The purpose of this chapter is to provide guidance:
to unauthorised persons who wish to find out whether they need to be authorised and, if so, what regulated activities their permission needs to include; and
to authorised persons who may have questions about the scope of their existing permission.
Under section 23 of the Act (Contravention of the general prohibition), a person commits a criminal offence if he carries on activities in breach of the general prohibition in section 19 of the Act (The general prohibition) .. Although a person who commits the criminal offence is subject to a maximum of two years imprisonment and an unlimited fine, it is a defence for a person to show that he took all reasonable precautions and exercised all due diligence to avoid committing the offence.
2Another consequence of a breach of the general prohibition is that certain agreements could be unenforceable (see sections 26 to 29 of the Act). This applies to agreements entered into by persons who are in breach of the general prohibition. It also applies to any agreement entered into by an authorised person if the agreement is made as a result of the activities of a person who is in breach of the general prohibition.
Any person who is concerned that his proposed 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 decision tree in PERG 2 Annex 1 G):
Will I be carrying on my activities by way of business (see PERG 2.3)?
Will I be managing the assets of an occupational pension scheme (see PERG 2.3.2G (3))?
If the answer is 'Yes' to (1) or (2), will my activities involvespecified investments in any way (see PERG 2.6)?
If so, will my activities be, or include, regulated activities (see PERG 2.7)?
If so, will I be carrying them on in the United Kingdom (see PERG 2.4)?
If so, will my activities be excluded (see PERG 2.8 and PERG 2.9)?
If not, will I be exempt (see PERG 2.10.5 G to PERG 2.10.8 G)?
If not, am I allowed to carry on regulated activities without authorisation (see PERG 2.10.9 G to PERG 2.10.16 G)?
If not, do I benefit from the few provisions of the Act that authorise me without a permission under Part IV of the Act (seePERG 2.9.10 G (Members of Lloyds)2)?
2If not, what is the scope of the Part IV permission that I need to seek from the FSA (see PERG 2 Annex 2 G)?
2The rest of this chapter provides a high level guide through the questions set out in PERG 2.2.3 G. It aims to give an overall picture but in doing so it necessarily relies on the reader referring to UK1 statutory provisions and European legislation1 to fill in the detail (which can be extensive).
The process of applying for Part IV permission is available on the FSA website How do I get authorised: http://www.fsa.gov.uk/Pages/Doing/how/index.shtml2. But a list of the activities for which permission may be given is annexed to this chapter (see PERG 2 Annex 2 G). You may find this helpful in providing an overview of the activities that are regulated. The list is included here because, with some exceptions, the investments and activities for which permission may be given are the same as the investments and activities specified in the Regulated Activities Order. This creates a few additional categories for which permission must be sought.
2Under section 22 of the Act (Regulated activities), for an activity to be a regulated activity it must be carried on 'by way of business'.
There is power in the Act for the Treasury to change the meaning of the business element by including or excluding certain things. They have exercised this power (see the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 (SI 2001/1177), the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2003 (SI 2003/1476) and the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2005 (SI 2005/922) . The result is that the business element differs depending on the activity in question. This in part reflects certain differences in the nature of the activities:
The activity of accepting deposits will not be regarded as carried on by way of business by a person if he does not hold himself out as accepting deposits on a day-to-day basis and if the deposits he accepts are accepted only on particular occasions. In determining whether deposits are accepted only on particular occasions, the frequency of the occasions and any distinguishing characteristics must be taken into account.
Except as stated in PERG 2.3.2G (2A) and PERG 2.3.2G (3), the business element is not to be regarded as satisfied for any of the regulated activities carried on in relation to securities or contractually based investments (or for those regulated activities carried on in relation to 'any property') unless a person carries on the business of engaging in one or more of the activities. This also applies to the regulated activities of advising on a home finance transaction and arranging a home finance transaction1. This is a narrower test than that of carrying on regulated activities by way of business (as required by section 22 of the Act), as it requires the regulated activities to represent the carrying on of a business in their own right.
1A person who carries on an insurance mediation activity will not be regarded as doing so by way of business unless he takes up or pursues that activity for remuneration. PERG 2.3.3 G gives guidance on the factors that are relevant to the meaning of 'by way of business' in section 22 of the Act. PERG 5.4 (The business test) gives further guidance on the business element as applied to insurance mediation activities.
A person managing assets on a discretionary basis while acting as trustee of an occupational pension scheme may in certain circumstances be regarded as acting by way of business even if he would not, in the ordinary meaning of the phrase, be regarded as doing so. The Financial Services and Markets Act (Carrying on Regulated Activities by Way of Business) Order 2001 (as amended) contains some exceptions from this (see article 4).
The business element for all other regulated activities is that the activities are carried on by way of business. This applies to the activities of effecting or carrying out contracts of insurance, certain activities relating to the Lloyd's market, entering as provider into a funeral plan contract and entering into a home finance transaction or administering a home finance transaction1.
1Whether or not an activity is carried on by way of business is ultimately a question of judgement that takes account of several factors (none of which is likely to be conclusive). These include the degree of continuity, the existence of a commercial element, the scale of the activity and the proportion which the activity bears to other activities carried on by the same person but which are not regulated. The nature of the particular regulated activity that is carried on will also be relevant to the factual analysis.
Section 19 of the Act (The general prohibition) provides that the requirement to be authorised under the Act only applies in relation to activities that 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 client is outside the United Kingdom or because some other element of the activity happens outside the United Kingdom, the question may arise as to where the activity is carried on.
Even with a cross-border element a person may still be carrying on an activity 'in the United Kingdom'. For example, a person who is situated in the United Kingdom and who is safeguarding and administering investments will be carrying on activities in the United Kingdom even though his client may be overseas.
Section 418 of the Act (Carrying on regulated activities in the United Kingdom) takes this one step further. It extends the meaning that 'in the United Kingdom' would ordinarily have by setting out five additional cases. The Act states that, in these five cases, a person who is carrying on a regulated activity but who would not otherwise be regarded as carrying on the activity in the United Kingdom is, for the purposes of the Act, to be regarded as carrying on the activity in the United Kingdom.
The first case is where a UK-based person carries on a regulated activity in another EEA State in exercise of rights under a Single Market Directive.
The second case consists of the marketing in another EEA State of a UK-based collective investment scheme by the scheme'smanager where the scheme in question is one to which the UCITS Directive applies.
The third case is where a regulated activity is carried on by a UK-based person and the day-to-day management of the activity is the responsibility of an establishment in the United Kingdom.
The fourth case is 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 in the United Kingdom. This might occur when each of the stages that make up a regulated activity (such as managing investments) takes place in different countries. For example, a person's management is in country A, the assets are held by a nominee in country B, all transactions take place in country B or country C but all decisions about what to do with the investments are taken from an office in the United Kingdom. Given that the investments are held, and all dealings in them take place, outside the United Kingdom there may otherwise be a question as to where the regulated activity of managing investments is taking place. For the purposes of the Act, it is carried on in the United Kingdom.
The fifth case, inserted by the ECD Regulations is, in effect, where an electronic commerce activity is carried on, from an establishment in the United Kingdom, in another EEA State.
1A person who is based outside the United Kingdom but who sets up an establishment in the United Kingdom must therefore consider the following matters. First, he must not, unless he is authorised, carry on regulated activities in the United Kingdom. Second, unless he is authorised, the day-to-day management of the carrying on of the regulated activity must not be the responsibility of the UK establishment. This may, for example, affect those UK establishments that in the context of deposit-taking activities were, before the commencement of the Act, treated as representative offices of overseas institutions. Such institutions will need to seek authorisation if the responsibility for the day-to-day management of the accepting of deposits by them outside the United Kingdom is nevertheless effectively that of their UK establishment. Third, such a person will need to ensure that he does not contravene other provisions of the Act that apply to persons who are not authorised. These include the controls on financial promotion (section 21 of the Act (Financial promotion)), and on giving the impression that a person is authorised (section 24).
A person based outside the United Kingdom may also be carrying on activities in the United Kingdom even if he does not have a place of business maintained by him in the United Kingdom (for example, by means of the internet or other telecommunications system or by occasional visits). In that case, it will be relevant to consider whether what he is doing satisfies the business test as it applies in relation to the activities in question. In addition, he may be able to rely on the exclusions from certain regulated activities that apply in relation to overseas persons (see PERG 2.9.15 G).
Electronic commerce activities, other than insurance business falling within the scope of theInsurance Directives, provided by an incoming ECA provider will not be regulated activities (see PERG 2.9.18G (2)).
In addition to the requirements as to the business test and the link to the United Kingdom, two other essential elements must be present before a person needs authorisation under the Act. The first is that the investments must come within the scope of the system of regulation under the Act (see PERG 2.6). The second is that the activities, carried on in relation to those specified investments, are regulated under the Act (see PERG 2.7). Both investments and activities are defined in the Regulated Activities Order made by the Treasury under section 22 of the Act.
The Regulated Activities Order contains exclusions. Exclusions may exist in relation to both the element of investment and the element of activity. Each should therefore be checked carefully. The exclusions that relate to specified investments are considered in PERG 2.6, together with the outline of the specified investments. The exclusions that relate to activities are considered separately from the outline of activities (see PERG 2.8 and PERG 2.9).
The application of certain of the exclusions considered in PERG 2.8 (Exclusions applicable to certain regulated activities) and PERG 2.9 (Regulated activities: exclusions applicable to certain circumstances) is modified in relation to persons who are subject to MiFID2 or the Insurance Mediation Directive. The reasons for this and the consequences of it are explained in PERG 2.5.4 G as respects MiFID2, and PERG 5 (Insurance mediation activities), as respects the Insurance Mediation Directive.
2 2It remains the Government's responsibility to ensure the proper implementation of MiFID2. Certain2persons subject to the requirements of MiFID2 must be brought within the scope of regulation under the Act. A core element of MiFID is the concept of investment firm.2 An investment firm is any person whose regular occupation or2 business is2 the provision of one or more2investment services to third parties or the performance of one or more investment activities on a professional basis.2 An investment firm is not subject to MiFID requirements if it falls within one or more of the exemptions in article 2 MiFID. Further information about these exemptions is contained in PERG 13.5. To the extent that an investment firm falls within one of these exemptions, it will not be a MiFID investment firm. Where a firm is not a MiFID investment firm because one or more of the exemptions in article 2 apply, it may still be carrying on regulated activities and therefore require authorisation unless it is an exempt person.2
2 2 2 2 2 2 2 22The UK has exercised the optional exemption in article 3 of MiFID. Further information about this exemption is contained in Q48 to 53 in PERG 13.5. It is a requirement of article 3 MiFID that the activities of firms relying on the exemption are "regulated at national level". The investment services to which article 3 apply (namely reception and transmission of orders and investment advice in relation to either transferable securities or units in collective investment undertakings) correspond to regulated activities (see PERG 13 Annex 2 Tables 1 and 2).
For persons who are MiFID2investment firms, the activities that must be caught by the Regulated Activities Order are those that are caught by MiFID2. To achieve this result, some of the exclusions in the Order (that will apply to persons who are not caught by MiFID2) have been made unavailable to MiFID2investment firms when they provide or perform investment services and activities. A "MiFID investment firm", for these purposes, includes credit institutions to which MiFID applies (see PERG 13, Q5 and 9) and UCITS investment firms providing the services of portfolio management and personal recommendations in relation to financial instruments or the ancillary service of safekeeping and administration in relation to unitsof collective investment undertakings. The same exclusions are also unavailable to third country investment firms when they provide investment services and activities2. Article 4(4) of the Regulated Activities Order (Specified activities: general) lists a number of exclusions that must be disregarded. These relate to the exclusions concerned with:
2 2the absence of holding out (see PERG 2.8.4G (1));
transactions or arrangements with or through certain persons (see PERG 2.8.4G (2), PERG 2.8.5G (1) and PERG 2.8.6G (4));
risk management (see PERG 2.8.4G (5) and PERG 2.8.5G (2));
persons acting under powers of attorney (see PERG 2.8.7 G);
2professions or businesses not involving regulated activities (see PERG 2.9.5 G);
sale of goods (see PERG 2.9.7 G);
groups and joint enterprises (see PERG 2.9.9 G);
1sale of a body corporate (see PERG 2.9.11 G); and1
1business angel-led enterprise capital funds (see PERG 2.9.20 G to PERG 2.9.22 G).
