This chapter is relevant to any person who needs to know what activities fall within the scope of the Act.

The purpose of this chapter is to provide guidance:

1. (1)

   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

2. (2)

   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 or section 20 (1) or (1A)5), 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) . An authorised person also commits a criminal offence if he carries on a credit-related regulated activity in the UK, or purports to do so, otherwise than in accordance with his permission (unless the person is an appointed representative carrying on the activity in circumstances where, as a result of section 39 (1D) of the Act, sections 20(1) and (1A) and 23(1A) of the Act do not apply). For these purposes, entering into a regulated credit agreement as lender, exercising, or having the right to exercise, the lender's rights and duties under a regulated credit agreement and debt collecting are credit-related regulated activities, except in so far as the activity relates to an agreement under which the obligation of the borrower to repay is secured on land5. 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.

5A regulated credit agreement that is made by an authorised person who does not have permission to do so, in contravention of section 20 of the Act, could be unenforceable against the borrower (see section 26A of the Act).

Another 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):

1. (1)

   Will I be carrying on my activities by way of business (see PERG 2.3)?

2. (2)

   Will I be managing the assets of an occupational pension scheme (see PERG 2.3.2G (3))?

3. (3)

   If the answer is 'Yes' to (1) or (2), will my activities relate to6specified investments (see PERG 2.6)?

   66
4. (3A)

   4Are my activities specified for the purposes of section 22(1)(b) of the Act (and, accordingly, when carried on by way of business, are a regulated activity when carried on in relation to property of any kind) or6 related to a specified benchmark (see PERG 2.5.1A G)?6

5. (3B)

   5Are my activities related to information about a person's financial standing (see PERG 2.7.20K G)?

6. (4)

   If the answer is ‘Yes’ to (3)4, (3A) or (3B)5, will my activities be, or include, regulated activities (see PERG 2.7)?

   45
7. (5)

   If so, will I be carrying them on in the United Kingdom (see PERG 2.4)?

8. (6)

   If so, will my activities be excluded (see PERG 2.8 and PERG 2.9)?

9. (7)

   If not, will I be exempt (see PERG 2.10.5 G to PERG 2.10.8 G)?

10. (8)

    If not, am I allowed to carry on regulated activities without authorisation (see PERG 2.10.9 G to PERG 2.10.16 G)?

11. (9)

    If not, do I benefit from the few provisions of the Act that authorise me without a permission under Part 4A of the Act (seePERG 2.10.10 G3(Members of Lloyds)2)?

    23
12. (10)

    If not, what is the scope of the Part 4A permission that I need to seek (see PERG 2 Annex 2 G)?

    2

The 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 4A permission is available on the FCA website How do I get authorised:http://www.fca.org.uk/firms/about-authorisation/getting-authorised2. 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.

Under 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),3 the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2005 (SI 2005/922) ,5 the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2011 (SI 2011/2304) and the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No 2) Order 20135.3 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:

1. (1)

   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.

2. (2)

   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.

   1

1. (2A)

   A 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.

2. (3)

   A person managing assets on a discretionary basis while acting as trustee6 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).

   6
3. (3A)

   A person who enters into a regulated sale and rent back agreement as SRB agreement provider is to be regarded as carrying on that activity by way of business except where that person is a related party in relation to the SRB agreement seller.3

4. (3B)

   5If a not-for-profit body is carrying on debt adjusting, debt counselling or providing credit information services (or agreeing to carry on a regulated activity so far as relevant to any of those activities), it is to be regarded as doing so by way of business. It is immaterial whether the not-for-profit body also carries on other activities. This change to the business element does not apply, however, if the not-for-profit body carries on that activity only on an occasional basis.

5. (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,2entering into a home finance transaction or administering a home finance transaction, operating a dormant account fund,7credit-related regulated activities and operating an electronic system in relation to lending7 carried on by persons other than not-for-profit bodies5.21

   2157

Whether 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.

4A person carrying out the activity of administering a specified benchmark or providing information in relation to a specified benchmark will always be carrying out these activities by way of business.

5Another aspect of the general prohibition is that an employee will not breach the general prohibition by carrying on a regulated activity on behalf of his employer. The reason for that is that it is the employer who is carrying on that activity. The employee is simply carrying on the employer's business.

5This principle potentially also applies to agents and others who assist another to carry on that other's business. That does not mean however that agents and other such persons can never carry on a regulated activity. Apart from anything else it is clear that some regulated activities are meant to be carried on by such persons, such as dealing in investments as agent.

5In the FCA's view the following factors are relevant in deciding whether a person (referred to in this paragraph as "an individual") is to be treated as carrying on his own business (in which case he may require authorisation unless an exemption or exclusion is available) or whether he is carrying on the business of the person for whom he works (in which case he will not require authorisation). In this paragraph, the person for whom the individual works is referred to as the principal firm.

1. (1)

   The degree of control the principal firm has over the individual (the greater the control the more likely it is that the general prohibition does not apply). This takes into account the power of deciding the tasks to be carried out, the way in which the tasks are to be done, the means to be employed in doing them and the time when and the place where they are to be done. For example, at one end of the spectrum the individual may merely agree to achieve an end result without that end result being specified in detail. At the other end of the spectrum, the individual may be controlled in every detail of how things are to be done.

2. (2)

   The degree to which the individual is integrated into the principal firm's business (the greater the integration the more likely it is that the general prohibition does not apply). One may look at how much the individual is subject to the managerial procedures of the principal firm in relation to such matters as quality of work and performance.

3. (3)

   The degree to which the individual takes on the financial risks and rewards of an independent business (the more the individual takes on such risks the more likely it is that the general prohibition applies8). For example, one might take into account whether the individual provides his own equipment; whether he hires his own helpers; what degree of financial risk he takes; what degree of responsibility for investment and management he has; whether and how far he has an opportunity of profiting from sound management in the performance of his task.

   8
4. (4)

   For example, if the individual is tasked with finding customers it may be relevant whether he is paid a commission for each customer gained. However, commission is not a particularly strong factor as many conventional employees are paid by commission.

5. (5)

   The degree to which the individual deals with the principal firm's customers in his own name (if the individual deals with customers in his own name that points towards the general prohibition applying). For example, it may be relevant whether the individual receives monies from the principal firm's customers into a bank account in the individual's name.

6. (6)

   The degree to which the services supplied by the individual to the principal firm are ones that the individual supplies to other clients as well. If the individual supplies services to more than one client (principal firm), it is very likely that the individual is in the business of providing those services generally and that, as a result, he is carrying on his own business and hence needs authorisation or an exemption from the general prohibition.

7. (7)

   Whether the individual is a natural person. It is unlikely that a company or a partnership will fall outside the general prohibition on the grounds in PERG 2.3.6 G.

5In practice, a person is only likely to fall outside the general prohibition on the grounds that he is not carrying on his own business if he is an employee or performing a role very similar to an employee.

5Even though working for more than one firm is likely to mean that the person will not be able to rely on the grounds in PERG 2.3.6 G to escape the general prohibition (see PERG 2.3.7G (6)), that will not always be the case. In particular, say that a person is acting as an employee of one firm (Firm A) and as a self-employed agent of another firm (Firm B). In his capacity as an employee of Firm A, the person would not be carrying on his own business. Thus, the general prohibition does not apply in relation to his work for Firm A. If the only firm for which that person acts on a self-employed basis is Firm B, he could still fall outside the general prohibition in relation to Firm B too. The situation would be different if he was providing services to, or on behalf of, more than one client firm on a self-employed basis as under such circumstances he would be likely to be carrying on his own business.

5One example in the consumer credit industry of how the factors in PERG 2.3.7 G might apply can be found in the home collected credit sector. Home collected credit firms supply small, short-term, unsecured loans direct to customers in their homes. It is common practice in this sector for some of the larger firms, in particular, to deal with their customers via self-employed agents. Self-employed agents are not paid a salary by an employer. These agents call on customers in their homes to provide loans and/or collect repayments due on loans, on behalf of the home collected credit providers they represent, and they receive commission on the repayments they collect. Agents of home collected credit firms may:

• • introduce new clients to the credit provider;
• • arrange for the completion of the relevant credit agreements by new clients; and
• • collect repayments.

