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SUP App 3.1 Application

SUP App 3.1.1 G RP

1This appendix applies to all firms when passporting.

SUP App 3.3 Background

The Treaty establishing the European Community

SUP App 3.3.1 G RP
  1. (1)

    The European Community Treaty (the 'Treaty'), as amended by later Treaties, established in EC law the rights of freedom of establishment and freedom to provide services in the European Community.1

  2. (2)

    The Treaty lays down central principles governing the legal framework for freedom of establishment and the free movement of services in the European Community. There are, however, a number of areas where the legal position is not clear. This includes, for example, identifying whether a service is provided through an establishment, where the issues involved are complex. Therefore, this Appendix is intended to provide guidance but cannot be regarded as comprehensive. Ultimately, the construction of the Treaty and relevant Directive provisions is a matter for the European Court of Justice.1

SUP App 3.3.2 G RP

The Treaty provides the framework for the provision of banking, insurance business, investment business, UCITS management services and insurance mediation1, while the Single Market Directives clarify the rights and freedoms within that framework.

1

EC and EEA

SUP App 3.3.3 G RP

The agreement on the European Economic Area, signed at Oporto on 2 May 1992, extends EC legislation to any EEA State that is not part of the European Community.Any references to an EC Member State in this appendix should, therefore, be read as referring to an EEA State.

Interpretative communications

SUP App 3.3.4 G RP

In 1997, the European Commission published an interpretative communication (Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)) (the text of this directive and the First Banking Directive is now consolidated in the Banking Consolidation Directive). The European Commission's objective in publishing this communication was to explain and clarify the Community rules. The European Commission deemed it desirable "to restate in a Communication the principles laid down by the Court of Justice and to set out its position regarding the application of these Principles to the specific problems raised by the Second Banking Directive".

SUP App 3.3.5 G RP

In 2000, the European Commission published a further interpretative communication (Freedom to provide services and the general good in the insurance sector (2000/C43/03)). This allowed the European Commission to publicise its own interpretation of the rules on the freedom to provide services.

SUP App 3.3.6 G RP
1
  1. (1)

    The European Commission has not produced an interpretative communication on MiFID3. It is arguable, however, that the principles in the communication on the Second Banking Directive can be applied to investment services and activities3. This is because Chaper II of Title II of MiFID3 (containing provisions relating to operating conditions for investment firms3) also applies to the investment services and activities3 of firms operating under the Banking Consolidation Directive.1

    3333
  2. (2)

    The European Commission has not produced an interpretative communication on either the Insurance Mediation Directive or on the UCITS Directive.1

SUP App 3.3.7 G RP

In giving its views, communications made by the European Commission have the status of guidance and are not binding on the national courts of EEA States. This is because it is the European Court of Justice that has ultimate responsibility for interpreting the Treaty and secondary legislation. Accordingly, the communications "do not prejudge the interpretation that the Court of Justice of the European Communities, which is responsible in the final instance for interpreting the Treaty and secondary legislation, might place on the matter at issue." (European Commission interpretative communication: Freedom to provide services and the general good in the insurance sector (C(99) 5046). However, the Courts may take account of European Commission communications when interpreting the Treaty and secondary legislation.

SUP App 3.3.8 G RP

Firms should also note that European Commission communications do not necessarily represent the views taken by all EEA States.

E-Commerce

SUP App 3.3.9 G RP

The E-Commerce Directive covers services provided at a distance by means of electronic equipment for the processing (including digital compression) and storage of data. The services would normally be provided in return for remuneration and must be provided at the individual request of a recipient (see recital 17 of the E-Commerce Directive). The Directive implements the country of origin approach to regulation. This approach makes firms subject to the conduct of business requirements of the EEA State from which the service is provided. This is subject to certain derogations (see SUP App 3.3.11 G).

SUP App 3.3.10 G RP

The E-Commerce Directive does not affect the responsibilities of Home State under the Single Market Directives. This includes the obligation of a Home State regulator to notify the Host State regulator of a firm's intention to establish a branch in, or provide cross border services into, the other EEA State.

