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AUTH 1

Introduction to the Authorisation manual

AUTH 1.1

Application and purpose

01/12/2004

Application

AUTH 1.1.1

This manual applies to:

(1) a person which is considering carrying on activities in the United Kingdom which may fall within the scope of the Act and is seeking guidance on whether it needs to be an authorised person;

(2) a person which seeks to become an authorised person under the Act and which is, or is considering, applying to the FSA for Part IV permission to carry on regulated activities in the United Kingdom;

(3) an EEA firm, a Treaty firm or a UCITS qualifier that wishes to establish a branch or provide cross-border services into the United Kingdom using EEA rights, Treaty rights or UCITS Directive rights, or apply for a top-up permission;

(4) a candidate for approval under Part V of the Act, but only in respect of AUTH 6 (Approved persons), which is of general relevance, and AUTH 8 (Determining applications); and

(5) persons generally.

03/09/2001
Future version of AUTH 1.1.1 after 20/10/2005

Purpose

AUTH 1.1.2

The purpose of:

(1) authorisation is to allow only persons which satisfy the necessary conditions (relating, for example, to adequate resources and suitability - see COND) to engage in a regulated activity; and

(2) approval of persons (generally individuals) is to seek to ensure that only fit and proper persons perform controlled functions in the financial services industry.

03/09/2001

AUTH 1.1.3

The purpose of this manual is to give guidance about:

(1) the circumstances in which authorisation is required, or exempt person status is available, including guidance on the activities which are regulated under the Act and the exclusions which are available; see AUTH 2 (Authorisation and regulated activities);

(2) the procedures by which a person can apply for, or obtain, permission under the Act to carry on these regulated activities and become an authorised person and any fees payable; see AUTH 3 (Applications for Part IV permission), AUTH 4 (Authorisation Fees) and AUTH 5 (Qualifying for authorisation under the Act).

(3) the procedures by which a person seeking to become an authorised person can obtain approval for persons to perform controlled functions under the approved persons regime; see AUTH 6 (Approved persons); and

(4) the FSA's powers in relation to authorisation and how it will use them (see AUTH 3 and AUTH 5), including a summary of how applications will be determined; see AUTH 8 (Determining applications).

18/10/2001
Future version of AUTH 1.1.3 after 01/07/2005

AUTH 1.2

Introduction

01/12/2004

AUTH 1.2.1

(1) The Financial Services and Markets Act 2000 (the Act) is the UK legislation under which bodies corporate, partnerships, individuals and unincorporated associations are permitted by the FSA to carry on various financial activities which are subject to regulation (referred to as regulated activities).

(2) The activities which are regulated activities are specified in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the Regulated Activities Order): for example, accepting deposits, managing investments, effecting contracts of insurance, dealing in investments as agent. In general terms, a regulated activity is an activity, specified in the Order, carried on in relation to one or more of the investments specified in the Order. AUTH 2 gives further guidance on regulated activities and specified investments.

03/09/2001
Future version of AUTH 1.2.1 after 01/07/2005

AUTH 1.2.2

In order to carry on a regulated activity in the United Kingdom, or even "purport to do so", section 19 of the Act (The general prohibition) provides that a person must be either authorised under the Act (an authorised person) or exempt from its provisions (an exempt person). In this context, a "person" includes both a legal person, for example a body corporate, and a natural person, that is, an individual.

03/09/2001

AUTH 1.2.3

Exempt persons are persons falling within the following groups:

(1) an appointed representative;

(2) a person, or class of persons, specified in secondary legislation; for example, the Bank of England is specified in the Financial Services and Markets Act 2000 (Exemption) Order 2001 (the Exemption Order);

(3) a recognised investment exchange or a recognised clearing house (for more information on being a recognised body see REC).

Further information on exempt persons is given in AUTH 2.10 (Persons carrying on regulated activities who do not need authorisation).

21/02/2002
Future version of AUTH 1.2.3 after 01/07/2005

AUTH 1.2.4

Members of the Society of Lloyd's are not required to obtain authorisation to carry out certain insurance market activities unless so directed by the FSA (see AUTH 2.10.9 G ). In addition, certain professional firms (solicitors, accountants and actuaries) are allowed under Part XX of the Act (Provision of Financial Services by Members of the Professions) to carry on certain regulated activities without authorisation subject to their complying with specified conditions (see AUTH 2.10.12 G and PROF).

03/09/2001
Future version of AUTH 1.2.4 after 01/07/2005

AUTH 1.2.5

Before any person carries on in the United Kingdom, by way of business, activities that are regulated activities, it will generally need to be an authorised person (see AUTH 2.2 ). There are two main kinds of authorised person under the Act: a person who is authorised because it has a Part IV permission (see AUTH 1.2.5 G (2)) and a person which qualifies for authorisation (see AUTH 1.2.5 G (1)). It is important that a person considering carrying on a regulated activity in the United Kingdom determines which type of authorisation is required.

(1) A person from another EEA State which is authorised in its Home State may be entitled to establish a branch in, or provide cross border services into, the United Kingdom under the Single Market Directives, the Treaty or the UCITS Directive (this is often known as passporting). The process by which that person can qualify for authorisation under Schedules 3, 4 and 5 to the Act is described in AUTH 5 .

(2) Other persons wishing to carry on regulated activities in the United Kingdom must obtain permission from the FSA under Part IV of the Act (this is known as Part IV permission). Such persons will become authorised persons if the FSA gives them permission. AUTH 1.6 outlines the process of applying for Part IV permission, the formal elements are described in more detail in AUTH 3. At the same time, the applicant will need to apply for certain persons to become approved persons (see AUTH 6).

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Future version of AUTH 1.2.5 after 01/07/2005

AUTH 1.2.6

(1) Electronic commerce activities, other than insurance business falling within the scope of the Insurance Directives, carried on by an incoming ECA provider are excluded from being regulated activities. The provider does not require authorisation if it does not carry on any other regulated activities in the United Kingdom (see AUTH 2.9.18 G ).

(2) An outgoing ECA provider providing electronic commerce activities that are regulated activities from an establishment in the United Kingdom is regarded as carrying on such activities in the United Kingdom regardless of whether they are provided to an EEA ECA recipient or a UK ECA recipient (see AUTH 2.4.3 G (5) ). The provider should be authorised before it starts providing the services.

(3) ECO sets out rules and guidance that apply to both incoming and outgoing ECA providers.

21/08/2002
Future version of AUTH 1.2.6 after 01/07/2005

AUTH 1.3

The Authorisation manual

01/12/2004

AUTH 1.3.1

(1) The Authorisation manual (AUTH), the Supervision manual (SUP), the Enforcement manual (ENF) and the Decision making manual (DEC) form the Regulatory Processes part of the Handbook.

(2) AUTH sets out the relationships between the FSA and applicants for Part IV permission and persons wishing to exercise EEA rights, Treaty rights or UCITS Directive rights. SUP sets out the relationship between the FSA and authorised persons (referred to in the Handbook as firms). As a general rule, material that is of continuing relevance after authorisation is in SUP.