5Although the overall relationship between a home collected credit provider (the principal firm) and a person providing the services described in PERG 2.3.10 G (the individual) will need to be taken into account, meeting the following criteria is likely to mean that the individual is carrying on the business of the principal firm (as its agent) and not his own, meaning that the individual does not require authorisation or to be exempt:

1. (1)

   the principal firm appoints the individual as an agent;

2. (2)

   the individual only works for one principal firm;

3. (3)

   the principal firm has a permission from the FCA for every activity the individual is carrying on for which the principal firm would need permission if it was carrying on the activity itself;

4. (4)

   the contract sets out effective measures for the principal firm to control the individual;

5. (5)

   (in the case of collecting debts) receipt of repayment by the individual is treated as receipt by the principal firm so that the debtor is not disadvantaged if the individual becomes insolvent before the money is passed to the principal firm;

6. (6)

   the principal firm accepts full responsibility for the conduct of the individual when the individual is acting on the principal firm's behalf in the course of its business; and

7. (7)

   the individual makes clear to customers that it is representing a principal firm as its agent and the name of that principal firm.

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.

1. (1)

   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 or the auction regulation.2

2. (2)

   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.

3. (3)

   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.

4. (4)

   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.

5. (5)

   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.

   1

The application of the third and fourth cases will depend on how the activities carried on from the UK establishment are set up and operated.

A 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)).

3For the avoidance of doubt, a person who is based outside of the United Kingdom but who makes benchmark submissions to a benchmark administrator is carrying out regulated activities in the United Kingdom.

4Whether a credit agreement or consumer hire agreement is subject to the law of a country outside the United Kingdom is immaterial to whether an activity is credit broking, see PERG 2.7.7E G.

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.

5The following regulated activities may be carried on in relation to property of any kind:

1. (1)

   managing a UCITS;

2. (2)

   acting as trustee or depositary of a UCITS;

3. (3)

   managing an AIF;

4. (4)

   acting as trustee or depositary of an AIF;

5. (5)

   establishing, operating and winding up a collective investment scheme;

6. (6)

   establishing, operating and winding up a stakeholder pension scheme;

7. (7)

   establishing, operating and winding up a personal pension scheme;

8. (8)

   meeting of repayment claims; and

9. (9)

   managing dormant account funds (including the investment of such funds).

3The regulated activities of providing information in relation to a specified benchmark and administering a specified benchmark do not require the involvement of a specified investment in any way.

4The activities of providing credit information services and providing credit references are not required to relate to a specified investment to be regulated activities, but rather relate to information about a person's financial standing.

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.

It 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

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); collective portfolio management investment firms5 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 units5of collective investment undertakings; and AIFM investment firms providing the ancillary service of reception and transmission of orders in relation to financial instruments.5 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:

1. (1)

   the absence of holding out (see PERG 2.8.4G (1));

2. (2)

   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));

3. (3)

   risk management (see PERG 2.8.4G (5) and PERG 2.8.5G (2));

4. (4)

   persons acting under powers of attorney (see PERG 2.8.7 G);

5. (4A)

   2professions or businesses not involving regulated activities (see PERG 2.9.5 G);

6. (5)

   sale of goods (see PERG 2.9.7 G);

7. (6)

   groups and joint enterprises (see PERG 2.9.9 G);

   1
8. (7)

   sale of a body corporate (see PERG 2.9.11 G); and1

9. (8)

   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 3A Q4 contains guidance7 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).

1. (1)

   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.

2. (2)

   Exclusions apply for sums paid between certain persons who are linked in a specified way (such as group companies or close relatives).

3. (3)

   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, but only when issued by:7

1. (1)

   a full credit institution, a credit union or a municipal bank; or

2. (2)

   a person deemed to have been granted authorisation under regulation 74 of the Electronic Money Regulations; or a person who falls within regulation 76(1) of the Electronic Money Regulations (see PERG 3A, Q30 and 31).

The authorisation and registration requirements for any other person intending to issue electronic money are governed by the Electronic Money Regulations. Guidance on these regulations is available in PERG 3A.7

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.

1. (1)

   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.

2. (2)

   The second term is 'relevant investments'. This term applies to:

   1. (a)

      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

   2. (b)

      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.

1. (1)

   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.'

2. (2)

   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).

6Alternative finance investment bonds (defined in article 77A of the Regulated Activities Order and referred to in the Handbook as alternative debentures) are a form of Sharia compliant bond (known as sukuk in the plural or sakk in the singular) which are intended to be regulated in an equivalent manner to conventional debt securities, where appropriate. Sukuk arrangements allow assets to be held for the benefit of investors in certificates issued by a company. The benefits may include the payment of a return that is economically equivalent to interest and redemption of the certificates out of the proceeds from the disposal of the assets. Alternative debentures are not limited to those wishing to issue Sharia compliant sukuk.

The arrangements which grant rights under alternative debentures are similar to the tax definition of arrangements relating to alternative finance investment bonds at section 48A of the Finance Act 2005 (see www.opsi.gov.uk/acts/acts2007/ukpga_20070011_en_5#pt3-pb9-l1g53). However the purposes of the two provisions are not the same. One of the objectives of the FCA under the Act is consumer protection. Accordingly, secondary legislation made under the Act, like article 77A of the Regulated Activities Order, is likely to be interpreted by the FCA with consumer protection in mind. This may mean that whilst the arrangements described at section 48A of the Finance Act 2005 and those described at article 77A of the Regulated Activities Order are similar, they are likely to be construed differently by the courts. PERG 2.6.11FG and PERG 2.6.11GG explain the consumer protection features in the definition of alternative debentures in more detail.

The arrangements which grant rights under an alternative debenture arise where:

1. (1)

   the arrangements provide for a person (the bond-holder) to pay a sum of money (the capital) to another (the bond-issuer);

2. (2)

   the arrangements identify assets, or a class of assets, which the bond-issuer will acquire for the purpose of generating income or gains directly or indirectly (the bond assets);

3. (3)

   the arrangements specify a period at the end of which they cease to have effect (the bond term);

4. (4)

   the bond-issuer undertakes under the arrangements:

   1. (a)

      to make a repayment in respect 8of the capital (the redemption payment) to the bond-holder during or at the end of the bond term (whether or not in instalments); and

   2. (b)

      to pay to the bond-holder other payments on one or more occasions during or at the end of the bond term (the additional payments);

5. (5)

   the amount of the additional payments does not exceed an amount which would, at the time at which the bond is issued, be a reasonable commercial return on a loan of the 8capital; and

6. (6)

   the arrangements are a security admitted to:

   1. (a)

      an official list; or

   2. (b)

      trading on a regulated market or on a recognised investment exchange.

Different types of alternative debentures are permitted so that, for example:

1. (1)

   the assets of the arrangement may be acquired before or after it commences;

2. (2)

   the bond-holder may (but need not) be entitled under the arrangements to terminate them, or participate in terminating them before the end of the bond term;

3. (3)

   the return may be fixed, floating or determined in some other way;

4. (4)

   the amount of the redemption payment may (but need not) be subject to reduction in the event of a fall in the value of the bond assets or in the rate of income generated by them.

As these arrangements might amount to a collective investment scheme (see PERG 9.4.2 GG for a broad description) a consequential amendment to the Financial Services and Markets Act 2000 (Collective Investment Scheme) Order 2001 (SI 2001/1062) has been made so that, like conventional bonds, alternative debentures are excluded from the definition of collective investment scheme.

The range of instruments that are caught by the alternative debenture definition have been tightly circumscribed to ensure that only those arrangements that grant, in substance, debt-like returns are captured. This is because arrangements giving rights under an alternative debenture cannot amount to a collective investment scheme (see PERG 2.6.11EG). If other types of investments were covered by the alternative debenture definition this could have the effect of undermining the regime for regulating collective investment schemes, which is primarily aimed at protecting the consumer from investing in unsuitable products. For example, under section 238 of the Act (Restrictions on promotion) an authorised person cannot communicate an invitation or inducement to participate in an unregulated collective investment scheme.

The condition set out at PERG 2.6.11CG (6) is also intended to protect consumers. This provides that alternative debentures must be listed on an official list or traded on a regulated market or recognised investment exchange. This is because there is a risk that alternative debentures could lead to regulatory arbitrage (i.e. the risk that the exclusion from being classified as a collective investment scheme is exploited by instruments not intended to be excluded). Mandatory listing is aimed at ensuring an enhanced level of transparency, reducing the likelihood of regulatory arbitrage.