SUP App 3.3.11 G RP

There are, however, general derogations from the internal market provisions under article 3(3) of the E-Commerce Directive. The derogations include consumer contracts, the permissibility of unsolicited e-mail and certain insurance services (both life and non-life). Where these derogations apply, the EEA States in which the recipients of the service are based may continue to be able to impose their own requirements.

SUP App 3.3.12 G

[deleted]2

2

Notification of establishing a branch or of providing cross border services1

SUP App 3.3.13 G RP

1The Single Market Directives require credit institutions, insurance undertakings (other than reinsurance undertakings)5, MiFID investment firms3, UCITS management companies and insurance intermediaries to make a notification to the Home State before establishing a branch or providing cross border services.

SUP 13.5 (Notices of intention) sets out the notification requirements for a firm seeking to establish a branch or provide cross border services. As firms will note, the decision whether a passport notification needs to be made will be a matter of interpretation. The onus is on firms to comply with the requirements of the Act and, where relevant, the laws of other EEA States. So, in cases of doubt, firms should obtain their own legal advice on the specific issues involved.

3
SUP App 3.3.14 G RP

1Blanket notification is the practice of the Home State regulator notifying all Host State regulators in respect of all activities regardless of any genuine intention to carry on the activity. This practice is discouraged by the FSA. However, a firm may be carrying on activities in the United Kingdom or elsewhere in a way that necessarily gives rise to a real possibility of the provision of services in other EEA States. In such cases, the firm should consider with its advisers whether it should notify the relevant authorities and include that possibility in its business plan.

SUP App 3.6 Freedom to provide services

SUP App 3.6.1 G RP

Article 49 (Services) (formerly article 59) of the Treaty grants to EC nationals established in one EEA State the freedom to provide cross border services to the nationals of other EEA States.

How services may be provided

SUP App 3.6.2 G RP

Under the Treaty, the freedom to provide services within the EC may be exercised in three broad ways:

  1. (1)

    where the provider of a service moves temporarily to another EEA State in order to provide the service;

  2. (2)

    where the service is provided without either the provider or the recipient moving (in this situation the provision, and receipt, of the service may take place by post, telephone or fax, through computer terminals or by other means of remote control);

  3. (3)

    where the recipient of a service moves temporarily to another EEA State in order to receive (or, perhaps, commission the receipt of) the service within that State.

SUP App 3.6.3 G RP

Under the Single Market Directives, however, EEA rights for the provision of services are concerned only with services provided in one of the ways referred to in SUP App 3.6.2 G (1) and (2) (How services may be provided).2

1
SUP App 3.6.4 G

[deleted]1

1

Place of supply

SUP App 3.6.5 G RP

In the opinion of the European Commission (and in the wording of the Single Market Directives) "only activities carried on within the territory of another Member State should be the subject of prior notification" (Commission interpretative communication: Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)). In determining, for the purposes of notification, whether a service is to be provided 'within' another EEA State, it is necessary to determine the place of supply of the service.

SUP App 3.6.6 G RP

An insurance undertaking that effects contracts of insurance covering risks or commitments situated in another EEA State should comply with the notification procedures for the provision of services within that EEA State. The location of risks and commitments is found by reference to the rules set out in paragraph 6 of schedule 12 to the Act, which derive from article 1 of the Consolidated Life Directive and article 2 of the Second Non-Life Directive. It may be appropriate for insurers to take legal advice as to how these rules are interpreted and applied in other EEA States. The need to passport may arise because of only one of the risks covered by an insurance policy. This includes, for example, where a policy covers a number of property risks and one of those properties is in another Member State.

SUP App 3.6.7 G RP

In respect of banking services, the European Commission believes that "...to determine where the activity was carried on, the place of provision of what may be termed the 'characteristic performance' of the service i.e. the essential supply for which payment is due, must be determined" (Commission interpretative communication: Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)). In the FSA's view , this requires consideration of where the service is carried out in practice.

SUP App 3.6.8 G RP

The FSA is of the opinion that UK firms that are credit institutions and MiFID investment firms2 should apply the 'characteristic performance' test (as referred to in SUP App 3.6.7 G) when considering whether prior notification is required for services business. Firms should note that other EEA States may take a different view. Some EEA States may apply a solicitation test. This is a test as to whether it is the consumer or the provider that initiates the business relationship.2

2
SUP App 3.6.9 G RP

In the case of a UK firm conducting portfolio management, for example, this would mean looking at where the investment decisions and management are actually carried on in order to determine where the service is undertaken. Similarly, a UK stockbroker that receives orders by telephone from a customer in France for execution on a UK exchange may be deemed to be dealing or receiving and transmitting orders within the territory of the United Kingdom. In such a case, whether the firm solicited the overseas investor would be irrelevant.