(3) ENF describes the FSA's enforcement powers under the Act and sets out its policies for using these powers.

(4) DEC is principally concerned with, and sets out, the FSA's decision making procedures for decisions that involve the giving of statutory notices.

03/09/2001

AUTH 1.3.2

The procedures for applying for Part IV permission, for approval of a person under section 59 of the Act and for qualifying for authorisation under Schedules 3, 4 and 5 to the Act are derived from the Act. AUTH gives guidance on the Act and the FSA's procedures. It also contains directions to applicants on the manner of making applications (see AUTH 3.9.3 D and AUTH 6.3.2 G) and rules on fees (see AUTH 4 (Authorisation fees)).

18/10/2001

AUTH 1.3.3

(1) A Reader's Guide gives an introduction to the Handbook and is a key navigational aid for Handbook users. The guide explains the format, layout and workings of the Handbook, including the status and definitions of its components such as directions, rules and guidance (see paragraphs 18 to 31 of the Guide).

(2) We recommend that readers consult this Guide before or while reading AUTH. In particular, readers may find it helpful to refer to the sections of the Guide that explain structure (paragraphs 3 to 13 of the Guide), the status of provisions (paragraphs 14 to 27 of the Guide) and cross-references (paragraphs 40 to 42 of the Guide).

03/09/2001
Future version of AUTH 1.3.3 after 01/04/2005

AUTH 1.3.4

(1) The Act, and the secondary legislation made under the Act, is complex. Although AUTH gives guidance to those considering or seeking authorisation, it does not aim to be exhaustive.

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

(3) The Act and the Explanatory Notes are available from the Stationery Office (the Act, ISBN 0-10-540800-X, £21.70; and the Explanatory Notes, ISBN 0-10-560800-9, £14.50). Secondary legislation made by the Treasury under the Act can be obtained from the Stationery Office or can be accessed through the Treasury's website (www.hm-treasury.gov.uk).

03/09/2001

AUTH 1.3.5

Guidance on the Act or secondary legislation made under the Act represents the FSA's view and does not bind the Courts. In the event of any discrepancy between the manual and the Act or that secondary legislation, the provisions of the Act or the secondary legislation prevail. It remains each person's responsibility to ensure that, at all times, his activities comply with the Act and with other relevant provisions (including general requirements such as company law or consumer credit) and to take all necessary steps to satisfy himself of this, including where necessary by seeking his own legal advice.

03/09/2001

AUTH 1.3.6

AUTH uses words and phrases that have specific meanings in the Handbook or in legislation; these may be different from, or more precise than, their usual dictionary meanings. Defined terms used in the text of the Handbook are shown in italics (see paragraph 43 of the Reader's Guide). For the meanings of defined terms used in AUTH, see the Glossary (either the extracts at the end of AUTH or the consolidated Glossary near the end of the Handbook). It is essential that readers refer to these definitions.

03/09/2001
Future version of AUTH 1.3.6 after 01/04/2005

AUTH 1.3.7

AUTH 1.3.9 G summarises AUTH. Readers should note that in a cross-reference, as explained in paragraph 40 of the Reader's Guide, the code letters of the manual or sourcebook immediately precede the chapter number. For example, AUTH 1 is the first chapter of the Authorisation manual.

03/09/2001
Future version of AUTH 1.3.7 after 01/04/2005

AUTH 1.3.8

The FSA is keen to encourage an interactive authorisation process. With this in mind, AUTH gives specific contact points in the FSA from which an applicant can get help with questions about its application. To help readers, the contact points are listed at AUTH 1.9.2 G.

03/09/2001

AUTH 1.3.9

Summary of AUTH

This table belongs to AUTH 1.3.7 G

Chapter:

Applicable to:

On:

AUTH 2:

Authorisation and regulated activities

a person wishing to find out whether it needs to be authorised (or is an exempt person).

the Act, the Regulated Activities Order and the Exemption Order.

AUTH 3:

Applications for Part IV permission

an applicant for Part IV permission.

how the FSA will exercise the powers granted to it in Part IV of the Act to determine and, if appropriate, grant an application for Part IV permission.

AUTH 4:

Authorisation Fees

an applicant for Part IV permission.

the fees the FSA will levy on applicants for Part IV permission.

AUTH 5:

Qualifying for authorisation under the Act

1. an EEA firm wishing to exercise its EEA right and establish a branch in, or provide cross border services into, the United Kingdom;

how an EEA firm, a Treaty firm or a UCITS qualifier can qualify for authorisation under the Act.

2. a Treaty firm wishing to exercise its Treaty rights;

3. a prospective UCITS qualifier.

AUTH 6:

Approved persons

1. an applicant for Part IV permission seeking approval for a person to perform a controlled function under arrangements to be entered into by the firm or its contractors (including appointed representatives);

2. a candidate.

1. the controlled functions that the FSA has specified; and.

2. how the FSA will exercise the powers given to it in Part V of the Act to require firms to obtain prior approval for persons who will perform controlled functions.

Note: EEA firms, Treaty firms and UCITS qualifiers should refer to SUP 10 (Application).

AUTH 7:

Periodical publications, news services and broadcasts: application for certification

anyone involved in publishing periodicals, or in providing news services or broadcasts, who gives (or proposes to give) advice about securities or contractually based investments.

1. whether the person will be carrying on the regulated activity of advising on investments; and

2. how the FSA will exercise its power to give certificates.

AUTH 8:

Determining applications

1. applicants for Part IV permission generally;

1. the procedures which the FSA will follow when granting an application; and

2. an EEA firm or a Treaty firm that has submitted an application for approval of a person under the approved persons regime;

2. a summary of the FSA's decision making procedures for:

(a) refusing, or proposing to refuse, an application for Part IV permission or an application for approval under the approved persons regime; or

3. a candidate.

(b) granting, or proposing to grant, an application for Part IV permission subject to limitations or requirements not applied for or with a narrower description of regulated activity than that to which the application relates.

21/02/2002
Future version of AUTH 1.3.9 after 01/07/2005

AUTH 1.4

The FSA's approach to applications for Part IV permission: an overview

01/12/2004

AUTH 1.4.1

(1) Under the Act, there is a single process for applications for Part IV permission. However, the amount of detailed information that an applicant will have to submit as part of its application will be related to the risks posed to the FSA's regulatory objectives by the regulated activities and any unregulated activities that the applicant intends to carry on. Thus the information requested will depend on, and be proportional to, the nature of the application.

(2) This proportionality is reflected in the design of the application pack. Although all applicants have to complete certain standard sections, other sections of the pack are specific to certain types of business such as insurance business. In completing the relevant sections of the pack, the level of detailed information an applicant will be required to provide varies according to the nature of the application. Thus, for example, the FSA will require an applicant which seeks to carry on low-risk designated investment business activities to submit, among other things, a business plan and other information which is proportional and relevant to the applicant's size and the scope of its proposed business.