Certain instruments are excluded from both of the6 categories of specified investments referred to in PERG 2.6.11 G6. 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. However, for the purposes of article 78 of the Financial Services and Markets Act (Regulated Activities) Order 2001, this exclusion does not apply to instruments that meet the requirements of PERG 2.6.11CG (1)to (5).6

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, alternative debentures, 6debentures 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 or authorised contractual scheme10, shares in open-ended investment companies and rights in respect of most limited partnerships and all limited partnership schemes10. 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).

There 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).

Three 13 types of investment are specified here:

1. (1)

   2rights under a stakeholder pension scheme;

   13
2. (2)

   2rights under a personal pension scheme; and13

   13
3. (3)

   rights or interests under a pension scheme which provides safeguarded benefits.13

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:

1. (1)

   on retirement; or

2. (2)

   on having reached a particular age; or

3. (3)

   on termination of service in an employment.

13Under section 48(8) of the Pension Schemes Act 2015 safeguarded benefits means benefits other than:

1. (1)

   money purchase benefits (defined in section 181 of the Pension Schemes Act 1993 and section 176 of the Pension Schemes (Northern Ireland) Act 1993); and

2. (2)

   cash balance benefits (defined in section 75 of the Pension Schemes Act 2015).

1. (1)

   Rights under stakeholder pension schemes and personal pension schemes are specified investments for the purposes of the entire Regulated Activities Order.13

2. (2)

   Rights or interests under a pension scheme which provides safeguarded benefits as defined by section 48(8) of the Pension Schemes Act 2015 are only specified investments for the purposes of article 53E (Advising on conversion or transfer of pension benefits) and not in relation to any other regulated activity.13

3. (3)

   There are no exclusions in the Order.13

9This specified investment comprises emissions allowances that are auctioned as financial instruments or two-day emissions spots (together, emissions auction products).

9It relates only to the regulated activity of bidding in emissions auctions (whereby a bid is received, transmitted and submitted on an auction platform) and captures the two forms of allowance products that may be auctioned under article 4(2) of the auction regulation: a two-day spot or a five-day future.

9For the purposes of the RAO, this specified investment is not a security, contractually-based investment or a relevant investment.

9This specified investment incorporates definitions from other EU directives or regulations which can be summarised as follows:

1. (1)

   Emissions allowance means an allowance as defined in article 3(a) of Directive 2003/87/EC which established the scheme for greenhouse gas emissions allowance trading within the EU. That article provides that an allowance is an allowance to emit one tonne of carbon dioxide equivalent during a specified period, only valid for the purpose of meeting the requirements of Directive 2003/87/EC and only transferable in accordance with the provisions of that directive (emissions allowance).

2. (2)

   A two-day spot is defined by reference to article 3(3) of the auction regulation. That article provides that a two-day spot is an allowance auctioned for delivery at an agreed date no later than the second trading day from the day of the auction (two-day emissions spot).

3. (3)

   A financial instrument is defined as any instrument listed in Section C of Annex I to MiFID. Recital 14 of the auction regulation explains that a two-day spot is not a financial instrument whereas a five-day future is (see PERG 13.4, Q34). A five-day future is defined in article 3(4) of the auction regulation as an allowance auctioned as a financial instrument for delivery at an agreed date no later than the fifth trading day from the day of the auction.

The specified investment category of options comprises:4

1. (1)

   4options 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);

2. (2)

   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

3. (3)

   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.

Futures is the name given to rights under a contract for the sale of a commodity, or of property of any other description, under which delivery is to be made at a future date and at a price agreed on when the contract is made.

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:

1. (1)

   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;

2. (2)

   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

3. (3)

   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:

1. (1)

   4rights under contracts for differences;

2. (2)

   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

3. (3)

   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:

1. (1)

   the contract is one where the lender provides credit to an individual or trustees (the "borrower");

2. (2)

   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

3. (3)

   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:

1. (1)

   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");

2. (2)

   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

3. (3)

   the entitlement to occupy ends on the occurrence of any one or more of the following events:

   1. (a)

      the end of a specified period of at least twenty years; or

   2. (b)

      the death of the individual; or

   3. (c)

      the individual enters a care home.

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:

1. (1)

   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;

2. (2)

   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;

3. (3)

   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

4. (4)

   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).

5In accordance with Article 63J(3)(a) of the Regulated Activities Order, a regulated sale and rent back agreement is an arrangement under which, at the time it is entered into:

1. (1)

   a person (the SRB agreement provider) buys all or part of the qualifying interest in land (other than timeshare accommodation) in the United Kingdom from an individual or trustees (the agreement seller); and

2. (2)

   the agreement seller (if he is an individual) or an individual who is the beneficiary of the trust (if the agreement seller is a trustee), or a related person, is entitled under the arrangement to occupy at least 40% of the land in question as or in connection with a dwelling, and intends to do so;

but excluding any arrangement that is a regulated home reversion plan.

Detailed guidance on this is set out in PERG 14.4A (Activities relating to regulated sale and rent back agreements).

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.

There 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.

11In accordance with article 60B (3) of the Regulated Activities Order, a credit agreement is an agreement between an individual ("A") and any other person ("B") under which B provides A with credit of any amount. In accordance with article 36H (10) of the Regulated Activities Order, rights under an article 36H agreement are also specified investments. The definition of an article 36H agreement is set out in PERG 2.7.7H G.

11In accordance with article 60N(3) of the Regulated Activities Order, a consumer hire agreement is an agreement between a person ("the owner") and an individual ("the hirer") for the bailment or, in Scotland, the hiring, of goods to the hirer which:

1. (1)

   is not a hire-purchase agreement; and

2. (2)

   is capable of subsisting for more than three months.

The following paragraphs describe the various specified activities. The exclusions relating to activities are dealt with in PERG 2.8 and PERG 2.9.

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.

See PERG 2.6.4A G for a description of those persons to whom this specified activity applies.10

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:

1. (1)

   life policies, where the regulated activities concerned are:

   1. (a)

      dealing in investments as principal (see PERG 2.7.5 G);

   2. (b)

      managing investments (see PERG 2.7.8 G);

   3. (c)

      safeguarding and administering investments (see PERG 2.7.9 G); and

   4. (d)

      agreeing to carry on any of those activities (see PERG 2.7.21 G); and

2. (2)

   rights under any contract of insurance, where the regulated activities concerned are:

   1. (a)

      dealing in investments as agent (see PERG 2.7.5 G);

   2. (b)

      arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments (see PERG 2.7.7A G);

   3. (c)

      assisting in the administration and performance of a contract of insurance (see PERG 2.7.8A G);

   4. (d)

      advising on investments (see PERG 2.7.15 G); and

   5. (e)

      agreeing to carry on any of those activities (see PERG 2.7.21 G).

PERG 5

(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:

1. (1)

   for dealing in investments as principal, securities or contractually based investments (except rights under a funeral plan contract); and

2. (2)

   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).

11The RAO and the auction regulation together generate three broad categories of person in relation to bidding for emissions allowances on an auction platform:

1. (1)

   The first category consists of an investment firm to which MiFID applies and a BCD credit institution where either firm is bidding on behalf of its clients for emissions auction products or bidding on its own account for emissions auction products that are financial instruments. This category also consists of a person that is exempt from MiFID under article 2(1)(i) where it is bidding on behalf of a client of its main business or bidding on its own account (further information on the article 2(1)(i) exemption from MiFID is in PERG 13.5, Q44). A person in this category is entitled to bid on an auction platform but requires permission from the FCA for bidding in emissions auctions to do so.

2. (2)

   The second category consists of an investment firm to which MiFID applies and a BCD credit institution where either is bidding on its own account for two day emissions spot. This category also consists of operators or aircraft operators bidding on their own account as well as group entities or business groupings of those operators or public bodies or state-owned entities of Member States that control any of those operators (as set out in article 18 of the auction regulation). A person or entity in this category is entitled to bid on an auction platform but does not require permission from the FCA to do so as a result of an exclusion from the regulated activity of bidding in emissions auctions in article 24B of the RAO.

3. (3)

   The third category consists of all other persons. The auction regulation prevents an auction platform from granting these persons admission to bid. A person in this category is not entitled to bid on an auction platform and the FCA is not able to grant such a person permission to do so.

