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The PerimeterGuidance manual

PERG Contents

The Perimeter Guidance manual

PERG 1 Introduction to the Perimeter Guidance manual

1.1 Application and purpose1.2 Introduction1.3 Status of guidance1.4 General guidance to be found in PERG1.5 What other guidance about the perimeter is available from the FCA?

PERG 2 Authorisation and regulated activities

2.1 Application and purpose2.2 Introduction2.3 The business element2.4 Link between activities and the United Kingdom2.5 Investments and activities: general2.6 Specified investments: a broad outline2.7 Activities : a broad outline2.8 Exclusions applicable to particular regulated activities2.9 Regulated activities: exclusions applicable in certain circumstances2.10 Persons carrying on regulated activities who do not need authorisation2.11 Persons who are exempt for credit-related regulated activities2 Annex 1 Authorisation and regulated activities2 Annex 2 Regulated activities and the permission regime

PERG 3A Guidance on the scope of the Electronic Money Regulations 2011

3A.1 Introduction3A.2 General issues3A.3 The definition of electronic money3A.4 Small electronic money institutions, mixed businesses, distributors,

agents and exempt bodies3A.5 Exclusions3A.6 Territorial scope3A.7 Transitional arrangements

PERG 4 Guidance on regulated activities connected with mortgages

4.1 Application and purpose4.2 Introduction4.3 Regulated activities related to mortgages4.4 What is a regulated mortgage contract?4.4A Mortgage contracts entered into before 21 March 20164.5 Arranging regulated mortgage contracts4.6 Advising on regulated mortgage contracts

Release 26 Mar 2018www.handbook.fca.org.ukPERGi

PERG Contents

4.7 Entering into a regulated mortgage contract4.8 Administering a regulated mortgage contract4.9 Agreeing to carry on a regulated activity4.10 Exclusions applying to more than one regulated activity4.10A Activities regulated under the Mortgage Credit Directive4.10B Regulation of buy to let lending4.11 Link between activities and the United Kingdom4.12 Appointed representatives4.13 Other exemptions4.14 Mortgage activities carried on by professional firms4.15 Mortgage activities carried on by 'packagers'4.16 Mortgage activities4.17 Interaction with the Consumer Credit Act and consumer credit regulated

activities4.18 Regulated activities related to mortgages: flowchart

PERG 5 Guidance on insurance mediation activities

5.1 Application and purpose5.2 Introduction5.3 Contracts of insurance5.4 The business test5.5 The regulated activities: dealing in contracts as agent5.6 The regulated activities: arranging deals in, and making arrangements

with a view to transactions in, contracts of insurance5.7 The regulated activities: assisting in the administration and performance

of a contract of insurance5.8 The regulated activities: advising on contracts of insurance5.9 The Regulated Activities: agreeing to carry on a regulated activity5.10 Renewals5.11 Other aspects of exclusions5.12 Link between activities and the United Kingdom5.13 Appointed representatives5.14 Exemptions5.15 Illustrative tables5.16 Meaning of 'insurance mediation'

PERG 6 Guidance on the Identification of Contracts of Insurance

6.1 Application6.2 Purpose of guidance6.3 Background6.4 Limitations of this guidance6.5 General principles6.6 The factors6.7 Examples

PERG 7 Periodical publications, news services and broadcasts: applicationsfor certification

7.1 Application and purpose7.2 Introduction

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PERG Contents

7.3 Does the activity require authorisation?7.4 Does the article 54 exclusion apply?7.5 When is it appropriate to apply for a certificate?7.6 Applications for a certificate7.7 Post-certification issues

PERG 8 Financial promotion and related activities

8.1 Application and purpose8.2 Introduction8.3 Financial promotion8.4 Invitation or inducement8.5 In the course of business8.6 Communicate8.7 Engage in investment activity8.8 Having an effect in the United Kingdom8.9 Circumstances where the restriction in section 21 does not apply8.10 Types of financial promotion8.11 Types of exemption under the Financial Promotion Order8.12 Exemptions applying to all controlled activities8.13 Exemptions applying to financial promotions concerning deposits and

certain contracts of insurance8.14 Other financial promotions8.15 Financial promotions by members of the professions (articles 55 and

55A)8.16 Financial promotions concerning funeral plans8.17 Financial promotions concerning agreements for qualifying credit8.17-A Financial promotions concerning consumer credit and consumer hire8.17A Financial promotions concerning insurance mediation activities8.18 Financial promotions concerning the Lloyds market8.19 Additional restriction on the promotion of life policies8.20 Additional restriction on the promotion of collective investment schemes8.21 Company statements, announcements and briefings8.22 The Internet8.23 Regulated activities8.24 Advising on investments8.25 Advice must relate to an investment which is a security or contractually

based investment8.26 The investment must be a particular investment8.27 Advice to be given to persons in their capacity as investors (on the

merits of their investing as principal or agent)8.28 Advice or information8.29 Advice must relate to the merits (of buying or selling a particular

investment)8.30 Medium used to give advice or information8.30A Pre-purchase questioning (including decision trees)8.30B Personal recommendations8.31 Exclusions for advising on investments8.32 Arranging deals in investments8.33 Introducing8.34 The business test8.35 Authorisation and exemption8.36 Illustrative tables8.37 AIFMD Marketing8 Annex 1 Examples of what is and is not a personal recommendation and advice

Release 26 Mar 2018www.handbook.fca.org.ukPERGiii

PERG Contents

PERG 9 Meaning of open-ended investment company

9.1 Application and Purpose9.2 Introduction9.3 The definition9.4 Collective investment scheme (section 235 of the Act)9.5 The property condition (section 236(2) of the Act)9.6 The investment condition (section 236(3) of the Act): general9.7 The investment condition: the 'reasonable investor'9.8 The investment condition : the 'expectation test' (section 236(3)(a) of

the Act)9.9 The investment condition : the 'satisfaction test' (section 236(3)(b) of

the Act)9.10 Significance of being an open-ended investment company9.11 Frequently Asked Questions

PERG 10 Guidance on activities related to pension schemes

10.1 Background10.2 General issues10.3 Pension Scheme Trustees10.4 Pension scheme service providers other than trustees10.4A The application of EU Directives10.5 Employers and affinity groups (such as trade unions)10 Annex 1 Flow chart showing the steps to be considered in deciding whether

authorisation is needed.10 Annex 2 Flow chart showing the additional steps to be considered by trustees of

occupational pension schemes and other persons in deciding whetherauthorisation is needed for managing the assets of such a scheme

10 Annex 3 Table summarising regulatory position of pension scheme trustees andservice providers

10 Annex 4 Table summarising regulatory position of employers and affinity groups.10 Annex 5 Table summarising regulatory position concerning financial promotions

by trustees, employers and affinity groups.