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AUTH 1.4.2

(1) To gain, and retain, the status of an authorised person, an applicant must satisfy and continue to satisfy certain minimum requirements, laid down in the Act. These are known as threshold conditions and further guidance is given in AUTH 3.8 and COND.

(2) The FSA will assess each application against the threshold conditions. During this assessment, the FSA may require further information from applicants to address any concerns. If an applicant can satisfy the threshold conditions in part only, the FSA may impose a limitation or a requirement on the Part IV permission applied for to enable the applicant to satisfy the threshold conditions.

03/09/2001

AUTH 1.4.3

(1) An applicant for Part IV permission will be expected to demonstrate to the FSA that it is ready, willing and organised to comply, and continue to comply, with the regulatory obligations that are relevant to the regulated activities it seeks Part IV permission to carry on.

(2) To do this, an applicant will need to familiarise itself with the relevant Principles, other rules and guidance that apply to the regulated activities it proposes to carry on. AUTH is designed as a guide, but it cannot alone equip applicants with all the detail of the regulatory obligations for a proposed business. Such detail is in the other parts of the Handbook.

03/09/2001

The FSA's approach to risk assessment

AUTH 1.4.4

(1) Alongside the assessment of the threshold conditions, described in AUTH 1.4.2 G (2), the FSA will operate its risk assessment process. This process enables the FSA to be proportional in its procedures, both in terms of the information which it seeks from an applicant and in the allocation of its own resources. The outcome of this process will help determine the relationship the FSA will seek to have with the applicant if it gives it Part IV permission.

(2) The process will include assessing the risks posed by the applicant against a number of probability and impact factors. The probability factors relate to the likelihood of an event happening, and the impact factors indicate the scale and significance of the problem if it occurred. For further details of the process see SUP 1.3 (The FSA's risk based approach to supervision). The FSA intends to communicate the outcome of its risk assessment to the firm (see SUP 1.3.10 G).

03/09/2001

AUTH 1.5

Understanding the requirements and standards of the regulatory system

01/12/2004

AUTH 1.5.1

The requirements and standards of the regulatory system, with which an authorised person must comply, vary depending on both the nature of the firm and the regulated activities it has permission to carry on. As part of preparing an application for Part IV permission, an applicant will need to familiarise itself with the rules, regulations and standards that would apply to the business it proposes to carry on. An applicant will then have to demonstrate how it proposes to comply, for example, with the high level systems and controls requirements in SYSC and, where relevant, the applicable rules in COB. EEA firms, Treaty firms or UCITS qualifiers which qualify for authorisation should also familiarise themselves with the relevant regulatory obligations before carrying on regulated activities in the United Kingdom.

03/09/2001

AUTH 1.5.2

(1) An EEA firm will be informed of any relevant regulatory obligations (known as applicable provisions) by the FSA or, in the case of an EEA firm which is an insurer, its Home State regulator, as part of the process of qualifying for authorisation.

(2) An applicant for Part IV permission should consult the notes to the application pack. They cross-refer to relevant parts of the Handbook, and this will help applicants to respond to certain questions.

03/09/2001

AUTH 1.5.3

As a general guide, all applicants for Part IV permission should be familiar with the threshold conditions (COND) and the Principles for Businesses (PRIN) in the High Level Standards part of the Handbook. To complete an application for Part IV permission, an applicant will also need to have regard to the following matters:

(1) Prudential requirements:

(a) the high level requirement for adequate resources, which is applicable to all firms, described in COND; and

(b) the detailed prudential requirements in the Interim Prudential Sourcebooks (collectively referred to as IPRU) and in the Integrated Prudential Sourcebook (PRU) in the Business Standards part of the Handbook. In addition to PRUThere are five interim sourcebooks that apply, respectively, to banks (IPRU(BANK)), building societies (IPRU(BSOC)), friendly societies (IPRU(FSOC)), insurance companies (IPRU(INS)) and investment business firms (IPRU(INV)). Guidance is given to applicants in AUTH 3 Annex 2 on determining which prudential category, and which sourcebook of IPRU, or section of PRU will apply.

An applicant will need to confirm that it will have adequate resources in place to meet the applicable requirements.

(2) Systems, controls and internal arrangements:

(a) the high level requirement for all firms to maintain adequate resources (including systems and human resources) described in COND and the high level standards for all firms in Senior management arrangements, systems and controls (SYSC); and

(b) the detailed requirements, many of which are regulated activity specific, in the sourcebooks in the Business Standards part of the Handbook; for example, in IPRU, PRU, the Training and Competence sourcebook (TC), the Money Laundering sourcebook (ML) and Conduct of Business sourcebook (COB); and the reporting requirements for firms in SUP 16 (Reporting requirements) and SUP 17 (Transaction reporting).

Before the FSA gives a Part IV permission, an applicant will need to confirm that it will have the necessary systems and controls in place.

(3) Approved persons:

(a) the high level standards contained in the Fit and Proper test for approved persons (FIT) and the Statements of Principle and Code of Practice for Approved Persons (APER); and

(b) the detailed rules about controlled functions and other matters in SUP 10 (Approved persons).

An applicant will need to identify the persons that will require approval from the FSA in conjunction with its application for permission. This approval is required before a person may perform a controlled function.

(4) Other regulatory obligations:

(a) the detailed regulatory obligations that apply to certain types of firm or regulated activity in COB, ICOB, MCOB, CASS, the Market Conduct sourcebook (MAR) and SUP;

(b) the obligations in Dispute resolution: Complaints (DISP) and Compensation (COMP); and

(c) the specialist sourcebooks included in the Handbook such as, for example, those for collective investment schemes, exempt professional firms and the market at Lloyd's.

31/10/2004
Future version of AUTH 1.5.3 after 01/03/2006

AUTH 1.5.4

A table of contents of the Handbook is at the end of the Reader's Guide.

03/09/2001

AUTH 1.6

Applying for Part IV permission: overview of the process

01/12/2004

AUTH 1.6.1

The formal procedures for applying for Part IV permission are described in AUTH 3. The application process is, however, interactive and includes discussions and, in some circumstances, an initial meeting with a potential applicant before it submits a completed application form. This section, therefore, outlines how the application process is likely to proceed in practice.

03/09/2001

AUTH 1.6.2

(1) Although the FSA does not require all applicants to appoint professional advisers to help with the application process, reports from professionals will be required in respect of some applications for Part IV permission (see AUTH 3.9.16 G and AUTH 3.9.17 G).

(2) In addition, a potential applicant should consider at an early stage whether, given the nature of the proposed business it is seeking to carry on and its own experience, it is appropriate to seek professional advice in connection with its application. For example, an applicant may need to seek professional advice from lawyers, auditors or reporting accountants, consultants, actuaries or its professional body, before making a formal application to the FSA.