SUP App 3.6.10 G RP

Where, however, a credit institution or MiFID investment firm:2

2
  1. (1)

    intends to send a member of staff or a temporarily authorised intermediary to the territory of another EEA State on a temporary basis to provide financial services; or

  2. (2)

    provides advice, of the type that requires notification under either MiFID or the Banking Consolidation Directive2, to customers in another EEA State;

    2

the firm should make a prior notification under the freedom to provide services.

Temporary activities

SUP App 3.6.11 G RP

The key distinction in relation to temporary activities is whether a firm should make its notification under the freedom of establishment in a Host State, or whether it should notify under the freedom to provide services into a Host State. It would be inappropriate to discuss such a complex issue in guidance of this nature. It is recommended that, where a firm is unclear on the distinction, it should seek appropriate advice. In either case, where a firm is carrying on activities in another Member State under a Single Market Directive, it should make a notification.

SUP App 3.6.12 G

[deleted]1

1
SUP App 3.6.13 G

[deleted]1

1
1
SUP App 3.6.14 G

[deleted]1

1

Monitoring procedures

SUP App 3.6.15 G RP

The FSA considers that, in order to comply with Principle 3:Management and control (see PRIN 2.1.1 R), a firm should have appropriate procedures to monitor the nature of the services provided to its customers. Where a UK firm has non-resident customers but has not notified the EEA State in which the customers are resident that it wishes to exercise its freedom to provide services, the FSA would expect the firm's systems to include appropriate controls. Such controls would include procedures to prevent the supply of services covered by the Single Market Directives in the EEA State in which the customers are resident if a notification has not been made and it is proposed to provide services otherwise than by remote communication. In respect of insurance business, the insurer's records should identify the location of the risk at the time the policy is taken out or last renewed. That will, in most cases, remain the location of the risk thereafter, even if, for example, the policyholder changes his habitual residence after that time.

1
SUP App 3.6.16 G

[deleted]1

1
SUP App 3.6.17 G

[deleted]1

SUP App 3.6.18 G

[deleted]1

1
SUP App 3.6.19 G

[deleted]1

1
SUP App 3.6.20 G

[deleted]1

1
1
SUP App 3.6.21 G

[deleted]1

1
1
SUP App 3.6.22 G

[deleted]1

SUP App 3.6.23 G

[deleted]1

SUP App 3.6.24 G

[deleted]1

Membership of regulated markets

SUP App 3.6.25 G RP
  1. (1)

    2The FSA is of the opinion that where a UK firm becomes a member of:

    1. (a)

      a regulated market that has its registered office or, if it has no registered office, its head office, in another EEA State; or

    2. (b)

      an MTF operated by a MiFID investment firm or a market operator in another EEA State,

2the same principles as in the 'characteristic performance' test should apply. Under this test, the fact that a UK firm has a screen displaying the regulated market's or the MTF's prices in its UK office does not mean that it is dealing within the territory of the Home State of the regulated market or of the MTF.

  1. (2)

    2In such a case, wewould consider that:

    1. (a)

      the market operator operating the regulated market or the MTF is providing a cross-border service into the UK and so, provided it has given notice to its Home State regulator in accordance with articles 42(6) or 31(5) MiFID, it will be exempt from the general prohibition in respect of any regulated activity carried on as part of the business of the regulated market or of operating an MTF (see section 312A of the Act);

    2. (b)

      the MiFID investment firm operating the MTF is providing a cross-border service into the UK and so needs to comply with SUP 13A.2

2
SUP App 3.6.26 G RP

Firms are reminded of their rights, under article 33 2of MiFID2, to become members of, or have access to, the regulated markets in other Member States.

2 2
SUP App 3.6.27 G RP

Firms should note that, in circumstances where the FSA takes the view that a notification would not be required, other EEA States may take a different view.