PERG 11 Guidance on property investment clubs and land investmentschemes

11.1 Background11.2 Guidance on property investment clubs11.3 Guidance on land investment schemes involving planning permission

arrangements

PERG 12 Guidance for persons running or advising on personal pensionschemes

12.1 Background12.2 Establishing, operating or winding up a personal pension scheme12.3 Rights under a personal pension scheme12.4 Application of EU Directives12.5 Financial promotion issues12.6 Advising on conversion or transfer of pension benefits

Release 26 Mar 2018 www.handbook.fca.org.uk PERGiv

PERG Contents

PERG 13 Guidance on the scope of MiFID and CRD IV

13.1 Introduction13.2 General13.3 Investment Services and Activities13.4 Financial instruments13.5 Exemptions from MiFID13.5A Child trust funds and MiFID13.6 CRD IV13.7 The territorial application of MiFID [deleted]13 Annex 1 Annex 113 Annex 2 Annex 213 Annex 3 Annex 313 Annex 4 Principal Statutory Instruments relating to MiFID scope issues [deleted]

PERG 14 Guidance on home reversion and home purchase activities

14.1 Background14.2 General issues14.3 Activities relating to home reversion plans14.4 Activities relating to home purchase plans14.4A Activities relating to regulated sale and rent back agreements14.5 The by-way-of-business test14.6 Carrying on a regulated activity in the United Kingdom14.7 Exemptions14.8 Financial promotions

PERG 15 Guidance on the scope of the Payment Services Regulations 2017

15.1 Introduction15.2 General15.3 Payment services15.4 Small payment institutions, agents and exempt bodies15.5 Negative scope/exclusions15.6 Territorial scope15.7 Transitional provisions15 Annex 1 [deleted]15 Annex 2 Payment Services in Schedule 1 Part 1 to the PSRs 201715 Annex 3 Schedule 1 Part 2 to the PSRs 2017: Activities which do not constitute

payment services

PERG 16 Scope of the Alternative Investment Fund Managers Directive

16.1 Introduction16.2 What types of funds and businesses are caught?16.3 Managing an AIF16.4 Acting as a depositary of an AIF16.5 How AIFMD affects other regulated activities16.6 Exclusions16.7 By way of business16.8 Territorial scope

Release 26 Mar 2018www.handbook.fca.org.ukPERGv

PERG Contents

PERG 17 Consumer credit debt counselling

17.1 Introduction17.2 The basic elements of debt counselling17.3 What the advice must be about17.4 Advice must relate to a particular debt and debtor17.5 The meaning of advice17.6 Exclusions17.7 Examples

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PERG Contents

Release 26 Mar 2018www.handbook.fca.org.ukPERGvii


Chapter 1

Introduction to the PerimeterGuidance manual

Release 26 Mar 2018 www.handbook.fca.org.uk PERG 1/1

PERG 1 : Introduction to the Section 1.1 : Application and purposePerimeter Guidance manual

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Release 26 Mar 2018www.handbook.fca.org.ukPERG 1/2

1.1 Application and purpose

Application......................................................................................................This manual applies to:

(1) a person who is considering carrying on activities in the UnitedKingdom which may fall within the scope of the Act and is seekingguidance on whether he needs to be an authorised person;

(2) a person who seeks to become an authorised person under the Actand who is, or is considering, applying for Part 4A permission to carryon regulated activities in the United Kingdom;

(3) a person who is seeking guidance on whether any communication hemay be seeking to make or cause to be made will be a financialpromotion and be subject to the restriction in section 21 of the Act;and

(4) persons generally.

Purpose......................................................................................................The purpose of this manual is to give guidance about the circumstances inwhich authorisation is required, or exempt person status is available,including guidance on the activities which are regulated under the Act andthe exclusions which are available.

http://www.legislation.gov.uk/ukpga/2000/8/section/21/2005-07-01

PERG 1 : Introduction to the Section 1.2 : IntroductionPerimeter Guidance manual

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1.2 Introduction

(1) The Financial Services and Markets Act 2000 (the Act) is the UKlegislation under which bodies corporate, partnerships, individualsand unincorporated associations are permitted by the FCA or PRA tocarry on various financial activities which are subject to regulation(referred to as regulated activities).

(2) The activities which are regulated activities are specified in theFinancial Services and Markets Act 2000 (Regulated Activities) Order2001 (the Regulated Activities Order): for example, acceptingdeposits, managing investments, effecting contracts of insurance,dealing in investments as agent. In general terms, a regulated activityis an activity, specified in the Regulated Activities Order, carried on byway of business in relation to one or more of the investmentsspecified in the Regulated Activities Order. PERG 2 gives furthergeneral guidance on regulated activities and specified investments.

(1) The Act, and the secondary legislation made under the Act, iscomplex. Although PERG gives guidance about regulated activitiesand financial promotions, it does not aim to, nor can it, beexhaustive.

(2) References have been made to relevant provisions in the Act orsecondary legislation. However, since reproducing an entire statutoryprovision would sometimes require a lengthy quotation, orconsiderable further explanation, many provisions of the Act, orsecondary legislation made under the Act, are summarised. For theprecise details of the legislation, readers of the manual should,therefore, refer to the Act and the secondary legislation itself, as wellas the manual.

(3) The Act and the secondary legislation made under it can be obtainedfrom HMSO at http://www.legislation.hmso.gov.uk/legislation/uk.htmor can be accessed through the Treasury's website (www.hm-treasury.gov.uk).

PERG uses words and phrases that have specific meanings in the Handbookor in legislation; these may be different from, or more precise than, theirusual dictionary meanings. Defined terms used in the text of the Handbookare shown in italics (see Chapter 7 of the Reader's Guide to the Handbook athttp://www.fca.org.uk/your-fca/documents/handbook/handbook-readers-guide ). For the meanings of defined terms used in PERG, see the Glossary. Itis essential that readers refer to these definitions. In the case of those partsof PERG which take the form of Q&A, however, to ensure greater

http://www.legislation.gov.uk/ukpga/2000/8/2005-07-01http://www.legislation.gov.uk/uksi/2001/544http://www.legislation.gov.uk/uksi/2001/544www.fca.org.uk/your-fca/documents/handbook/handbook-readers-guidewww.fca.org.uk/your-fca/documents/handbook/handbook-readers-guide

PERG 1 : Introduction to the Section 1.2 : IntroductionPerimeter Guidance manual

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accessibility of the text we have only italicised Handbook terms in thoseplaces where we think that it would be helpful to the majority of readers.

Except in PERG 2 and PERG 7, where PERG uses the defined term ofadvising on investments, this term refers only to the regulated activity (inarticle 53(1) of the Regulated Activities Order) of advising on investments(except P2P agreements) and related text should be read and construedaccordingly.

PERG 1.4.1 G (General guidance to be found in PERG) summarises thegeneral guidance contained in PERG. Readers should note that in a cross-reference, as explained in paragraph 40 of the Readers' Guide, the codeletters of the manual or sourcebook immediately precede the chapternumber. For example, PERG 1 is the first chapter of the Perimeter Guidancemanual. PERG 1.5 provides details of and links to other general guidance onperimeter issues that is available on the FCA website.

PERG 1 : Introduction to the Section 1.3 : Status of guidancePerimeter Guidance manual

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1.3 Status of guidance

This guidance is issued under section 139A of the Act (Guidance). Itrepresents the FCA's views and does not bind the courts. For example, itwould not bind the courts in an action for damages brought by a privateperson for breach of a rule (see section 138D of the Act (Actions fordamages)), or in relation to the enforceability of a contract where there hasbeen a breach of sections 19 (The general prohibition) or 21 (Restrictions onfinancial promotion) of the Act (see sections 26 to 30 of the Act(Enforceability of agreements)). Although the guidance does not bind thecourts, it may be of persuasive effect for a court considering whether itwould be just and equitable to allow a contract to be enforced (see sections28(3) and 30(4) of the Act). Anyone reading this guidance should refer to theAct and to the relevant secondary legislation to find out the precise scopeand effect of any particular provision referred to in the guidance and anyreader should consider seeking legal advice if doubt remains. If a person actsin line with the guidance in the circumstances mentioned by it, the FCA willproceed on the footing that the person has complied with the aspects of therequirement to which the guidance relates.

http://www.legislation.gov.uk/ukpga/2000/8/section/28/2005-07-01#section-28-3http://www.legislation.gov.uk/ukpga/2000/8/section/28/2005-07-01#section-28-3http://www.legislation.gov.uk/ukpga/2000/8/section/30/2005-07-01#section-30-4

PERG 1 : Introduction to the Section 1.4 : General guidance to be found inPerimeter Guidance manual PERG

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1.4 General guidance to be found inPERG

PERG 1.4.2 G has a table setting out the general guidance to be found inPERG.

Table: list of general guidance to be found in PERG.

