requirement which may apply in relation to the form or manner of executing a document or agreement.

36An example of a requirement relevant to whether a communication required by a provision of the Handbook to be "in writing" may be made by use of electronic media is the requirement to treat customers fairly under Principle 6.

"Document" is a defined term in the Glossary, the definition of which includes information recorded in any form, including electronic form.

In principle, it is possible to view a change of partners7 in a partnership7, or a change in the membership of the unincorporated association, as the formation of a new partnership7 or association. GEN 2.2.18 R reflects section 32 of the Act (Partnerships and unincorporated associations), which provides for the continuing authorisation of partnerships7 and unincorporated associations following a change in partners7 or members if certain conditions are satisfied. GEN 2.2.18 R ensures a similar effect to section 327 in relation to the status of the partnership7 or unincorporated associations as a "firm" or "authorised person" for the purposes of the Handbook.

In the Glossary, the definition of designated investment exchange lists certain investment exchanges. Further information on designated investment exchanges, including guidance on the addition of an investment exchange to the list, is set out in GEN 2 Annex 1 G and the obligation to pay the application fee is set out in 53FEES 3.25.

10As a result of the Treaty of Lisbon, the European Union has replaced and succeeded the European Community. References in the Handbook to the European Community should therefore be interpreted as references to the European Union, where the context requires. 22

1. (1)

   21The purpose of GEN 2.2.22AR is to ensure 2322that a third country investment firm should not be treated in a more favourable way than a UK firm2322.

2. (2)

   GEN 2.2.22AR may be overridden where the application provisions at the beginning of individual Handbook chapters qualify its effect.

36The published Memorandum of Understanding between the FCA and the PRA describes their regulatory responsibilities.

An example of a rule20 being interpreted as cut back by GEN 2.2.23R is SYSC 6.1.1R, which requires a firm to maintain adequate policies and procedures to ensure compliance with its obligations under the regulatory system; SYSC 6.1.1R should be interpreted as applied by the FCA in respect of a PRA-authorised person’s compliance with regulatory obligations that are the responsibility of the FCA (for example, in respect of a bank maintaining policies and procedures to ensure compliance with banking conduct requirements in BCOBS).20

1. (1)

   [deleted]12

   12
2. (2)

   [deleted]20

3. (3)

   [deleted]20

   151515

1. (1)

   GEN 2.2.30R operates by excluding the application of the sourcebooks contained in the Prudential Standards part of the FCA Handbook, except for the sourcebooks or parts of sourcebooks referred to in GEN 2.2.30R(2).

2. (2)

   The sourcebooks referred to in GEN 2.2.30R(2) contain rules that may apply to a TP firm either by virtue of GEN 2.2.26R(1) if they applied to that firm immediately before IP completion day25, or rules that may apply to a TP firm by virtue of GEN 2.2.26R(2) if the conditions in that provision are met, and the rule does not relate to capital adequacy.

3. (3)

   The approach in GEN 2.2.30R to applying rules relating to capital adequacy to a TP firm is generally to ensure that the firm is only subject to those rules that applied to it immediately before IP completion day25. Therefore, a TP firm will not be subject to additional capital adequacy requirements to those that applied to the firm immediately before IP completion day25.

4. (4)

   The sourcebooks referred to in GEN 2.2.30R(2) contain some rules which do not relate to capital adequacy. Such rules may apply to TP firms by virtue of GEN 2.2.26R. Certain of these rules may apply to TP firms by virtue of GEN 2.2.26R(2), as follows:

   1. (a)

      rules in MIPRU 2.2 (Allocation of the responsibility for insurance distribution activity or MCD credit intermediation activity);

   2. (b)

      certain of the rules in MIPRU 3.2 (Professional indemnity insurance requirements);

   3. (c)

      rules in MIPRU 5.2 (Use of intermediaries); and

   4. (d)

      certain of the rules in IPRU(INV) 13.1 (Application, general requirements and professional indemnity insurance requirements).