1
SUP App 3.6.28 G

[deleted]1

1
SUP App 3.6.29 G

[deleted]1

1
SUP App 3.6.30 G

[deleted]1

1
SUP App 3.6.31 G

[deleted]1

1

SUP App 3.9 Mapping of MiFID331,1 Banking Consolidation Directive, UCITS Directive and Insurance Mediation Directive1 to the Regulated Activities Order

SUP App 3.9.1 G RP

The following Tables 1, 2, 2A and 2B1 provide an outline of the regulated activities and specified investments that may be of relevance to firms considering undertaking passported activities under the Banking Consolidation Directive, 1MiFID3, the UCITS Directive and the Insurance Mediation Directive.1 The tables may be of assistance to UK firms that are thinking of offering financial services in another EEA State and to EEA firms that may offer those services in the United Kingdom.

1 1 3 1
SUP App 3.9.2 G RP

The tables provide a general indication of the investments and activities specified in the Regulated Activities Order that may correspond to categories provided for in the Banking Consolidation Directive, 1MiFID3, the UCITS Directive or the Insurance Mediation Directive1. The tables do not provide definitive guidance as to whether a firm is carrying on an activity that is capable of being passported, nor do the tables take account of exceptions that remove the effect of articles. Whether a firm is carrying on a passported activity will depend on the particular circumstances of the firm. If a firm's activities give rise to potential passporting issues, it should obtain specialist advice on the relevant issues.

1 1 3 1
SUP App 3.9.3 G RP

In considering the issues raised in the tables, firms should note that:

  1. (1)

    article 64 of the Regulated Activities Order (Agreeing to carry on specific kinds of activity) applies in respect of agreeing to undertake the specified activity; and

  2. (2)

    article 89 of the Regulated Activities Order (Rights to or interests in investments) applies in respect of rights to and interests in the types of investments to which the category applies.

SUP App 3.9.4 G RP

Activities set out in Annex I of the BCD1

1

Table 1: BCD activities

Part II RAO Activities

Part III RAO Investments

1.

Acceptance of deposits and other repayable funds from the public

Article 5

Article 74

2.

Lending

Article 61, 64

Article 88

3.

Financial leasing

4.

Money transmission services

5.

Issuing and administering means of payment (eg credit cards, travellers' cheques and bankers' drafts)

6.

Guarantees and commitments

7.

Trading for own account or for account of customers in:

(a) money market instruments

(b) foreign exchange

(c) financial futures and options

(d) exchange and interest rate instruments

(e) transferable securities

Article 14, 21, 25 (see Note 1), 64

Article 14, 21, 25, 64

Article 14, 21, 25, 64

Article 14, 21, 25, 64

Article 14, 21, 25, 64

Article 77, 78, 80, 83-85, 89

Article 83-85, 89

Article 83-85, 89

Article 83-85, 89

Article 76-81, 89

8.

Participation in share issues and the provision of services relating to such issues

Article 14, 21, 25, 53, 64

Article 76-81, 89

9.

Advice to undertakings on capital structure, industrial strategy and related questions and advice and services relating to mergers and the purchase of undertakings

Article 14, 21, 25, 53, 64

Article 76-80, 83-85, 89

10.

Money broking

Article 25, 64

Article 77, 78, 89

11.

Portfolio management and advice

Article 14, 21, 25, 37, 53, 64

Article 76-81, 83-85, 89

12.

Safekeeping and administration of securities

Article 40, 45, 64

Article 76-81, 83-85, 89

13.

Credit reference services

14.

Safe custody services

1 1

3Note 12: The services and activities provided for in Sections A and B of Annex I of MiFID when referring to the financial instruments provided for in Section C of Annex I of that Directive are subject to mutual recognition according to the BCD from 1 November 2007.See2 the table at SUP App 3.9.5 G below for mapping of MiFIDinvestment services and activities.For further details relating to this residual category, please see the "Banking Consolidation Directive"section of the passporting forms entitled "Notification of intention to establish a branch in another EEA State" and "Notification of intention to provide cross border services in another EEA State".2

2

Services set out in Annex I to MiFID3

SUP App 3.9.5 G RP

3Table 2: MiFIDinvestment services and activities

Part II RAO Investments

Part III RAO Investments

A MiFIDinvestment services and activities

1.