Chapter: Applicable to: About:

PERG 2: an unauthorised per- the regulatory scopeson wishing to find out of the Act

Authorisation and whether he needs to be the Regulated Activit-regulated activities authorised or exempt ies Order

an authorised per- the Exemption Orderson wishing to know the Business Orderwhether he needs tovary his Part 4Apermission

PERG 3A: a person who needs to the scope of the Elec-know tronic Money Re-

Guidance on the whether a particular gulationsscope of the Elec- electronic paymenttronic Money Re- product is electronicgulations money and whether the

person issuing it needsto be authorised or re-gistered under the Elec-tronic Money Re-gulations

PERG 4: any person who needs the scope of relevantto know whether the ac- orders (in particular,

Regulated activities tivities he conducts in re- the Regulated Activitiesconnected with lation to mortgages are Order) as respects activ-mortgages subject to FCA regula- ities concerned with

tion. This is likely to mortgagesinclude: lenders administration ser-vice providers mortgage brokersand advisers

PERG 5: any person who needs the scope of relevantto know whether he car- orders (in particular,

Insurance mediation ries on insurance medi- the Regulated Activitiesactivities ation activities and is, Order) as respects activ-

thereby, subject to FCA ities concerned with


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regulation. This is likely the sale or administra-to include: tion of insurance insurance brokers insurance advisers insurance un-dertakings other persons in-volved in the sale or ad-ministration of con-tracts of insurance,where these activitiesare secondary to theirmain business.

PERG 6: any person who needs the general principlesto know whether a con- and range of specific

Identification of contract with which he is in- factors that the FCA re-tracts of insurance volved is a contract of gards as relevant in de-

insurance ciding whether any ar-rangement is a contractof insurance

PERG 7: any person who needs the circumstances into know whether he which such persons will

Periodical publica- will be regulated for be carrying on the regu-tions, news services providing advice about lated activities of advis-and broadcasts: ap- investments through ing on investments orplication for certi- the medium of a period- advising on regulatedfication ical publication, a mortgage contracts (in-

broadcast or a news cluding where a re-service quest for a certificate

may be appropriate)how the FCA will exer-cise its power to grantcertificates

PERG 8: any person who needs the scope of the re-to know striction on financial

Financial promotion whether his commun- promotion under sec-and related activities ications are financial tion 21 of the Act and

promotions or are sub- the main exemptionsject to the restriction in providedsection 21 of the Act or the circumstances inboth which persons who are whether his activities primarily involved inin making or helping making or helpingothers to make financial others to make finan-promotions are regu- cial promotions maylated activities. themselves be con- whether he is market- ducting regulated activ-ing an AIF. ities requiring authoris-

ation or exemptionthe marketing of anAIF.

PERG 9: any person who needs the circumstances into know whether a which a body corporate

Meaning of open-en- body corporate is an will be an open-endedded investment open-ended investment investment companycompany company as defined in

section 236 of the Act(Open-ended invest-ment companies) and is

http://www.legislation.gov.uk/ukpga/2000/8/section/21/2005-07-01http://www.legislation.gov.uk/ukpga/2000/8/section/21/2005-07-01http://www.legislation.gov.uk/ukpga/2000/8/section/21/2005-07-01http://www.legislation.gov.uk/ukpga/2000/8/section/236/2005-07-01


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therefore a collective in-vestment scheme.

PERG 10: Any person who needs the regulated activit-to know whether his ac- ies that arise in connec-

Activities related to tivities in relation to tion with the establish-pension schemes pension schemes will ment and operation of

amount to regulated ac- pension schemes andtivities or whether the any exclusions that mayrestriction in section 21 be relevantof the Act will apply to the circumstances inany financial promo- which financial promo-tions he may make. tions about pension

schemes may be ex-empt from the restric-tion in section 21 ofthe Act

PERG 11: Any person who needs the regulated activit-to know whether his ac- ies that may arise in

Property investment tivities in relation to connection with the es-clubs and land invest- property investment tablishment and opera-ment schemes clubs and land invest- tion of property invest-

ment schemes will ment clubs and land in-amount to regulated ac- vestment schemes andtivities or whether the any exclusions that mayrestriction in section 21 be relevantof the Act will apply to the extent to whichany financial promo- the financial promotiontions he may make. restriction in section 21

of the Act applies

PERG 12: any person who needs the regulated activitiesto know whether his ac- that arise in connection

Running or advising tivities in relation to es- with establishing, run-on personal pension tablishing, running, ad- ning, advising on orschemes vising on or marketing marketing personal

personal pension pension schemes andschemes will amount to any exclusions that mayregulated activities be relevant

PERG 13: Any UK person who the scope of MiFID andneeds to know whether the CRD and EU CRR.

Guidance on the MiFID or the CRD andscope of MiFID and EU CRR (which allowCRD IV the recast CAD to con-

tinue to apply to cer-tain firms)as imple-mented in the UK applyto him

PERG 14: Any person who needs the regulated activit-to know whether his ac- ies that arise in connec-

Home reversion, tivities in relation to tion with home rever-home finance and home reversion plans, sion plans, home pur-regulated sale and home purchase plans or chase plans and regu-rent back activities regulated sale and rent lated sale and rent

back agreements will back agreements andamount to regulated ac- any exclusions that maytivities or whether the be relevantrestriction in section 21 the circumstances inof the Act will apply to which financial promo-

http://www.legislation.gov.uk/ukpga/2000/8/section/21/2006-05-06http://www.legislation.gov.uk/ukpga/2000/8/section/21/2006-05-06http://www.legislation.gov.uk/ukpga/2000/8/section/21/2006-03-06http://www.legislation.gov.uk/ukpga/2000/8/section/21/2006-03-06http://www.legislation.gov.uk/ukpga/2000/8/section/21/2006-11-06


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any financial promotions about home rever-tions he may make. sion plans,home pur-

chase plans and regu-lated sale and rentback agreements maybe made withoutbreaching the restric-tion in section 21 ofthe Act

PERG 15: Guidance on Any person with an es- the scope of the PSDthe scope of the Pay- tablishment in the UK Regulations 2009.ment Services Regula- who needs to knowtions 2009 whether the Payment

Services Directive, astransposed in UK legisla-tion by the Payment Ser-vices Regulations 2009,applies to him.

Q46 applies specificallyto persons providingpayment services froman establishment out-side the EEA to personslocated in the UK.

PERG 16: Scope of the any person who needs the scope of the regu-Alternative Invest- to know whether a col- lated activities of man-ment Fund Managers lective investment un- aging an AIF and act-Directive dertaking is an AIF. ing as trustee or depos-

itary of an AIF.

PERG 17: Consumer Any person who needs The scope of the regu-credit debt to know whether his ac- lated activities relatingcounselling tivities in relation to to consumer credit

debts will amount to debt counselling.debt counselling.

http://www.legislation.gov.uk/ukpga/2000/8/section/21/2006-11-06http://www.legislation.gov.uk/uksi/2009/209http://www.legislation.gov.uk/uksi/2009/209http://www.legislation.gov.uk/uksi/2009/209http://www.legislation.gov.uk/uksi/2009/209http://www.legislation.gov.uk/uksi/2009/209

PERG 1 : Introduction to the Section 1.5 : What other guidance about thePerimeter Guidance manual perimeter is available from the FCA?

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1.5 What other guidance about theperimeter is available from theFCA?