5. (5)

   The sourcebooks contained in the Prudential Standards part of the FCA Handbook are not the only sourcebooks which include rules relating to capital adequacy. For example, see the rules in CONC 10 and MAR 8. The capital adequacy requirements in such other sourcebooks may apply to a TP firm by virtue of GEN 2.2.26R, to the extent the firm carries on the relevant regulated activity. However, a TP firm will not be subject to additional capital adequacy requirements to those that applied to the firm immediately before IP completion day25.

6. (6)

   For the purpose of this guidance, rules relating to capital adequacy comprise rules relating to the adequacy of a firm’s financial resources, including both capital resources and liquidity resources. However, rules relating to capital adequacy do not include rules involving the holding of professional indemnity insurance, except where such rules are tied to capital adequacy requirements by a form of optionality (for examples of such rules, see IPRU(INV) 9.2.4R and IPRU(INV) 13.1A.3R). Therefore, rules involving the holding of professional indemnity insurance may apply to a TP firm by virtue of GEN 2.2.26R, but if such rules are tied to capital adequacy requirements, they cannot apply by virtue of GEN 2.2.26R(2).

27A TP firm should refer to the provisions listed below, which identify the rules and guidance in their sourcebooks that came into force after IP completion day and in respect of which special provision has been made to apply them to TP firms.

27 COBS 1.1.1CR ,

27 COBS 2.2.-1R ,

27 COBS 4.12.3R ,

27 COBS 4.14.1R ,

27 COBS 10.1.2R ,

27 COBS 14.3.1R

and COBS 22.6.1R28,

[deleted]28

28 ICOBS 1 Annex 1 , Part 1, Who? (paragraph 7)

27 PROD 1.3.-1AR

27 and

27 PROD 1.4.-1AR

27 SUP 16.1.3R ,

27 SUP 16.27.2R

27 and SUP 16.27.8R

1. (1)

   23The approach to what rules apply to TP firms is broadly to apply rules to TP firms which applied to them immediately prior to IP completion day26, whether those rules applied in the United Kingdom (as was the case for host state rules) or, where rules are directive-based, in the firm’s Home State or, where relevant under an EU measure in relation to which the law of the country of origin applies, the state where the establishment is located and from which the firm’s service is provided.

   23
2. (2)

   The Glossary definitions of TP firm and temporary permission each include both firms that enter the temporary permission or temporary variation regime set out in Part 3 of the EU Exit Passport Regulations and firms that enter the financial services contracts regime set out in Part 6 of the EU Exit Passport Regulations.on or after IP completion day25

3. (3)

   GEN 2.2.26R (1) and GEN 2.2.33R refer to “a rule which imposed an obligation on a person”. This is to distinguish a rule which imposes substantive obligations from a rule which sets out the application of rules.

4. (4)

   GEN 2.2.26R to GEN 2.2.35R apply rules and guidance to firms which before IP completion day25 had passporting rights by virtue of the Treaty on the Functioning of the European Union, or of that Treaty as applied by the Agreement on the European Economic Area signed at Oporto on 2 May 1992 whose parties consist of the EEA States.

5. (5)

   The application of rules and guidance to TP firms under Part 3 of the EU Exit Passport Regulations must be read in the light of the purpose of temporary permission under Part 3 of those Regulations, which is to allow TP firms to continue to carry on regulated activities in the United Kingdom, or of the purpose of the temporary recognition regime for TP UCITS qualifiers or for TP AIFM qualifiers to continue to market funds in the United Kingdom. In each case that purpose takes into account that the legal framework underpinning cross border financial services has changed because the Treaty, EU regulations and EU directives no longer apply in the United Kingdom by virtue of EU law.

6. (6)

   For a TP firm under Part 3 of the EU Exit Passport Regulations the scope of authorisation of an EEA-based firm which qualified for authorisation under Schedule 3 or 4 to the Act is preserved. Those Regulations do not extend the means by which a TP firm can carry on regulated activities in the United Kingdom, which remain limited (leaving aside top-up permission) to those which were available under the Treaty on the Functioning of the European Union, for example, a firm carrying on regulated activities in the United Kingdom from an establishment outside of the EEA cannot rely upon this means to do so.For a TP firm under Part 6 of the EU Exit Passport Regulations, the scope of the firm’s permission is further limited by what is permitted under regulation 33 or 40 of those Regulations.

