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PERG 14.1 Background

1 Q1. What is the purpose of these questions and answers (“Q&As”) and who should be reading them?

These Q&As are aimed at persons involved in the provision or promotion of financial arrangements involving the acquisition or disposal of land for the purpose of enabling an individual:

  • to purchase a property; or
  • to raise funds from the equity in a property that he already owns,
other than by means of a traditional mortgage.

They are intended to help such persons understand whether they will, as a result of the Regulation of Financial Services (Land Transactions) Act 2005 and secondary legislation made following that Act:

The Q&As complement the general guidance on regulated activities, which is in Chapter 2 of our Perimeter Guidance Manual (PERG 2), the general guidance on regulated mortgage activities in Chapter 4 (PERG 4), the general guidance on financial promotions in Chapter 8 (PERG 8) and the relevant legislation.

The Q&As that follow are set out in sections:

PERG 14.2 General issues

Q2. What is the purpose of the Regulation of Financial Services (Land Transactions) Act 2005?

This Act makes clear that the potential regulatory scope of the Financial Services and Markets Act 2000 enables the FSAto regulate activities that are similar to those that are already regulated when carried on in relation to traditional mortgages but which involve the provider acquiring land rather than simply providing finance for its purchase by the homeowner. This typically includes:

  • schemes (often termed 'equity release schemes') where a provider buys an interest in a homeowner’s property and allows the homeowner to continue to reside in the property (‘home reversion plans’); and
  • certain types of Islamic financing arrangements designed to enable the purchase of a home in a way that is acceptable under Islamic law, such as Ijara or diminishing Musharaka ('home purchase plans').

Q3. I propose to carry on activities in relation to home finance arrangements of the kind mentioned in Q2. In what circumstances will I need to be authorised by the FSA or be an exempt person?

You will need to be an authorised or exempt person if you will:

Q4. How will I know if my proposed home finance activities are regulated?

Regulated activities are specified in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (‘the Regulated Activities Order’). This will be amended, following the enactment of the Regulation of Financial Services (Land Transactions) Act 2005, to extend its scope to cover certain home finance activities. These amendments are made in the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No2) Order 2006 (SI 2006/2383) which comes into effect on 6 April 2007. The new regulated home finance activities are:

But some activities are specifically excluded from regulatory scope.

PERG 14.3 Activities relating to home reversion plans

Q5. What is a home reversion plan?

Broadly speaking, this is an arrangement under which, at the time it is entered into, a person (the ‘reversion purchaser’) buys all or part of an interest in land (other than timeshare accommodation) in the UK from a homeowner (being an individual or a trustee whose beneficiary is an individual) (the ‘reversion occupier’) on the basis that the individual or a related person is entitled under the arrangement, and intends, to use at least 40% of the land as a dwelling until:

  • the end of a fixed period of at least twenty years; or
  • the individual dies; or
  • the individual enters a care home.

It should be noted that an arrangement will be a home reversion plan if the intention is for the land to be used as a dwelling until any one of the above eventualities arises. It is not necessary for the arrangement to provide for all three eventualities, merely one or more of them.

This means that an arrangement is not a home reversion plan if:

  • the occupier is not an individual; or
  • the land is to be used for the purpose of letting as a dwelling to someone other than a related person of the individual (or beneficiary under the trust) who owns it; or
  • the land is used primarily for business purposes; or
  • the land is overseas.

A related person, in relation to an individual, means:

  • that person’s spouse or civil partner; or
  • a person (whether or not of the same sex) whose relationship with that person has the characteristics of a husband and wife relationship; or
  • that person’s:
    • parent or grandparent;
    • child or grandchild; or
    • sibling.

Q6. Will a mortgage-to-rent scheme be a home reversion plan?

No. This is most unlikely as mortgage-to-rent schemes do not usually provide for the homeowner (having sold his property to the scheme provider), or a related person as the case may be, to occupy the property until he dies or enters a care home or for a fixed period of at least twenty years

Q7. Can an arrangement that was established before 6 April 2007 be a home reversion plan?

Yes. An arrangement may still be a home reversion plan even though it was established before 6 April 2007. However, regulated activities carried on in relation to a home reversion plan established before 6 April 2007 will only be subject to regulation:

  • when carried on on or after 6 April 2007; and
  • in certain circumstances (see Q21 for a summary).