General guidance on the perimeter is also contained in various FCAdocuments (mainly fact sheets and frequently asked questions) that areavailable on the FCA website at www.fca.org.uk .These documents, and theURL on which they may be accessed, include:

(1) [deleted]

(2) [deleted]

(3) [deleted]

(4) [deleted]

(5) [deleted]

(6) [deleted]

(7) guidance about the position under the Insurance Mediation Directiveand the Regulated Activities Order of the company appointed tomanage a PPP or similar construction and operation project - http://www.fca.org.uk/your-fca/documents/fsa-ppp-forum-letter ;

(8) guidance about the position under the Insurance Mediation Directiveand the Regulated Activities Order of property managing agents -www.fca.org.uk/firms/insurers-insurance-intermediaries;

(9) guidance for employers about how to provide advice and informationto their employees on pension matters without contravening the Act -http://www.fca.org.uk/your-fca/documents/fsa-promoting-pensions-employees ;

(10) FCA Factsheet for Broker-arranged premium finance plans: Generalinsurance brokers acting for commercial customers which includes,discussion about whether arranging premium finance is a regulatedactivity ( www.fca.org.uk/your-fca/documents/broker-arranged-premium-finance-plans );

(11) joint guidance by the FSA and the Office of Fair Trading titledPayment protection products (January 2013) which includesdiscussion whether debt freezes and debt waivers are contracts of

www.fca.org.ukwww.fca.org.uk/your-fca/documents/fsa-ppp-forum-letterwww.fca.org.uk/your-fca/documents/fsa-ppp-forum-letterwww.fca.org.uk/firms/insurers-insurance-intermediarieswww.fca.org.uk/your-fca/documents/fsa-promoting-pensions-employeeswww.fca.org.uk/your-fca/documents/fsa-promoting-pensions-employeeswww.fca.org.uk/your-fca/documents/broker-arranged-premium-finance-planswww.fca.org.uk/your-fca/documents/broker-arranged-premium-finance-plans


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insurance (https://www.fca.org.uk/publication/finalised-guidance/fsa-fg13-02.pdf);

(12) the FSA's views on whether members of the NHBC who provideinsurance to buyers of properties in accordance with the Buildmarkscheme carry out insurance mediation, contained in a letter to NHBCssolicitors and put onto the FSA's Freedom of Information Act registerin December 2012 (https://www.fca.org.uk/publication/foi/fsa-foi2707-info.pdf).

Any person who, having read relevant general guidance and, whereappropriate, taken legal advice, remains uncertain about whether hisactivities amount to regulated activities or his communications will be subjectto the restriction in section 21 of the Act, may seek individual guidance fromthe FCA. Requests for individual guidance should be made in line with SUP 9.

In addition, the FCA has established a team to provide general assistance andguidance to persons generally about the scope of the Act. Enquiries of thiskind may be made:

(1) by authorised firms, to either the Contact Centre ([email protected] , Tel 0300 500 0597) or their normalsupervisory contact; or

(2) by individuals or non-authorised firms, to the Consumer ContactCentre (email [email protected] , Tel 0800 111 6768 ).

The FCA will review its general guidance from time to time and may need toamend or withdraw published or written guidance in the light of changingcircumstances, developing business practices, or case law. For the status ofguidance issued by the FCA, see PERG 1.3.1 G.

https://www.fca.org.uk/publication/finalised-guidance/fsa-fg13-02.pdfhttps://www.fca.org.uk/publication/finalised-guidance/fsa-fg13-02.pdfhttps://www.fca.org.uk/publication/foi/fsa-foi2707-info.pdfhttps://www.fca.org.uk/publication/foi/fsa-foi2707-info.pdfhttp://www.legislation.gov.uk/ukpga/2000/8/section/21/2005-07-01mailto:[email protected]:[email protected]


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Chapter 2

Authorisation and regulatedactivities


PERG 2 : Authorisation and Section 2.1 : Application and purposeregulated activities

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2.1 Application and purpose

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

Purpose......................................................................................................The purpose of this chapter is to provide guidance:

(1) to unauthorised persons who wish to find out whether they need tobe authorised and, if so, what regulated activities their permissionneeds to include; and

(2) to authorised persons who may have questions about the scope oftheir existing permission.

PERG 2 : Authorisation and Section 2.2 : Introductionregulated activities

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2.2 Introduction

Under section 23 of the Act (Contravention of the general prohibition orsection 20 (1) or (1A)), a person commits a criminal offence if he carries onactivities in breach of the general prohibition in section 19 of the Act (Thegeneral prohibition) . An authorised person also commits a criminal offenceif he carries on a credit-related regulated activity in the UK, or purports todo so, otherwise than in accordance with his permission (unless the person isan 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) ofthe Act do not apply). For these purposes, entering into a regulated creditagreement as lender, exercising, or having the right to exercise, the lender'srights and duties under a regulated credit agreement and debt collecting arecredit-related regulated activities, except in so far as the activity relates to anagreement under which the obligation of the borrower to repay is securedon land. Although a person who commits the criminal offence is subject to amaximum of two years imprisonment and an unlimited fine, it is a defencefor a person to show that he took all reasonable precautions and exercisedall due diligence to avoid committing the offence.

A regulated credit agreement that is made by an authorised person whodoes 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 certainagreements could be unenforceable (see sections 26 to 29 of the Act). Thisapplies to agreements entered into by persons who are in breach of thegeneral prohibition. It also applies to any agreement entered into by anauthorised person if the agreement is made as a result of the activities of aperson who is in breach of the general prohibition.

Any person who is concerned that his proposed activities may requireauthorisation will need to consider the following questions (these questionsare a summary of the issues to be considered and have been reproduced, inslightly fuller form in the decision tree in PERG 2 Annex 1 G):

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

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

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

http://www.legislation.gov.uk/ukpga/2000/8/section/23/2005-07-01http://www.legislation.gov.uk/ukpga/2000/8/section/19/2005-07-01http://www.legislation.gov.uk/ukpga/2000/8/section/20/2014-04-01#section-20-1http://www.legislation.gov.uk/ukpga/2000/8/section/20/2014-04-01

PERG 2 : Authorisation and Section 2.2 : Introductionregulated activities

2

G2.2.4

G2.2.5


(3A) Are my activities specified for the purposes of section 22(1)(b) of theAct (and, accordingly, when carried on by way of business, are aregulated activity when carried on in relation to property of any kind)or related to a specified benchmark (see PERG 2.5.1A G)?

(3B) Are my activities related to information about a person's financialstanding (see PERG 2.7.20K G)?

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

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

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

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

(8) If not, am I allowed to carry on regulated activities withoutauthorisation (see PERG 2.10.9 G to PERG 2.10.16 G)?

(9) If not, do I benefit from the few provisions of the Act that authoriseme without a permission under Part 4A of the Act (see PERG 2.10.10 G(Members of Lloyds))?

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

The rest of this chapter provides a high level guide through the questions setout in PERG 2.2.3 G. It aims to give an overall picture but in doing so itnecessarily relies on the reader referring to UK statutory provisions andEuropean legislation to fill in the detail (which can be extensive).

The process of applying for Part 4A permission is available on the FCAwebsite Apply for authorisation: www.fca.org.uk/firms/authorisation/apply-authorisation. But a list of the activities for which permission may be given isannexed to this chapter (see PERG 2 Annex 2 G). You may find this helpful inproviding an overview of the activities that are regulated. The list is includedhere because, with some exceptions, the investments and activities for whichpermission may be given are the same as the investments and activitiesspecified in the Regulated Activities Order. This creates a few additionalcategories for which permission must be sought.

http://www.legislation.gov.uk/ukpga/2000/8/section/22/2014-02-28#section-22-1-bwww.fca.org.uk/firms/authorisation/apply-authorisationwww.fca.org.uk/firms/authorisation/apply-authorisation

PERG 2 : Authorisation and Section 2.3 : The business elementregulated activities

2

G2.3.1

G2.3.2


2.3 The business element

Under section 22 of the Act (Regulated activities), for an activity to be aregulated activity it must be carried on 'by way of business'.

There is power in the Act for the Treasury to change the meaning of thebusiness element by including or excluding certain things. They haveexercised this power (see the Financial Services and Markets Act 2000(Carrying on Regulated Activities by Way of Business) Order 2001 (SI 2001/1177), as amended from time to time). The result is that the businesselement differs depending on the activity in question. This in part reflectscertain differences in the nature of the activities:

(1) The activity of accepting deposits will not be regarded as carried onby way of business by a person if he does not hold himself out asaccepting deposits on a day-to-day basis and if the deposits heaccepts are accepted only on particular occasions. In determiningwhether deposits are accepted only on particular occasions, thefrequency of the occasions and any distinguishing characteristics mustbe taken into account.