The Insurance Mediation Directive has in part been implemented through various amendments to the Regulated Activities Order. These include article 4(4A) (Specified activities: general) which precludes a person who, for remuneration, takes up or pursues insurance mediation or reinsurance mediation in relation to a risk or commitment situated in an EEA State from making use of certain exclusions. In other cases, some of the exclusions provided in relation to particular regulated activities are unavailable where the activity involves a contract of insurance. This is explained in more detail in PERG 5 (Insurance mediation activities).
The following paragraphs describe the various specified investments, taking due account of any exclusion that applies.
A deposit is defined in article 5(2) of the Regulated Activities Order. This focuses on a sum of money paid by one person to another on terms that it will be repaid when a specified event occurs (for example, a demand is made).
Certain transactions are excluded. The definition of deposit itself excludes money paid in connection with certain transactions such as advance payments for the provision of goods or services and sums paid to secure the performance of a contract. The circumstances in which payments are excluded from the definition itself are exhaustively stated in article 5(3) of the Regulated Activities Order (Accepting deposits). In addition, there is a separate exclusion in article 9 of the Order (Sums received in consideration for the issue of debt securities) and another in article 9A (Sums received in exchange for electronic money). PERG 3.2.15 G to PERG 3.2.19 G contain guidance on the exclusion relating to electronic money.
In addition, several separate exclusions focus on the identity of the person paying the money or the person receiving it (or both).
Payments by certain persons are excluded if they are made by specified persons (such as local authorities or national, or supranational, bodies) or by persons acting in the course of a business consisting wholly or partly of lending money.
Exclusions apply for sums paid between certain persons who are linked in a specified way (such as group companies or close relatives).
Exclusions apply to sums received by persons acting for specified purposes. This covers sums received by a practising solicitor acting in the course of his profession or by authorised or exempt persons carrying on one of a specified range of regulated activities and acting within the scope of their permission or exemption.
Electronic money is specified as an investment in article 74A of the Regulated Activities Order (as amended by the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2002 (SI 2002/682)). It is defined, in article 2 of that Order, as monetary value, as represented by a claim on the issuer, which is stored on an electronic device, issued on receipt of funds and accepted as a means of payment by persons other than the issuer. Further guidance is given in PERG 3 (Guidance on the scope of the regulated activity of issuing e-money).
Contract of insurance is defined to include certain things that might not be considered a contract of insurance at common law. Examples of such additions include capital redemption contracts or contracts to pay annuities on human life. Detailed guidance on identifying a contract of insurance is in PERG 6 (Guidance on the Identification of Contracts of Insurance).
There are two main sorts of contracts of insurance. These are general insurance contracts and long-term insurance contracts. The Regulated Activities Order provides that, in certain specified circumstances, a contract is to be treated as a long-term insurance contract notwithstanding that it contains supplementary provisions that might also be regarded as relating to a general insurance contract (see article 3(3)).
The Regulated Activities Order uses two further terms in relation to contracts of insurance to identify those contracts under which rights are treated as contractually based investments.
The first term is 'qualifying contracts of insurance' (referred to as life policies in the Handbook). This identifies those long-term insurance contracts under which rights are treated as contractually based investments. This term does not cover long-term insurance contracts which are contracts of reinsurance or, if specified conditions are met, contracts under which benefits are payable only on death or incapacity.
The second term is 'relevant investments'. This term applies to:
contractually based investments, which includes rights under life policies, and rights to or interests in such investments under article 89 of the Regulated Activities Order (Rights to or interests in investments); and
rights under contracts of insurance other than life policies (but not rights to or interests in such rights).
This term is used in connection with the treatment, under various parts of the Regulated Activities Order, of persons carrying on insurance mediation activities (see PERG 5 (Insurance mediation activities) for further guidance on such activities).
Certain arrangements in relation to funeral plans are specifically excluded from being contracts of insurance if they would otherwise be so. The exclusion applies to arrangements that fall within the definition of a funeral plan contract (see PERG 2.6.26 G) as well as arrangements that are excluded from the regulated activity of entering as provider into funeral plan contracts (see PERG 2.8.14 G).
Shares are defined in the Regulated Activities Order as shares or stock in a wide range of entities; that is, any body corporate wherever incorporated and unincorporated bodies formed under the law of a country other than the United Kingdom. They include deferred shares issued by building societies as well as transferable shares in industrial and provident societies, credit unions and equivalent EEA bodies. These shares are transferable and negotiable in a way similar to other shares or stock and are treated as such for the purposes of defining regulated activities. They are specifically mentioned as being within the specified investment category of shares because other types of share issued by these mutual bodies are not transferable and are expressly excluded (see PERG 2.6.10 G).
The following are excluded from the specified investment category of shares. Shares or stock in all open-ended investment companies are excluded from being treated in this particular category (but see PERG 2.6.17 G). Exclusions from this category also apply to shares or stock in the share capital of certain mutuals or in equivalent EEA bodies. This takes out building society or credit union accounts and non-transferable shares in industrial and provident societies. These may nevertheless be specified investments in another category (such as deposits in the case of building society accounts).
Two categories of specified investments relating to debt instruments are dealt with under this heading. They broadly split into private debt and public sector debt.
The first category of 'instruments creating or acknowledging indebtedness' (defined in article 77 of the Regulated Activities Order and referred to in the Handbook as debentures) expressly refers to a range of instruments such as debentures, bonds and loan stock and contains a catch-all reference to 'any other instrument creating or acknowledging indebtedness.'
The second category (defined in article 78 of the Regulated Activities Order and referred to in the Handbook as government and public securities) refers to loan stock, bonds and other instruments creating or acknowledging indebtedness which are issued by or on behalf of any government, the assemblies for Scotland, Wales or Northern Ireland, a local authority or an international organisation.
An instrument cannot fall within both categories of specified investments relating to debt instruments. 'Instrument' is defined to include any record whether or not in the form of a document (see article 3(1) of the Regulated Activities Order).
Certain instruments are excluded from both these categories of specified investments. These include trade bills, specified banking documents (such as cheques and banknotes though not bills of exchange accepted by a banker) and contracts of insurance. There is a further exclusion from this category of specified investment dealing with public debt for National Savings deposits and products.
The category of specified investment of instruments giving entitlements to investments (referred to in the Handbook as warrants) covers warrants and other instruments which confer an entitlement to subscribe for shares, debentures and government and public securities. This is one of several categories of specified investments that are expressed in terms of the rights they confer in relation to other categories of specified investment. The rights conferred must be rights to 'subscribe' for the relevant investments. This means that they are rights to acquire the investments directly from the issuer of the investments and by way of the issue of new investments (rather than by purchasing investments that have already been issued).
To keep clear distinctions between the different specified investment categories, instruments giving entitlements to investments are not to be regarded as options, futures or contracts for differences.
The specified investment category of certificates representing certain securities covers certificates or other instruments which confer rights in relation to shares and debt securities. It includes depositary receipts.
There is an exclusion for any instrument that would otherwise fall within the specified investment category of units in a collective investment scheme. But the exclusion does not apply where the underlying investments covered by the certificate are issued by the same (non-public sector) issuer or constitute a single issue of public sector debt (such as a single issue of gilts). Certificates or other instruments conferring rights in respect of investments in these two cases continue to be treated as certificates representing certain securities.
The specified investment category of units in a collective investment scheme includes units in a unit trust scheme, shares in open-ended investment companies and rights in respect of most limited partnerships. Shares in or securities of an open-ended investment company are treated differently from shares in other companies. They are excluded from the specified investment category of shares. This does not mean that they are not investments but simply that they are uniformly treated in the same way as units in other forms of collective investment scheme. The effect is that an open-ended investment company will, in issuing its shares, be subject to the restrictions on promotion of collective investment schemes in section 238 of the Act (rather than to restrictions that apply to other forms of body corporate). For exclusions from the restrictions on the provisions of collective investment schemes, see the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060). Guidance on the meaning of open-ended investment company is in PERG 9 (Meaning of open-ended investment company).
1There are no exclusions in the Regulated Activities Order for this specified investment category. This is because 'collective investment scheme' is defined in section 235 of the Act (Collective investment schemes) for the purposes of the Act generally. But there is a separate power to provide for exemptions from that definition and the Treasury have exercised it (see the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 (SI 2001/1062). The result is that units in certain arrangements are excluded from being collective investment schemes (for example, closed-ended bodies corporate, franchise arrangements, timeshare schemes).
Two types of investment are specified here:
22rights under a stakeholder pension scheme; and
2rights under a personal pension scheme.
2A stakeholder pension scheme is defined in section 1 of the Welfare Reform and Pensions Act 1999. Regulations made under that section set out detailed rules under which such schemes will operate (see the Stakeholder Pension Scheme Regulations 2000). Schemes must be registered with The Pensions Regulator.
2A personal pension scheme is, broadly speaking, a pension scheme which is not an occupational pension scheme or a stakeholder pension scheme. That is, a scheme or arrangement that is comprised in one or more instruments or agreements, having or capable of having effect so as to provide benefits to or in respect of people:
2Rights under stakeholder pension schemes and personal pension schemes are specified investments for the purposes of the Regulated Activities Order. There are no exclusions in the Order.
The specified investment category of options comprises:4
4 44options to acquire or dispose of securities or contractually based investments, currency and certain precious metals and options to acquire or dispose of such options. Options to buy or sell other types of commodity will only fall within this specified investment category if they are options to buy or sellfutures, or options to buy or sellcontracts for differences, which are based on other commodities. But options to buy or sell other types of commodity may be contracts for differences (see PERG 2.6.23 G);
4options to acquire or dispose of other property and falling within paragraphs 5, 6, 7 or 10 of Annex 1 to MiFID (see article 83(2) of the Regulated Activities Order and , Q32 to Q34 for guidance about these instruments), but only where they are options in relation to which a MiFID investment firm or a third country investment firm provides or performs investment services and activities on a professional basis; and
4options to acquire or dispose of an option to which (2) applies. See article 83(1)(e) of the Regulated Activities Order.
4It follows therefore that options not falling within PERG 2.6.20G (1), for example physically settled options on non-precious metals, such as copper options, will not be options unless they meet the conditions in PERG 2.6.20G (2). Moreover, where the option in question is one to which PERG 2.6.20G (2) applies, it will be an option only in relation to the investment services and activities, or ancillary services where relevant, provided by that person. The same applies in the case of options falling within PERG 2.6.20G (3), for example an option on a physically settled copper option traded on a regulated market.
The key issue in determining whether something is an investment in this category for the purposes of the Regulated Activities Order is whether the contract is made for investment purposes rather than commercial purposes. Contracts which are made for commercial purposes are excluded from this specified investment category and the Regulated Activities Order contains several tests as to when that is, or is not, the case (some are conclusive, others only indicative).
4As with options, there is an additional category of instruments which are futures only when they are the object of investment services or activities provided or performed by certain persons. These are contracts as described in PERG 2.6.21 G:
that would not be regarded as having been entered into for investment purposes because they fail one of the tests mentioned in PERG 2.6.22 G;
that fall within paragraphs 5, 6, 7 or 10 of Annex 1 to MiFID (see PERG 13, Q32 to Q34 for guidance about these derivatives); and
in relation to which a MiFID investment firm or a third country investment firm provides or performs investment services and activities on a professional basis.
4See article 84(1A)-(1D) of the Regulated Activities Order
4The transposition of MiFID does not have the effect of turning spot or forward foreign exchange contracts into financial instruments where such instruments satisfy the commercial purpose test in article 84(2) of the Regulated Activities Order. In our view, very few instruments are likely to fall within PERG 2.6.22A G in practice, given that this category only applies in the case of instruments not falling within PERG 2.6.22 G. An example of an instrument falling within PERG 2.6.22A G could be rights under a contract for a derivative which provides for physical delivery of a commodity at a future date and which is entered into on a multilateral trading facility.
The specified investment category of contracts for differences covers:
44rights under contracts for differences;
4rights under other contracts whose purpose or pretended purpose is to secure a profit or avoid a loss by reference to fluctuations in certain factors; and
4other derivative contracts (not within (1) or (2)) falling within paragraph 8 of Annex 1 to MiFID, that is derivative instruments for the transfer of credit risk MiFID (see PERG 13, Q30 to Q31 for guidance about these instruments), but only where a MiFID investment firm or a third country investment firm provides or performs investment services and activities on a professional basis.