Q8. When will I be carrying on the activity of entering into a home reversion plan?

This will occur when you enter into the plan at the outset as the reversion purchaser. It can also occur at a later stage if all or part of the rights or obligations of the reversion purchaser are transferred to you or if you acquire all or part of the interest in land bought by the reversion purchaser (where you become a ‘reversion transferee’). This is so, whether you are acquiring the rights or obligations from the reversion purchaser or from an existing reversion transferee. This includes acquiring the rights or obligations or the interest in land purely as an investment. However, investors will only be regulated if they satisfy the ‘by way of business test’ (see Q38). We refer to reversion purchasers and reversion transferees collectively in this guidance as ‘reversion providers’.

So, if you are a reversion transferee under a plan that was established before 6 April 2007, you will only be subject to regulation for carrying on the regulated activity of entering into the plan if you do so on or after 6 April 2007.

Q9. What exclusions may be available to me if I am entering into home reversion plans?

The main exclusions are those:

Q10. When will I be carrying on the activity of administering a home reversion plan?

This will arise if you carry out any one or more of the following functions for a reversion provider or a reversion occupier in relation to a plan that was originally established on or after 6 April 2007:

  • taking necessary steps to make payments to the reversion occupier; or
  • taking necessary steps to collect or recover payments due from the reversion occupier; or
  • notifying the reversion occupier of changes in payments due under the plan, or of other matters of which the plan requires him to be notified.

One effect of this is that you will not become subject to regulation if you are administering a plan that was originally established before 6 April 2007 and a reversion transferee enters into the plan after that date. See Q21 for more detail about when activities are regulated if a plan was originally established before 6 April 2007.

It is irrelevant, for the purposes of determining if you are administering a home reversion plan, whether or not the plan was entered into by way of business. In this respect, the activity is different to the regulated activities of administering a regulated mortgage contract or administering a home purchase plan.

Q11. What exclusions may be available to me if I am administering home reversion plans?

Specific exclusions may apply if you are not an authorised person and:

  • you arrange for an authorised person with the appropriatePart IV permission to administer the plan - this includes where you administer the plan for a period of up to one month following the termination of such an arrangement; or
  • you administer the plan under an agreement with an authorised person who has Part IV permission to administer such a plan.

The other main exclusions are those:

Q12. When will I be carrying on the activity of arranging home reversion plans?

There are three types of arranging activity that are regulated. These are making arrangements:

  • for another person to enter into a plan as a reversion occupier or as a reversion provider;
  • for another person, being a reversion occupier or a reversion provider, to vary the terms of a plan that was originally established on or after 6 April 2007, in such a way as to vary his obligations under that plan; and
  • with a view to a person who participates in the arrangements entering into a plan as a reversion occupier or as a reversion provider.

But none of these arranging activities will apply to you if they relate to a plan to which, as a result of your arranging activities, you are or will become a party (article 28A of the Regulated Activities Order).

You will only be making arrangements under (1) or (2) if your actions are such as to bring about the entry into the plan or the variation as the case may be (article 26 of the Regulated Activities Order). This means that your involvement must be material to whether the transaction occurs. For example, assisting a person by completing the necessary application forms on their behalf or acting as their agent or attorney in negotiating entry will amount to bringing about the transaction.

Arranging activities under (3) will typically include making regular introductions of homeowners to reversion providers or of reversion transferees to reversion purchasers or vice versa or of any of these to a reversion intermediary.

Q13. I understand that any transaction that I have arranged before 6 April 2007 is not subject to regulation. But am I regulated if I arrange for a reversion transferee to enter into or vary a home reversion plan on or after 6 April 2007?

This depends on the type of arranging you are carrying on. If you are arranging variations, this will only be regulated if the plan was originally established on or after 6 April 2007. But, if you are arranging for a reversion transferee to enter into a plan and the arrangements are being made on or after 6 April 2007, you will be regulated for that arranging activity. See Q21 for more detail about when activities are regulated if a plan was originally established before 6 April 2007.

Q14. Will I be regulated for arranging for a reversion provider to dispose of his rights and obligations or his interest in land under a home reversion plan to a reversion transferee?

It is only arranging for a person to enter into or vary the terms of a plan that is subject to regulation. So, you will not be regulated for providing arranging services to the existing provider who wishes to dispose of his rights, obligations or interests but you are likely to be regulated if you are arranging for the transferee to enter into the plan by acquiring the rights, obligations or interests.