(2) Except as stated in PERG 2.3.2G (2A) and PERG 2.3.2G (3), the businesselement is not to be regarded as satisfied for any of the followingregulated activities unless a person carries on the business ofengaging in one or more of them:

(a) regulated activities carried on in relation to securities orcontractually based investments;

(b) regulated activities carried on in relation to any property

(c) the regulated activities listed in PERG 2.7.2-BG (Acceptingdeposits and other regulated activities applying to deposits) sofar as they relate to structured deposits;

(d) the regulated activities of advising on P2P agreements, advisingon a home finance transaction and arranging a home financetransaction.

This is a narrower test than that of carrying on regulated activities by way ofbusiness (as required by section 22 of the Act), as it requires the regulatedactivities to represent the carrying on of a business in their own right.

(2A) A person who carries on an insurance mediation activity will not beregarded as doing so by way of business unless he takes up or pursuesthat activity for remuneration. PERG 2.3.3 G gives guidance on thefactors that are relevant to the meaning of 'by way of business' insection 22 of the Act. PERG 5.4 (The business test) gives furtherguidance on the business element as applied to insurance mediationactivities.

http://www.legislation.gov.uk/ukpga/2000/8/section/22/2005-07-01http://www.legislation.gov.uk/uksi/2001/1177http://www.legislation.gov.uk/uksi/2001/1177http://www.legislation.gov.uk/uksi/2001/1177http://www.legislation.gov.uk/uksi/2001/1177http://www.legislation.gov.uk/ukpga/2000/8/section/22/2018-01-03http://www.legislation.gov.uk/ukpga/2000/8/section/22/2005-07-01


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G2.3.3

G2.3.4

G2.3.5

G2.3.6


(3) A person managing assets on a discretionary basis while acting astrustee of an occupational pension scheme may in certaincircumstances be regarded as acting by way of business even if hewould not, in the ordinary meaning of the phrase, be regarded asdoing so. The Financial Services and Markets Act (Carrying onRegulated Activities by Way of Business) Order 2001 (as amended)contains some exceptions from this (see article 4).

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

(3B) If a not-for-profit body is carrying on debt adjusting, debt counsellingor providing credit information services (or agreeing to carry on aregulated activity so far as relevant to any of those activities), it is tobe regarded as doing so by way of business. It is immaterial whetherthe not-for-profit body also carries on other activities. This change tothe business element does not apply, however, if the not-for-profitbody carries on that activity only on an occasional basis.

(4) The business element for all other regulated activities is that theactivities are carried on by way of business. This applies to theactivities of effecting or carrying out contracts of insurance, certainactivities relating to the Lloyd's market, entering as provider into afuneral plan contract, entering into a home finance transaction oradministering a home finance transaction, operating a dormantaccount fund, credit-related regulated activities (subject to themodification for not-for-profit bodies in (3B)) and operating anelectronic system in relation to lending.

Whether or not an activity is carried on by way of business is ultimately aquestion of judgement that takes account of several factors (none of whichis likely to be conclusive). These include the degree of continuity, theexistence of a commercial element, the scale of the activity and theproportion which the activity bears to other activities carried on by the sameperson but which are not regulated. The nature of the particular regulatedactivity that is carried on will also be relevant to the factual analysis.

A person carrying out the activity of administering a specified benchmark orproviding information in relation to a specified benchmark will always becarrying out these activities by way of business.

Whether someone is carrying on his or her own business......................................................................................................Another aspect of the general prohibition is that an employee will notbreach the general prohibition by carrying on a regulated activity on behalfof his employer. The reason for that is that it is the employer who is carryingon that activity. The employee is simply carrying on the employer's business.

This principle potentially also applies to agents and others who assistanother to carry on that other's business. That does not mean however thatagents and other such persons can never carry on a regulated activity. Apart

http://www.legislation.gov.uk/uksi/2001/1177


2G2.3.7


from anything else it is clear that some regulated activities are meant to becarried on by such persons, such as dealing in investments as agent.

In the FCA's view the following factors are relevant in deciding whether aperson (referred to in this paragraph as "an individual") is to be treated ascarrying on his own business (in which case he may require authorisationunless an exemption or exclusion is available) or whether he is carrying onthe business of the person for whom he works (in which case he will notrequire authorisation). In this paragraph, the person for whom the individualworks is referred to as the principal firm.

(1) The degree of control the principal firm has over the individual (thegreater the control the more likely it is that the general prohibitiondoes not apply). This takes into account the power of deciding thetasks 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 theplace where they are to be done. For example, at one end of thespectrum the individual may merely agree to achieve an end resultwithout that end result being specified in detail. At the other end ofthe spectrum, the individual may be controlled in every detail of howthings are to be done.

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

(3) The degree to which the individual takes on the financial risks andrewards of an independent business (the more the individual takes onsuch risks the more likely it is that the general prohibition applies).For example, one might take into account whether the individualprovides his own equipment; whether he hires his own helpers; whatdegree of financial risk he takes; what degree of responsibility forinvestment and management he has; whether and how far he has anopportunity of profiting from sound management in the performanceof his task.

(4) For example, if the individual is tasked with finding customers it maybe relevant whether he is paid a commission for each customergained. However, commission is not a particularly strong factor asmany conventional employees are paid by commission.

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

(6) The degree to which the services supplied by the individual to theprincipal firm are ones that the individual supplies to other clients aswell. If the individual supplies services to more than one clients, it isvery likely that the individual is in the business of providing thoseservices generally and that, as a result, he is carrying on his ownbusiness and hence needs authorisation or an exemption from thegeneral prohibition.


2G2.3.8

G2.3.9

G2.3.10

G2.3.11


(7) Whether the individual is a natural person. It is unlikely that acompany or a partnership will fall outside the general prohibition onthe grounds in PERG 2.3.6 G.

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

Even though working for more than one firm is likely to mean that theperson will not be able to rely on the grounds in PERG 2.3.6 G to escape thegeneral prohibition (see PERG 2.3.7G (6)), that will not always be the case. Inparticular, 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 anemployee 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 FirmA. If the only firm for which that person acts on a self-employed basis is FirmB, 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 behalfof, more than one client firm on a self-employed basis as under suchcircumstances he would be likely to be carrying on his own business.

One 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 directto customers in their homes. It is common practice in this sector for some ofthe larger firms, in particular, to deal with their customers via self-employedagents. Self-employed agents are not paid a salary by an employer. Theseagents call on customers in their homes to provide loans and/or collectrepayments due on loans, on behalf of the home collected credit providersthey 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 newclients; and collect repayments.

Although 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, meetingthe following criteria is likely to mean that the individual is carrying on thebusiness of the principal firm (as its agent) and not his own, meaning thatthe individual does not require authorisation or to be exempt:

(1) the principal firm appoints the individual as an agent;

(2) the individual only works for one principal firm;

(3) the principal firm has a permission from the FCA for every activity theindividual is carrying on for which the principal firm would needpermission if it was carrying on the activity itself;

(4) the contract sets out effective measures for the principal firm tocontrol the individual;


2


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

(6) the principal firm accepts full responsibility for the conduct of theindividual when the individual is acting on the principal firm's behalfin the course of its business; and

(7) the individual makes clear to customers that it is representing aprincipal firm as its agent and the name of that principal firm.

PERG 2 : Authorisation and Section 2.4 : Link between activities and theregulated activities United Kingdom

2

G2.4.1

G2.4.2

G2.4.3


2.4 Link between activities and theUnited Kingdom

Section 19 of the Act (The general prohibition) provides that therequirement to be authorised under the Act only applies in relation toactivities that are carried on 'in the United Kingdom'. In many cases, it willbe quite straightforward to identify where an activity is carried on. But whenthere is a cross-border element, for example because a client is outside theUnited Kingdom or because some other element of the activity happensoutside the United Kingdom, the question may arise as to where the activityis 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 UnitedKingdom and who is safeguarding and administering investments will becarrying on activities in the United Kingdom even though his client may beoverseas.