11A person may fall into both the first and the second category. For example, a person might be both exempt from MiFID under article 2(1)(i) (within the first category) and be a group entity of an operator (within the second category). In this case, that person does not require permission for activities that cause that person to fall into the second category because those activities are excluded from the activity of bidding in emissions auctions.

11Article 24A(2) of the RAO provides that bidding in emissions auctions does not form part of any other regulated activity and so, although in the FCA's view this activity broadly equates to the regulated activities of dealing in investments as principal, dealing in investments as agent, arranging (bringing about) deals in investments or making arrangements with a view to transactions in investments, a person seeking to carry on this activity will only require permission for bidding in emissions auctions to do so.

[not used]

There are ten93 arranging activities that are regulated activities under the Regulated Activities Order. These are:

1. (1)

   arranging (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));

2. (2)

   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));

3. (3)

   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));

   13
4. (4)

   making arrangements with a view to regulated mortgage contracts (article 25A(2));3

   3
5. (5)

   arranging (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

6. (6)

   making arrangements with a view to a home reversion plan (article 25B(2));3

7. (7)

   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)); 3

   9
8. (8)

   making arrangements with a view to a home purchase plan (article 25C(2));93

9. (9)

   arranging (bringing about) a regulated sale and rent back agreement, which includes arranging for another person (A) to vary the terms of a regulated sale and rent back agreement entered into on or after 1 July 2009 by A as agreement seller or agreement provider, in such a way as to vary As obligations under that agreement (article 25E(1)); and9

10. (10)

    making arrangements with a view to a regulated sale and rent back agreement (article 25E(2)).9

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 concerned with arrangements of an ongoing nature whose purpose is to facilitate the entering into of transactions by other parties. This activity has a potentially broad scope and typically applies in one of two scenarios. These are where a person provides arrangements 9of some kind:8

1. (1)

   to enable or assist investors to deal with or through a particular firm (such as the arrangements made by introducers); or8

2. (2)

   to facilitate the entering into of transactions directly by the parties (such as multilateral trading facilities of any kind other than those excluded under article 25(3) of the Regulated Activities Order, exchanges, clearing houses and service companies (for example, persons who provide communication facilities for the routing of orders or the negotiation of transactions)).8

8It is of note, however, that the regulated activity of making arrangements with a view to transactions in investments is not limited to arrangements that are participated in by investors. It is also not necessary that both the buyer and the seller under the transaction that is being arranged should participate in the arrangements. So, arrangements may come within the activity if they are participated in only by product companies with a view to their issuing investments. A person may be carrying on this regulated activity even if he is only providing part of the facilities for bringing about a transaction.

8It is also the FCA's view that certain arrangements may come within the activity even though the parties may have already committed to the transaction using other arrangements. This would typically apply to a clearing house whose clearing and settlement facilities may be seen to be made with a view to the members of the clearing house, as participants in its arrangements, entering into transactions (usually through an investment exchange) which must be cleared through the clearing house to be completed. The clearing house is providing an essential part of the market infrastructure that is necessary to support trading activities. The same principle applies outside the markets context. So for example if a company that wishes to raise capital from private investors tells the potential investors, in order to increase their confidence, that all aspects of paying for and issuing shares will be handled by a particular firm, that firm may come within article 25(2) when it provides those services.

8In the FCA's view, it is generally the case that providers of back office administration services do not carry out the regulated activity of making arrangements with a view to transactions in investments. This is based essentially on the fact that providers of back office administration services aim to assist a broker firm to deal with the aftermath of transactions it has entered into on behalf of its clients. The broker firm has assumed full responsibility to its clients for completing their transactions, thus enabling the view to be taken that the firm to whom it outsources functions is making arrangements to assist the broker to complete transactions rather than with a view to the broker entering into trades as agent for its clients. The provider of back office services does not carry out the regulated activity of making arrangements with a view to transactions in investments because the transaction has already been entered into by the time of its involvement.

1. (1)

   8The scope of article 25(2) of the Regulated Activities Order (the subject of PERG 2.7.7B G) was considered by the High Court in the case of Watersheds Limited v. David Da Costa and Paul Gentlemen. The judgement suggests that the activity of introducing does not itself constitute a regulated activity for the purposes of article 25(2) of the Regulated Activities Order. The FCA has considered whether the judgement necessitates any change to the views expressed in PERG 2.7.7B G and elsewhere in PERG. It appears to the FCA that the judgement should be considered in the light of the case to which it relates.

2. (2)

   Also, the court does not seem to have had the benefit of a relevant argument. The Regulated Activities Order provides an exclusion which has the effect of removing certain arrangements for making introductions from the scope of article 25(2) of the Regulated Activities Order. This exclusions can be found in article 33 of the Regulated Activities Order (guidance on this can be found in PERG 8.33 and PERG 5.6.17 G to PERG 5.6.21 G). This exclusions would not be necessary if all introductions were outside the scope of article 25(2) of the Regulated Activities Order. Support for this can also be found in the fact that article 25A(2) is very similar to article 25(2) and there is an exclusion from it for certain introductions. The exclusion is in article 33A of the Regulated Activities Order and guidance on it can be found in PERG 4.5.10 G and the following paragraphs. For these reasons, the FCA remains of the view that article 25(2) of the Regulated Activities Order includes certain types of arrangements for making introductions whilst recognising that the judgement in the Watersheds case introduces an element of doubt.

8In determining whether particular arrangements fall within the scope of Article 25(2) of the Regulated Activities Order, it may be necessary to consider the purpose of the arrangements. Further guidance on this can be found in PERG 8.32.3G. Although this guidance is in relation to the activities of publishers, broadcasters, website operators and telephone marketing services, the principle is not limited to those activities.

8In the FCA's view, a mere passive display of literature advertising investments would not amount to the article 25(2) activity. Further guidance on this point can be found in PERG 5.6.4 G. Although this guidance is in relation to contracts of insurance, the principle is not limited to them.

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.

5 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.

15There are six activities that fall within credit broking. These are:

1. (1)

   effecting an introduction of an individual who wishes to enter into a credit agreement to another person, with a view to that person entering as lender into a credit agreement by way of business;

2. (2)

   effecting an introduction of an individual who wishes to enter into a consumer hire agreement to another person, with a view to that person entering as owner into a consumer hire agreement by way of business (except where the exemption relating to the supply of essential services would apply to the consumer hire agreement, see PERG 2.7.19O G);

3. (3)

   effecting an introduction of an individual who wishes to enter into a credit agreement or a consumer hire agreement to a person who carries on an activity in (1) or (2) by way of business;

4. (4)

   presenting or offering an agreement which would (if entered into) be a credit agreement;

5. (5)

   assisting an individual by undertaking preparatory work with a view to that person entering into a credit agreement;

6. (6)

   entering into a credit agreement on behalf of a lender.

15An activity is not credit broking within PERG 2.7.7EG (1), PERG 2.7.7EG (4), PERG 2.7.7EG (5) or PERG 2.7.7EG (6) if the exemption relating to the number of repayments to be made would apply to the credit agreement, see PERG 2.7.19G G.

15An activity is also not credit broking within PERG 2.7.7EG (1) to PERG 2.7.7EG (6) in so far as the activity is operating an electronic system in relation to lending, see PERG 2.7.7H G.

1. (1)

   15This activity is aimed at what are sometimes referred to as peer-to-peer lending platforms. A person ("A") will be operating an electronic system in relation to lending if he operates an electronic system which enables him to facilitate persons ("B" and "C") becoming the lender and borrower under an article 36H agreement.

2. (2)

   To be caught, all of the following conditions must be met:

   1. (a)

      the electronic system operated by A must be capable of determining which agreements should be made available to each of B and C (whether in accordance with general instructions provided to A by B or C or otherwise);

   2. (b)

      A, or another person (“X”) acting under an arrangement with A or at A’s direction, undertakes to:

      1. (i)

         receive payments in respect of interest and capital due under the article 36H agreement from C; and

      2. (ii)

         make payments in respect of interest and capital due under the article 36H agreement to B; and

   3. (c)

      A, or another person ("X") acting under an arrangement with A or at A's direction, undertakes to perform, or A undertakes to appoint or direct another person to perform either or both of the following activities:

      1. (i)

         taking steps to procure the payment of a debt under the article 36H agreement;

      2. (ii)

         exercising or enforcing rights under the article 36H agreement on behalf of B.