The factors mentioned in (2) include the value or price of property of any description or an index or any 'other factor designated in the contract'. This catches a wide range of factors.4
4All contracts in this category are cash-settled instruments (as opposed to being settled by way of delivering something other than cash). Many would be unenforceable as gaming contracts were it not for section 412 of the Act (Gaming contracts). Examples of instruments that count as specified investments under this category are spread bets and interest rate swaps.
There are a number of exclusions. These include a case where the parties intend that the profit is to be secured or the loss to be avoided by taking delivery of property. This avoids overlap with the specified investment categories of options and futures. Also excluded are index-linked deposits and rights under certain contracts connected with the National Savings Bank or National Savings products. There is also provision to ensure that the specified investment category of contracts for differences does not include rights under life policies.
Two types of specified investment are relevant. These are the underwriting capacity of a Lloyd's syndicate and a person's membership of a Lloyd's syndicate. There are no exclusions from these specified investment categories.
Rights under a funeral plan contract are the rights to a funeral obtained by a person who pays for the funeral before the death of the person whose funeral it will be.
In accordance with article 61(3)(a) of the Regulated Activities Order, a regulated mortgage contract is a contract which, at the time it is entered into, satisfies the following conditions:
the contract is one where the lender provides credit to an individual or trustees (the "borrower");
the obligation of the borrower to repay is secured by a first legal charge on land (other than timeshare accommodation) in the United Kingdom; and
at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling by the borrower (or, where trustees are the borrower, by an individual who is a beneficiary of the trust) or by a related person.
Detailed guidance on this is set out in PERG 4.4 (Guidance on regulated activities connected with mortgages).
3In accordance with article 63B(3)(a) of the Regulated Activities Order, a home reversion plan is an arrangement under which, at the time it is entered into:
a person (the "reversion purchaser") buys all or part of a qualifying interest in land (other than timeshare accommodation) in the United Kingdom from an individual or trustees (the "reversion occupier");
the reversion occupier (or, where trustees are concerned, an individual who is a beneficiary of the trust), or a related person of either, is entitled, and intends, to use at least 40% of that land as or in connection with a dwelling; and
the entitlement to occupy ends on the occurrence of any one or more of the following events:
Detailed guidance on this is set out in PERG 14.3 (Guidance on home reversion and home purchase activities).
3In accordance with article 63F(3)(a) of the Regulated Activities Order, 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 in land or an undivided share of a qualifying interest in land (other than timeshare accommodation) in the United Kingdom;
where an undivided share of a qualifying interest is bought, the interest is held on trust for the home purchase provider and the individual or trustee as beneficial tenants in common;
an individual or trustees (the "home purchaser") is obliged to buy the interest bought by the home purchase provider over the course of or at the end of a specified period; and
the home purchaser (or, where trustees are concerned, by an individual who is a beneficiary of the trust), or a related person of either, is entitled, and intends, to use at least 40% of that land as or in connection with a dwelling.
Detailed guidance on this is set out in PERG 14.4 (Guidance on home reversion and home purchase activities).
Rights to, or interests in, all the specified investments in PERG 2.6 (except rights to, or interests in, rights under a home finance transaction3) are themselves treated as specified investments. The effect is that, in most cases, an activity carried on in relation to rights or interests derived from any of those investments is also a regulated activity if the activity would be regulated if carried on in relation to the investment itself. The exception is where the rights or interests relate to a pure protection contract or a general insurance contract.
3There are several things that are not covered by this category (other than rights to, or interests in, rights under a mortgage contract). Anything that is covered by any other specified investment category is excluded, as are interests under the trusts of an occupational pension scheme. Finally, where a contract is excluded from the scope of the regulated activity of entering as provider into a funeral plan contract (see PERG 2.8.14 G), then rights to, or interests in, the contracts of insurance or interests under the trusts, to which the contracts relate are also excluded from this specified investment category.
Whether or not accepting deposits is a regulated activity depends on the use to which the money is put. The activity is caught if money received by way of deposit is lent to others or if any other activity of the person accepting the deposit is financed wholly (or to a material extent) out of the capital of, or interest on, money received by way of deposit.
Guidance on the regulated activity of issuing e-money is given in PERG 3.
The activities of effecting a contract of insurance or carrying out a contract of insurance are separate regulated activities, each requiring authorisation. But this only applies where they are carried on by a person who is acting as principal. This means that the activities of agents, such as loss adjusters, will not constitute this regulated activity. The activities of some agents may, however, be regulated as insurance mediation activities (see PERG 5 (Guidance on insurance mediation activities)).
In addition, certain other activities carried on in relation to rights under contracts of insurance are regulated activities. These are where the activity is carried on in relation to:
life policies, where the regulated activities concerned are:
managing investments (see PERG 2.7.8 G);
safeguarding and administering investments (see PERG 2.7.9 G); and
agreeing to carry on any of those activities (see PERG 2.7.21 G); and
rights under any contract of insurance, where the regulated activities concerned are:
arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments (see PERG 2.7.7A G);
assisting in the administration and performance of a contract of insurance (see PERG 2.7.8A G);
advising on investments (see PERG 2.7.15 G); and
agreeing to carry on any of those activities (see PERG 2.7.21 G).
(Insurance mediation
activities) has more guidance on these regulated activities where they are insurance mediation activities.
In relation to securities or life policies (or rights or interests in either), dealing as principal is only a regulated activity if certain conditions are satisfied (see PERG 2.8.4G (1)).
Both the activities of dealing in investments as principal and dealing in investments as agent are defined in terms of 'buying, selling, subscribing for or underwriting' certain investments. These investments are:
for dealing in investments as principal, securities or contractually based investments (except rights under a funeral plan contract); and
for dealing in investments as agent, securities and relevant investments (except rights under a funeral plan contract).
Because of the different nature of the specified investments in relation to which these activities are carried on, 'buying' and 'selling' are defined terms that have an extended meaning. For example, some of the specified investments listed in PERG 2.6 are particular things that can be bought and sold in the ordinary meaning of the words. Others fall outside the ordinary meaning of 'buy' and 'sell' because their transfer involves an assumption of a potential liability under a bilateral contract (contracts for differences are an example of this). To deal with the possible range of circumstances, 'buying' is defined in the Regulated Activities Order to include acquiring for valuable consideration. 'Selling' is defined to include disposing for valuable consideration and 'disposing' is itself given a specified meaning that covers a range of possible transactions according to the nature of the investment being transferred (including, for example, surrendering a life insurance contract).
There are eight3 arranging activities that are regulated activities under the Regulated Activities Order. These are:
3arranging (bringing about) deals in investments which are securities, relevant investments or the underwriting capacity of a Lloyd's syndicate or membership of a Lloyd's syndicate (article 25(1));
making arrangements with a view to transactions in investments which are securities, relevant investments or the underwriting capacity of a Lloyd's syndicate or membership of a Lloyd's syndicate (article 25(2));
arranging (bringing about) regulated mortgage contracts, which includes arranging for another person to vary the terms of a regulated mortgage contract entered into by him as borrower 3after1 31 October 2004 (article 25A(1));
13making arrangements with a view to regulated mortgage contracts (article 25A(2));3
3arranging (bringing about) a home reversion plan, which includes arranging for another person to vary the terms of a home reversion plan entered into by him as the original reversion provider (and not merely as a person to whom the rights or obligations or the interest in land may be transferred) or as reversion occupier on or after 6 April 2007 (article 25B(1));3
making arrangements with a view to a home reversion plan (article 25B(2));3
arranging (bringing about) a home purchase plan, which includes arranging for another person to vary the terms of a home purchase plan entered into by him as home purchaser on or after 6 April 2007 (article 25C(1)); and3
making arrangements with a view to a home purchase plan (article 25C(2)).3
The activity of arranging (bringing about) deals in investments is aimed at arrangements that would have the direct effect that a particular transaction is concluded (that is, arrangements that bring it about). The activity of making arrangements with a view to transactions in investments is aimed at cases where it may be said that the transaction is "brought about" directly by the parties. This is where this happens in a context set up by a third party specifically with a view to the conclusion by others of transactions through the use of that third party's facilities. This will catch the activities of persons such as exchanges, clearing houses and service companies (for example, persons who provide communication facilities for the routing of orders or the negotiation of transactions). A person may be carrying on this regulated activity even if he is only providing part of the facilities necessary before a transaction is brought about.
Further guidance on the arranging activities as they relate to home finance transactions and contracts of insurance is in PERG 4.5 (Arranging regulated mortgage contracts), PERG 14.3 and PERG 14.4 (Guidance on home reversion and home purchase activities)3 and PERG 5.6 (The regulated activities: arranging deals in, and making arrangements with a view to transactions in, contracts of insurance) respectively.
35 Guidance on the MiFID investment service of operating a multilateral trading facility is given in PERG 13, Q24. So far as the regulated activity of operating a multilateral trading facility is concerned, this does not comprise the activities of dealing in investments as agent, dealing in investments as principal, or arranging deals in investments. Where a firm carries on one or more of these activities in addition to operating a multilateral trading facility, these are separate regulated activities for which it requires permission.
The regulated activity of managing investments includes several elements.
First, a person must exercise discretion. Non-discretionary portfolio management (where the manager buys and sells, as principal or agent, on the instructions of some other person) is not caught by this activity, although it may be caught by a different regulated activity such as the activity of dealing in investments as principal or dealing in investments as agent. The discretion must be exercised in relation to the composition of the portfolio under management and not in relation to some other function (such as proxy voting) carried on by the manager.
Second, the property that is managed must belong beneficially to another person. This excludes from the regulated activity the management by a person of his own property. But discretionary management of assets by a person acting in his capacity as trustee will be caught even though he is the legal owner of the assets.
Third, the property that is managed must consist of (or include) securities or contractually based investments. Alternatively, discretionary management will generally be caught if it is possible that the property could consist of or include such securities or investments. This is the case even if there never has been any investment in securities or contractually based investments, as long as there have been representations that there would be.
The activity of assisting in the administration and performance of a contract of insurance is a regulated activity that is identified in the Insurance Mediation Directive. Further guidance on this activity is in PERG 5.7 (The regulated activities: assisting in the administration and performance of a contract of insurance).
The activity of safeguarding and administering investments belonging to another is regulated, as is providing a service under which a person undertakes to arrange on a continuing basis for others actually to carry out the safeguarding and administering. In each case, both the elements of safeguarding and administering must be present before a person will be said to carry on the activity.
Safeguarding is acting as custodian of the property, for example, holding any documents evidencing the investments such as the share certificate (although it is worth noting that there is express provision that an uncertificated investment may be safeguarded and administered).
Administration covers services provided to the owner or manager of the property, such as settlement of sale transactions relating to an investment, dealing with income arising from the investment and carrying out corporate actions such as voting. The nature of administration services must be such that the custodian has no discretion (otherwise he is likely to be caught by the regulated activity of managing investments (see PERG 2.7.8 G)).
The property that is safeguarded and administered must belong beneficially to another person. It must consist of (or include) securities or contractually based investments. Alternatively, safeguarding and administration will generally be caught if it is possible that the property could consist of (or include) such securities or investments. This is the case even if the property in question has never consisted of (or included) such securities or investments, as long as there have been representations that it would do.
The regulated activities relating to sending dematerialised instructions relate to the operation of the system for electronic transfer of title to securities or contractually based investments. This is the system maintained under the Uncertificated Securities Regulations 2001 (SI 2001/3755) (and currently operated by CREST). Sending instructions on behalf of another is a regulated activity, as is causing such instructions to be sent if the person causing the sending is a system-participant, as defined in those Regulations. A system-participant is the person who has the computer and network connection to CREST.
The regulated activities carried on in relation to a collective investment scheme generally are the establishing, operating or winding up a collective investment scheme. Acting as the depositary and acting as sole director of an open-ended investment company are also separate regulated activities. In all these cases, the activities are regulated where the schemes themselves are authorised schemes for the purposes of the UK product regulation regime under Part XVII of the Act (Collective investment schemes) as well as where the schemes are unregulated schemes. The process for applying for authorisation of a collective investment scheme is described in COLLG 2 (Authorised fund applications) and CIS 16 (Application and notification). Guidance on whether certain types of scheme (property and land investment schemes) may amount to collective investment schemes is set out in PERG 11 (Property investment clubs and land investment schemes).4
In addition, express provision is included in the Regulated Activities Order to make acting as trustee of an authorised unit trust scheme a regulated activity. The full picture for authorised schemes (that is, schemes that can be promoted to the public) is as follows:
Acting as trustee of an authorised unit trust scheme is expressly included as a regulated activity.