Reception and transmission of orders in relation to one or more financial instruments

Article 252

Article 76-81, 83-85, 89

2.

Execution of orders on behalf of clients

Article 14, 21

A Article 76-81, 83-85, 89

3.

Dealing on own account

Article 14

Article 76-81, 83-85, 89

4.

Portfolio management

Article 37 (14, 21, 25 - see Note 1) 2

Article 76-81, 83-85, 89

5.

Investment advice

Article 53

Article 76-81, 83-85, 89

6.

Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis

Article 14, 21

Article 76-81, 83-85, 89

7.

Placing of financial instruments without a firm commitment basis

Article 21, 25

Article 76-81, 83-85, 89

8.

Operation of Multilateral Trading Facilities

Article 25B (see Note 2)

Article 76-81, 83-85, 89

Ancillary services

Part II RAO Activities

Part III RAO Investments

1.

Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management

Article 40, 45, 64

Article 76-81, 83-85, 89

2.

Granting credits or loans to an investor to allow him to carry out a transaction in one or more of the relevant instruments where the firm granting the credit or loan is involved

3.

Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings

Article 14, 21, 25, 53, 64

Article 76-80, 83-85, 89

4.

Foreign exchange services where these are connected with the provision of investment services

Article 14, 21, 25, 53, 64

Article 83-85, 89

5.

Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments

Article 53, 64

Article 76-81, 83-85, 89

6.

Services related to underwriting

Article 25, 53, 64

Article 76-81, 83-85, 89

7.

Investment services and activities as well as ancillary services of the type included under Section A or B of Annex I related to the underlying of the derivatives included under Section C 5, 6, 7 and 10-where these are connected to the provision of investment or ancillary services.

Article 14, 21, 25, 25B, 37, 53, 64

Article 83 and 84

Note 1. A firm may also carry on these other activities when it is managing investments.2

Note 2. A firm operating an MTF under article 25B does not need to have a permission covering other regulated activities, unless it performs other regulated activities in addition to operating an MTF.

SUP App 3.9.6 G RP

1Activities set out in Article 5(2) and (3) of the UCITS Directive

Table 2A: UCITS Directive activities

Part II RAO Activities

Part III RAO Investments

1.

The management of UCITS in the form of unit trusts / common funds or of investment companies; this includes the function mentioned in Annex II of the UCITS Directive (see Note 2).

Articles 14, 21, 25, 37, 51, 53, 64

Articles 76-81, 83-85, 89

2.

Managing portfolios of investments, including those owned by pension funds, in accordance with mandates given by investors on a discretionary, client-by-client basis, where such portfolios include one or more of the instruments listed in Section C 3of Annex I 3to MiFID3.

3 3

Articles 14, 21, 25, 37, 53, 64

Articles 76-81, 83-85, 89

3.

Investment advice concerning one or more of the instruments listed in Section C3of Annex I 3to MiFID3.

3

Articles 53, 64

Articles 76-81, 83-85, 89

4.

Safekeeping and administration services in relation to units of collective investment undertakings.

Articles 40, 45, 64

Articles 76-81, 83-85, 89

Note 1. A UCITS management company can only exercise passport rights under the UCITS Directive (article 2(13)(h) of MiFID3). A UCITS management company can only be authorised to carry on the non-core services set out in rows (3) and (4) of Table 2A if it is also authorised to carry on the activity set out in row (2) of the table.

3 3

Note 2. The functions set out in Annex 2 to the UCITS Directive are:

1.

Investment management.

2.

Administration:

a.

legal and fund management accounting services;

b.

customer inquiries;

c.

valuation and pricing (including tax returns);

d.

regulatory compliance monitoring;

e.

maintenance of unit-holder register;

f.

distribution of income;

g.

unit issues and redemptions;

h.

contract settlements (including certificate dispatch);

i.

record keeping.

3.

Marketing.

1Activities set out in Article 2(3) of the IMD

SUP App 3.9.7 G RP

Table 2B: Insurance Mediation Directive 2 Activities

2

Part II RAO Activities

Part III RAO Investments

1.

Introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance.