(3) SUP 9 (Individual guidance) describes how a person may apply to the FSA for individual guidance which relates to its own particular circumstances or plans. Applicants should note, in particular, SUP 9.2.5 G, which states that the FSA will expect a person to have taken reasonable steps to research and analyse a topic before approaching the FSA for individual guidance. SUP 9.2.5 G also cautions that the FSA should not be viewed as a first port of call, except where only the FSA can give guidance.

03/09/2001

AUTH 1.6.3

Before beginning discussions with the FSA, an applicant for Part IV permission should have completed its business planning to determine what activities it proposes to undertake and the resources it will need to do so.

03/09/2001

AUTH 1.6.4

(1) An applicant should also have determined and established the appropriate legal entity through which the proposed activities are to be conducted - that is, whether it wishes to trade on its own account, or establish:

(a) a body corporate - for example, a limited company, which can be public or private and limited by shares or by guarantee, or a friendly society; or

(b) a partnership; or

(d) a UK branch.

(2) A limited liability partnership (regardless of the jurisdiction of incorporation) is a body corporate and does not fall within the definition of partnership, except in relation to SUP 10 (Approved persons). Most limited liability partners will be either directors or senior managers, but this will depend on the constitution of the limited liability partnership.

03/09/2001

AUTH 1.6.5

The legal status of an insurer and an applicant which seeks to carry on the regulated activity of accepting deposits is specified by threshold condition 1 (Legal status) (see COND 2.1).

03/09/2001

AUTH 1.6.6

The first stage in the application process is to establish whether the proposed business will carry on regulated activities requiring permission under Part IV of the Act (Permission to carry on regulated activities). AUTH 2 gives a high-level guide to the activities that are regulated under the Act and those that are excluded (but this is not a substitute for consulting the legislation itself); further queries may be referred to the FSA's Authorisation Enquiries team (see AUTH 1.9.2 G).

03/09/2001
Future version of AUTH 1.6.6 after 01/07/2005

AUTH 1.6.7

Once an applicant has determined that it needs to apply for Part IV permission, it should begin to gather the information needed for the formal application. At this stage, applicants are encouraged to begin discussion with the FSA's Enquiries and Applications Department (Applications team) about their plans and the application (see AUTH 1.9).

01/07/2003

AUTH 1.6.8

The FSA's application pack (that is, the set of forms for an application for Part IV permission, and the notes for their completion) and approved persons forms are available from the FSA website or by contacting the Enquiries and Applications Department (Applications team) (see AUTH 1.9.2 G).

01/07/2003

AUTH 1.6.9

Among other things, the applicant will need to:

(1) determine the precise scope of the permission it wishes to apply for; this should include the regulated activities (the specified activities and the specified investments in respect of which the activities are carried on: see AUTH 2 Annex 2 G ) and any limitations and requirements the applicant wishes to apply for to refine the scope of the regulated activities; an example includes a limitation on the types of client it wishes to carry on business with or a requirement not to hold or control client money;

(2) determine whether it needs to apply to the Society of Lloyd's for admission to the register of underwriting agents or to any other bodies; the timing of these applications should be included in the applicant's plans;

(3) determine which prudential category (and, if relevant, sub-category) will apply, and therefore its minimum regulatory financial requirements;

(4) determine the rules in the Handbook which will apply to the activities it proposes to carry on, and take all reasonable steps to ensure that it is ready, willing and organised to comply with those rules;

(5) determine the systems and controls necessary both to support its activities and to comply with the relevant rules, and have plans to implement and test these systems before the FSA determines its application;

(6) prepare a business plan setting out the planned activities (and related risks), budget and resources (human, systems and capital);

(7) determine which persons will fall under the FSA's approved persons regime and apply for the necessary approval; and

(8) obtain any auditors' or reporting accountants' reports that are required to support its application or have been requested by the FSA; the auditors or other professionals should be involved early in the process to ensure that the planned work on the application will be sufficient to enable them to provide any opinions required.

03/09/2001
Future version of AUTH 1.6.9 after 01/07/2005

AUTH 1.6.10

(1) It is in the interests of the applicant and the FSA that the application pack, when submitted, should be fully completed and address any areas of potential regulatory concern.

(2) If an applicant's plans are complex (for example, if they include insurance business, accepting deposits or certain types of designated investment business), high risk or innovative (for example, if they raise new or unusual issues), then the FSA would expect to be in discussion with the applicant while the applicant is developing the material needed for the formal application.

(3) Where appropriate - for example in an application for Part IV permission including insurance business or accepting deposits - FSA staff may, by agreement with the applicant, arrange a pre-application meeting or discuss aspects of the applicant's draft business plan or other relevant documents while the application is being prepared. This will help the FSA develop its knowledge of the applicant and the proposed business.

03/09/2001

AUTH 1.6.11

In addition, all applicants are encouraged to take the opportunity to discuss particular issues with the FSA as they arise, with a view to tackling them before submitting the completed application pack. Applicants are also advised to review the application pack before submission and check that they have provided adequate responses to all questions (that is, responses appropriate to the scope and scale of their activities and the risks they may pose to consumers).

03/09/2001

AUTH 1.6.12

After receiving the application pack, the FSA will begin its formal process of consideration. The FSA Applications and Individual Approvals teams will review the application pack and approved persons regime forms respectively. During this process, the FSA may ask for additional information and is likely to meet the applicant's management and visit its premises before determining the application.

01/07/2003

AUTH 1.7

Appointed representatives

01/12/2004

AUTH 1.7.1

An applicant for Part IV permission, an EEA firm or Treaty firm which is seeking to carry on designated investment business may wish to consider appointing an appointed representative if they become authorised.

03/09/2001

AUTH 1.7.2

(1) An appointed representative is a person who, as a result of satisfying conditions in section 39 of the Act (Exemption of appointed representatives) is an exempt person in respect of certain business which it carries on for an authorised person. The Act states that a person who is an authorised person cannot also be an appointed representative.

(2) The business for which an appointed representative may be exempt is specified in the Appointed Representatives Regulations. The business which an appointed representative carries on for a firm must fall within the scope of the firm's own permission.

(3) SUP 12 (Appointed representatives) contains guidance on the conditions in the Act, the Appointed Representatives Regulations and the FSA's rules and guidance which apply to a firm which is appointed or has appointed an appointed representative. An applicant for Part IV permission can notify the FSA of the persons it wishes to appoint as appointed representatives in the application pack.

18/10/2001

AUTH 1.8

What other general guidance is available from the FSA?

01/12/2004

AUTH 1.8.1

It will not always be clear to a person whether or not its prospective business activities will be such that it requires authorisation. The FSA has established an Authorisation Enquiries team to help in such cases.

03/09/2001

AUTH 1.8.2

The Authorisation Enquiries team gives assistance by:

(1) producing guidance for persons who wish to find out whether they need to be authorised (see AUTH 2 );

(2) publishing guidance about areas where persons may have difficulty deciding whether or not authorisation or exemption is needed (this is included in AUTH App X [to be added at later date]); and

(3) responding to oral and written enquiries from applicants, prospective applicants, EEA firms, Treaty firms or prospective UCITS qualifiers (or their professional advisers) about their particular position under the Act.