Acting as depositary of an open-ended investment company that is authorised under regulations made under section 262 of the Act (Open-ended investment companies), is a regulated activity.
Acting as a sole director of such a company is a regulated activity.
Managing an authorised unit trust scheme will amount to operating the scheme and so will be a regulated activity. A person acting as manager is also likely to be carrying on other regulated activities (such as dealing (see PERG 2.7.5 G) or managing investments (see PERG 2.7.8 G)).
An open-ended investment company will, once it is authorised under regulations made under section 262 of the Act, become an authorised person in its own right under Schedule 5 to the Act (Persons concerned in Collective Investment Schemes). Under ordinary principles, a company operates itself and an authorisedopen-ended investment company will be operating the collective investment scheme constituted by the company. It is not required to go through a separate process of authorisation as a person because it has already undergone the process of product authorisation.
Operators, trustees or depositaries of UCITS schemes constituted in other EEA States are also authorised persons under Schedule 5 of the Act if those schemes qualify as recognised collective investment schemes for the purposes of section 264 of the Act.
A person will carry on the activity of acting as trustee or depositary of a UCITS if they act as:
trustee of an authorised unit trust scheme; or
depositary of an investment company with variable capital or an authorised contractual scheme;
The regulated activities carried on in relation to pension schemes2 are establishing, operating or winding up a stakeholder pension scheme and establishing, operating or winding up a personal pension scheme.2 The identity of the operator of such a pension scheme depends on the facts. However, the scheme administrator will usually be the operator of the scheme either on its own or jointly with the scheme trustees. More detailed guidance on the scope of this activity is in PERG 12(Q4).2
2 2 2This activity covers advice in the form of a recommendation given to a retail consumer. The recommendation must relate to a stakeholder product and certain conditions must be met. These conditions are based on the need for the adviser to make an assessment of the consumer's needs based on the answers that the consumer provides to a series of pre-scripted questions. A fuller description of the activity is given in PERG 2.7.14B G and explains what is meant by "retail customer". This activity is separate to the regulated activity of advising on investments (see PERG 2.7.15 G (Advising on investments)). The existence of this separate advising activity does not prevent a person from giving advice on stakeholder products in circumstances that do not satisfy the conditions set out in PERG 2.7.14B G. But such advice is likely to amount to advising on investments unless the stakeholder product is a deposit. Neither does the existence of the activity prevent a person from selling stakeholder products in any other manner provided the person has the appropriate permission.
A person ('P') carries on the regulated activity of providing basic advice on a stakeholder product when:
P gives the advice:
to a person ('C') who does not receive the advice in the course of a business that he carries on; and
in the course of a business that P carries on;
the advice is on the merits of C opening or buying a stakeholder product;
the following conditions are met:
P asks C questions to enable P to assess whether a stakeholder product is appropriate for C;
if P, relying solely on the information provided by C in response to the questions referred to in (a), assesses that a stakeholder product is appropriate for C, P:
C has indicated to P that he has understood the description and recommendation referred to in (3)(b).
The regulated activity of advising on investments under article 53 of the Regulated Activities Order applies to advice on securities or relevant investments. It does not, for example, include giving advice about deposits, or about things that are not specified investments for the purposes of the Regulated Activities Order (such as interests under the trusts of an occupational pension scheme). Giving advice on certain other specified investments is, however, regulated under other parts of the Regulated Activities Order (see PERG 2.7.16A G and PERG 2.7.17G (2). Giving a person generic advice about specified investments (for example, invest in Japan rather than Europe) is not a regulated activity nor is giving information as opposed to advice (for example, listings or company news). However, the context in which something is communicated may affect its character; for example, if a person gives information on share price against the background that, when he does so, that will be a good time to sell, then this will constitute advising on investments.
The advice must also be given to someone who holds specified investments or is a prospective investor (including trustees, nominees or discretionary fund managers). This requirement excludes advice given to a person who receives it in another capacity. An example of this might be a tax professional to whom advice is given to inform the practice of his profession or advice given to an employer for the purposes of setting up a group personal pension scheme. Further guidance on the meaning of advising on investments is in PERG 8.24 (Advising on investments).
In certain circumstances, the activity of advising on investments can also amount to providing basic advice on a stakeholder product (see PERG 2.7.14A G (Providing basic advice on stakeholder products)).
Under article 53A of the Regulated Activities Order, giving advice to a person in his capacity as borrower or potential borrower is a regulated activity if it is advice on the merits of the person:
entering into a particular regulated mortgage contract; or
varying the terms of a regulated mortgage contract.
Advice on varying terms as referred to in (2) comes within article 53A only where the borrower entered into the regulated mortgage contract on or after 31 October 2004 and the variation varies the borrower's obligations under the contract. Further guidance on the scope of the regulated activity under article 53A is in PERG 4.6 (Advising on regulated mortgage contracts).
3Under article 53B of the Regulated Activities Order, giving advice to a person in his capacity as reversion occupier or reversion provider is a regulated activity if it is advice on the merits of the person:
entering into a particular home reversion plan; or
varying the terms of a home reversion plan.
Advice on varying terms as referred to in (2) only comes within article 53B where the plan was entered into by the person on or after 6 April 2007 and the variation varies his obligations under the plan. Where a person is entering into the plan as reversion provider purely as a result of rights or obligations, or the interest in land, being transferred to him, advice given to him on the merits of the transaction is only regulated where the plan was originally entered into on or after 6 April 2007. Further guidance on the scope of the regulated activity under article 53B is in PERG 14.3 (Guidance on home reversion and home purchase activities).
3Under article 53C of the Regulated Activities Order, giving advice to a person in his capacity as home purchaser is a regulated activity if it is advice on the merits of the person:
entering into a particular home purchase plan; or
varying the terms of a home purchase plan.
Advice on varying terms as referred to in (2) only comes within article 53C where the plan is entered into by the person on or after 6 April 2007 and the variation varies the person's obligations under the plan. Further guidance on the scope of the regulated activity under article 53C is in PERG 14.4 (Guidance on home reversion and home purchase activities).
Certain activities carried on in connection with business at Lloyds will be regulated. In addition to those already mentioned (arranging deals in the underwriting capacity of a Lloyd's syndicate or membership of a Lloyd'ssyndicate), there are three other regulated activities as follows.
Managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's is a regulated activity. 'Managing agent' is defined in article 3(1) of the Regulated Activities Order.
Advising on syndicate participation at Lloyd's, that is advising a person to become, or continue or cease to be, a member of a particular syndicate is also caught. Giving advice about syndicate participation (such as how members should use their capital within the market and arrange their syndicate participation) is a separate regulated activity to that of providing advice in relation to securities and contractually based investments (see PERG 2.7.15 G). Appropriate permission will be needed.
Arranging deals in contracts of insurance written at Lloyd's is also a regulated activity for the Society of Lloyd's itself.
Entering as provider into a funeral plan contract is a regulated activity. The 'provider' is the person to whom the pre-payments are made and who undertakes to provide, or secure the provision of, the funeral at some future point. He may be the funeral director or a third party who arranges for another person to provide the funeral. Certain types of funeral plan contract are excluded (see PERG 2.8.14 G).
In addition, other activities carried on in relation to rights under certain funeral plan contracts are regulated (see PERG 2.7.5 G to PERG 2.7.11 G and PERG 2.7.15 G and PERG 2.7.16 G). This is because such rights are classified as contractually based investments.
Entering into as lender, and administering, a regulated mortgage contract are regulated activities under article 61 of the Regulated Activities Order (Regulated mortgage contracts). Guidance on these regulated activities is in PERG 4.7 (Entering into a regulated mortgage contract) and PERG 4.8 (Administering a regulated mortgage contract).
3 Entering into a home reversion plan and administering a home reversion plan are regulated activities under article 63B of the Regulated Activities Order (Regulated home reversion plans). Guidance on these regulated activities is in PERG 14.3 (Guidance on home reversion and home purchase activities).
3 Entering into a home purchase plan and administering a home purchase plan are regulated activities under article 63F of the Regulated Activities Order (Regulated home purchase plans). Guidance on these regulated activities is in PERG 14.4 (Guidance on home reversion and home purchase activities).
Agreeing to carry on most regulated activities is itself a regulated activity. But this is not the case if the underlying activities to which the agreement relates are those of accepting deposits, issuing e-money, effecting or carrying out contracts of insurance, operating a multilateral trading facility5 or carrying on any of the activities that are regulated in relation to collective investment schemes,2stakeholder pension schemes or personal pension schemes2. A person will need to make sure that he has appropriate authorisation at the stage of agreement and before he actually carries on the underlying activity (such as the dealing or arranging).
Most regulated activities are subject to exclusions that are set out in the Regulated Activities Order directly following each activity.
Only one exclusion applies to the regulated activity of accepting deposits. Adeposit taker providing its services as an electronic commerce activity from another EEA State into the United Kingdom (see PERG 2.9.18 G) does not carry on a regulated activity. In addition to the situations that are excluded from being 'deposits' (see PERG 2.6.2 G to PERG 2.6.4 G), several persons are exempt persons in relation to the regulated activity of accepting deposits (see PERG 2.10.8G (2)).
Certain 'small issuers' of e-money may apply to the FSA for a certificate to be excluded from the regulated activity of issuing e-money. To be eligible, the issuer must be a body corporate or a partnership (other than a full credit institution) with its head office in the United Kingdom and it must meet certain conditions. The FSA must give that issuer a certificate if it appears to the FSA that the issuer meets those conditions. Further guidance on those conditions and how the application is made is given in ELM 8.4 (The conditions for giving a small e-money issuer certificate).
The following activities are excluded from both the regulated activities of effecting and carrying out contracts of insurance.
In specified circumstances, the activities of an EEA firm when participating in a Community co-insurance operation are excluded. A Community co-insurance operation is defined in the Community Co-insurance Directive.
In specified circumstances, activities that are carried out in connection with the provision of on-the-spot accident or breakdown assistance for cars and other vehicles (such as repairs, vehicle retrieval, delivery of parts or fuel) are excluded.
Electronic commerce activities provided by an incoming ECA provider where those activities are outside the scope of the Insurance Directives (see PERG 2.9.18 G).
The regulated activity of dealing in investments as principal applies to specified transactions relating to any security or to any contractually based investment (apart from rights under funeral plan contracts or rights to or interests in such contracts). The activity is cut back by exclusions as follows.
Of particular significance is the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc). This applies where dealing in investments as principal involves entering into transactions relating to any security or assigning rights under a life policy (or rights or interests in such a contract). In effect, it superimposes an additional condition that must be met before a person's activities become regulated activities. The additional condition is that a person must hold himself out as making a market in the relevant specified investments or as being in the business of dealing in them, or he must regularly solicit members of the public with the purpose of inducing them to deal. This exclusion does not apply to dealing activities that relate to any contractually based investment except the assigning of rights under a life policy.
Entering into a transaction relating to a contractually based investment is not regulated if the transaction is entered into by an unauthorised person and it takes place in either of the following circumstances (a transaction entered into by an authorised person would be caught). The first set of circumstances is where the person with whom the unauthorised person deals is either an authorised person or an exempt person who is acting in the course of a business comprising a regulated activity in relation to which he is exempt. The second set of circumstances is where the unauthorised person enters into a transaction through a non-UK office (which could be his own) and he deals with or through a person who is based outside the United Kingdom. This non-UKperson must be someone who, as his ordinary business, carries on any of the activities relating to securities or contractually based investments that are generally treated as regulated activities.
A person (for example, a bank) who provides another person with finance for any purpose can accept an instrument acknowledging the debt (and as security for it) without risk of dealing as principal as a result.
A company does not deal as principal by issuing its own shares or sharewarrants and a person does not deal as principal by issuing his own debentures or debenture warrants.
A company does not carry on the activity of dealing in investments as principal by purchasing its own shares where section 162A of the Companies Act 1985 (Treasury shares) applies to the shares purchased or by dealing in its own shares held as Treasury shares, in accordance with section 162D of that Act (Treasury shares: disposal and cancellation).