Q15. What exclusions may be available to me if I am arranging home reversion plans?

If you are an unauthorised person the following exclusions may be available to you:

  • where you are arranging for a transaction to be entered into with or through an authorised person (article 29 of the Regulated Activities Order) (see Q16); and
  • where you have arranged for an authorised person to administer the plan or are administering it yourself during the period of one month following the termination of your arrangement with the authorised person (article 29A(2) of the Regulated Activities Order).

Whether or not you are an unauthorised person, the other main exclusions that may apply include:

  • introductions made with a view to the provision of regulated independent advice (article 33 of the Regulated Activities Order) (see Q17);
  • introductions made to a regulated person who carries on home reversion plan activities (article 33A of the Regulated Activities Order) (see Q18);
  • arrangements that are a necessary part of other services provided by a person in the course of carrying on a profession or business other than a regulated activity (article 67 of the Regulated Activities Order); and
  • overseas persons (article 72 of the Regulated Activities Order) (see Q39).

Q16. When will the exclusion in article 29 of the Regulated Activities Order be available to me if I am arranging home reversion plans?

The exclusion will apply to you when, as an unauthorised person, you are arranging any of the following:

  • for a homeowner (your client) to enter into a plan with an authorised reversion provider or through an authorised intermediary;
  • for a reversion provider (your client) to enter into a plan with a homeowner or to transfer rights or obligations or an interest in land to a reversion transferee if either the reversion transferee is an authorised person or the transaction is to be effected through an authorised intermediary; or
  • for a reversion transferee (your client) to acquire rights or obligations from an authorised reversion provider or through an authorised intermediary;
  • for your client to vary the terms of a plan where the reversion provider is an authorised person or the variation is arranged through an authorised intermediary.

This is subject to your meeting certain conditions which are, broadly speaking, that:

  • you must not advise your client on the merits of his entering into the transaction; and
  • you must not be paid by anyone other than your client.

The requirement that you do not receive any payment other than from your client does not prevent you receiving payment from the authorised person but you must then treat the sums paid to you as belonging to your client. There is nothing to prevent you then using the sums to offset payments due to you from your client for services rendered to him. This is provided that you have your client’s agreement to do so.

Q17. When will the exclusion in article 33 of the Regulated Activities Order be available to me if I am arranging home reversion plans?

Broadly speaking, the exclusion will apply where:

Q18. When will the exclusion in article 33A of the Regulated Activities Order be available to me if I am arranging home reversion plans?

Broadly speaking, the exclusion will apply where:

  • your arranging activity is limited to making arrangements with a view to home reversion plans;
  • you make introductions of homeowners or of prospective reversion providers (your client) to an authorised person, an appointed representative or an overseas person;
  • you do not receive any money paid by your client in relation to the transaction other than a sum that is due to you for your own account (for example, your fee for providing the introductory service); and
  • you disclose to your client certain information about your relationship with the person to whom you are effecting introductions and about any reward you may receive for doing so.

Q19. When will I be carrying on the activity of advising on a home reversion plan?

This will arise if:

  • you are giving advice to a person who is or who is contemplating becoming a reversion occupier, a reversion purchaser or a reversion transferee; and
  • the advice relates to the merits of his entering into a home reversion plan in that capacity or varying the terms of a plan that he has already entered into.

Advice on the merits of varying the terms of a plan will only be regulated where the plan was originally established on or after 6 April 2007. However, advice given to a reversion transferee on the merits of his entering into a plan that was originally established before 6 April 2007 will be subject to regulation. See Q21 for more detail about when activities are regulated if a plan was originally established before 6 April 2007.

Advice given to a person on the merits of his transferring rights or obligations or interests in land under a plan to another person is not regulated.

Much of the detailed guidance on advising on regulated mortgage contracts in PERG 4.6 may be applied to the activity of advising on a home reversion plan.

Q20. What exclusions may be available to me if I am advising on home reversion plans?

The main exclusions that are available include:

Detailed guidance on the exclusion in article 54 is in PERG 7.

Q21. I can see that the fact that the home reversion plan was originally established before 6 April 2007 can affect whether the services that I provide to parties to the plan after that date are regulated. Can you summarise the position in this respect please?

Yes. This all depends on the combination of the date of entry or variation and the capacity in which your customer enters or entered into the plan. The following table clarifies when your services will be regulated activities and when they will not.