7. (7)

   The General Rules also apply where regulated activities have been amended on IP completion day25, because the purpose of temporary permission is to enable TP firms to continue to carry on such regulated activities in the United Kingdom.

8. (8)

   Part 6 of the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 enables a new sub-fund to be a recognised scheme for the purposes of Part 17 of the Act in certain circumstances. Therefore, the purpose of GEN 2.2.32R(2) is to ensure that a rule applies to a TP UCITS qualifier in relation to a new sub-fund if that rule would have applied to the sub-fund had it been a scheme recognised under section 264 of the Act immediately before IP completion day25 (unless the contrary intention appears).

9. (9)

   In relation to persons with temporary EMI authorisation, temporary PI authorisation and temporary RAISP authorisation, the specified directions, rules and guidance in FEES 4A, 7C and 13A apply to them. In addition, in relation to those persons, rules and guidance in DISP, SUP, PRIN and BCOBS apply to them as they apply to electronic money institutions, payment institutions and registered account information service providers24 that are authorised or registered in the UK.

10. (10)

    A person with temporary EMI authorisation is deemed to be an authorised electronic money institution in accordance with regulation 2(a) of Part 1 of Schedule 3 of the E-money and Payments Transitional Provisions Regulations. As such, the provisions of the Electronic Money Regulations as amended by the E-money and Payments Transitional Provisions Regulations and subject to the exclusions set out in regulation 7 of the E-money and Payments Transitional Provisions Regulations apply to such persons.

11. (11)

    This paragraph applies to persons with temporary PI authorisation and temporary RAISP authorisation:

    1. (a)

       a person with temporary PI authorisation is deemed to be an authorised payment institution in accordance with regulation 14(2)(a)(i) of Part 2 of Schedule 3 of the E-money and Payments Transitional Provisions Regulations.

    2. (b)

       a person with temporary RAISP authorisation is deemed to be a Registered Account Information Service Provider in accordance with regulation 2(2)(a)(ii) of Part 2 of Schedule 3 of the E-money and Payments Transitional Provisions Regulations.

12. (12)

    As such, the provisions of the Payment Services Regulations as amended by the E-money and Payments Transitional Provisions Regulations and subject to the exclusions set out in regulation 19 of the E-money and Payments Transitional Provisions Regulations apply to persons to whom paragraph (11) applies.

13. (13)

    The Glossary definitions of temporary EMI authorisation, temporary PI authorisation and temporary RAISP authorisation each include both persons that enter the temporary permission regime set out in Parts 1 and 2 of Schedule 3 of the E-money and Payments Transitional Provisions Regulations and persons that enter the financial services contracts regime in accordance with regulation 12B and 26 of Parts 1A and 3 of Schedule 3 of the E-money and Payments Transitional Provisions Regulations.

1. (1)

   23The approach in these rules is a general one and does not apply where a rule states explicitly that a different provision applies to such a firm or that position is stated in relation to the rule.

2. (2)

   The FCA has decided in certain cases specifically to apply rules to TP firms, for example:

   1. (a)

      in relation to the application of our Principles for Businesses (PRIN);

   2. (b)

      in chapters 4A, 6, 7C, 7D and 13A, and at rule 5.1.1CR, of the Fees Manual (FEES);

   3. (c)

      in the General Provisions (GEN) which relate to status disclosure;

   4. (d)

      in the Client Assets sourcebook (CASS) at chapter 14;

   5. (e)

      in the Compensation sourcebook (COMP);

   6. (f)

      in chapters 1, 2 and 3 of the Dispute Resolution: Complaints sourcebook (DISP);

   7. (g)

      in relation to the approved persons regime, such specific applications are largely to be found in the Supervision Manual (SUP) 10A; and

   8. (h)

      in relation to the senior managers and certification regime, the main provisions so applied are listed in the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) at SYSC 23.3.3G.