Risk-management activities involving options, futures and contracts for differences will not require authorisation if specified conditions are met. The conditions include the company's business consisting mainly of unregulated activities and the sole or main purpose of the risk management activities being to limit the impact on that business of certain kinds of identifiable risk.
A person will not be treated as carrying on the activity of dealing in investments as principal if, in specified circumstances (outlined in PERG 2.9), he enters as principal into a transaction:
while acting as bare trustee (or, in Scotland, as nominee);
in connection with the sale of goods or supply of services;
that takes place between members of a group or joint enterprise;
in connection with the sale of a body corporate;
in connection with an employee share scheme;
as an overseas person;
as an incoming ECA provider (see PERG 2.9.18 G).
Persons who enter as principal into transactions involving rights under a contract of insurance of any kind will need to consider whether they may, as a result, be carrying on the regulated activity of:
making arrangements with a view to transactions in investments; or
agreeing to do (1) or (2).
The possibility referred to in PERG 2.8.4 G will only arise where it is not the case that the person who enters into the transaction as principal either:
is the only policyholder; or
as a result of the transaction, would become the only policyholder.
2The exclusions referred to in PERG 2.8.4G (1), (2), (5) and (6)(b), (c) and (d) will not be available to persons who, when4 carrying on the activity of dealing in investments as principal, are MiFID investment firms or third country investment firms4 (see PERG 2.5.4 G to PERG 2.5.5 G4 (Investment services and activities)).
4 4The regulated activity of dealing in investments as agent applies to specified transactions relating to any security or to any relevant investment (apart from rights under funeral plan contracts or rights to or interests in such rights). In addition, the activity is cut back by exclusions as follows.
An exclusion applies to certain transactions entered into by an agent who is not an authorised person which depend on him dealing with (or through) an authorised person. It does not apply if the transaction relates to a contract of insurance. There are certain conditions which must be satisfied for the exclusion to apply. These are that the agent must not give any relevant advice on the transaction and that he must not receive any remuneration from the transaction unless account is made to his client.
There is an exclusion for risk-management transactions where the agent is dealing on behalf of a group company or a co-participant in a joint enterprise.
In addition, exclusions apply in specified circumstances (outlined in PERG 2.9 (Regulated activities: exclusions available in certain circumstances)) where a person enters as agent into a transaction:
in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see PERG 2.9.5 G );
in connection with the sale of goods or supply of services (see PERG 2.9.7 G);
that takes place between members of a group or joint enterprise (see PERG 2.9.9 G );
in connection with the sale of a body corporate (see PERG 2.9.11 G );
in connection with an employee share scheme (see PERG 2.9.13 G);
as an overseas person (see PERG 2.9.15 G);
as an incoming ECA provider (see PERG 2.9.18 G);
as a provider of non-motor goods or travel services where the transaction involves a general insurance contract that satisfies certain conditions (see PERG 2.9.19 G);
that involves a contract of insurance covering large risks situated outside the EEA (see PERG 2.9.19 G);2
2on behalf of the participants of a business angel-led enterprise capital fund and that person is a body corporate as specified in article 72E(7) of the Regulated Activities Order.
while acting as an insolvency practitioner (see PERG 2.9.25 G).
More detailed guidance on the exclusions that relate to contracts of insurance is in PERG 5
(Insurance mediation activities).
2The exclusions referred to in PERG 2.8.5G (1), (2) and (3)(a),4 (b), (c), (d) and (j) will not be available to persons who, when4 carrying on the activity of dealing in investments as agent, are MiFID investment firms or third country investment firms4 (see PERG 2.5.4 G to PERG 2.5.5 G4 (Investment services and activities)).
4 4The various activities that involve arranging fall into two general types. These are:3
3those relating to arranging a particular transaction or a contract or plan variation (articles 25(1), 25A(1), 25B(1) and 25C(1) of the Regulated Activities Order); and
3those relating to making arrangements with a view to persons entering into certain transactions (articles 25(2), 25A(2), 25B(2) and 25C(2) of the Regulated Activities Order).
3The exclusions in relation to the regulated activities of arranging under articles 25(1) and (2) are of particular relevance in the context of raising corporate finance. Some of the exclusions outlined in PERG 2.8.6A G relate to all of the arranging activities but most relate only to certain of those activities as indicated.
3The exclusions in the Regulated Activities Order that relate to the various arranging activities are as follows.
Under article 26, arrangements that do not or would not bring about the transaction to which they relate are excluded from the arranging activities that relate to a particular transaction (see PERG 2.8.6G (1)) only. A person will bring about a transaction or a contract or plan variation only if his involvement in the chain of events leading to a transaction or contract or plan variation is of sufficient importance that, without that involvement, it would not take place. This will require something more than the mere giving of advice (although giving such advice may be the regulated activity of advising on investments or advising on home finance transactions).
Under article 27, simply providing the means by which parties to a transaction (or possible transaction) are able to communicate with each other is excluded from arrangements made with a view to persons entering into certain transactions (see PERG 2.8.6G (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 be arrangements made with a view to the participants entering into transactions). If a person makes arrangements that go beyond providing the means of communication, and add value to what is provided, he will lose the benefit of this exclusion.
Under article 28, arranging investment transactions to which the arranger is to be a party is excluded from both article 25(1) and (2). The main purpose is to ensure that a person is not regarded as arranging deals for another when the transaction in question is one to which he intends to be a party. As a result, a person cannot both be engaging in a dealing activity (as principal or agent) and arranging deals for another as regards any particular transaction. But where the transaction involves a contract of insurance, article 28 will not apply if the person making the arrangements:
is the only policyholder; or
as a result of the transaction, would become the only policyholder.
Under article 28A, a person is excluded from any of the arranging activities that relate to home finance transactions if he is to enter into the contract or plan to which the arrangements relate or if he is or is to become a party to a contract or plan that is varied or to be varied.
Under article 29, an unauthorised person who, on behalf of a client, arranges transactions or contract or plan variations, with or through an authorised person, is excluded from each of the arranging activities if specified conditions as to advice and remuneration are satisfied. For example, the exclusion is dependent on the client not receiving any advice on the transactions or variations from the unauthorised person making the arrangements. The exclusion does not apply where the investment is a contract of insurance.
Under article 29A, an unauthorised person is excluded from the regulated activity of arranging for another person to vary the terms of a regulated mortgage contract entered into on or after 31 October 2004 (article 25A(1)(b)) or a home reversion plan or home purchase plan entered into on or after 6 April 2007 (articles 25B(1)(b) and 25C(1)(b)). This is if the arranging is the result of:
anything done in the course of the administration, by an authorised person:
of a regulated mortgage contract in the way set out in article 62(a);
of a home reversion plan in the way set out in article 63C(a);
of a home purchase plan in the way set out in article 63G(a); or
anything done by the unauthorised person in connection with the administration:
of a regulated mortgage contract in the way set out in article 62(b);
of a home reversion plan in the way set out in article 63C(b);
of a home purchase plan in the way set out in article 63G(b).
Under article 30, arranging investment transactions in connection with lending on the security of contracts of insurance is excluded, from article 25(1) and (2) but only where a person is not carrying on insurance mediation or reinsurance mediation.
Under article 31, making arrangements for finance (in whatever form) to be supplied to a person by a third party is excluded from article 25(1) and (2) if the finance is given in exchange for an instrument acknowledging the debt. This mirrors the exclusion from dealing in investments as principal in similar circumstances (see PERG 2.8.4G (3)).
Under article 32, arrangements the only purpose of which is to provide finance to enable persons to enter into investment transactions are excluded from article 25(2) only. There is no equivalent exemption from article 25(1). But arrangements for the provision of finance will only be caught by that provision if the arrangements actually bring about the transaction.
Under article 33, making arrangements under which persons will be introduced to third parties who will provide independent services (consisting of advice or the exercise of discretion in relation to certain investments) is excluded from articles 25(2), 25A(2), 25B(2) and 25C(2) only. The party to whom the introduction is made must be of a specified standing (including that of an authorised person). The exclusion does not apply where the arrangements relate to a contract of insurance.
Under article 33A, making arrangements for introducing persons to:
an authorised person who has permission to carry on certain regulated activities concerned with home finance transactions; or
an appointed representative who is able to carry on any of those activities without breaching the general prohibition; or
an overseas person who carries on any of those activities;
is excluded from articles 25A(2), 25B(2) and 25C(2) subject to certain conditions related to the receipt of client money and the disclosure of certain information.
Under article 34, a company is not carrying on a regulated activity under article 25(1) or (2) of the Regulated Activities Order(Arranging deals in investments) by arranging for the issue of its own shares or share warrants and a person is not doing so by arranging for the issue of his own debentures or debenture warrants.
Under article 35, a body carrying out international securities business of a specified type can apply to the Treasury for approval as an international securities self-regulating organisation (ISSRO). Arrangements made in order to carry out the functions of an ISSRO are excluded from article 25(1) and (2). The exclusion applies whether the arrangements are made by the ISSRO or by a person acting on its behalf.
The following exclusions from both article 25(1) and (2) (outlined in PERG 2.9) apply in specified circumstances where a person makes arrangements:
while acting as trustee or personal representative (see PERG 2.9.3 G);
in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see PERG 2.9.5 G);
in connection with the sale of goods or supply of services (see PERG 2.9.7 G);
in connection with certain transactions by a group member or by a participator in a joint enterprise (see PERG 2.9.9 G);
in connection with the sale of a body corporate (see PERG 2.9.11 G);
in connection with an employee share scheme (see PERG 2.9.13 G);
as an overseas person (see PERG 2.9.15 G);
as an incoming ECA provider (see PERG 2.9.18 G);
as a provider of non-motor goods or services related to travel (see PERG 2.9.19 G);
involving the provision, on an incidental basis, of information to policyholders or potential policyholders about contracts of insurance (see PERG 2.9.19 G);
that involve a contract of insurance covering large risks situated outside the EEA (see PERG 2.9.19 G);
for or with a view to transactions to be entered into by or on behalf of the participants of a business angel-led enterprise capital fund and that person is a body corporate as specified in article 72E(7) of the Regulated Activities Order.
while acting as an insolvency practitioner (see PERG 2.9.25 G).
The exclusions referred to in (a), (b), (g) and (h) also apply to arranging activities related to home finance transactions. More detailed guidance on the exclusions that relate to contracts of insurance is in PERG 5 (Insurance mediation activities).
3The exclusions referred to in PERG 2.8.6AG (4) and PERG 2.8.6AG (13)(b), (c)4, (d), (e) and (l) will not be available to persons who, when4 carrying on an arranging activity, are MiFID investment firms or third country investment firms4 (see PERG 2.5.4 G to PERG 2.5.5 G4 (Investment services and activities)).
4 4 4The activities of persons appointed under a power of attorney are excluded under article 38 of the Regulated Activities Order, from the regulated activity of managing investments, if specified conditions are satisfied. The exclusion only applies where a person is not carrying on insurance mediation or reinsurance mediation and is subject to further limitations discussed below2. In addition, the following exclusions (outlined in PERG 2.9) apply in specified circumstances where a person manages assets:
While acting as trustee or personal representative; or
in connection with the sale of goods or supply of services; or
that belong to a group member or participator in a joint enterprise; or
as an incoming ECA provider (see PERG 2.9.18 G); or2
2belonging to the participants of a business angel-led enterprise capital fund and that person is a body corporate as specified in article 72E(7) of the Regulated Activities Order.
2The exclusion in article 38 of the Regulated Activities Order and the exclusions referred to in PERG 2.8.7G (2), PERG 2.8.7G (3) and PERG 2.8.7G (5) will not be available to persons who, when4 carrying on the activity of managing investments, are MiFID investment firms or third country investment firms4 (see PERG 2.5.4 G to PERG 2.5.5 G4 (Investment services and activities)).
4 4Assisting in the administration and performance of a contract of insurance is excluded under article 39B where it is carried on by a person acting in the capacity of:
an expert appraiser; or
a loss adjuster acting for a relevant insurer; or
a claims manager acting for a relevant insurer.
The term 'relevant insurer' is defined in article 39B(2).