Articles 25, 53 and 64

Articles 75, 89 (see Note 1)

2.

Concluding contracts of insurance

Articles 21, 25, 53 and 64

Articles 75, 89

3.

Assisting in the administration and performance of contracts of insurance, in particular in the event of a claim.

Articles 39A, 64

Articles 75, 89

Note 1. Rights to or interests in life policies are specified investments under Article 89 of the Regulated Activities Order, but rights to or interests in general insurance contracts are not.

SUP App 3.10 Mapping of Insurance Directives to the Regulated Activities Order

Introduction

SUP App 3.10.1 G RP

The guidance in Table 3 describes in broad outline the relationship between:

4
  1. (1)

    the insurance-related regulated activities specified in the Regulated Activities Order; and

  2. (2)

    the activities within the scope of the Insurance Directives

SUP App 3.10.2 G RP

This is a guide only and should not be used as a substitute for legal advice

in individual cases.

Table 3: Insurance Directive activities

Part II RAO Activities

Part III RAO Investments

1. Non-life insurance activities

1.

Taking up and carrying on direct non-life insurance business

Article 10

Article 75

2.

Classes 1 to 18 of direct non-life insurance business in Point A of the Annex to the First Directive

Corresponding paragraphs 1 to 18 of Schedule 1, Part I

2. Consolidated Life Directive activities

1.

Taking up and carrying on direct life insurance business

Article 10

Article 75

2.

Classes I to IX of direct life insurance business in the Annex 1 to the Consolidated Life Directive

Corresponding paragraphs I to IX of Schedule 1, Part II

Meaning of contract of insurance

SUP App 3.10.3 G RP

The meaning of contract of insurance is set out in article 3(1) of the Regulated Activities Order (Interpretation). It does not include benefit-in-kind funeral plans, which are specified in article 60 of the Regulated Activities Order (plans covered by insurance or trust arrangements). Such funeral plans (to the extent that they are insurance) are also excluded from theInsurance Directives. It covers some contracts which might not otherwise be viewed as insurance in the United Kingdom (for example, contracts of guarantee). These contracts are also governed by theInsurance Directives. For the purpose of the Regulated Activities Order, a contract of insurance includes a contract of reinsurance as well as a contract of direct insurance.

The Insurance Directives

SUP App 3.10.4 G RP

Article 1 of the First Non-Life Directive and article 2 of the Consolidated Life Directive provides that the Directives "concern the taking up and pursuit of the self-employed activity of direct insurance". By contrast, article 10 of the Regulated Activities Order (Effecting and carrying out contracts of insurance) also covers reinsurance.

SUP App 3.10.5 G RP

Articles 2, 3 and 4 of the First Non-Life Directive and article 3 of the Consolidated Life Directive set out certain exclusions by reference to:

  1. (1)

    types of insurance;

  2. (2)

    types of insurer;

  3. (3)

    particular conditions under which insurance activities are carried out.

  4. (4)

    annual income; and

  5. (5)

    particular identified institutions.

SUP App 3.10.6 G RP

Some of the exclusions referred to mirror exclusions in the Regulated Activities Order. So, the exclusion for breakdown insurance in article 2(3) of the First Non-Life Directive is matched by a slightly narrower exclusion in article 12 of the Regulated Activities Order (Breakdown insurance). The separate treatment of benefit-in-kind funeral plans under the Regulated Activities Order (see SUP App 3.10.4 G) is matched by their exclusion on a slightly wider basis in article 3(5) of the Consolidated Life Directive. Other requirements from these Directives are also excluded from regulation by the Exemption Order.

SUP App 3.10.7 G RP

Most of the exclusions under the Directives, however, are not excluded from being regulated activities. For example, article 3 of the Consolidated Life Directive and article 3 of the Non-Life Directive exclude certain mutual associations whose annual contribution income falls below a defined threshold. In the United Kingdom, these include certain smaller friendly societies commonly referred to as "non-directive friendly societies". The activities of such societies are regulated under the Act, on a "lighter basis" than the activities of other insurers.