3. (3)

   The effect of GEN 2.2.26R(1) and GEN 2.2.32R also includes a rule which applied immediately before IP completion day25 to a firm’s activity beyond the activity that was its permitted activity under Schedule 3 (or its permitted activity under Schedule 4 to the Act or beyond the activity that was permitted under paragraph 2(1) of Schedule 5 to the Act). For example, where such a firm had a Part 4A permission for that other activity before IP completion day25 (i.e. it had a top-up permission).

4. (4)

   None of GEN 2.2.26R(1), GEN 2.2.26R(2) and GEN 2.2.32R prevent changes being made to the rules that apply to such firms on and after IP completion day25.

5. (5)

   GEN 2.2.26R(2) refers to a rule which deals with a matter which immediately before IP completion day25 was reserved to the Home State of the firm. These rules include both rules that under an EU directive are always the responsibility of that state, such as rules concerning the safeguarding of client assets, and also rules the responsibility for which depends on whether the service or activity takes place at a branch or establishment in a state other than the Home State of the firm or is provided cross border from a branch or establishment in the Home State. For example, it would cover all of the rules which implement the provisions which are the responsibility of the Home State under, as the case may be, article 34 or article 35 of MIFID. GEN 2.2.26R(2)(b) and the words in (4) and (6) concerning the EEA State where the TP firm has its establishment will be applicable in a situation where an EU directive includes a country of origin provision (one which generally requires compliance with the law of the state where the establishment from which the service is provided), such as the E-Commerce Directive or the Distance Marketing Directive. In that case GEN 2.2.26R(2)(b) and the related words in (4) and (6) would apply to an FCA rule which deals with a matter reserved, under such a directive, to the law of the state where the TP firm has its establishment from which the service is provided, an example of which is the rules in COBS 5.2.

6. (6)

   The effect of GEN 2.2.26R(2) is to apply a rule to the extent that the rule implemented an EU directive, notwithstanding that before IP completion day25 the matter was reserved to the Home State or to the state where the establishment from which the service is provided is situated. A rule which the FCA imposes by virtue of a national discretion set out in a directive is to be taken as a rule which implements a directive. Where a TP firm’s home state or, where relevant, the country of origin of the firm’s establishment exercises a national discretion expressly permitted by a directive not to apply a provision, which the FCA has chosen to apply through a rule, the firm has no need to comply with or apply the rule in question. To the extent a rule goes beyond what is necessary to implement a directive, it does not apply as a result of GEN 2.2.26R(2). Therefore a more stringent rule applied by the FCA in relation to a minimum harmonisation EU directive would not be applied by GEN 2.2.26R(2).

7. (7)

   The General Rules set out in GEN 2.2.26R to 2.2.31G do not address EEA fund managers which only market funds in the UK without carrying on any regulated activity here (e.g. without managing any funds). The definition of TP firm does not include a person which was a recognised scheme under section 264 of the Act and a person which exercised its right only to market an AIF in the UK in accordance with Schedule 3 to the Act. Persons when only marketing are defined for these rules and guidance as TP UCITS qualifiers and TP AIFM qualifiers, and are covered by GEN 2.2.32R, 2.2.33R, 2.2.34R and 2.2.35R.

8. (8)

   An example of a matter falling within GEN 2.2.28R(1) or GEN 2.2.34R(1) may be a rule which on IP completion day25 (as a result of an amendment made under the European Union (Withdrawal) Act 2018) then only refers to membership of a UK professional body. Where GEN 2.2.28R(1) or GEN 2.2.34R(1) applies, the firm may treat the rule in question as if it continued to refer to an EEA professional body.

9. (9)

   In determining the rules that apply to them by virtue of GEN 2.2.26R(1), TP firms may as a starting point find it helpful to refer to the table in SUP 13A Annex 1 (Rules that apply to incoming EEA firms) as it applied immediately before IP completion day25. However, the table will not apply in its entirety to each TP firm, for example, because a TP firm with top-up permission (see paragraph (3)) needs to continue to comply with rules that apply in relation to that activity, and specified rules referred to in the table were deleted on IP completion day and are not applied by the General Rules as set out in GEN 2.2.27R(2)), namely those in COMP and FEES 6.