Potential home reversion plan activity

Whether the activity is regulated if undertaken on or after 6 April 2007 when the plan was originally established before 6 April 2007

Entering into a plan as reversion purchaser (see Q8)

N/A - this activity will only take place when the plan is first established

Entering into a plan as reversion transferee (see Q8)

Yes

Administering a plan (see Q10)

No

Arranging (see Q12) for a person to enter into a plan as:

(a) a reversion purchaser or a reversion occupier

N/A - this activity will only take place when the plan is first established

(b) a reversion transferee

Yes

Arranging variations (see Q12) of a plan

No

Advising (see Q19) a person on entering into a plan in his capacity as:

(a) a reversion purchaser or a reversion occupier

N/A - this activity will only take place when the plan is first established

(b) a reversion transferee

Yes

Advising (see Q19) a person on varying the terms of a plan

No

Q22. Will changes involving the circumstances of the reversion occupier that may take place after the plan has been entered into (such as moving house, marriage or change of occupants) have any implications in terms of regulated activity?

This depends on the facts and is a question of degree that requires an assessment against the criteria that make up the definition of a home reversion plan. There are two main issues that would need to be considered. These are:

  • is the change likely to cause a new plan to be entered into on or after 6 April 2007; and
  • does the change involve a variation of the terms of the plan (if it was originally entered into on or after 6 April 2007) such as to vary the obligations of the provider or the occupier?

Broadly speaking, it would seem likely that, if the occupier were to move house, there would be a need for the existing plan to be terminated and a new plan to be entered into. Where this happens on or after 6 April 2007, the person who enters into the new plan as provider and anyone arranging or advising on the new plan will potentially need to be authorised or exempt. Changes such as may occur due to marriage or change of occupants, change of other relevant details or drawdown of funds under a staggered payment arrangement may necessitate a new plan or may involve a variation in the existing plan depending on the extent to which they alter the obligations of the provider or the occupier. Where such changes do involve a variation, anyone arranging or advising on the variation would potentially need to be authorised or exempt. But this applies only where the plan was originally entered into on or after 6 April 2007.

PERG 14.4 Activities relating to home purchase plans

Q23. What is a home purchase plan?

Broadly speaking, a home purchase plan is an arrangement under which, at the time it is entered into:

  • a person (the ‘home purchase provider’) buys a qualifying interest, or an undivided share of a qualifying interest, in land (other than timeshare accommodation) in the United Kingdom;
  • an individual or a trustee whose beneficiary is an individual (the ‘home purchaser’) is obliged to buy that interest over the course of or at the end of a specified period; and
  • the individual or a related person is entitled to use at least 40% of the land as a dwelling during that fixed period and intends to do so.

Where an undivided share of a qualifying interest is bought, the interest must be held on trust for the home purchase provider and the individual or trustee as beneficial tenants in common.

This means that an arrangement is not a home purchase plan if:

  • the home purchaser is not an individual or trustees;
  • the land is used for the purpose of letting as a dwelling to someone other than a related person of the individual who is obliged to buy it;
  • the land is used primarily for business purposes; or
  • the land is overseas.

A related person, in relation to an individual, means:

  • that person’s spouse or civil partner; or
  • a person (whether or not of the same sex) whose relationship with that person has the characteristics of a husband and wife relationship; or
  • that person’s:
    • parent or grandparent;
    • child or grandchild; or
    • sibling.

Q24. Are home purchase plans limited to arrangements designed to comply with Islamic principles?

There is nothing in the definition of a home purchase plan to suggest that this is the case. However, it is clear from the comments made by HM Treasury in relation to the introduction of the Regulation of Financial Services (Land Transactions) Act 2005 that the definition is primarily directed at arrangements of this kind.

Q25. Will all Islamic home financing arrangements be home purchase plans?

No. Murabaha arrangements involve the homeowner buying the property from the provider on deferred payment terms. These types of arrangement will be regulated mortgage contracts assuming that they meet the necessary conditions including that there is a first legal charge over the property (see PERG 4).

Ijara arrangements (where the provider buys the land and allows the customer to occupy it whilst also making regular payments towards eventually buying the land) and diminishing Musharaka arrangements (where the provider and the customer share an interest in the land and the customer gradually acquires a greater interest in the land over a period of time) will be home purchase plans provided they meet the necessary conditions (see Q23).