Territorial scope of the Regulated Activities Order and the Directives

SUP App 3.10.8 G RP

Under the Act and the Regulated Activities Order, the activities of effecting and carrying out contracts of insurance are treated as being carried on in the United Kingdom on the basis of legal tests under which the location of the risk is only one factor. If the risk is located in the United Kingdom, then (other relevant factors being taken into account) the activity will, in the vast majority of cases, also be viewed as carried on in the United Kingdom. There are exceptions, however, and overseas insurers may insure risks in the United Kingdom without carrying on business here and so without requiring to be regulated (although the financial promotion regime may apply). By contrast, under the Directives, the responsibility, as between EEA States, for regulating the conduct of passported insurance services is determined by reference to the location of the risk or commitment, as defined in article 1 of the Consolidated Life Directive and article 2 of the Second Non-Life Directive.

SUP App 3.10.9 G RP

So, the effect of App 3.12.1 is that an insurer may be carrying on insurance business in the United Kingdom which is to be treated as a regulated activity under article 10 to the Regulated Activities Order (Effecting and carrying out contracts of insurance) in circumstances where the risks covered are treated as located in another EEA State. In that event, the insurer is required by Schedule 3 to the Act to passport into the State concerned and may be subject to conduct of business requirements in that State (see SUP 13.10 (Applicable provisions)).

SUP App 3.10.10 G RP

An insurer authorised in another EEA State who is insuring UK risks and so passports on a services basis under the Insurance Directives into the United Kingdom (see ), may not be carrying on a regulated activity in the United Kingdom. But, if it passports into the United Kingdom, it will qualify for authorisation under paragraph 12 of Schedule 3 to the Act (Firms qualifying for authorisation). Where this is the case, the insurer will be subject to conduct of business requirements in the United Kingdom (see 3SUP 13A.63 (Which rules will an incoming EEA firm be subject to?)).

Activities carried on by incoming EEA firms in connection with insurance business.

SUP App 3.10.11 G RP

Although the Insurance Directives are concerned with the regulated activities of effecting and carrying out contracts of insurance, an incoming EEA firm passported under the Insurance Directives2 will be entitled to carry on certain other regulated activities without the need for top-up permission. This is where the regulated activities are carried on for the purposes of or in connection with the incoming EEA Firm's insurance business1. These regulated activities may include:

  1. (1)

    dealing in investments as principal;

  2. (2)

    dealing in investments as agent;

  3. (3)

    arranging (bringing about) deals in investments;

  4. (4)

    making arrangements with a view to transactions in investments;

  5. (5)

    managing investments;

  6. (6)

    safeguarding and administering investments;

  7. (7)

    advising on investments;

  8. (8)

    agreeing to carry on a regulated activity of the above kind.

Financial promotion

SUP App 3.10.12 G RP

The financial promotion regime under section 21 of the Act (Restrictions on financial promotion) may also apply to EEA insurance undertakings regardless of whether they carry on a regulated activity in the United Kingdom or passport into the United Kingdom.

Position of EEA insurers carrying out both direct and reinsurance business6

SUP App 3.10.13 G

The Insurance Directives do not apply to the authorisation to carry on reinsurance6. But, the Insurance Directives do not prevent insurance undertakings authorised under those Directives from carrying out reinsurance6 as well as direct insurance business. Article 13(2) of the First Non-Life Directive and article 10(2) of the Consolidated Life Directive state that financial supervision of insurance undertakings "shall include verification, with respect to the insurance undertaking's6 entire business, of its state of solvency, of the establishment of technical provisions and of the assets covering them". On that basis, an insurance undertaking authorised in another EEA State which carries on a mixed direct insurance and reinsurance6 business, and is, therefore, subject to the requirements of the Directives, will generally be treated as satisfying the conditions laid down by a Community instrument relating to the carrying on of the regulated activity of effecting or carrying out contracts of insurance6. This is for the purpose of paragraph 3 of Schedule 4 to the Act (Exercise of treaty rights). The insurance undertaking will, therefore, generally be able to qualify for permission3as a Treaty firm4for its reinsurance6 business if it follows the procedure provided for by Schedule 4 (see 3SUP 13A.3.4 G3 to 3SUP 13A.3.11 G3 (Treaty Firms) ). This will be in addition to the insurance undertaking being an EEA firm under Schedule 3 of the Act for its direct insurance business.

6 6 6 6 6 3 4 6 4