Section 418 of the Act (Carrying on regulated activities in the UnitedKingdom) takes this one step further. It extends the meaning that 'in theUnited Kingdom' would ordinarily have by setting out five additional cases.The Act states that, in these five cases, a person who is carrying on aregulated activity but who would not otherwise be regarded as carrying onthe activity in the United Kingdom is, for the purposes of the Act, to beregarded as carrying on the activity in the United Kingdom.

(1) The first case is where a UK-based person carries on a regulatedactivity in another EEA State in exercise of rights under a SingleMarket Directive or the auction regulation.

(2) The second case consists of the marketing in another EEA State of aUK-based collective investment scheme by the scheme's managerwhere the scheme in question is one to which the UCITS Directiveapplies.

(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 theresponsibility of an establishment in the United Kingdom.

(4) The fourth case is where a regulated activity is carried on by a personwho is not based in the United Kingdom but is carried on from anestablishment in the United Kingdom. This might occur when each ofthe stages that make up a regulated activity (such as managinginvestments) takes place in different countries. For example, a

http://www.legislation.gov.uk/ukpga/2000/8/section/19/2005-07-01http://www.legislation.gov.uk/ukpga/2000/8/section/418/2005-07-01


2

G2.4.4

G2.4.5

G2.4.6

G2.4.7

G2.4.8


person's management is in country A, the assets are held by anominee in country B, all transactions take place in country B orcountry C but all decisions about what to do with the investments aretaken from an office in the United Kingdom. Given that theinvestments are held, and all dealings in them take place, outside theUnited Kingdom there may otherwise be a question as to where theregulated activity of managing investments is taking place. For thepurposes of the Act, it is carried on in the United Kingdom.

(5) The fifth case, inserted by the ECD Regulations is, in effect, where anelectronic commerce activity is carried on, from an establishment inthe United Kingdom, in another EEA State.

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

A person who is based outside the United Kingdom but who sets up anestablishment in the United Kingdom must therefore consider the followingmatters. First, he must not, unless he is authorised, carry on regulatedactivities in the United Kingdom. Second, unless he is authorised, the day-to-day management of the carrying on of the regulated activity must not bethe responsibility of the UK establishment. This may, for example, affectthose UK establishments that in the context of deposit-taking activities were,before the commencement of the Act, treated as representative offices ofoverseas institutions. Such institutions will need to seek authorisation if theresponsibility for the day-to-day management of the accepting of deposits bythem outside the United Kingdom is nevertheless effectively that of their UKestablishment. Third, such a person will need to ensure that he does notcontravene other provisions of the Act that apply to persons who are notauthorised. These include the controls on financial promotion (section 21 ofthe Act (Financial promotion)), and on giving the impression that a person isauthorised (section 24).

A person based outside the United Kingdom may also be carrying onactivities in the United Kingdom even if he does not have a place of businessmaintained by him in the United Kingdom (for example, by means of theinternet or other telecommunications system or by occasional visits). In thatcase, it will be relevant to consider whether what he is doing satisfies thebusiness 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 activitiesthat apply in relation to overseas persons (see PERG 2.9.15 G).

Electronic commerce activities, other than insurance business falling withinthe scope of theSolvency II Directive, provided by an incoming ECA providerwill not be regulated activities (see PERG 2.9.18G (2)).

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



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G2.4.9


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

PERG 2 : Authorisation and Section 2.5 : Investments and activities:regulated activities general

2

G2.5.1

G2.5.1-A

G2.5.1A

G2.5.1B


2.5 Investments and activities: general

In addition to the requirements as to the business test and the link to theUnited Kingdom, two other essential elements must be present before aperson needs authorisation under the Act. The first is that the investmentsmust 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 thosespecified investments, are regulated under the Act (see PERG 2.7). Bothinvestments and activities are defined in the Regulated Activities Order madeby the Treasury under section 22 of the Act.

The following regulated activities may be carried on in relation to propertyof any kind:

(1) managing a UCITS;

(2) acting as trustee or depositary of a UCITS;

(3) managing an AIF;

(4) acting as trustee or depositary of an AIF;

(5) establishing, operating and winding up a collective investmentscheme;

(6) establishing, operating and winding up a stakeholder pensionscheme;

(7) establishing, operating and winding up a personal pension scheme;

(8) meeting of repayment claims; and

(9) managing dormant account funds (including the investment of suchfunds).

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

The activities of providing credit information services and providing creditreferences are not required to relate to a specified investment to beregulated activities, but rather relate to information about a person'sfinancial standing.



2

G2.5.2

G2.5.3

G2.5.4

2.5.4A

G2.5.5


The Regulated Activities Order contains exclusions. Exclusions may exist inrelation to both the element of investment and the element of activity. Eachshould therefore be checked carefully. The exclusions that relate to specifiedinvestments are considered in PERG 2.6, together with the outline of thespecified investments. The exclusions that relate to activities are consideredseparately from the outline of activities (see PERG 2.8 and PERG 2.9).

Modification of certain exclusions as a result of MiFID, theInsurance Mediation Directives and the Mortgage CreditDirective......................................................................................................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) ismodified in relation to persons who are subject to MiFID, the InsuranceMediation Directive and the MCD. The reasons for this and the consequencesof it are explained in PERG 2.5.4 G for MiFID, PERG 5 (Insurance mediationactivities), for the Insurance Mediation Directive and PERG 4.10A for theMCD.

Investment services and activities......................................................................................................It remains the Government's responsibility to ensure the properimplementation of MiFID. Certain persons subject to the requirements ofMiFID must be brought within the scope of regulation under the Act. A coreelement of MiFID is the concept of investment firm. An investment firm isany person whose regular occupation or business is the provision of one ormore investment services to third parties or the performance of one or moreinvestment activities on a professional basis. An investment firm is notsubject to MiFID requirements if it falls within one or more of theexemptions in article 2 MiFID. Further information about these exemptions iscontained in PERG 13.5. To the extent that an investment firm falls withinone of these exemptions, it will not be a MiFID investment firm. Where afirm is not a MiFID investment firm because one or more of the exemptionsin article 2 apply, it may still be carrying on regulated activities and thereforerequire authorisation unless it is an exempt person.

The UK has exercised part of the optional exemption in article 3 of MiFID.Further information about this exemption is contained in Q48 to 53 in PERG13.5. The investment services to which article 3 apply (namely reception andtransmission of orders and investment advice in relation to eithertransferable securities or units in collective investment undertakings)correspond to regulated activities (see PERG 13 Annex 2 Tables 1 and 2).

For persons who are MiFID investment firms, the activities that must becaught by the Regulated Activities Order are those that are caught by MiFID.To achieve this result, some of the exclusions in the Order (that will apply topersons who are not caught by MiFID) have been made unavailable to MiFIDinvestment firms when they provide or perform investment services andactivities. A "MiFID investment firm", for these purposes, includes creditinstitutions to which MiFID applies (see PERG 13, Q5 and 9); collectiveportfolio management investment firms providing the services of portfoliomanagement and personal recommendations in relation to financial


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G2.5.6

G2.5.7

G2.5.8


instruments or the ancillary service of safekeeping and administration inrelation to unitsof collective investment undertakings; and AIFM investmentfirms providing the ancillary service of reception and transmission of ordersin relation to financial instruments. The same exclusions are also unavailableto third country investment firms when they provide investment services andactivities. Article 4(4) of the Regulated Activities Order (Specified activities:general) lists a number of exclusions that must be disregarded. These relateto the exclusions concerned with:

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

(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));

(2A) issuing own securities (see PERG 2.8.4G(4));

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

(3A) arranging for the issue of your own securities PERG 2.8.6AG(11);

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

(4A) professions or businesses not involving regulated activities (see PERG 2.9.5 G);

(5) sale of goods (see PERG 2.9.7 G);

(6) groups and joint enterprises (see PERG 2.9.9 G);

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

(8) business angel-led enterprise capital funds (see PERG 2.9.20 G to PERG 2.9.22 G).