The following exclusions from assisting in the administration and performance of a contract of insurance also apply to a person in specified circumstances:
while acting as trustee or personal representative (see PERG 2.9.3 G); or
in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see PERG 2.9.5 G); or
as an incoming ECA provider (see PERG 2.9.18 G); or
as a provider of non-motor goods or services related to travel (see PERG 2.9.19 G); or
that involve the provision, on an incidental basis, of information to policyholders or potential policyholders about contracts of insurance (see PERG 2.9.19G (2)); or
that involve a contract of insurance covering large risks situated outside the EEA (see PERG 2.9.19 G).
while acting as an insolvency practitioner (see PERG 2.9.25 G).
The exclusions from the regulated activity of safeguarding and administering investments are as follows.
Safeguarding and administration activities carried on by one person are excluded if a specified third party undertakes a responsibility for the assets which is no less onerous than it would have been if he were doing the safeguarding and administration himself. The effect of this is that an authorised person with permission to carry on this regulated activity (or in certain circumstances an exempt person) can delegate all or part of the activities without the delegate needing to be authorised and without loss of protection to the owner of the assets.
Introductions to an authorised person, or to an exempt person acting within the scope of his exemption and in the course of a business, are excluded from that aspect of this regulated activity which consists of arranging safeguarding and administration of assets by another person (see PERG 2.7.9 G).
1Trustees are excluded from arranging for another person to safeguard and administer assets where that other person is either:
an authorised person who has permission to safeguard and administer investments; or
an exempt person whose exemption permits him to safeguard and administer investments; or
a person to whom (1) applies.
Certain specified activities (such as currency conversion and document handling) are excluded from being the administration of investments. A person who safeguards and administers assets will not be carrying on regulated activities if these are the only administration activities in which he engages. This is because a person must be carrying on both the activity of safeguarding and that of administration, or be arranging for both to be carried on by another, before he requires authorisation (see PERG 2.7.9 G).
The following exclusions apply in specified circumstances where a person safeguards and administers assets (or arranges for another to do so):
while acting as trustee or personal representative (see PERG 2.9.3 G);
in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see PERG 2.9.5 G);
in connection with the sale of goods or supply of services (see PERG 2.9.7 G);
which belong to a group member or participator in a joint enterprise (see PERG 2.9.9 G);
in connection with an employee share scheme (see PERG 2.9.13 G);
as an incoming ECA provider (see PERG 2.9.18 G);
2that are contracts of insurance and, in so doing, provides information to policyholders or potential policyholders on an incidental basis in the course of his carrying on a business or profession not otherwise consisting of regulated activities (see PERG 2.9.19G (2)); and2
2belonging to the participants in a business angel-led enterprise capital fund, but only where such safeguarding and administration is carried on by a body corporate as specified in article 72E(7) of the Regulated Activities Order.
Exclusions from the regulated activity of sending dematerialised instructions apply in relation to certain types of instructions sent in the operation of the system maintained under the Uncertificated Securities Regulations 2001 (SI 2001/3755). The various exclusions relate to the roles played by participating issuers, settlement banks and network providers (such as Internet service providers) and to instructions sent in connection with takeover offers (as long as specified conditions are met). In addition, the following exclusions (outlined in PERG 2.9) apply in specified circumstances where a person sends dematerialised instructions:
while acting as trustee or personal representative (see PERG 2.9.3 G);
on behalf of a group member (see PERG 2.9.3 G);
as an incoming ECA provider (see PERG 2.9.18 G).
There are two1 exclusions1 from the range of activities specified as being regulated in relation to collective investment schemes. These exclusions relate 1to incoming ECA providers (see PERG 2.9.18 G) and to business angel-led enterprise capital funds (see PERG 2.9.20 G)1. In other cases, the key issue is whether or not what is being done relates to something that is a collective investment scheme. Exclusions exist in relation to that issue (see PERG 2.6.18 G).
1 1The only exclusion from the range of activities specified as being regulated in relation to stakeholder pension schemesand personal pension schemes2 relates to incoming ECA providers (see PERG 2.9.18 G).
In certain circumstances, advice that takes the form of a regularly updated news or information service and advice which is given in one of a range of different media (for example, newspaper or television) is excluded from the regulated activities of:3
See PERG 7 (Periodical publications: news services and broadcasts: applications for certification) for further guidance on this exclusion.
3Advice given by an unauthorised person in relation to a home finance transaction in the circumstances referred to in PERG 2.8.6AG (5)(a) or (b) (Arranging deals in investments and arranging a home finance transaction) is also excluded. In addition:
the following exclusions apply in specified circumstances where a person is advising on investments or advising on a home finance transaction:
while acting as trustee or personal representative (see PERG 2.9.3 G);
in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see PERG 2.9.5 G); and
as an incoming ECA provider (see PERG 2.9.18 G);
the following exclusions apply in specified circumstances where a person is advising on investments:
in connection with the sale of goods or supply of services (see PERG 2.9.7 G);
to a group member or participator in a joint enterprise (see PERG 2.9.9 G);
in connection with the sale of a body corporate (see PERG 2.9.11 G);
as an overseas person (see PERG 2.9.15 G);
that are limited to certain covering risks to non-motor goods or related to travel (see );
that are covering large risks situated outside the (see )
to be made by or on behalf of the participants of a business angel-led enterprise capital fund, when the advice is given to the participants in that fund and that person is a as specified in article 72E(7) of the .
More detailed on certain of these exclusions is in PERG 4 (Regulated activities connected with mortgages), PERG 5 (Insurance mediation activities) and PERG 14.3 and PERG 14.4 (Guidance on home reversion and home purchase activities).
4The exclusions referred to in PERG 2.8.12AG (1)(b) and (2)(a), (b), (c) and (g) will not be available to persons who, when carrying on the activity of advising on investments are MiFID investment firms or third country investment firms (see PERG 2.5.4 G to PERG 2.5.5 G (Investment services and activities)).
Electronic commerce activities provided by an incoming ECA provider are excluded from the regulated activities that relate expressly to business carried on at Lloyds (see PERG 2.9.18 G). Otherwise the only exclusions that apply concern the regulated activity of arranging deals in its application to business carried on at Lloyd's.
Entering as provider into a funeral plan contract is not treated as a regulated activity where:
the contract is one under which the sums received from the customer will be applied towards a contract of insurance on the life of the person whose funeral is to be provided or be held on trust for the purpose of providing a funeral; in each case certain specified conditions must be met for the exclusion to apply; or
the customer and the provider intend or expect that the funeral will be provided within one month of the contract being entered into; or
it is provided as an electronic commerce activity by an incoming ECA provider (see PERG 2.9.18 G).
Exclusions from the regulated activities that involve administering a home finance transaction3 are provided where an unauthorised person:3
3 3arranges for administration by an authorised person who has permission for carrying on that regulated activity;3
carries out the administration for up to one month after an arrangement of the kind mentioned in (1) comes to an end; or3
carries out the administration under an agreement with an authorised person who has permission for carrying on that regulated activity.3
These exclusions are subject to certain conditions and are explained in greater detail in PERG 4.83 (Administering a regulated mortgage contract) and PERG 14.3 and PERG 14.4 (Guidance on home reversion and home purchase activities).3
33The following exclusions apply in specified circumstances where a person is administering a home finance plan:
while acting as trustee or personal representative (see PERG 2.9.3 G);
in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see PERG 2.9.5 G); and
as an incoming ECA provider (see PERG 2.9.18 G).
A person who agrees to carry on certain other regulated activities (which is itself a regulated activity see PERG 2.7.21 G) does not require authorisation where the person concerned is an overseasperson and the agreement is reached as a result of a legitimate approach (see PERG 2.9.12 G). For this exclusion to apply, the agreement must be one to arrange deals, manage investments, assist in the administration and performance of a contract of insurance, safeguard and administer investments or send dematerialised instructions. The provision of electronic commerce activities by an incoming ECA provider is also excluded from the regulated activity of agreeing to carry on certain other regulated activities (see PERG 2.7.21 G). But this is not the case where the agreement relates to the regulated activity of effecting or carrying out contracts of insurance falling under the Insurance Directives (see PERG 2.8.3 G). This is still a regulated activity when provided as an electronic commerce activity.
To the extent that an exclusion applies in relation to a regulated activity, then 'agreeing' to carry on an activity falling within the exclusion will not be a regulated activity. This is the effect of article 4(3) of the Regulated Activities Order.
The various exclusions outlined below deal with a range of different circumstances.
Each set of circumstances described in PERG 2.9.3 G to PERG 2.9.17 G has some application to several regulated activities relating to securities, relevant investments orhome finance transactions.4 They have no effect in relation to the separate regulated activities of accepting deposits, issuing e-money, effecting or carrying out contracts of insurance, advising on syndicate participation at Lloyd's, managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's or entering as provider into a funeral plan contract. Within each set of circumstances, the Regulated Activities Order, in Chapter XVII of Part II of the Order, makes separate provision for each regulated activity affected. This is necessary because each exclusion has to be tailored to reflect the different nature of the regulated activity involved and the different language required (for example, some activities involve entering directly into transactions while others relate to the provision of services).
4The exclusion described in PERG 2.9.18 G relates to electronic commerce activities provided by an incoming ECA provider. This exclusion applies to all regulated activities except effecting or carrying out contracts of insurance.
The exclusions grouped together in the Regulated Activities Order are described below in this chapter in general terms. The exact terms of each exclusion will need to be considered by any person who is considering whether they need authorisation. Each description is accompanied by an indication of which regulated activities are affected.
This group of exclusions applies, in specified circumstances, to the regulated activities of:
arranging (bringing about) dealsininvestments and4making arrangements with a view to transactions in investments;
44assisting in the administration and performance of a contract of insurance;
advising on investments or advising on a home finance transaction;4
4entering into a home finance transaction;4 and
4administering a home finance transaction.4
4The exclusion is, however, disapplied where a person is carrying on
insurance mediation or reinsurance mediation. This is due to article 4(4A) of the Regulated Activities Order. Guidance on exclusions relevant to insurance mediation activities is in PERG 5 (Insurance mediation activities).
A person carrying on certain regulated activities does not require authorisation in specified circumstances if he is acting in a representative capacity. The representative capacities covered by the exclusions depend on the regulated activity concerned but, in most cases, the focus is on persons who are acting as trustee or personal representative. In broad terms, the exclusions apply to specified transactions, or activities, that are part of the discharge of his general obligations by the trustee or representative when he is acting as such. Many of the exclusions require that the trustee or representative must not hold himself out as providing services consisting of the regulated activity in question. In addition, he must not receive remuneration that is additional to any he receives for acting in the representative capacity (although a person is not to be regarded as receiving additional remuneration merely because his remuneration as trustee or representative is calculated by reference to time spent). The exclusions for entering into a home finance transaction and for administering a home finance transaction,4 however, work on a different basis. They apply where the activity relates to a home finance transaction4 under which the borrower, reversion occupier or home purchaser as the case may be4 is a beneficiary.
4 4This group of exclusions applies, in specified circumstances, to the regulated activities of:
arranging (bringing about) deals in investments, and4making arrangements with a view to transactions in investments;
44assisting in the administration and performance of a contract of insurance;
advising on investments or advising on a home finance transaction.4
4The exclusion is, however, disapplied where a person is carrying on insurance mediation or reinsurance mediation. This is due to article 4(4A) of the Regulated Activities Order. Guidance on exclusions relevant to insurance mediation activities is in PERG 5 (Insurance mediation activities). The exclusion is also disapplied for persons who, when carrying on the relevant regulated activity, are MiFID investment firms or third country investment firms (see PERG 2.5.4 G to PERG 2.5.5 G (Investment services and activities)).5
The exclusions apply where the regulated activity is carried out in the course of a profession or business which does not otherwise consist of the carrying on of regulated activities in the United Kingdom. However, activities are only excluded to the extent that they may reasonably be regarded as a necessary part of the other services provided in the course of the profession or business. The exclusion does not apply if separate remuneration is received in respect of any regulated activity that is carried on. (See separate guidance for authorisedprofessional firms in PROF.)