03/09/2001
Future version of AUTH 1.8.2 after 01/07/2005

AUTH 1.8.3

The Authorisation Enquiries team also handles enquiries about financial promotions. Under the Act, the communication of a financial promotion by an unauthorised person is prohibited, unless its contents have been approved by an authorised person, or an exemption applies.

03/09/2001

AUTH 1.8.4

As well as being included as an appendix to AUTH, copies of all current guidance issued by Authorisation Enquiries are available separately from the FSA website at www.fsa.gov.uk or through the FSA's Publications Enquiries department on 020 7066 3298. The Authorisation Enquiries team will be pleased to clarify or discuss any aspects of the guidance in more detail. Enquiries about the scope of the Act may be made to the Authorisation Enquiries helpline by telephone on 020 7066 0082 or by e-mail to authorisationenquiries@fsa.gov.uk.

01/10/2002

AUTH 1.8.5

The FSA will review its guidance from time to time and may need to amend or withdraw published or written guidance in the light of changing circumstances, developing business practices, or case law. For the status of guidance issued by the FSA, see paragraphs 25 to 28 inthe Reader's Guide.

03/09/2001
Future version of AUTH 1.8.5 after 01/04/2005

AUTH 1.9

Next steps?

01/12/2004

AUTH 1.9.1

To find out where next to look in the Authorisation manual, see AUTH 1 Annex 1 G. To find out who to contact at the FSA see AUTH 1.9.2 G.

03/09/2001

AUTH 1.9.2

Who to contact at the FSA

This table belongs to AUTH 1.9.1 G

FSA dept.

For advice on:

Contact details:

Authorisation and Approvals Department

The authorisation aspects of the Act and relevant secondary legislation made under the Act (for example, the Regulated Activities Order)

Authorisation Enquiries

The Financial Services Authority

25 The North Colonnade

Canary Wharf

London E14 5HS

Telephone: 020 7066 0082

Authorisation and Approvals Department

Applications for Part IV permission

Authorisation Teams

The Financial Services Authority 25 The North Colonnade

Canary Wharf

London E14 5HS

Telephone: 020 7066 3954

email: corporate.authorisation@fsa.gov.uk

Regulatory Decisions

Passporting notifications (into or out of the United Kingdom)

Passport Notification Unit

The Financial Services Authority

25 The North Colonnade

Canary Wharf

London E14 5HS

Telephone: 020 7066 1000

email: passport.notifications@fsa.gov.uk

Authorisation and Approvals Department

Applications for approval of persons under the approved persons regime

Enquiries and Applications Department (Individual Approvals team)

The Financial Services Authority

25 The North Colonnade

Canary Wharf

London E14 5HS

Telephone: 020 7066 0019

Fax: 020 7066 0017

email: iva@fsa.gov.uk

01/07/2003

AUTH 1 Annex 1

Introduction to the Authorisation Manual

01/12/2004

Where to next?

AUTH 1 Ann 1

Export chapter as

Legal Instruments that change this Chapter Introduction to the Authorisation manual

AUTH 2

Authorisation and regulated activities

AUTH 2.1

Application and purpose

01/12/2004

Application

AUTH 2.1.1

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

03/09/2001

Purpose

AUTH 2.1.2

The purpose of this chapter is to provide guidance:

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

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

03/09/2001

AUTH 2.2

Introduction

01/12/2004

AUTH 2.2.1

Under section 23 of the Act (Contravention of the general prohibition), a person commits a criminal offence if he carries on activities in breach of the general prohibition in section 19 of the Act (The general prohibition) (see AUTH 1.2.2 G). Although a person who commits the criminal offence is subject to a maximum of two years imprisonment and an unlimited fine, it is a defence for a person to show that he took all reasonable precautions and exercised all due diligence to avoid committing the offence.

03/09/2001

AUTH 2.2.2

Another consequence of a breach of the general prohibition is that certain agreements could be unenforceable (see sections 26 to 29 of the Act). This applies to agreements entered into by persons who are in breach of the general prohibition. It also applies to any agreement entered into by an authorised person if the agreement is made as a result of the activities of a person who is in breach of the general prohibition.

03/09/2001

AUTH 2.2.3

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

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

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

(3) If the answer is 'Yes' to (1) or (2), will my activities involve specified investments in any way (see AUTH 2.6)?

(4) If so, will my activities be, or include, regulated activities (see AUTH 2.7)?

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

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

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

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

(9) If not, do I benefit from the few provisions of the Act that authorise me without a permission under Part IV of the Act (see AUTH 1.2.4 G)?

(10) If not, what is the scope of the Part IV permission that I need to seek from the FSA (see AUTH 2 Annex 2 G and AUTH 3)?

03/09/2001

AUTH 2.2.4

The rest of this chapter provides a high level guide through the questions set out in AUTH 2.2.3 G. It aims to give an overall picture but in doing so it necessarily relies on the reader referring to statutory provisions to fill in the detail (which can be extensive).

03/09/2001

AUTH 2.2.5

The process of applying for Part IV permission is described in AUTH 3. But a list of the activities for which permission may be given is annexed to this chapter (see AUTH 2 Annex 2 G). You may find this helpful in providing an overview of the activities that are regulated. The list is included here because, with some exceptions, the investments and activities for which permission may be given are the same as the investments and activities specified in the Regulated Activities Order. The exceptions (which are explained in AUTH 3.4 and AUTH 3.5) involve distinctions being drawn within each of several activities and investments so specified. This creates a few additional categories for which permission must be sought.

03/09/2001

AUTH 2.3

The business element

01/12/2004

AUTH 2.3.1

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

03/09/2001

AUTH 2.3.2

There is power in the Act for the Treasury to change the meaning of the business element by including or excluding certain things. They have exercised this power (see the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 SI No 1177 and the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2003 SI No 1476). The result is that the business element differs depending on the activity in question.

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

(2) Except as stated in AUTH 2.3.2 G (2A) and AUTH 2.3.2 G (3), the business element is not to be regarded as satisfied for any of the regulated activities carried on in relation to securities or contractually based investments (or for those regulated activities carried on in relation to 'any property') unless a person carries on the business of engaging in one or more of the activities. This also applies to the regulated activities of arranging in relation to a regulated mortgage contract and advising on regulated mortgage contracts. This is a narrower test than that of carrying on regulated activities by way of business (as required by section 22 of the Act), as it requires the regulated activities to represent the carrying on of a business in their own right.

(2A) A person who carries on an insurance mediation activity will not be regarded as doing so by way of business unless he takes up or pursues that activity for remuneration. AUTH 2.3.3 G gives guidance on the factors that are relevant to the meaning of 'by way of business' in section 22 of the Act. AUTH App 5.4 (The business test) gives further guidance on the business element as applied to insurance mediation activities.