Insurance mediation or reinsurance mediation......................................................................................................The Insurance Mediation Directive has in part been implemented throughvarious amendments to the Regulated Activities Order. These include article4(4A) (Specified activities: general) which precludes a person who, forremuneration, takes up or pursues insurance mediation or reinsurancemediation in relation to a risk or commitment situated in an EEA State frommaking use of certain exclusions. In other cases, some of the exclusionsprovided in relation to particular regulated activities are unavailable wherethe activity involves a contract of insurance. This is explained in more detailin PERG 5 (Insurance mediation activities).

Wider definition of certain specified investments when carryingon some kinds of EU business......................................................................................................Some specified investments are defined so that certain products only comewithin that specified investment when a person is providing services undercertain EU legislation in relation to that product.

When PERG 2.5.7G applies, the product is only treated as falling within thedefinition of the specified investment concerned if (in relation to thatproduct):

http://www.legislation.gov.uk/uksi/2001/544/article/4#article-4-4


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G2.5.9

G2.5.10


(1) one of the following persons:

(a) a MiFID investment firm; or

(b) a third country investment firm; or

(c) a CRD credit institution; or

(d) a credit institution that would qualify to be a CRD creditinstitution if its registered or head office were in the EEA;

provides or performs investment services and/or activities on aprofessional basis; or

(2) a UCITS investment firm is providing certain investment services and/or activities under article 6.3 of the UCITS Directive (provision ofservices in addition to UCITS management); or

(3) a market operator (or someone who would be a market operator if itwas based in the EEA) is providing the investment services and/oractivities of operating a multilateral trading facility or organisedtrading facility (these activities are described in Q24 and Q24A in PERG 13.3); or

(4) an AIFM investment firm is providing services under article 6.4 of theAIFMD (provision of services in addition to AIF management).

PERG 2.5.7G only applies to the following specified investments:

(1) an emission allowance (see PERG 2.6.19DG for more details);

(2) an option (see PERG 2.6.20G for more details);

(3) a future (see PERG 2.6.22AG for more details);

(4) a credit derivative treated as a contract for differences (see PERG 2.6.23G for more details); and

(5) a binary or fixed outcomes derivative treated as a contract fordifferences (see PERG 2.6.24AG for more details, which also explainsthat in certain circumstances PERG 2.5.7G does not apply to thisproduct).

(1) When deciding whether a person is a MiFID investment firm or athird country investment firm for the purposes of PERG 2.5.8G(1), it isnecessary to take into account the services that that person isproviding in relation to the product concerned.

(2) For example, say that a UK person does business in an option productto which PERG 2.5.7G applies. When deciding whether that product isa regulated option, it is not necessary for that person already to be:

(a) a MiFID investment firm; or

(a) authorised under the Act;

because of its other activities.


2


(3) Therefore, when deciding whether the UK person in (2) is a MiFIDinvestment firm and whether it needs to be authorised under the Act,it is necessary to take into account all the business it does, includingbusiness in that option product.

PERG 2 : Authorisation and Section 2.6 : Specified investments: a broadregulated activities outline

2

G2.6.1

G2.6.2

G2.6.3

G2.6.4


2.6 Specified investments: a broadoutline

The following paragraphs describe the various specified investments, takingdue account of any exclusion that applies.

Deposits......................................................................................................A deposit is defined in article 5(2) of the Regulated Activities Order. Thisfocuses on a sum of money paid by one person to another on terms that itwill be repaid when a specified event occurs (for example, a demand ismade).

Certain transactions are excluded. The definition of deposit itself excludesmoney paid in connection with certain transactions such as advancepayments for the provision of goods or services and sums paid to secure theperformance of a contract. The circumstances in which payments areexcluded from the definition itself are exhaustively stated in article 5(3) ofthe Regulated Activities Order (Accepting deposits). In addition, there is aseparate exclusion in article 9 of the Order (Sums received in considerationfor the issue of debt securities) and another in article 9A (Sums received inexchange for electronic money). PERG 3A Q4 contains guidance on theexclusion relating to electronic money.

In addition, several separate exclusions focus on the identity of the personpaying the money or the person receiving it (or both).

(1) Payments by certain persons are excluded if they are made byspecified persons (such as local authorities or national, orsupranational, bodies) or by persons acting in the course of a businessconsisting wholly or partly of lending money.

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

(3) Exclusions apply to sums received by persons acting for specifiedpurposes. This covers sums received by a practising solicitor acting inthe course of his profession or by authorised or exempt personscarrying on one of a specified range of regulated activities and actingwithin the scope of their permission or exemption.

http://www.legislation.gov.uk/uksi/2001/544/article/5#article-5-2http://www.legislation.gov.uk/uksi/2001/544/article/5#article-5-3


2

G2.6.4-A

G2.6.4-B

G2.6.4-C

G2.6.4A

G2.6.5


(1) A structured deposit is a kind of deposit.

(2) A structured deposit is a deposit which is fully repayable at maturityon terms under which interest or a premium will be paid or is at risk,according to a formula involving factors such as:

(a) an index or combination of indices; or

(b) a financial instrument or combination of financial instruments; or

(c) a commodity or combination of commodities or other physical ornon-physical non-fungible assets; or

(d) a foreign exchange rate or combination of foreign exchangerates.

(3) A variable rate deposit whose return is directly linked to an interestrate index such as Euribor or Libor is not a structured deposit underparagraph (2)(a).

(4) (3) applies whether or not the interest is predetermined and whetherit is fixed or variable.

The reason why there is a definition of a structured deposit is that there area number of regulated activities that apply to structured deposits that do notapply to other kinds of deposit. See PERG 2.7.2-BG for a list.

Although the definition of a structured deposit specifically requires that theprincipal amount be fully repayable, that does not imply that this featureonly applies to structured deposits. In the FCAs view, capital certainty is afeature of any kind of deposit.

Electronic money......................................................................................................Electronic money is specified as an investment in article 74A of the RegulatedActivities Order, but only when issued by:

(1) a full credit institution, a credit union or a municipal bank; or

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

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

Rights under a contract of insurance......................................................................................................Contract of insurance is defined to include certain things that might not beconsidered a contract of insurance at common law. Examples of suchadditions include capital redemption contracts or contracts to pay annuitieson human life. Detailed guidance on identifying a contract of insurance is in PERG 6 (Guidance on the Identification of Contracts of Insurance).


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G2.6.6

G2.6.7

G2.6.8

G2.6.9


There are two main sorts of contracts of insurance. These are generalinsurance contracts and long-term insurance contracts. The RegulatedActivities Order provides that, in certain specified circumstances, a contract isto be treated as a long-term insurance contract notwithstanding that itcontains supplementary provisions that might also be regarded as relating toa general insurance contract (see article 3(3)).

The Regulated Activities Order uses two further terms in relation to contractsof insurance to identify those contracts under which rights are treated ascontractually based investments.

(1) The first term is 'qualifying contracts of insurance' (referred to as lifepolicies in the Handbook). This identifies those long-term insurancecontracts under which rights are treated as contractually basedinvestments. This term does not cover long-term insurance contractswhich are contracts of reinsurance or, if specified conditions are met,contracts under which benefits are payable only on death orincapacity.

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

(a) contractually based investments, which includes rights under lifepolicies, and rights to or interests in such investments underarticle 89 of the Regulated Activities Order (Rights to or interestsin investments); and

(b) rights under contracts of insurance other than life policies (butnot rights to or interests in such rights).

This term is used in connection with the treatment, under variousparts of the Regulated Activities Order, of persons carrying oninsurance mediation activities (see PERG 5 (Insurance mediationactivities) for further guidance on such activities).