This group of exclusions applies, in specified circumstances, to the regulated activities of:
arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;
Broadly speaking, the exclusions focus on cases where the main business of a person is to sell goods or supply services but where certain activities may have to be carried on for the purposes of that business which would otherwise be regulated activities. The exclusions are not available where the customer to whom goods are sold or services are supplied is an individual. They are also not available where what is at issue is a transaction entered into, or service provided, in relation to rights under a contract of insurance or units in a collective investment scheme (or rights to, or interests in, either). The exclusions are also disapplied for persons who, when5 carrying on the relevant regulated activity, are MiFID investment firms or third country investment firms5 (see PERG 2.5.4 G to PERG 2.5.5 G5 (Investment services and activities)).3
5This group of exclusions applies, in specified circumstances, to the regulated activities of:
arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;
These exclusions apply to intra-group dealings and activities and to dealings or activities involving participators in a joint enterprise which take place for the purposes of, or in connection with, the enterprise. The general principle here is that, as long as activities that would otherwise be regulated activities take place wholly within a group of companies, then there is no need for authorisation. The same principle applies to dealings or activities that take place wholly within a joint enterprise entered into for commercial purposes related to the participators' unregulated business. The exclusions in PERG 2.9.9G (2), (3), (4) and (7) are disapplied where they concern a contract of insurance. Guidance on exclusions relevant to insurance mediation activities is in PERG 5 (Insurance mediation activities). The exclusions are also disapplied for persons who, when5 carrying on the relevant regulated activity, are MiFID investment firms or third country investment firms5 (see PERG 2.5.4 G to PERG 2.5.5 G5 (Investment services and activities)).3
5 5This group of exclusions applies, in specified circumstances, to the regulated activities of:
The exclusions apply in relation to transactions to buy or sellshares in a body corporate where, in broad terms:
the transaction involves the acquisition or disposal of a least 50 per cent of the voting shares in the body corporate and is, or is to be, between certain specified kinds of person; or
the object of the transaction may otherwise reasonably be regarded as being the acquisition of day-to-day control of the affairs of the body corporate.
These exclusions also apply to transactions that are entered into for the purposes of the above transactions (such as transactions involving the offer of securities in the offeror as consideration or part consideration for the sale of the shares in the body corporate). These exclusions do not have effect in relation to shares in an open-ended investment company. The exclusions in PERG 2.9.11G (2), (3) and (4) are disapplied where they concern a contract of insurance. Guidance on exclusions relevant to
insurance mediation activities is in PERG 5 (Guidance on insurance mediation activities). The exclusions are also disapplied for persons who, when5 carrying on the relevant regulated activity, are MiFID investment firms or third country investment firms5 (see PERG 2.5.4 G to PERG 2.5.5 G5 (Investment services and activities)).3
5 51The Treasury, in its consultative document Financial Services and Markets Act two year review: Changes to secondary legislation - Proposals for change, February 2004 proposed changes to these exclusions aimed primarily at limiting their scope in relation to the objective test referred to in PERG 2.9.12G (2). In its response to the comments received during the consultation, the Treasury announced, in its document Financial Services and Markets Act two year review: Changes to secondary legislation Government response, November 2004, that it intends to make certain changes to the exclusions in due course.
This group of exclusions applies, in specified circumstance, to the regulated activities of:
In broad terms, the exclusions apply to activities which further an employee share scheme, or are carried on in operation of such a scheme. They apply to activities carried on by the company whose securities or debentures (which are given an extended meaning for this exclusion) are the subject of the scheme. They also apply to activities of any company in the same group or of any trustee who holds certain types of securities or debentures under the scheme. They do not apply to the activities of a person who is neither such a company nor such a trustee (for example, a third party administration service provider).6
This group of exclusions applies, in specified circumstances, to the regulated activities of:
arranging (bringing about) deals in investments and4making arrangements with a view to transactions in investments;
4entering into a home finance transaction;4
4administering a home finance transaction;4 and
4agreeing to carry on the regulated activities of managing investments, arranging (bringing about) deals in investments, making arrangements with a view to transactions in investments, assisting in the performance and administration of a contract of insurance, safeguarding and administering investments or sending dematerialised instructions.
An overseasperson is defined as a person who carries on what would be regulated activities (including any activity that would otherwise be excluded from being a regulated activity by virtue of the exclusions for overseas persons referred to in PERG 2.9.15 G) but who does not do so, or offer to do so, from a permanent place of business maintained by him in the United Kingdom. Where a person does not have a permanent place of business in the United Kingdom, he will not, in any event, need to rely on these exclusions unless what he does is regarded as carried on in the United Kingdom (see PERG 2.4). Nor will a person be able to rely on the exclusions in PERG 2.9.15G (1) to (4) if when carrying on the relevant regulated activity it is a MiFID investment firm and its Home State is the United Kingdom.5
The exclusions are available, for regulated activities other than those that relate to home finance transactions4 in the two broad cases set out below. For some of these regulated activities, the exclusions apply in each case. In others, they apply in only one.
4The first case is where the nature of the regulated activity requires the direct involvement of another person and that person is authorised or exempt (and acting within the scope of his exemption). For example, this might occur where the person with whom an overseasperson deals is an authorised person or where the arrangements he makes are for transactions to be entered into by such a person.
The second case is where a particular regulated activity is carried on as a result of what is termed a 'legitimate approach'. An approach to an overseasperson that has not been solicited by him in any way, or has been solicited in a way that does not contravene the restrictions on financial promotion in section 21 of the Act, is a legitimate approach. An approach that is made by him in a way that does not contravene section 21 of the Act is also a legitimate approach. In such circumstances, the overseasperson can, without requiring authorisation, enter into deals with (or on behalf of) a person in the United Kingdom, give advice in the United Kingdom or enter into agreements in the United Kingdom to carry on certain regulated activities. The exemptions to the financial promotion restrictions made by the Treasury under section 21 of the Act (Restrictions on financial promotion) will be relevant to the question of whether those restrictions have been contravened (see separate guidance on financial promotion in PERG 8 (Financial promotion and related activities)).
The exclusions for overseas persons who carry on certain regulated activities related to home finance transactions4 work in a different way. They depend on the residency of the borrower or borrowers, the reversion occupier or reversion occupiers or the home purchaser or home purchasers as the case may be. In addition, some of the exclusions also depend on the residency of the reversion provider4. Guidance on these exclusions is in PERG 4.11 (Link between activities and the United Kingdom) and PERG 14.6 (Guidance on home reversion and home purchase activities).4
4In accordance with article 3(2) of the E-Commerce Directive, all requirements on persons providing electronic commerce activities into the United Kingdom from the EEA are lifted, where these fall within the co-ordinated field and would restrict the freedom of such a firm to provide services. The coordinated field includes any requirement of a general or specific nature concerning the taking up or pursuit of electronic commerce activities. Authorisation requirements fall within the coordinated field. The services affected are generally those provided electronically, for example through the Internet or solicited e-mail.
The Regulated Activities Order was amended by the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (Electronic Commerce Directive) Order 2002 (SI 2002/2157). This Order creates a general exclusion from regulated activities (except for the regulated activities of effecting or carrying out contracts of insurance). Where activities consist of electronic commerce activities, an incoming ECA provider will not require authorisation for such activities in the United Kingdom. This does not extend to the regulated activity of effecting or carrying out contracts of insurance falling under the Insurance Directives (see PERG 2.8.3 G). However, services provided off-line in the United Kingdom (that is, other than as an electronic commerce activity) by such a firm which amount to regulated activities still require authorisation.
6Incoming ECA providers should note that notification requirements under the Single Market Directives still apply (see 2SUP 13A2).
The exclusions in this group apply to certain regulated activities involving certain contracts of insurance. The exclusions and the regulated activities to which they apply are as follows.
The first exclusion of this kind relates to certain activities carried on by a provider of non-motor goods or services related to travel in connection with general insurance contracts only. The contracts must be for five years duration or less and have an annual premium of no more than 500. The contract must cover breakdown or loss of or damage to non-motor goods supplied by the provider or loss of or damage to baggage and other risks linked to travel services booked with the provider. There must not be any liability risk cover other than where this is ancillary to the main risk covered in a travel policy). The insurance must be complementary to the goods or services being supplied by the provider in the course of his carrying on a business or profession not otherwise consisting of regulated activities, and the policy must be in standard form. This exclusion applies where the regulated activities concerned are:
The second exclusion applies where information is provided to a policyholder by a person on an incidental basis in the course of that person's profession or business that does not otherwise consist of regulated activities. This exclusion applies where the regulated activities are:
The third exclusion applies to certain general insurance contracts covering large risks where the risk is situated outside the EEA. This exclusion applies where the regulated activities concerned are:
Guidance on these and other exclusions relevant to
insurance mediation activities is in PERG 5 (Insurance mediation activities).
1This group of exclusions applies, in specified circumstances, to the regulated activities of:
1The exclusions apply, in general terms:
to a body corporate with limited liability:
that is formed in accordance with the law of, and having its registered office, central administration or principal place of business in, an EEA State;
that operates a business angel-led enterprise capital fund, being a fund that invests only in securities of unlisted companies and whose participants are made up solely of persons of a specified kind; and
whose members are limited to persons of a specified kind.
5The exclusions for business angel-led enterprise capital funds are also disapplied for persons who, when carrying on the relevant regulated activity, are MiFID investment firms or third country investment firms (see PERG 2.5.4 G (Investment services and activities)).
There are various provisions that disapply the general prohibition from specific persons in relation to the carrying on by them of particular regulated activities. There is, however, no general provision for persons to apply for an exemption.
Persons may be exempted from the general prohibition in relation to one or more particular regulated activities. The extent of any exemption may also be limited to specified circumstances (such as where another person who is authorised and has relevant permission has accepted responsibility for the regulated activities in question) or subject to specified conditions (such as a requirement that the activity is not carried on for pecuniary gain).
The Act provides that appointed representatives (see PERG 2.10.5 G), recognised investment exchanges and recognised clearing houses (see PERG 2.10.6 G) and certain other persons exempt under miscellaneous provisions (see PERG 2.10.7 G) are exempt persons. Members of Lloyds and members of the professions are not 'exempt persons' as such, but the general prohibition in section 19 of the Act only applies to them in certain circumstances. The distinction is significant in relation to various provisions (such as those in the Regulated Activities Order) that apply only to transactions and other activities that involve exempt persons.
Appointed representatives and the persons exempt under miscellaneous provisions cannot be exempt in relation to some regulated activities and authorised in relation to others. If a person is already authorised, and proposes to carry on additional regulated activities in respect of which he would otherwise be exempt as an appointed representative or under miscellaneous provisions, he must seek an extension to his existing permission to cover those additional activities. A person in either of these categories who would otherwise be exempt in relation to particular activities will, if he becomes authorised, no longer be able to rely on the exemption.
A person is exempt if he is an appointed representative of an authorised person. See SUP 12 (Appointed representatives). But where an appointed representative carries on insurance mediation or reinsurance mediation he will not be exempt unless he is included on the register kept by the FSA under article 93 of the Regulated Activities Order (Duty to maintain a record of unauthorised persons carrying on insurance mediation activities) (see PERG 5.13 (Appointed representatives)).
Investment exchanges and clearing houses can apply for recognition under Part XVIII of the Act (Recognised investment exchanges and clearing houses.) See REC.
Various named persons are exempted by Order made by the Treasury under section 38 of the Act from the need to obtain authorisation (the Exemption Order). Some of the exemptions are subject to restrictions as to the circumstances in which they apply. For example, a person is only exempt when acting in a particular capacity or for particular purposes.
The exemptions apply so as to confer exemption on persons from the general prohibition in respect of four distinct categories of regulated activities.
The first category is carrying on any regulated activity, apart from effecting or carrying out contracts of insurance (or agreeing to do so). Exempt persons here are generally supranational bodies of which the United Kingdom or another EEA State is a member.
The second category is the regulated activity of accepting deposits. Exempt persons here include municipal banks, local authorities, charities and industrial and provident societies.
The third category is carrying on any of those regulated activities relating to securities or relevant investments or to 'any property' (or agreeing to do so). Exempt persons here include persons whose activities are subject to a certain degree of control or oversight by the Government.
The fourth category is carrying on one or more specified regulated activities (or agreeing to do so). Exempt persons here cover a range of different persons.
Several activities carried on in connection with business at Lloyds are regulated activities in respect of which authorisation must be obtained. These include the regulated activities of advising on syndicate participation at Lloyd's or managing the underwriting capacity of Lloyd's syndicate as a managing agent at Lloyd's or arranging (bringing about) deals in investments or making arrangements with a view to transactions in investments for another in relation to such participation or underwriting capacity.