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

(4) The business element for all other regulated activities is that the activities are carried on by way of business. This applies to the activities of effecting or carrying out contracts of insurance, certain activities relating to the Lloyd's market, entering as provider into a funeral plan contract and entering into regulated mortgage contracts or administering regulated mortgage contracts (see AUTH 2.7.20 G).

01/10/2002

AUTH 2.3.3

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

03/09/2001

AUTH 2.4

Link between activities and the United Kingdom

01/12/2004

AUTH 2.4.1

Section 19 of the Act (The general prohibition) provides that the requirement to be authorised under the Act only applies in relation to activities that are carried on 'in the United Kingdom'. In many cases it will be quite straightforward to identify where an activity is carried on. But when there is a cross border element, for example because a client is outside the United Kingdom or because some other element of the activity happens outside the United Kingdom, the question may arise as to where the activity is carried on.

03/09/2001

AUTH 2.4.2

Even with a cross border element a person may still be carrying on an activity 'in the United Kingdom'. For example, a person who is situated in the United Kingdom and who is safeguarding and administering investments will be carrying on activities in the United Kingdom even though his client may be overseas.

03/09/2001

AUTH 2.4.3

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

(1) The first case is where a UK-based person carries on a regulated activity in another EEA State in exercise of rights under a Single Market Directive.

(2) The second case consists of the marketing in another EEA State of a UK-based collective investment scheme by the scheme's manager where the scheme in question is one to which the UCITS Directive applies.

(3) The third case is where a regulated activity is carried on by a UK-based person and the day-to-day management of the activity is the responsibility of an establishment in the United Kingdom.

(4) The fourth case is where a regulated activity is carried on by a person who is not based in the United Kingdom but is carried on from an establishment in the United Kingdom. This might occur when each of the stages that make up a regulated activity (such as managing investments) takes place in different countries. For example, a person's management is in country A, the assets are held by a nominee in country B, all transactions take place in country B or country C but all decisions about what to do with the investments are taken from an office in the United Kingdom. Given that the investments are held, and all dealings in them take place, outside the United Kingdom there may otherwise be a question as to where the regulated activity of managing investments is taking place. For the purposes of the Act, it is carried on in the United Kingdom.

(5) The fifth case, inserted by the ECD Regulations is, in effect, where an electronic commerce activity is carried on, from an establishment in the United Kingdom, in another EEA State. The ECO includes rules and guidance that apply to ECA providers based in the United Kingdom.

21/08/2002

AUTH 2.4.4

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

03/09/2001

AUTH 2.4.5

A person who is based outside the United Kingdom but who sets up an establishment in the United Kingdom must therefore consider the following matters. First, he must not, unless he is authorised, carry on regulated activities in the United Kingdom. Second, unless he is authorised, the day-to-day management of the carrying on of the regulated activity must not be the responsibility of the UK establishment. This may, for example, affect those UK establishments that in the context of deposit-taking activities were, before the commencement of the Act, treated as representative offices of overseas institutions. Such institutions will need to seek authorisation if the responsibility for the day to day management of the accepting of deposits by them outside the United Kingdom is nevertheless effectively that of their UK establishment. Third, such a person will need to ensure that he does not contravene other provisions of the Act that apply to persons who are not authorised. These include the controls on financial promotion (section 21 of the Act (Financial promotion)), and on giving the impression that a person is authorised (section 24).

03/09/2001

AUTH 2.4.6

A person based outside the United Kingdom may also be carrying on activities in the United Kingdom even if he does not have a place of business maintained by him in the United Kingdom (for example, by means of the internet or other telecommunications system or by occasional visits). In that case, it will be relevant to consider whether what he is doing satisfies the business test as it applies in relation to the activities in question. In addition, he may be able to rely on the exclusions from certain regulated activities that apply in relation to overseas persons (see AUTH 2.9.15 G).

03/09/2001

AUTH 2.4.7

Electronic commerce activities, other than insurance business falling within the scope of the Insurance Directives, provided by an incoming ECA provider will not be regulated activities (see AUTH 2.9.18 G (2))

21/08/2002

AUTH 2.5

Investments and activities: general

01/12/2004

AUTH 2.5.1

In addition to the requirements as to the business test and the link to the United Kingdom, two other essential elements must be present before a person needs authorisation under the Act. The first is that the investments must come within the scope of the system of regulation under the Act (see AUTH 2.6). The second is that the activities, carried on in relation to those specified investments, are regulated under the Act (see AUTH 2.7). Both investments and activities are defined in the Regulated Activities Order made by the Treasury under section 22 of the Act.

03/09/2001

AUTH 2.5.2

The Regulated Activities Order contains exclusions. Exclusions may exist in relation to both the element of investment and the element of activity. Each should therefore be checked carefully. The exclusions that relate to specified investments are considered in AUTH 2.6, together with the outline of the specified investments. The exclusions that relate to activities are considered separately from the outline of activities (see AUTH 2.8 and AUTH 2.9).

03/09/2001

Modification of certain exclusions as a result of Investment Services and Insurance Mediation Directives

AUTH 2.5.3

The application of certain of the exclusions considered in AUTH 2.8 (Exclusions applicable to certain regulated activities) and AUTH 2.9 (Regulated activities: exclusions applicable to certain circumstances) is modified in relation to persons who are subject to the Investment Services Directive or the Insurance Mediation Directive. The reasons for this and the consequences of it are explained in AUTH 2.5.4 G, as respects the Investment Services Directive, and AUTH App 5 (Insurance mediation activities), as respects the Insurance Mediation Directive.

03/09/2001

Investment services

AUTH 2.5.4

It remains the Government's responsibility to ensure the proper implementation of the Investment Services Directive. In this Directive, persons (called 'investment firms') who are caught by the Directive must be brought within the scope of regulation under the Act. An investment firm is any person whose ordinary business involves the provision to third parties on a professional basis of core investment services (these services are described in the extract from the Directive in Schedule 2 to the Regulated Activities Order). The Investment Services Directive does not apply in the circumstances described in the extract from the Directive in Schedule 3 to the Regulated Activities Order. A person will need to consider whether he is an investment firm to which the Directive applies, having due regard to the provisions in Schedule 3 to the Regulated Activities Order.

03/09/2001

AUTH 2.5.5

For persons who are investment firms, the activities that must be caught by the Regulated Activities Order are those that are caught by the Investment Services Directive. To achieve this result, some of the exclusions in the Order (that will apply to persons who are not caught by the Directive) have been made unavailable to investment firms. Article 4(4) of the Regulated Activities Order (Specified activities: general) lists a number of exclusions that must be disregarded. These relate to the exclusions concerned with:

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

(2) transactions or arrangements with or through certain persons (see AUTH 2.8.4 G (2), AUTH 2.8.5 G (1) and AUTH 2.8.6 G (4));

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

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

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

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

(7) sale of a body corporate (see AUTH 2.9.11 G).