3. (3)

   For the purposes of (2)(b):

   1. (a)

      an agreement by A to appoint X to perform the activities is to be treated as an undertaking by A; and

   2. (b)

      it is immaterial that:

      1. (i)

         payments may be subject to conditions;

      2. (ii)

         A, or X, may be entitled to retain a portion or the entirety of any payment received from C.

4. (4)

   An article 36H agreement is an agreement by which one person provides another person with credit and either:

   1. (a)

      the lender is an individual; or

   2. (b)

      the borrower is an individual; and

      1. (i)

         the amount of credit provided is less than or equal to £25,000; or

      2. (ii)

         the agreement is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower. If the agreement includes a declaration by the borrower that it is entered into by the borrower wholly or predominantly for business purposes, this may create a presumption that this is the case (see PERG 2.7.19D G).

5. (5)

   An agreement may be an article 36H agreement and not a credit agreement, for example if it is an agreement by which an individual provides credit to a company. An agreement may, equally, be both an article 36H agreement for the purposes of operating an electronic system in relation to lending and a credit agreement for the purposes of other credit-related regulated activities if it is within the relevant definitions.

6. (6)

   It is immaterial whether the lender is carrying on a regulated activity.

7. (7)

   The following activities are also caught by operating an electronic system in relation to lending if carried on by the operator in the course of, or in connection with, the activity in (1):

   1. (a)

      presenting or offering article 36H agreements to B and C with a view to B becoming the lender under the article 36H agreement and C becoming the borrower under the article 36H agreement;

   2. (b)

      furnishing information relevant to the financial standing of a person to assist a potential lender to determine whether to provide credit to that person under an article 36H agreement;

   3. (c)

      taking steps to procure the payment of a debt due under an article 36H agreement;

   4. (d)

      performing duties, or exercising or enforcing rights under an article 36H agreement on behalf of the lender;

   5. (e)

      ascertaining whether a credit information agency holds information relevant to the financial standing of an individual;

   6. (f)

      ascertaining the contents of such information;

   7. (g)

      securing the correction of, the omission of anything from, or the making of any other kind of modification of, such information; or

   8. (h)

      securing that a credit information agency which holds such information stops holding the information, or does not provide it to any other person.

The regulated activity of managing investments includes several elements.

1. (1)

   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.

2. (2)

   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.

3. (3)

   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).

15This activity comprises:

1. (1)

   negotiating with the lender or owner, on behalf of the borrower or hirer, terms for the discharge of a debt;

2. (2)

   taking over, in return for payments by the borrower or hirer, that person's obligation to discharge a debt; or

3. (3)

   any similar activity concerned with the liquidation of a debt;

when carried on in relation to debts due under a credit agreement or consumer hire agreement.

15Giving advice to a borrower about the liquidation of a debt due under a credit agreement is a regulated activity. Giving advice to a hirer about the liquidation of a debt due under a consumer hire agreement is a regulated activity. See PERG 17 for further guidance on debt-counselling.

1. (1)

   15Taking steps to procure the payment of a debt due under a credit agreement or a consumer hire agreement is a regulated activity.

2. (2)

   Taking steps to procure the payment of a debt due under an article 36H agreement (see PERG 2.7.7HG (3)) which has been entered into with the facilitation of an operator of an electronic system in relation to lending is also a regulated activity.

3. (3)

   The activity is not a regulated activity in so far as the activity is operating an electronic system in relation to lending (article 36H of the Regulated Activities Order) see PERG 2.7.7H G.

1. (1)

   15Taking steps to perform duties or to exercise or to enforce rights under a credit agreement or a consumer hire agreement on behalf of the lender or owner is a regulated activity.

2. (2)

   Taking steps to perform duties or to exercise or to enforce rights under an article 36H agreement (see PERG 2.7.7HG (3)) which has been entered into with the facilitation of an operator of an electronic system in relation to lending is also a regulated activity.

3. (3)

   In so far as the activity is operating an electronic system in relation to lending (article 36H of the Regulated Activities Order, see PERG 2.7.7H G) or debt-collecting (article 39F of the Regulated Activities Order) it is not also debt administration.

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.

1. (1)

   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).

2. (2)

   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 CREST settlement14 system maintained under the Uncertificated Securities Regulations 2001 (SI 2001/3755) (and currently operated by Euroclear UK & Ireland Limited14 ). 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.

16There are five regulated activities associated with UCITS, AIFs and collective investment schemes:

1. (1)

   managing a UCITS;

2. (2)

   acting as trustee or depositary of a UCITS;

3. (3)

   managing an AIF;

4. (4)

   acting as trustee or depositary of an AIF; and

5. (5)

   establishing, operating and winding up a collective investment scheme.

16The activity of managing a UCITS is derived from the UCITS Directive. A person will manage a UCITS where they carry on collective portfolio management of a UCITS. A UCITS is a type of collective investment scheme which is authorised by a competent authority in an EEA State as meeting the requirements under the UCITS Directive.

16A person will carry on the activity of acting as trustee or depositary of a UCITS if they act as:

1. (1)

   trustee of an authorised unit trust scheme; or

2. (2)

   depositary of an investment company with variable capital or an authorised contractual scheme;

where, in either case, the scheme or company is a UCITS.

16 PERG 16 provides guidance on the activities of managing an AIF (see PERG 16.3) and acting as trustee or depositary of an AIF (see PERG 16.4).

16Most collective investment schemes will also be either a UCITS or an AIF (although not all AIFs are collective investment schemes). As a result, there is a potential overlap between the activity of establishing, operating and winding up a collective investment scheme and the activities of managing a UCITS and managing an AIF. However, there are exclusions in the RAO which considerably reduce the overlap (see PERG 2.8.10G (2) and PERG 16.5).

16An 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.

16 Operators, trustees or depositaries of UCITS established in other EEA States are also authorised persons under Schedule 5 of the Act if those schemes are recognised schemes for the purposes of section 264 of the Act.

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

This 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:

1. (1)

   P gives the advice:

   1. (a)

      to a person ('C') who does not receive the advice in the course of a business that he carries on; and

   2. (b)

      in the course of a business that P carries on;

2. (2)

   the advice is on the merits of C opening or buying a stakeholder product;

3. (3)

   the following conditions are met:

   1. (a)

      P asks C questions to enable P to assess whether a stakeholder product is appropriate for C;

   2. (b)

      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:

      1. (i)

         describes that product to C; and

      2. (ii)

         gives a recommendation of that product to C; and

4. (4)

   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. 19 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:

1. (1)

   entering into a particular regulated mortgage contract; or

2. (2)

   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:

1. (1)

   entering into a particular home reversion plan; or

2. (2)

   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:

1. (1)

   entering into a particular home purchase plan; or

2. (2)

   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).

9Under article 53D of the Regulated Activities Order giving advice to a person in his capacity as an SRB agreement seller or an SRB agreement provider is a regulated activity if it is advice on the merits of the person:

1. (1)

   entering into a particular regulated sale and rent back agreement; or

2. (2)

   varying the terms of a regulated sale and rent back agreement.

Advice on varying terms as referred to in (2) only comes within article 53D where the agreement is entered into by the person on or after 1 July 2009 and the variation varies the person's obligations under the agreement. Further guidance on the scope of the regulated activity under article 53D is in PERG 14.4A (Activities relating to regulated sale and rent back agreements).

[text to follow]19

19Under article 53E of the Regulated Activities Order giving advice to a person (“P”) who has subsisting rights in respect of any safeguarded benefits in their capacity as:

1. (1)

   a member of a pension scheme; or

2. (2)

   a survivor of a member of a pension scheme;

is a regulated activity if the advice is on the merits of P requiring the trustee or manager of the pension scheme to carry out any of the transactions listed in PERG 2.7.16G.

19The transactions in PERG 2.7.16FG are:

1. (1)

   converting any of the safeguarded benefits into different benefits that are flexible benefits under the scheme; or

2. (2)

   making a transfer payment in respect of any of the safeguarded benefits with a view to acquiring a right or entitlement to flexible benefits for P under another pension scheme; or

3. (3)

   paying a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the safeguarded benefits.