A home purchase plan may also satisfy the requirements for a regulated mortgage contract. Where this arises, the plan is treated as a home purchase plan and not a regulated mortgage contract.

Q26. When will I be carrying on the activity of entering into a home purchase plan?

You will carry on this activity by entering into a home purchase plan as the home purchase provider. Unlike a reversion transferee under a home reversion plan, you will not be carrying on a regulated activity purely as a result of acquiring rights, obligations or interests in land from the provider.

Q27. What exclusions may be available to me if I am entering into home purchase plans as a provider?

The main exclusions are:

Q28. When will I be carrying on the activity of administering a home purchase plan?

This will arise if you carry out either or both of the following functions in relation to a plan that was entered into by the home purchase provider by way of business on or after 6 April 2007:

  • notifying the home purchaser of changes in payments due under the plan, or of other matters of which the plan requires him to be notified; and
  • taking any necessary steps for the purposes of collecting or recovering payments due under the plan from the home purchaser.

But you will not be treated as administering a home purchase plan merely because you have, or you exercise, a right to take action for the purposes of enforcing the plan (or to require that such action is or is not taken).

Q29. I propose to administer home purchase plans. How will I know if the plan I propose to administer has been entered into by way of business?

In most cases, this will be obvious because the provider will be a body corporate whose business involves being a provider under such plans and, in the majority of cases, should be an authorised person. We understand that this is the usual situation with Islamic home financing arrangements. However, if the plan were to have been entered into by an investor, the factors set out in Q38 will need to be considered to determine whether it was entered into by way of business. A typical example of a plan not entered into by way of business would be where the provider is a friend or relative who does not seek to profit from acting as the provider. Another example might be a plan entered into by a charitable organisation that occasionally purchases interests in land with sums derived from charitable donations and that does so on non-commercial terms.

Q30. What exclusions may be available to me if I am administering home purchase plans?

Specific exclusions may apply if you are not an authorised person and:

  • you arrange for an authorised person with the appropriatePart IV permission to administer the plan - this includes where you administer the plan for a period of up to one month following the termination of such an arrangement; or
  • you administer the plan under an agreement with an authorised person who has Part IVpermission to administer such a plan.

The other main exclusions are those:

Q31. When will I be carrying on the activity of arranging home purchase plans?

There are three types of arranging activity that are regulated. These are making arrangements:

  • for another person to enter into a plan as a home purchaser;
  • for another person being a home purchaser to vary the terms of a plan entered into by him on or after 6 April 2007, in such a way as to vary his obligations under that plan; and
  • with a view to a person who participates in the arrangements entering into a plan as a home purchaser.

But none of these arranging activities will apply to you if they relate to a plan to which you are or will, as a result of your arranging activities, become a party (article 28A of the Regulated Activities Order).

You will only be making arrangements under (1) or (2) if your actions are such as to bring about the entry into the plan or the variation as the case may be (article 26 of the Regulated Activities Order). This means that your involvement must be material to whether the transaction occurs. For example, assisting a home purchaser by completing the necessary application forms on their behalf or acting as their agent or attorney in negotiating entry will amount to bringing about the transaction.

Arranging activities under (3) will typically include making regular introductions of prospective home purchasers to a provider or intermediary.

Unlike home reversion plans, arranging for a person to enter into, or vary, a plan as a provider is not, itself, a regulated activity.

Q32. What exclusions may be available to me if I am arranging home purchase plans?

If you are an unauthorised person the following exclusions may be available to you:

  • where you are arranging for a transaction to be entered into with or through an authorised person (article 29 of the Regulated Activities Order) (see Q33);
  • where you have arranged for an authorised person to administer the plan or are administering it yourself during the period of one month following the termination of your arrangement with the authorised person (article 29A(3) of the Regulated Activities Order).

Whether or not you are an unauthorised person, the other main exclusions that may apply include:

  • introductions made with a view to the provision of regulated independent advice (article 33 of the Regulated Activities Order) (see Q17 which applies equally to home purchase plans);
  • introductions made to a regulated person who carries on home reversion plan activities (article 33A of the Regulated Activities Order) (see Q34);
  • arrangements that are a necessary part of other services provided by a person in the course of carrying on a profession or business other than a regulated activity (article 67 of the Regulated Activities Order); and
  • overseas persons (article 72 of the Regulated Activities Order) (see Q39).