01/10/2002

Insurance mediation or reinsurance meditation

AUTH 2.5.6

The Insurance Mediation Directive has in part been implemented through various amendments to the Regulated Activities Order. These include article 4(4A) (Specified activities: general) which precludes a person who, for remuneration, takes up or pursues insurance mediation or reinsurance mediation in relation to a risk or commitment situated in an EEA State from making use of certain exclusions. In other cases, some of the exclusions provided in relation to particular regulated activities are unavailable where the activity involves a contract of insurance. This is explained in more detail in AUTH App 5 (Insurance mediation activities).

03/09/2001

AUTH 2.6

Specified investments: a broad outline

01/12/2004

AUTH 2.6.1

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

03/09/2001

Deposits

AUTH 2.6.2

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

03/09/2001

AUTH 2.6.3

Certain transactions are excluded. The definition of deposit itself excludes money paid in connection with certain transactions such as advance payments for the provision of goods or services and sums paid to secure the performance of a contract. The circumstances in which payments are excluded from the definition itself are exhaustively stated in article 5(3) of the Regulated Activities Order (Accepting deposits). In addition, there is a separate exclusion in article 9 of the Order (Sums received in consideration for the issue of debt securities) and another in article 9A (Sums received in exchange for electronic money). AUTH App 3.2.15 G to AUTH App 3.2.19 G contain guidance on the exclusion relating to electronic money.

01/10/2002

AUTH 2.6.4

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

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

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

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

03/09/2001

Electronic Money

AUTH 2.6.4A

Electronic money is specified as an investment in article 74A of the Regulated Activities Order (as amended by the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2002). It is defined, in article 2 of that order, as monetary value, as represented by a claim on the issuer, which is stored on an electronic device, issued on receipt of funds and accepted as a means of payment by persons other than the issuer. Further guidance is given in AUTH App 3 (Guidance on the scope of the regulated activity of issuing e-money).

27/04/2002

Rights under a contract of insurance

AUTH 2.6.5

Contract of insurance is defined to include certain things that might not be considered a contract of insurance at common law. Examples of such additions include capital redemption contracts or contracts to pay annuities on human life.

03/09/2001

AUTH 2.6.6

There are two main sorts of contracts of insurance. These are general insurance contracts and long-term insurance contracts. The Regulated Activities Order provides that, in certain specified circumstances, a contract is to be treated as a long-term insurance contract notwithstanding that it contains supplementary provisions that might also be regarded as relating to a general insurance contract (see article 3(3)).

03/09/2001

AUTH 2.6.7

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

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

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

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

(b) rights under contracts of insurance other than life policies (but not rights to or interests in such rights).

This term is used in connection with the treatment, under various parts of the Regulated Activities Order, of persons carrying on insurance mediation activities (see AUTH App 5 (Insurance mediation activities) for further guidance on such activities).

03/09/2001

AUTH 2.6.8

Certain arrangements in relation to funeral plans are specifically excluded from being contracts of insurance if they would otherwise be so. The exclusion applies to arrangements that fall within the definition of a funeral plan contract (see AUTH 2.6.26 G) as well as arrangements that are excluded from the regulated activity of entering as provider into funeral plan contracts (see AUTH 2.8.14 G).

03/09/2001

Shares etc

AUTH 2.6.9

Shares are defined in the Regulated Activities Order as shares or stock in a wide range of entities; that is, any body corporate wherever incorporated and unincorporated bodies formed under the law of a country other than the United Kingdom. They include deferred shares issued by building societies as well as transferable shares in industrial and provident societies, credit unions and equivalent EEA bodies. These shares are transferable and negotiable in a way similar to other shares or stock and are treated as such for the purposes of defining regulated activities. They are specifically mentioned as being within the specified investment category of shares because other types of share issued by these mutual bodies are not transferable and are expressly excluded (see AUTH 2.6.10 G).

03/09/2001

AUTH 2.6.10

The following are excluded from the specified investment category of shares. Shares or stock in all open-ended investment companies are excluded from being treated in this particular category (but see AUTH 2.6.17 G). Exclusions from this category also apply to shares or stock in the share capital of certain mutuals or in equivalent EEA bodies. This takes out building society or credit union accounts and non-transferrable shares in industrial and provident societies. These may nevertheless be specified investments in another category (such as deposits in the case of building society accounts).

03/09/2001

Debt instruments

AUTH 2.6.11

Two categories of specified investments relating to debt instruments are dealt with under this heading. They broadly split into private debt and public sector debt.

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

(2) The second category (defined in article 78 of the Regulated Activities Order and referred to in the Handbook as government and public securities) refers to loan stock, bonds and other instruments creating or acknowledging indebtedness which are issued by or on behalf of any government, the assemblies for Scotland, Wales or Northern Ireland, a local authority or an international organisation.

An instrument cannot fall within both categories of specified investments relating to debt instruments. 'Instrument' is defined to include any record whether or not in the form of a document (see article 3(1) of the Regulated Activities Order).

03/09/2001

AUTH 2.6.12

Certain instruments are excluded from both these categories of specified investments. These include trade bills, specified banking documents (such as cheques and banknotes though not bills of exchange accepted by a banker) and contracts of insurance. There is a further exclusion from this category of specified investment dealing with public debt for National Savings deposits and products.

03/09/2001

Warrants

AUTH 2.6.13

The category of specified investment of instruments giving entitlements to investments (referred to in the Handbook as warrants) covers warrants and other instruments which confer an entitlement to subscribe for shares, debentures and government and public securities. This is one of several categories of specified investments that are expressed in terms of the rights they confer in relation to other categories of specified investment. The rights conferred must be rights to 'subscribe' for the relevant investments. This means that they are rights to acquire the investments directly from the issuer of the investments and by way of the issue of new investments (rather than by purchasing investments that have already been issued).

03/09/2001

AUTH 2.6.14

To keep clear distinctions between the different specified investment categories, instruments giving entitlements to investments are not to be regarded as options, futures or contracts for differences.

03/09/2001

Certificates representing securities

AUTH 2.6.15

The specified investment category of certificates representing certain securities covers certificates or other instruments which confer rights in relation to shares and debt securities. It includes depositary receipts.

03/09/2001

AUTH 2.6.16

There is an exclusion for any instrument that would otherwise fall within the specified investment category of units in a collective investment scheme. But the exclusion does not apply where the underlying investments covered by the certificate are issued by the same (non-public sector) issuer or constitute a single issue of public sector debt (such as a single issue of gilts). Certificates or other instruments conferring rights in respect of investments in these two cases continue to be treated as certificates representing certain securities.

03/09/2001

Units

AUTH 2.6.17

The specified investment category of units in a collective investment scheme includes units in a unit trust scheme, shares in open-ended investment companies and rights in respect of most limited partnerships. Shares in or securities of an open-ended investment company are treated differently from shares in other companies. They are excluded from the specified investment category of shares. This does not mean that they are not investments but simply that they are uniformly treated in the same way as units in other forms of collective investment scheme. The effect is that an open-ended investment company will, in issuing its shares, be subject to the restrictions on promotion of collective investment schemes in section 238 of the Act (rather than to restrictions, such as those in the Public Offers of Securities Regulations 1995, that apply to other forms of body corporate). For exclusions from the restrictions on the provisions of collective investment schemes, see the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 SI No 1060.