19 Advising on conversion or transfer of pension benefits can only be carried on in respect of one type of specified investments (see PERG 2.6.19CG(2)).

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.

1. (1)

   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.

2. (2)

   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.

3. (3)

   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.

1. (1)

   15Entering into a regulated credit agreement as lender is a regulated activity.

2. (2)

   It is also a regulated activity for the lender or another person to exercise, or to have the right to exercise, the lender's rights and duties under a regulated credit agreement.

15A credit agreement is not a regulated credit agreement for the purposes of PERG 2.7.19A G if it is an exempt agreement17. PERG 2.7.19C G to PERG 2.7.19J G describe the categories of exempt agreement.

15A credit agreement is an exempt agreement17 in the following cases:

1. (1)

   if it is a regulated mortgage contract or a home purchase plan;

2. (2)

   if:

   1. (a)

      the lender provides the borrower with credit exceeding £25,000; and

   2. (b)

      the agreement is entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower;

3. (3)

   if:

   1. (a)

      the lender provides the borrower with credit of £25,000 or less; and

   2. (b)

      the agreement is entered into by the borrower wholly for the purposes of a business carried on, or intended to be carried on, by the borrower; and

   3. (c)

      the agreement is a green deal plan;

4. (4)

   if it is made in connection with trade in goods or services:

   1. (a)

      between the United Kingdom and a country outside the United Kingdom; or

   2. (b)

      within a country outside the United Kingdom; or,

   3. (c)

      between countries outside the United Kingdom; and

   the credit is provided to the borrower in the course of a business carried on by the borrower.

15If a credit agreement includes a declaration which:

1. (1)

   is made by the borrower;

2. (2)

   provides that the agreement is entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower; and

3. (3)

   complies with the rules in CONC App 1.4;

the credit agreement is to be presumed to have been entered into by the borrower wholly or predominantly for business purposes. This presumption does not apply, however, if the lender or any person who has acted on behalf of the lender knows or has reasonable cause to suspect that the agreement is not entered into by the borrower wholly or predominantly for business purposes. This also applies to the exemption in PERG 2.7.19CG (3), as if the word "predominantly" were omitted.

15A credit agreement is an exempt agreement17 if, at the time it is entered into:

1. (1)

   any sums due under it are secured by a legal or equitable mortgage on land; and

2. (2)

   less than 40% of the land is used, or is intended to be used, as or in connection with a dwelling:

   1. (a)

      by the borrower or a related person of the borrower; or

   2. (b)

      in the case of credit provided to trustees, by an individual who is a beneficiary of the trust or a related person of a beneficiary

3. (3)

   For these purposes, a person is related to a borrower or a beneficiary of a trust if they are a spouse or civil partner, or a parent, brother, sister, child, grandparent or grandchild of the borrower or beneficiary or if their relationship with the borrower or beneficiary has the characteristics of the relationship between husband and wife.

4. (4)

   This exemption is intended to mirror the definition of regulated mortgage contract so that buy-to-let loans (that are not secured by a legal mortgage on the borrower's or a related person's residence) are not regulated either as regulated mortgage contracts or as regulated credit agreements.

15A credit agreement is an exempt agreement17 in the following cases:

1. (1)

   if the credit agreement is a relevant credit agreement relating to the purchase of land and the lender is a local authority;

2. (2)

   if the credit agreement is a relevant credit agreement relating to the purchase of land specified in CONC App 1.3 and the lender is a person or within a class of persons specified in CONC App 1.3;

3. (3)

   if the credit agreement is secured by a legal or equitable mortgage on land, that land is used or is intended to be used as, or in connection with, a dwelling and the lender is a housing authority; or

4. (4)

   If the lender is an investment firm or a credit institution , and the agreement is entered into for the purpose of allowing the borrower to carry out a transaction relating to one or more financial instruments.

15A credit agreement is also an exempt agreement in the following cases:

1. (1)

   if (subject to PERG 2.7.19H G):

   1. (a)

      the agreement is a borrower-lender-supplier agreement for fixed-sum credit;

   2. (b)

      the number of payments to be made by the borrower is not more than four;

   3. (c)

      those payments are required to be made within a period of 12 months or less (beginning on the date of the agreement); and

   4. (d)

      the credit is:

      1. (i)

         secured on land; or

      2. (ii)

         provided without interest or other charges;

2. (2)

   if (subject to PERG 2.7.19H G):

   1. (a)

      the agreement is a borrower-lender-supplier agreement for running-account credit;

   2. (b)

      the borrower is to make payments in relation to specified periods which must be, unless the agreement is secured on land, of three months or less;

   3. (c)

      the number of payments to be made by the borrower in repayment of the whole amount of credit provided in each period is not more than one; and

   4. (d)

      the credit is:

      1. (i)

         secured on land; or

      2. (ii)

         provided without interest or other significant charges;

3. (3)

   if:

   1. (a)

      the agreement is a borrower-lender-supplier agreement financing the purchase of land;

   2. (b)

      the number of payments to be made by the borrower is not more than four; and

   3. (c)

      the credit is:

      1. (i)

         secured on land; or

      2. (ii)

         provided without interest or other charges;

4. (4)

   if:

   1. (a)

      the agreement is a borrower-lender-supplier agreement for fixed-sum credit;

   2. (b)

      the credit is to finance a premium under a contract of insurance relating to land or anything on land (for example, house or contents insurance);

   3. (c)

      the lender is the lender under a credit agreement secured by a legal or equitable mortgage on that land;

   4. (d)

      the credit is to be repaid within the period (which must be 12 months or less) to which the premium relates;

   5. (e)

      in the case of an agreement secured on land, there is no charge forming part of the total charge for credit under the agreement (see CONC App 1) other than interest at a rate not exceeding the rate of interest payable under the mortgage loan in (c);

   6. (f)

      in the case of an agreement which is not secured on land, the credit is provided without interest or other charges; and

   7. (g)

      the number of payments to be made by the borrower is not more than 12;

5. (5)

   if:

   1. (a)

      the agreement is a borrower-lender-supplier agreement for fixed-sum credit;

   2. (b)

      the lender is the lender under a credit agreement secured by a legal or equitable mortgage on land;

   3. (c)

      the agreement is to finance a premium under a life insurance policy that meets certain conditions;

   4. (d)

      in the case of an agreement secured on land, there is no charge forming part of the total charge for credit under the agreement (see CONC App 1) other than interest at a rate not exceeding the rate of interest payable under the mortgage loan in (b);

   5. (e)

      in the case of an agreement which is not secured on land, the credit is provided without interest or other charges; and

   6. (f)

      the number of payments to be made by the borrower is not more than 12.

15The exemptions in PERG 2.7.19GG (1) and PERG 2.7.19GG (2) do not apply to:

1. (1)

   credit agreements financing the purchase of land;

2. (2)

   conditional sale agreements or hire-purchase agreements; or

3. (3)

   credit agreements secured by a pledge (other than a pledge of documents of title or of bearer bonds).

15A credit agreement is also an exempt agreement17 in the following cases:

1. (1)

   if it is a borrower-lender agreement, the lender is a credit union and the rate of the total charge for credit (see CONC App 1) does not exceed 42.6 per

   cent;

2. (2)

   if (subject to (5) and (6)):

   1. (a)

      it is a borrower-lender agreement;

   2. (b)

      it is offered to a particular class of individual and not offered to the public generally;

   3. (c)

      it provides that the only charge included in the total charge for credit (see CONC App 1) is interest; and

   4. (d)

      interest under the agreement may not, at any time, be more than the sum of one per cent and the highest of the base rates published by the banks in (4) on the date 28 days before the date on which the interest is charged;

3. (3)

   if (subject to (5) and (6)):

   1. (a)

      it is a borrower-lender agreement;

   2. (b)

      it is an agreement of a kind offered to a particular class of individual and not offered to the public generally;

   3. (c)

      it does not provide for or permit an increase in the rate or amount of any item which is included in the total charge for credit (see CONC App 1); and

   4. (d)

      the total charge for credit under the agreement is not more than the sum of one per cent and the highest of the base rates published by the banks in (4) on the date 28 days before the date on which the charge is imposed;

4. (4)

   the banks (referred to in (3)(d)) are:

   1. (a)

      the Bank of England;

   2. (b)

      Bank of Scotland;

   3. (c)

      Barclays Bank plc;

   4. (d)

      Clydesdale Bank plc;

   5. (e)

      Co-operative Bank Public Limited Company;

   6. (f)

      Coutts & Co;

   7. (g)

      National Westminster Bank Public Limited Company;

   8. (h)

      the Royal Bank of Scotland plc;

5. (5)

   the exemptions in (2) and (3) do not apply, however, if the total amount to be repaid by the borrower may vary according to a formula which is specified in the agreement and which has effect by reference to movements in the level of any index or other factor;

6. (6)

   unless the agreement:

   1. (a)

      is secured on land; or

   2. (b)

      is offered by a lender who is an employer to a borrower as an incident of employment with the lender;

   the exemptions in (2) and (3) apply only if:

   1. (c)

      the agreement is offered under an enactment with a general interest purpose; and

   2. (d)

      the terms on which the credit is provided are more favourable to the borrower than those prevailing on the market, either because the rate of interest is lower than that prevailing on the market or because the rate of interest is no higher than that prevailing on the market, but the other terms on which credit is provided are more favourable to the borrower.