Q33. When will the exclusion in article 29 of the Regulated Activities Order be available to me if I am arranging home purchase plans?

The exclusion will apply to you when, as an unauthorised person, you are arranging for a prospective home purchaser (your client) to enter into a plan with an authorised home purchase provider or through an authorised intermediary;

This is subject to your meeting certain conditions which are, broadly speaking, that:

  • you must not advise your client on the merits of his entering into the transaction; and

The requirement that you do not receive any payment other than from your client does not prevent you receiving payment from the authorised person but you must then treat the sums paid to you as belonging to your client. There is nothing to prevent you then using the sums to offset payments due to you from your client for services rendered to him. This is provided that you have your client’s agreement to do so.

Q34. When will the exclusion in article 33A of the Regulated Activities Order be available to me if I am arranging home purchase plans?

Broadly speaking, the exclusion will apply where:

  • the arranging activity you carry on is limited to making arrangements with a view to home purchase plans;
  • you make introductions of prospective home purchasers (your client) to an authorised person, an appointed representative or an overseas person;
  • you do not receive any money paid by your client in relation to the transaction other than a sum that is due to you for your own account (for example, your fee for providing the introductory service); and
  • you disclose to your client certain information about your relationship with the person to whom you are effecting introductions and about any reward you may receive for doing so.

Q35. When will I be carrying on the activity of advising on home purchase plans?

This will arise if you are:

  • giving advice to a person who is or who is contemplating becoming a home purchaser; and
  • the advice relates to the merits of his entering into a home purchase plan in that capacity or varying the terms of a plan that he has already entered into.

Advice on the merits of varying the terms of a plan is only regulated when the plan was entered into on or after 6 April 2007.

This differs from the position in relation to home reversion plans where advice given to the provider is also regulated.

Much of the detailed guidance on advising on regulated mortgage contracts in PERG 4.6 may be applied to the activity of advising on a home purchase plan.

Q36. What exclusions may be available to me if I am advising on home purchase plans?

The main exclusions that are available include:

Detailed guidance on the exclusion in article 54 is in PERG 7.

Q37. Will changes involving the circumstances of the home purchaser that may take place after the plan has been entered into (such as moving house, marriage or change of occupants) have any implications in terms of regulated activity?

This depends on the facts and is a question of degree that requires an assessment against the criteria that make up the definition of a home purchase plan. There are two main issues that would need to be considered. These are:

  • is the change likely to cause a new plan to be entered into on or after 6 April 2007? and
  • does the change involve a variation of the terms of the plan (if it was originally entered into on or after 6 April 2007) such as to vary the obligations of the home purchaser?

Broadly speaking, it would seem likely that, if the home purchaser were to move house, there would be a need for the existing plan to be terminated and a new plan to be entered into. Where this happens on or after 6 April 2007, the person who enters into the new plan as provider and anyone arranging, or advising the home purchaser on, the new plan will potentially need to be authorised or exempt. Changes such as may occur due to marriage or change of occupants or of other relevant details may necessitate a new plan. Alternatively, they may involve a variation in the existing plan, depending on the extent to which they alter the obligations of the home purchaser. Where such changes do involve a variation, anyone advising the home purchaser on, or arranging, the variation would potentially need to be authorised or exempt. But this applies only where the plan was originally entered into on or after 6 April 2007.

PERG 14.5 The ‘by-way-of-business’ test

Q38. How do I know if I am carrying on regulated activities by way of business?

Whether or not any particular person will meet the requirement that he carries on a regulated activity by way of business and so needs authorisation or exemption will invariably depend on that person’s individual circumstances. A number of factors need to be taken into account in determining whether the test is met. These include:

  • the degree of continuity;
  • the existence of a commercial element;
  • the scale of the activity;
  • the proportion which the activity bears to other activities carried on by the same person but which are not regulated; and
  • the nature of the particular regulated activity that is carried on.

Corporate plan providers and those who provide professional services to them or to home occupiers are likely to be carrying on their activities by way of business. Unpaid individuals who act as trustees for home occupiers are not likely to be.

With home reversion plans, it is quite possible that the reversion provider may be an individual who is acting purely in the capacity of investor. Such a person may not be acting by way of business when the criteria listed above are applied to his particular circumstances.