Certain arrangements in relation to funeral plans are specifically excludedfrom being contracts of insurance if they would otherwise be so. Theexclusion applies to arrangements that fall within the definition of a funeralplan contract (see PERG 2.6.26 G) as well as arrangements that are excludedfrom the regulated activity of entering as provider into funeral plancontracts (see PERG 2.8.14 G).

Shares etc......................................................................................................Shares are defined in the Regulated Activities Order as shares or stock in awide range of entities; that is, any body corporate wherever incorporatedand unincorporated bodies formed under the law of a country other thanthe United Kingdom. They include deferred shares issued by buildingsocieties as well as transferable shares in industrial and provident societies,credit unions and equivalent EEA bodies. These shares are transferable andnegotiable in a way similar to other shares or stock and are treated as suchfor the purposes of defining regulated activities. They are specificallymentioned as being within the specified investment category of sharesbecause other types of share issued by these mutual bodies are nottransferable and are expressly excluded (see PERG 2.6.10 G).

http://www.legislation.gov.uk/uksi/2001/544/article/89


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G2.6.10

G2.6.11

G2.6.11A

G2.6.11B


The following are excluded from the specified investment category of shares.Shares or stock in all open-ended investment companies are excluded frombeing treated in this particular category (but see PERG 2.6.17 G). Exclusionsfrom this category also apply to shares or stock in the share capital of certainmutuals or in equivalent EEA bodies. This takes out building society or creditunion accounts and non-transferable shares in industrial and providentsocieties. These may nevertheless be specified investments in anothercategory (such as deposits in the case of building society accounts).

Debt instruments......................................................................................................Two categories of specified investments relating to debt instruments aredealt with under this heading. They broadly split into private debt andpublic sector debt.

(1) The first category of 'instruments creating or acknowledgingindebtedness' (defined in article 77 of the Regulated Activities Orderand referred to in the Handbook as debentures) expressly refers to arange of instruments such as debentures, bonds and loan stock andcontains a catch-all reference to 'any other instrument creating oracknowledging indebtedness.'

(2) The second category (defined in article 78 of the Regulated ActivitiesOrder and referred to in the Handbook as government and publicsecurities) refers to loan stock, bonds and other instruments creatingor acknowledging indebtedness which are issued by or on behalf ofany government, the assemblies for Scotland, Wales or NorthernIreland, a local authority or an international organisation.

An instrument cannot fall within both categories of specified investmentsrelating to debt instruments. 'Instrument' is defined to include any recordwhether or not in the form of a document (see article 3(1) of the RegulatedActivities Order).

Alternative finance investment bonds......................................................................................................Alternative finance investment bonds (defined in article 77A of theRegulated Activities Order and referred to in the Handbook as alternativedebentures) are a form of Sharia compliant bond (known as sukuk in theplural or sakk in the singular) which are intended to be regulated in anequivalent manner to conventional debt securities, where appropriate. Sukukarrangements allow assets to be held for the benefit of investors incertificates issued by a company. The benefits may include the payment of areturn that is economically equivalent to interest and redemption of thecertificates out of the proceeds from the disposal of the assets. Alternativedebentures are not limited to those wishing to issue Sharia compliant sukuk.

The arrangements which grant rights under alternative debentures aresimilar to the tax definition of arrangements relating to alternative financeinvestment bonds at section 48A of the Finance Act 2005 (seewww.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 theobjectives of the FCA under the Act is consumer protection. Accordingly,secondary legislation made under the Act, like article 77A of the RegulatedActivities Order, is likely to be interpreted by the FCA with consumerprotection in mind. This may mean that whilst the arrangements described at

http://www.legislation.gov.uk/uksi/2001/544/article/77http://www.legislation.gov.uk/uksi/2001/544/article/78http://www.legislation.gov.uk/uksi/2001/544/article/3#article-3-1www.opsi.gov.uk/acts/acts2007/ukpga_20070011_en_5#pt3-pb9-l1g53


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G2.6.11C

G2.6.11D

G2.6.11E


section 48A of the Finance Act 2005 and those described at article 77A of theRegulated Activities Order are similar, they are likely to be construeddifferently by the courts. PERG 2.6.11FG and PERG 2.6.11GG explain theconsumer protection features in the definition of alternative debentures inmore detail.

The arrangements which grant rights under an alternative debenture arisewhere:

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

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

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

(4) the bond-issuer undertakes under the arrangements:

(a) to make a repayment in respect of the capital (the redemptionpayment) to the bond-holder during or at the end of the bondterm (whether or not in instalments); and

(b) to pay to the bond-holder other payments on one or moreoccasions during or at the end of the bond term (the additionalpayments);

(5) the amount of the additional payments does not exceed an amountwhich would, at the time at which the bond is issued, be a reasonablecommercial return on a loan of the capital; and

(6) the arrangements are a security admitted to:

(a) an official list; or

(b) trading on a regulated market or on a recognised investmentexchange.

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

(1) the assets of the arrangement may be acquired before or after itcommences;

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

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

(4) the amount of the redemption payment may (but need not) besubject to reduction in the event of a fall in the value of the bondassets 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


2

G2.6.11F

G2.6.11G

G2.6.11H


Financial Services and Markets Act 2000 (Collective Investment Scheme) Order2001 (SI 2001/1062) has been made so that, like conventional bonds,alternative debentures are excluded from the definition of collectiveinvestment scheme.

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

The condition set out at PERG 2.6.11CG (6) is also intended to protectconsumers. This provides that alternative debentures must be listed on anofficial list or traded on a regulated market or recognised investmentexchange. This is because there is a risk that alternative debentures couldlead to regulatory arbitrage (i.e. the risk that the exclusion from beingclassified as a collective investment scheme is exploited by instruments notintended to be excluded). Mandatory listing is aimed at ensuring anenhanced level of transparency, reducing the likelihood of regulatoryarbitrage.

(1) The main provision within the definition of alternative debenturearrangements that seeks to ensure that only instruments that displaythe characteristics of a debt security can be alternative debentures isset out at PERG 2.6.11CG (5). It provides that the amount ofadditional payments under the arrangements must not exceed anamount which would, at the time the bond is issued, be a reasonablecommercial return on a loan of capital. Where the return is not fixedat the outset, it is the maximum possible amount of the additionalpayments that must be considered in deciding this question. Thefollowing example demonstrates how this condition should beapproached.

Example

ABC Ltd is a property development company. It wishes to increase its port-folio on a short-term basis. It issues 5-year sukuk to investors and uses theproceeds to buy the head lease of a commercial property. The rental in-come from the lease is distributed to investors in proportion to their hold-ings without a cap on the level of return. After 5 years, the head lease issold on at a profit and the proceeds shared between investors.

In this example, the investors participate directly in the success or failureof the underlying property business. The sakk is not really in the nature ofa debt instrument. It is unlikely to be an alternative debenture as:

(a) additional payments under the arrangements would exceed a reas-onable commercial return on a loan of the capital.

http://www.legislation.gov.uk/uksi/2001/1062http://www.legislation.gov.uk/uksi/2001/1062http://www.legislation.gov.uk/ukpga/2000/8/section/238/2010-02-26


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G2.6.12

G2.6.13


Further, where the return is not fixed at the outset, it is the maximum pos-sible amount of the additional payments that must be considered. Here,the issue terms of the sukuk impose no upper limit on the amount of theperiodic distributions: a sakk holder subscribing 1,000 may, in a year, getback 200 or 2,000 or nothing depending on the rental market. The max-imum potential return is clearly in excess of a reasonable commercial re-turn on a loan of 1,000; and

(b) the arrangements have not been admitted to an official list or admit-ted to trading on a regulated market or recognised investment exchange(see PERG 2.6.11CG (6)).

(2) If, in the above example, investors returns were capped at 500 per sakkper year, then this is the amount that must be considered in decidingwhether the return exceeds a reasonable commercial return on a loan,even where the amounts actually received turn out to be far lower.

(3) In applying the reasonable commercial return test, the sakk should beco

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