15A credit agreement is an exempt agreement17 if:

1. (1)

   the borrower is an individual;

2. (2)

   the agreement is either secured on land or for credit which exceeds £60,260;

3. (3)

   the agreement includes a declaration, made by the borrower which provides that the borrower agrees to forgo the protection and remedies that would be available to the borrower if the agreement were a regulated credit agreement, which complies with CONC App 1.4;

4. (4)

   a statement has been made in relation to the income or assets of the borrower which complies with CONC App 1.4; and

5. (5)

   the connection between that statement and the credit agreement complies with CONC App 1.4; and

6. (6)

   a copy of that statement was provided to the lender before the agreement was entered into.

1. (1)

   15Entering into a regulated consumer hire agreement as owner is a regulated activity.

2. (2)

   It is also a regulated activity for the owner or another person to exercise, or to have the right to exercise, the owner's rights and duties under a regulated consumer hire agreement.

15A consumer hire agreement is not a regulated consumer hire agreement for the purposes of PERG 2.7.19K G if it is an exempt agreement17. PERG 2.7.19M G to PERG 2.7.19P G describe the categories of exempt agreement17.

15A consumer hire agreement is an exempt agreement17 if the hirer is required by the agreement to make payments exceeding £25,000, and the agreement is entered into by the hirer wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the hirer.

15As in the case of a credit agreement (see PERG 2.7.19D G), if a consumer hire agreement includes a declaration which:

1. (1)

   is made by the hirer;

2. (2)

   provides that the agreement is entered into by the hirer wholly or predominantly for business purposes; and

3. (3)

   complies with CONC App 1.4;

the consumer hire agreement is to be presumed to have been entered into by the hirer for business purposes. This presumption does not apply, however, if the owner or any person who has acted on behalf of the owner knows, or has reasonable cause to suspect, that the agreement is not entered into by the hirer for business purposes.

15A consumer hire agreement is an exempt agreement17 if the owner is a body corporate which supplies gas, electricity or water under an enactment and the subject of the agreement is a meter or metering equipment which is used in connection with that purpose.

15This exemption is substantially the same as the one for credit agreements in PERG 2.7.19J G.

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).

9 Entering into a regulated sale and rent back agreement as an agreement provider and administering a regulated sale and rent back agreement are regulated activities under Article 63J of the Regulated Activities Order (Regulated sale and rent back agreements). Guidance on these regulated activities is in PERG 14.4A (Activities relating to regulated sale and rent back agreements).

There are two regulated activities associated with the activities of a dormant account fund operator under the Dormant Bank and Building Society Accounts Act 2008:

1. (1)

   the meeting of repayment claims; and

2. (2)

   managing dormant account funds (including the investment of such funds).

There are two regulated activities associated with specified benchmarks

1. (1)

   providing information in relation to a specified benchmark; and

2. (2)

   administering a specified benchmark

12A person will be providing information in relation to a specified benchmark where information or an expression of opinion necessary to determine a specified benchmark is provided to, or for the purposes of passing to, a benchmark administrator for the purpose of administering a specified benchmark22.

22It follows from PERG 2.7.20E G that a person who, in the context of an auction or otherwise, submits bids or offers solely for the purpose of transacting in a commodity or financial instrument or any other asset for their own, or their client’s, behalf will not normally be providing information in relation to a specified benchmark.

12We expect that only firms which are members of a benchmark submission panel will carry out the activity of providing information in relation to a specified benchmark.

12A person is not providing information in relation to a specified benchmark where the information he is providing:

1. (1)

   consists solely of factual data obtained from a publicly available source; or

2. (2)

   is compiled by a subscription service for purposes other than in connection with the determination of a specified benchmark and is provided to a benchmark administrator only in the administrator's capacity as a subscriber to the service.

22A person in PERG 2.7.20EA G would also not normally be providing information in relation to a specified benchmark if:

1. (1)

   the information is made available to the benchmark administrator by a third party; and

2. (2)

   the third party can rely on any exemption in PERG 2.7.20G G.

12The activity of administering a specified benchmark comprises:

1. (1)

   administering the arrangements for determining the benchmark;

2. (2)

   collecting, analysing or processing information or expressions of opinion provided for the purpose of determining a specified benchmark; or

3. (3)

   determining a specified benchmark through the application of a formula or other method of calculation to the information or expressions of opinion provided for that purpose.

12For the avoidance of doubt, a firm who is a benchmark submitter is not expected to be carrying out the activities mentioned in PERG 2.7.20HG (2) if it collects, analyses or processes information or expressions of opinion for the purposes of making its own submissions.

12 Specified benchmarks are listed in Schedule 5 to the Regulated Activities Order; since 1 April 2015 the following are specified benchmarks:22

1. (1)

   the London Interbank Offered Rate (LIBOR);22

2. (2)

   ICE SWAP RATE;22

3. (3)

   Sterling Overnight Index Average (SONIA);22

4. (4)

   Repurchase Overnight Index Average (RONIA);22

5. (5)

   WM/Reuters London 4 p.m. Closing Spot Rate;22

6. (6)

   LBMA Gold Price;22

7. (7)

   LBMA Silver Price;22

8. (8)

   ICE Brent Index.22

1. (1)

   15Taking any of the steps in (2) on behalf of an individual is a regulated activity.

2. (2)

   This activity catches steps taken with a view to:

   1. (a)

      ascertaining whether a credit information agency holds information relevant to the financial standing of an individual;

   2. (b)

      ascertaining the contents of such information;

   3. (c)

      securing the correction of, the omission of anything from, or the making of, any other kind of modification of, such information; or

   4. (d)

      securing that a credit information agency which holds such information stops holding the information or does not provide it to any other person.

3. (3)

   Giving advice to an individual in relation to the taking of any of the steps in PERG 2.7.20KG (2)(a) to PERG 2.7.20KG (2)(d)17 is also a regulated activity.

4. (4)

   A credit information agency that takes any of the steps in PERG 2.7.20KG (2)(a) to PERG 2.7.20KG (2)(d)17 in relation to information held by that agency does not provide credit information services.

5. (5)

   In so far as taking any of the steps in PERG 2.7.20KG (2)(a) to PERG 2.7.20KG (2)(d)17 is the activity of operating an electronic system in relation to lending, then it is not also providing credit information services.

1. (1)

   15Furnishing of persons with information relevant to the financial standing of individuals is a regulated activity if the person has collected the information for that purpose.

2. (2)

   A person requires authorisation for this activity only if its business primarily consists of the activities in (1).

3. (3)

   This activity does not include an activity in so far as it is operating an electronic system in relation to lending.

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 electronic money,10effecting or carrying out contracts of insurance, operating a multilateral trading facility, managing dormant account funds, the meeting of repayment claims75, managing a UCITS, acting as depositary or trustee of a UCITS, managing an AIF, acting as trustee or depositary of an AIF, establishing, operating or winding up a collective investment scheme, establishing, operating or winding up a stakeholder pension scheme or establishing, operating or winding up a personal pension scheme16. 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.