PERG 14.6 Carrying on a regulated activity in the United Kingdom

Q39. Does a person who acts as provider, administrator, arranger or adviser in relation to home reversion plans or home purchase plans from overseas and without maintaining an office in the UK need to be an authorised or exempt person?

The position on territorial application is complex. Detailed guidance on this aspect is provided in relation to regulated mortgage activities in PERG 4.11 and that guidance may generally be applied to home finance activities.

But, briefly, there are two issues to be considered by such a person:

Whether you are carrying on the activity in the UK depends on a combination of factors. In very broad terms, however, as an overseas person, you are more likely than not to be carrying on a home finance activity in the UK if the home occupier or reversion provideris normally resident in the UK at the time that he enters into the plan. The table that follows applies this broad principle to the various permutations taking account of the conditions applying to the exclusions for home finance activities under article 72.

Table indicating whether authorisation or exemption is likely to be needed by a person who is carrying on home finance activities from overseas.

Activity carried on by overseas person

Where the reversion occupier or home purchaser is or was normally resident in the UK at the time he enters or entered into the plan

Where the reversion occupier or home purchaser is or was not normally resident in the UK at the time he enters or entered into the plan

Home reversion plan

Home purchase plan

Home reversion plan

Home purchase plan

Entering into or administering.

Yes

Yes

No

No

Arranging for persons to enter into plans.

Yes

Yes

No, provided the reversion purchaser or the reversion transferee, as the case may be, is or was also not normally resident in the UK.

No

Arranging variations.

Yes

Yes

No

No

Advising.

Yes

Yes

No, unless the reversion occupier, reversion provider or reversion transferee is located in the UK at the time the advice is given to him.

No, unless the home purchaser is located in the UK at the time the advice is given.

PERG 14.7 Exemptions

Q40. Am I an exempt person in relation to home finance activities?

Yes, if you are:

Q41. What home finance activities can I carry on as an appointed representative?

You will be able to carry on any of the following regulated activities:

You will not be able to carry on any of the following regulated activities:

Q42. I am an exempt professional firm. Will I be able to carry on any of the regulated activities relating to home reversion plans and home purchase plans without needing FSA authorisation?

This depends on the activity in question. Subject to your being able to satisfy the general requirements of Part XX of the Financial Services and Markets Act 2000 you will be able:

PERG 14.8 Financial promotions

Q43. Are there any restrictions if I wish to promote my home finance activities?

Yes. The restriction in section 21 of the Financial Services and Markets Act 2000 will apply, broadly speaking, to any communication which:

  • is made in the course of business; and
  • invites or induces persons to:

Communications of this kind are termed financial promotions.

Promotions of home finance administration services or promotions intended to dissuade persons from entering into or varying the terms of regulated plans will not be financial promotions and so no restriction will apply to them.

The following table summarises when the restriction will apply.

Table indicating when the financial promotion restriction will apply to communications about home finance plans.

A communication inviting or inducing...

To...

Will be a financial promotion?

...potential reversion occupiers or home purchasers

...enter into a home reversion plan or a home purchase plan

Yes

...potential home reversion purchasers or transferees

...enter into a home reversion plan

Yes (in the case of transferees, regardless of whether the plan was originally established before 6 April 2007)

...potential home purchase providers

...enter into a home purchase plan

No

...potential or existing:

  • reversion occupiers or home purchasers; or
  • reversion or home purchase providers

...be provided with administration services

No

...potential or existing:

  • reversion occupiers or home purchasers; or
  • reversion purchasers or transferees

...be provided with arranging or advisory services

Yes (but where the promotion relates to such a person varying the terms of a plan, this is only where the plan was originally established on or after 6 April 2007)

...potential or existing home purchase providers

...be provided with arranging or advisory services

No

...potential or existing:

  • reversion occupiers or home purchasers; or
  • reversion or home purchase providers

...decline from entering into or varying the terms of a plan

No

...potential or existing:

  • reversion occupiers or home purchasers; or
  • reversion or home purchase providers

...dispose of rights, obligations or interests in land that they have under a plan

No

Q44. What are the restrictions that apply if I am making a financial promotion about home finance plans or activities?

The financial promotion will need either to be communicated or approved by an authorised person or to be exempt under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Financial Promotion Order).