But under section 316 of the Act (Direction by the FSA) the general prohibition does not apply to a person who is a member of the Society of Lloyds unless the FSA has made a direction that it should apply. The general prohibition is disapplied in relation to any regulated activity carried on by a member relating to contracts of insurance written at Lloyds. Directions can be made by the FSA in relation to individual members or the members of the Society of Lloyds taken together. Alternatively, instead of being required to obtain authorisation, a member of the Society of Lloyd's may, as a result of a direction under section 316 of the Act, become subject to specific provisions of the Act even though he is not an authorised person.
A person who ceased to be an underwriting member at any time on or after 24 December 1996 may, without authorisation, carry out contracts of insurance he has underwritten at Lloyds. But this is subject to any requirements or rules that the FSA may impose under sections 320 to 322 of the Act (Former underwriting members).
The general prohibition does not in certain circumstances apply to a person providing professional services that are supervised and regulated by a professional body designated by the Treasury under section 326 of the Act (Designation of professional bodies) (see PROF). Certain of the exclusions from regulated activities outlined in PERG 2.8 and PERG 2.9 will be relevant to members of designated professional bodies. The regime outlined below applies only where no exclusion applies and a person will be carrying on a regulated activity.
Such a person may carry on regulated activities if the conditions outlined below are met, that is the person:
is not affected by an order or direction made by the FSA under section 328 or 329 of the Act (Directions and orders in relation to the general prohibition) which has the effect of re-imposing the general prohibition in any particular case;
is, or is controlled by, a member of a profession;
does not receive any pecuniary reward or other advantage from the regulated activities which is given to him by any person other than his client (or if he does, he must account to his client for it);
provides any service in the course of carrying on the regulated activities in a manner which is incidental to the provision of professional services;
carries on only those regulated activities which are permitted by the rules of the professional body or in respect of which they are an exempt person; and
Is not an authorised person.
The regulated activities that may be carried on in this way are restricted by an Order made by the Treasury under section 327(6) of the Act (Exemption from the general prohibition) (the Non-Exempt Activities Order). Accordingly, under that section, a person may not by way of business carry on any of the following activities without authorisation:
establishing, operating or winding up a collective investment scheme;
establishing, operating or winding up a stakeholder pension scheme or a personal pension scheme1;
managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's;
agreeing to do certain of the above activities.
In addition, there are restrictions on carrying on (or agreeing to carry on) certain other regulated activities. These relate to managing investments, advising on investments, advising on a home finance transaction,2advising on syndicate participation at Lloyd's, entering into a home finance transaction or administering a home finance transaction.2
2 2A person carrying on regulated activities under the regime for members of the professions will be subject to rules made by the professional body designated by the Treasury. Such bodies are obliged to make rules governing the carrying on by their members of those regulated activities that they are able to carry on without authorisation under the Act. Where such a person is carrying on insurance mediation or reinsurance mediation, he must also be included on the register kept by the FSA under article 93 of the Regulated Activities Order (Duty to maintain a record of unauthorised persons carrying on insurance mediation activities) (see PERG 5.10 (Exemptions)).
Any person who concludes or is advised that he will need to make an application for Part IV permission should look at PERG 2 Annex 2 G to determine the categories of specified investment and regulated activities that are relevant to the next step and should then refer to the FSA website How do I get authorised: http://www.fsa.gov.uk/Pages/Doing/how/index.shtml1 for details of the application process.
12As part of its application for Part IV permission, an applicant may wish to apply for certain limitations (details of which are given in the application pack).
2An example of limitations which may be applied for or imposed include a limit on the types of client that a firm may deal with including:
These limitations correspond to the Glossary terms retail client, professional client and eligible counterparty.
1 Table
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1.1 G |
Table 1 is designed to relate the permission regime to regulated activities. Section 42(6)of the Act gives the FSA the power to describe the regulated activity or regulated activities for which it gives permission in such manner as the FSA considers appropriate. Table 1 details how the FSA has chosen to describe the regulated activities and specified investments for the purposes of the permission regime. |
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1.2 G |
In an application for Part IV permission, an applicant will need to state the regulated activities it requires permission to carry on. This will involve an applicant identifying the regulated activities and the specified investments associated with those activities for which it requires Part IV permission. |
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1.3 G |
Part II of the Regulated Activities Order (Specified activities) specifies the activities for the purposes of section 22 of the Act. This section states that an activity is a regulated activity if it is an activity of a specified kind which is carried on by way of business and: |
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(1) |
relates to an investment of a specified kind; or |
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(2) |
in the case of an activity specified for the purposes of section 22(1)(b) of the Act, is carried on in relation to property of any kind. |
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Part III of the Regulated Activities Order (Specified investments) specifies the investments referred to in (1). |
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1.4 G |
Column 1 of Table 1 lists the regulated activities and column 2 lists the associated specified investments. Descriptions of some categories of specified investments are expanded in Tables 2 and 3. There are notes to all three tables which provide further explanation where appropriate. |
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1.5 G |
A reference to an article in the tables in PERG 2 Annex 2 G is to the relevant article in the Regulated Activities Order. |
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2 Table
3 Table
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Notes to Table 1 |
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Note 1: In addition to the regulated activities listed in Table 1, article 64 of the Regulated Activities Order specifies that agreeing to carry on a regulated activity is itself a regulated activity in certain cases. This applies in relation to all the regulated activities listed in Table 1 apart from:
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Permission to carry on the activity of agreeing to carry on a regulated activity will be given automatically by the FSA in relation to those other regulated activities for which an applicant is given permission (other than those activities in articles 5, 9B, 10, 51 and 52 detailed above). |
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Note 1A: Funeral plan contracts are contractually based investments. Accordingly, the following are regulated activities when carried on in relation to a funeral plan contract: (a) arranging (bringing about) deals in investments, (b) making arrangements with a view to transactions in investments, (c) managing investments, (d) safeguarding and administering investments, (e) advising on investments, (f) sending dematerialised instructions and (g) causing dematerialised instructions to be sent (as well as agreeing to carry on each of the activities listed in (a) to (g)). However, they are not designated investment business. |
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Note 1B: Life policies are contractually based investments. Where the regulated activities listed as designated investment business in (e) to (g) and (j) are carried on in relation to a life policy, these activities also count as 'insurance mediation activities'. The full list of insurance mediation activities is set out in (pb)2 to (pf)2. The regulated activities of agreeing to carry on each of these activities will, if carried on in relation to a life policy, also come within both designated investment business and insurance mediation activities. 2 2 |
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Note 2: For the purposes of the regulated activities of dealing in investments as principal (article 14) and dealing in investments as agent (article 21), the definition of contractually based investments [expanded in Table 3] excludes a funeral plan contract (article 87) and rights to or interests in funeral plan contracts. |
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6Note 2A: PERG 13 Ann 2 Table 2 contains a map indicating which securities and contractually based investments correspond to financial instruments. A firm'spermission should comprise each of the categories of security and contractually based investment in relation to which it carries on the activity of operating a multilateral trading facility. |
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Note 3: The regulated activities of managing investments (article 37) and safeguarding and administering investments (article 40) may apply in relation to any assets, in particular circumstances, if the assets being managed or safeguarded and administered include, (or may include), any |
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Note 4: For the purposes of the permission regime, the activity in (j)(ii) of advising on pension transfers and pension opt-outs is carried on in respect of the following specified investments:
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Note 5: Article 4(2) of the Regulated Activities Order specifies the activities (m)to (p) for the purposes of section 22(1)(b) of the Act. That is, these activities will be regulated activities if carried on in relation to any property and are not expressed as relating to a specified investment. |
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Note 5A: Where they are carried on in relation to a life policy, the activities listed as insurance mediation activities in (pb)2 to (pf)2 (as well as the regulated activity of agreeing to carry on those activities) are also designated investment business. 2 2 |
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Note 5B: In PERG, life policy5 is the term used in the Handbook to mean 'qualifying contract of insurance' (as defined in article 3(1) of the Regulated Activities Order). For the purpose of the permission regime,5 the term also includes a long-term care insurance contract which is a pure protection contract and a pension term assurance policy5. 5 5 5 |
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Note 5C: Non-investment insurance contract is the term used in firms permissions to mean pure protection contract or general insurance contract.2Pure protection contract is the term used in the Handbook to mean a long-term insurance contract which is not a life policy. General insurance contract is the term used in the Handbook to mean contract of insurance within column 1 of Table 2.2 |
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Note 5D: [deleted]2 2 |
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Note 5E: For the purposes of the permission regime, the activity in (pf)2(ii) of advising on pension transfers and pension opt-outs is carried on in respect of the following specified investments:
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Note 6: Section 315 of the Act (The Society: authorisation and permission) states that the Society of Lloyd's has permission to carry on the regulated activities referred to in that section, one of which is specified in article 58 of the Regulated Activities Order. This permission is unique to the Society of Lloyd's. |
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Note 7: A stakeholder product is defined in the Glossary as:
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4 Table
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Table 2: Contracts of insurance |
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Contract of insurance (article 75 of the RAO) |
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(a) general insurance contract (Part I of Schedule 1 to the Regulated Activities Order) |
(b) long-term insurance contract (Part II of Schedule 1 to the Regulated Activities Order ) |
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Number |
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1 |
Accident (paragraph 1) |
life and annuity (paragraph I) |
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2 |
Sickness (paragraph 2) |
1 marriage or the formation of a civil partnership and birth (paragraph II) 1 |
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3 |
Land vehicles (paragraph 3) |
linked long-term (paragraph III) |
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4 |
Railway rolling stock (paragraph 4) |
permanent health (paragraph IV) |
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5 |
Aircraft (paragraph 5) |
tontines (paragraph V) |
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6 |
Ships (paragraph 6) |
capital redemption (paragraph VI) |
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7 |
Goods in transit (paragraph 7) |
pension fund management (paragraph VII) |
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8 |
fire and natural forces (paragraph 8) |
collective insurance (paragraph VIII) |
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9 |
damage to property (paragraph 9) |
social insurance (paragraph IX) |
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10 |
motor vehicle liability (paragraph 10) |
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11 |
aircraft liability (paragraph 11) |
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12 |
liability of ships (paragraph 12) |
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13 |
general liability (paragraph 13) |
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14 |
credit (paragraph 14) |
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15 |
suretyship (paragraph 15) |
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16 |
miscellaneous financial loss (paragraph 16) |
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17 |
legal expenses (paragraph 17) |
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18 |
assistance (paragraph 18) |
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Notes to Table 2 |
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Note 1: See IPRU(INS) Ann 10.2 Part II for the groups of classes of general insurance business from the Annex to the First non-Life Directive. |
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Note 2: See IPRU(INS) 11.8 and the definition of ancillary risks in IPRU(INS) for guidance on the treatment of supplementary and ancillary provisions in relation to contracts of insurance. 7 |
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5 Table
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Table 3: Securities, contractually based investments and relevant investments [see notes 1 and 2 to Table 3] |
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Security (article 3(1)) |
Contractually based investment (article 3(1)) |
Relevant investments (article 3(1)) |
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share (article 76) debenture (article 77) government and public security (article 78) warrant (article 79) certificate representing certain security (article 80) unit (article 81) stakeholder pension scheme (article 82(1)3) personal pension scheme (article 82(2));3 rights to or interests in investments (article 89) in so far as they relate to any of the above categories of security |
option (article 83) For the purposes of the permission regime, option is subdivided into:
future (article 84) For the purposes of the permission regime, future is subdivided into:
contract for differences (article 85) For the purposes of the permission regime, contract for differences is subdivided into: life policy (but excluding a long-term care insurance contract which is a pure protection contract) [see note 5B to Table 1] funeral plan contract (article 87) [see note 1A to Table 1] rights to or interests in investments (article 89) in so far as they relate to any of the above categories of contractually based investment. |
contractually based investments (article 3(1)) non-investment insurance contract [see note 5C to Table 1]2 2 2 |
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Notes to Table 3 |
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Note 1: Security, contractually based investment and relevant investment are not, in themselves, specified investments they are defined as including a number of specified investments as set out in Table 3. Relevant investments is the term that is used to cover contractually based investments together with rights under a general insurance contract and a pure protection contract. Note 2: For the purposes of the regulated activities of dealing in investments as principal (article 14) and dealing in investments as agent (article 21), the definition of contractually based investments excludes a funeral plan contract (article 87) and rights to or interests in funeral plan contracts. |
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