Three9 exclusions apply10 to the regulated activity of accepting deposits. The first is that a10deposit 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. The second relates to a firm with a Part 4A permission to manage an AIF or manage a UCITS (see PERG 2.9.22 G (Managers of UCITS and AIFs)).10 There is also excluded from accepting deposits any activity which is carried on by a local authority (see PERG 2.9.23 G).9 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)).

The following activities are excluded from both the regulated activities of effecting and carrying out contracts of insurance.

1. (1)

   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.

2. (2)

   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.

3. (3)

   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).

4. (4)

   Activities carried on by a firm with a Part 4A permission to manage an AIF or manage a UCITS, where they are in connection with, or for the purposes of, managing an AIF or managing a UCITS (see PERG 2.9.22 G (Managers of UCITS and AIFs)).10

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.

1. (1)

   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.

2. (2)

   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.

3. (3)

   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.

4. (4)

   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, alternative debentures6 or debenture warrants or alternative debenturewarrants.6

5. (4A)

   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).

6. (5)

   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.

7. (6)

   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:

   1. (a)

      while acting as bare trustee (or, in Scotland, as nominee);

   2. (b)

      in connection with the sale of goods or supply of services;

   3. (c)

      that takes place between members of a group or joint enterprise;

   4. (d)

      in connection with the sale of a body corporate;

   5. (e)

      in connection with an employee share scheme;

   6. (f)

      as an overseas person;

   7. (g)

      as an incoming ECA provider (see PERG 2.9.18 G);10

      10
   8. (h)

      where it is in connection with or for the purposes of managing a UCITS or managing an AIF and the person has a Part 4A permission to manage a UCITS or manage an AIF (see PERG 2.9.22 G (Managers of UCITS and AIFs));910

      9
   9. (i)

      9while acting as an insolvency practitioner (see PERG 2.9.25 G).

8. (7)

   8An activity that might otherwise be both dealing in investments as principal and bidding in emissions auctions is specifically excluded from dealing in investments as principal as a result of article 24A(2) of the RAO which provides that the activity of bidding in emissions auctions does not form part of any other regulated activity (see PERG 2.7.6D 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:

1. (1)

   arranging (bringing about) deals in investments; or

2. (2)

   making arrangements with a view to transactions in investments; or

3. (3)

   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:

1. (1)

   is the only policyholder; or

2. (2)

   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)).

The 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.

1. (1)

   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.

2. (2)

   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.

3. (3)

   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:

   1. (a)

      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 );

   2. (b)

      in connection with the sale of goods or supply of services (see PERG 2.9.7 G);

   3. (c)

      that takes place between members of a group or joint enterprise (see PERG 2.9.9 G );

   4. (d)

      in connection with the sale of a body corporate (see PERG 2.9.11 G );

   5. (e)

      in connection with an employee share scheme (see PERG 2.9.13 G);

   6. (f)

      as an overseas person (see PERG 2.9.15 G);

   7. (g)

      as an incoming ECA provider (see PERG 2.9.18 G);

   8. (h)

      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);

   9. (i)

      that involves a contract of insurance covering large risks situated outside the EEA (see PERG 2.9.19 G);2

   10. (j)

       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;10

       10
   11. (k)

       where it is in connection with or for the purposes of managing a UCITS or managing an AIF and the person has a Part 4A permission to manage a UCITS or manage an AIF (see PERG 2.9.22 G (Managers of UCITS and AIFs));910

       9
   12. (l)

       9as a local authority in relation to certain contracts of insurance (see PERG 2.9.23 G);

   13. (m)

       9while acting as an insolvency practitioner (see PERG 2.9.25 G).

4. (4)

   8An activity that might otherwise be both dealing in investments as agent and bidding in emissions auctions is specifically excluded from dealing in investments as agent as a result of article 24A(2) of the RAO which provides that the activity of bidding in emissions auctions does not form part of any other regulated activity (see PERG 2.7.6D 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)).

The various activities that involve arranging fall into two general types. These are:3

1. (1)

   those relating to arranging a particular transaction or a contract, agreement5 or plan variation (articles 25(1), 25A(1), 25B(1),5 25C(1) , and 25E(1) 5of the Regulated Activities Order); and

   53
2. (2)

   those relating to making arrangements with a view to persons entering into certain transactions (articles 25(2), 25A(2), 25B(2),5 25C(2) , and 25E(2) 5of the Regulated Activities Order).

   53

The 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.

1. (-1)

   8Under Article 24A(2), an activity that would otherwise be both arranging and bidding in emissions auctions is specifically excluded from arranging because the activity of bidding in emissions auctions does not form part of any other regulated activity (see PERG 2.7.6D G).

2. (1)

   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).

3. (2)

   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.

4. (3)

   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:

   1. (a)

      is the only policyholder; or

   2. (b)

      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.

1. (4)

   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.

2. (5)

   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)) or a regulated sale and rent back agreement entered into on or after 1 July 2009 (article 25E(1)(b))5. This is if the arranging is the result of:

   1. (a)

      anything done in the course of the administration, by an authorised person:

      1. (i)

         of a regulated mortgage contract in the way set out in article 62(a);

      2. (ii)

         of a home reversion plan in the way set out in article 63C(a);

      3. (iii)

         of a home purchase plan in the way set out in article 63G(a);

         5
      4. (iv)

         of a regulated sale and rent back agreement in the way set out in article 63K(a); or5

   2. (b)

      anything done by the unauthorised person in connection with the administration:

      1. (i)

         of a regulated mortgage contract in the way set out in article 62(b);

      2. (ii)

         of a home reversion plan in the way set out in article 63C(b);

      3. (iii)

         of a home purchase plan in the way set out in article 63G(b);5

      4. (iv)

         of a regulated sale and rent back agreement in the way set out in article 63K(b).5

3. (6)

   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.

4. (7)

   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)).

5. (8)

   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.

6. (9)

   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),5 25C(2) and 25E(2) 5only. 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.

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7. (10)

   Under article 33A, making arrangements for introducing persons to:

   1. (a)

      an authorised person who has permission to carry on certain regulated activities concerned with home finance transactions; or

   2. (b)

      an appointed representative who is able to carry on any of those activities without breaching the general prohibition; or

   3. (c)

      an overseas person who carries on any of those activities;

is excluded from articles 25A(2), 25B(2),5 25C(2), and 25E(2) 5 subject to certain conditions related to the receipt of client money and the disclosure of certain information.

1. (11)

   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 alternative debentures6or debenture warrants or alternative debenture warrants6.

2. (12)

   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.

3. (13)

   The following exclusions from both article 25(1) and (2) (outlined in PERG 2.9) apply in specified circumstances where a person makes arrangements:

   1. (a)

      while acting as trustee or personal representative (see PERG 2.9.3 G);

   2. (b)

      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);

   3. (c)

      in connection with the sale of goods or supply of services (see PERG 2.9.7 G);

   4. (d)

      in connection with certain transactions by a group member or by a participator in a joint enterprise (see PERG 2.9.9 G);

   5. (e)

      in connection with the sale of a body corporate (see PERG 2.9.11 G);

   6. (f)

      in connection with an employee share scheme (see PERG 2.9.13 G);

   7. (g)

      as an overseas person (see PERG 2.9.15 G);

   8. (h)

      as an incoming ECA provider (see PERG 2.9.18 G);

   9. (i)

      as a provider of non-motor goods or services related to travel (see PERG 2.9.19 G);

   10. (j)

       involving the provision, on an incidental basis, of information to policyholders or potential policyholders about contracts of insurance (see PERG 2.9.19 G);

   11. (k)

       that involve a contract of insurance covering large risks situated outside the EEA (see PERG 2.9.19 G);

   12. (l)

       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;10

       10
   13. (m)

       in connection with or for the purposes of managing a UCITS or managing an AIF and the person has a Part 4A permission to manage a UCITS or manage an AIF (see PERG 2.9.22 G (Managers of UCITS and AIFs));910

       9
   14. (n)

       9as a local authority in relation to certain contracts of insurance (see PERG 2.9.23 G);

   15. (o)

       9while acting as an insolvency practitioner (see PERG 2.9.25 G).

   The exclusions referred to in (a), (b), (g), (h),9 (m)10 and (n)9 also apply to arranging activities related to home finance transactions (in that context, the exclusion in (n) covers any activity which is carried on by a local authority)9. More detailed guidance on the exclusions that relate to contracts of insurance is in PERG 5 (Insurance mediation activities).

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