10. (10)

    In determining the rules that apply to them by virtue of GEN 2.2.26R(2), TP firms may as a starting point find it helpful to refer to the table in SUP 13A Annex 2G (Matters reserved to the home state) as it applied immediately before IP completion day25.

11. (11)

    GEN 2.2.27R(3) concerns the use of the FCA’s standstill direction to disapply or modify certain obligations as a result of the operation of exit instruments. That direction does not apply to rules applied to TP firms by the general approach rules. GEN 2.2.27R(3) therefore achieves a similar result to the direction by disapplying the requirement in GEN 2.2.27R(1)(a) to comply with changes made to a rule in question which comes into force on IP completion day25 to address an issue resulting from the UK’s withdrawal from the European Union. Since GEN 2.2.27R(3) states that, where it applies, a TP firm does not have to comply with a rule as amended referred to in GEN 2.2.27R(1)(a), it is open to the TP firm to comply with such a rule while the FCA’s standstill direction is in force. GEN 2.2.33R(3) has the same effect in relation to TP UCITS qualifiers and TP AIFM qualifiers. In contrast, GEN 2.2.27R(4), where it applies, has the effect that a TP firm has to comply with a prudential rule which applies to it as the rule was immediately before IP completion day25.

1. (1)

   23A tied agent that is an appointed representative may not start to act as a tied agent until it is included on the Financial Services Register (see section 39(1A) of the Act).

2. (2)

   To ensure that a tied agent is included on the Financial Services Register, a TP firm should complete the Appointed representative appointment form in SUP 12 Annex 3R when appointing a tied agent to carry on MiFID business on its behalf in the United Kingdom.

3. (3)

   A TP firm that terminates its relationship with a tied agent that was required to be notified to the FCA should complete the Appointed representative termination form in SUP 12 Annex 5R to have that tied agent removed from the Financial Services Register.

1. (1)

   23As the definitions of TP firm and temporary permission also include TP firms under Part 6 of the EU Exit Passport Regulations, the rules and guidance in GEN 2.2.26R to GEN 2.2.35G also apply to firms which enter the financial services contracts regime set out in Part 6 of those Regulations after IP completion day25 having been in temporary permission under Part 3 of those Regulations, or which become TP firms under regulation 32 of those Regulations.

2. (2)

   The application of rules and guidance to TP firms under Part 6 of the EU Exit Passport Regulations must be read in the light of the purpose of temporary permission under Part 6 of those Regulations, which is to enable such a TP firm to run down its regulated business in the United Kingdom. Regulation 33 or 40 of the EU Exit Passport Regulations sets out the scope of permitted activities, which is generally those regulated activities previously within the scope of the firm’s passport, necessary to perform a pre-existing contract (as defined in regulation 46 of the EU Exit Passport Regulations).

3. (3)

   Accordingly, the rules and guidance in GEN 2.2.26R to 2.2.31G, and 2.2.35R to 2.2.37G continue to apply where a TP firm leaves temporary permission under Part 3 of the EU Exit Passport Regulations and then enters temporary permission under Part 6 of the EU Exit Passport Regulations, namely, where the person falls within regulation 31, 37 or 38 of the EU Exit Passport Regulations. The same is true for a TP firm which leaves temporary permission under regulation 28 of the EU Exit Passport Regulations and then enters temporary permission under regulation 39 of those Regulations.

4. (4)

   In those cases, GEN 2.2.27R has the effect that any changes referred to in that rule, which happen between IP completion day25 and when the person enters temporary permission (notwithstanding that they were previously in temporary permission) under the regulation in question, apply to the TP firm. This also applies to a TP firm which enters temporary permission for the first time under regulation 32 of the EU Exit Passport Regulations.

5. (5)

   Where a TP firm enters temporary permission under regulation 32 of the EU Exit Passport Regulations, a rule referred to in GEN 2.2.26R(1) once again applies to that person, together with any changes referred to in paragraph (3). The rules applied by GEN 2.2.26R(2) to such a TP firm apply together with any changes referred to in paragraph (3).