If you are an authorised person who is communicating or approving the financial promotion and it is not exempt you will need to comply with the provisions of the Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB 3 for financial promotions of home reversion plans and MCOB 2.2.6A R for financial promotions of home purchase plans).

Q45. What exemptions may be likely to be available to me when I communicate financial promotions about home finance plans or activities?

A number of exemptions may be available. Those most likely to apply are summarised below.

  • Introductions (article 15 of the Financial Promotion Order). This applies, broadly speaking, where you introduce clients to an authorised person or an exempt person in the circumstances covered by the exclusion in article 29 of the Regulated Activities Order (see Q17). But this is provided the person to whom you make the introduction is not your close relative or a member of your group. In addition, there is an exemption for promotions concerning introductions relating specifically to home finance plans - see (5).
  • Exempt persons (article 16 of the Financial Promotion Order). This applies, subject to certain conditions, if you are an exempt person such as a local authority, a registered social landlord or an appointed representative.
  • Generic promotions (article 17 of the Financial Promotion Order). This applies to a general promotion that does not identify any particular persons as being either providers of, or as offering arranging or advisory services relating to, home finance plans.
  • One-off promotions (articles 28 and 28A of the Financial Promotion Order). These apply to promotions that are intended for a particular recipient (or group of connected recipients).
  • Introductions relating to home finance plans (article 28B of the Financial Promotion Order). This applies to real time financial promotions relating to home finance plans for the purpose of making introductions. This exemption is subject to the same conditions as apply to the exclusion in article 33A of the Regulated Activities Order (see Q18 and Q34); and
  • Advice centres (article 73 of the Financial Promotion Order). This applies to bodies such as citizens’ advice bureaux when they make promotions about home finance plans in the course of their business of providing free advice about debt matters.

Further guidance on these and other exemptions from the financial promotion restriction is in Chapter 8 of PERG (PERG 8).

PERG 14.9 Transitional provisions

Q46. I will need to obtain authorisation to carry on home finance activities. What will happen to me if I do not obtain authorisation by 6 April 2007?

Transitional arrangements have been put in place. The broad effect of these arrangements is that you will be able to benefit from interim authorisation as respects any of the new regulated activities that relate to home reversion plans or home purchase plans pending the final determination of your application. This is provided:

  • you were carrying on the regulated activities, for which you are seeking authorisation, before 6 November 2006; and
  • your application for authorisation was received by the FSA on or before 23 March 2007.

An interim authorisation granted under these transitional arrangements will lapse:

  • in the case of the regulated activities involving providing or administering home reversion or home purchase plans, when the application has been finally determined; and
  • in the case of the regulated activities involving arranging or advising on home reversion or home purchase plans, on the earlier of the date on which the application is finally determined or 6 April 2008.

Q47. I am already an authorised person. Will I need to extend the scope of my existing permission?

Yes, you will need to apply for a variation of permission in the normal way if you wish to carry on any of the new regulated activities. As with applications for authorisation (see Q46), you will benefit from interim permission if your application is not finally determined by 6 April 2007 provided:

  • you were carrying on the regulated activities, for which you are seeking to vary your permission, on or before 6 November 2006; and
  • your application to vary your permission was received by the FSA on or before 23 March 2007.

Your interim permission will lapse in the same circumstances as an application for authorisation (see Q46).

Q48. Can I avoid the need to be authorised by becoming an appointed representative of an authorised person?

You cannot be an appointed representative for the purpose of providing or administering home reversion or home purchase plans. But you can be an appointed representative for advising on or arranging such plans.

If you are an appointed representative prior to 6 April 2007 and you intend to carry on any of the new regulated activities, you will need to consider whether your existing agreement with your principal will cover those activities that an appointed representative is permitted to undertake or whether it will need to be amended to do so.

You may currently be an appointed representative of a life office for the purpose of advising on or arranging deals in its investment products and also undertake unregulated activities in relation to home reversion or home purchase plans offered by third parties. If those unregulated activities include activities that will become regulated from 6 April 2007, you will need either to become the appointed representative of another appropriately authorised firm or to seek authorisation yourself. This is because an appointed representative of a life office can only undertake regulated activities that arise directly from the life office’s insurance business.

Remember also that a person cannot generally be authorised and exempt as an appointed representative at the same time. However, this rule is waived if you obtain interim authorisation to carry on the new regulated activities and wish, pending determination of your application for authorisation, to continue to conduct existing regulated activities as an appointed representative.