03/09/2001

AUTH 2.6.18

There are no exclusions in the Regulated Activities Order for this specified investment category. This is because 'collective investment scheme' is defined in section 235 of the Act (Collective investment schemes) for the purposes of the Act generally. But there is a separate power to provide for exemptions from that definition and the Treasury have exercised it (see the Financial Services and Markets (Collective Investment Schemes) Order 2001 SI No 1062). The result is that units in certain arrangements are excluded from being collective investment schemes (for example, closed-ended bodies corporate, franchise arrangements, timeshare schemes).

03/09/2001

Rights under a stakeholder pension scheme

AUTH 2.6.19

A stakeholder pension scheme is defined in section 1 of the Welfare Reform and Pensions Act 1999. Regulations made under that section set out detailed rules under which such schemes will operate (see the Stakeholder Pension Scheme Regulations 2000). Schemes must be registered with the Occupational Pensions Regulatory Authority and approved by the Board of the Inland Revenue. Rights under such schemes are specified investments for the purposes of the Regulated Activities Order. There are no exclusions in the Order.

03/09/2001
Future version of AUTH 2.6.19 after 21/04/2005

Options

AUTH 2.6.20

The specified investment category of options is limited to options to acquire or dispose of securities or contractually based investments, currency and certain precious metals and options to acquire or dispose of such options. Options to buy or sell other types of commodity will only fall within this specified investment category if they are options to buy or sell futures, or options to buy or sell contracts for differences, which are based on other commodities. But options to buy or sell other types of commodity may be contracts for differences (see AUTH 2.6.23 G).

03/09/2001

Futures

AUTH 2.6.21

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

03/09/2001

AUTH 2.6.22

The key issue in determining whether something is an investment in this category for the purposes of the Regulated Activities Order is whether the contract is made for investment purposes rather than commercial purposes. Contracts which are made for commercial purposes are excluded from this specified investment category and the Regulated Activities Order contains several tests as to when that is, or is not, the case (some are conclusive, others only indicative).

03/09/2001

Contracts for differences

AUTH 2.6.23

The specified investment category of contracts for differences covers rights under contracts for differences and rights under other contracts whose purpose or pretended purpose is to secure a profit or avoid a loss by reference to fluctuations in certain factors. In addition to fluctuations in the value or price of property of any description or in an index, those factors also include fluctuations in any 'other factor designated in the contract'. This catches a wide range of factors. All contracts in this category are cash-settled instruments (as opposed to being settled by way of delivering something other than cash). Many would be unenforceable as gaming contracts were it not for section 412 of the Act (Gaming contracts). Examples of things that count as specified investments under this category are spread bets and interest rate swaps.

03/09/2001

AUTH 2.6.24

There are a number of exclusions. These include a case where the parties intend that the profit is to be secured or the loss to be avoided by taking delivery of property. This avoids overlap with the specified investment categories of options and futures. Also excluded are index-linked deposits and rights under certain contracts connected with the National Savings Bank or National Savings products. There is also provision to ensure that the specified investment category of contracts for differences does not include rights under life policies.

03/09/2001

Lloyd's investments

AUTH 2.6.25

Two types of specified investment are relevant. These are the underwriting capacity of a Lloyd's syndicate and a person's membership of a Lloyd's syndicate. There are no exclusions from these specified investment categories.

03/09/2001

Rights under a funeral plan

AUTH 2.6.26

Rights under a funeral plan contract are the rights to a funeral obtained by a person who pays for the funeral before the death of the person whose funeral it will be. This will be a specified investment with effect from 1 January 2002.

03/09/2001

Rights under a regulated mortgage contract

AUTH 2.6.27

In accordance with article 61(3)(a) of the Regulated Activities Order, a regulated mortgage contract is a contract which, at the time it is entered into, satisfies the following conditions:

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

(2) the obligation of the borrower to repay is secured by a first legal charge on land (other than timeshare accommodation) in the United Kingdom; and

(3) at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling by the borrower (or, where trustees are the borrower, by an individual who is a beneficiary of the trust) or by a related person.

Detailed guidance on this is set out in AUTH App 4.4 (Guidance on regulated activities connected with mortgages).

31/10/2004

Rights to or interests in investments

AUTH 2.6.28

Rights to, or interests in, all the specified investments in AUTH 2.6 (except rights to, or interests in, rights under a regulated mortgage contract) are themselves treated as specified investments. The effect is that, in most cases, an activity carried on in relation to rights or interests derived from any of those investments is also a regulated activity if the activity would be regulated if carried on in relation to the investment itself. The exception is where the rights or interests relate to a pure protection contract or a general insurance contract.

31/10/2004

AUTH 2.6.29

There are several things that are not covered by this category (other than rights to, or interests in, rights under a mortgage contract). Anything that is covered by any other specified investment category is excluded, as are interests under the trusts of an occupational pension scheme. Finally, where a contract is excluded from the scope of the regulated activity of entering as provider into a funeral plan contract (see AUTH 2.8.14 G), then rights to, or interests in, the contracts of insurance or interests under the trusts, to which the contracts relate are also excluded from this specified investment category.

03/09/2001

AUTH 2.7

Activities: a broad outline

01/12/2004

AUTH 2.7.1

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

03/09/2001

Accepting deposits

AUTH 2.7.2

Whether or not accepting deposits is a regulated activity depends on the use to which the money is put. The activity is caught if money received by way of deposit is lent to others or if any other activity of the person accepting the deposit is financed wholly (or to a material extent) out of the capital of, or interest on, money received by way of deposit.

03/09/2001

Issuing e-money

AUTH 2.7.2A

Guidance on the regulated activity of issuing e-money is given in AUTH App 3.

01/10/2002

Effecting or carrying out contracts of insurance as principal

AUTH 2.7.3

The activities of effecting a contract of insurance or carrying out a contract of insurance are separate regulated activities, each requiring authorisation. But this only applies where they are carried on by a person who is acting as principal. This means that the activities of agents, such as loss adjusters, will not constitute this regulated activity. The activities of some agents may, however, constitute other regulated activities; for example, brokers arranging long-term insurance contracts may be caught as carrying on the regulated activity of arranging (bringing about) deals in contractually based investments (see AUTH 2.7.7 G).

03/09/2001

AUTH 2.7.4

In addition, certain other activities carried on in relation to rights under contracts of insurance are regulated activities. These are where the activity is carried on in relation to:

(1) life policies, where the regulated activities concerned are:

(a) dealing in investments as principal (see AUTH 2.7.5 G);

(b) managing investments (see AUTH 2.7.8 G);

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

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

(a) dealing in investments as agent (see AUTH 2.7.5 G); and

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

(d) advising on investments (see AUTH 2.7.15 G); and

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

AUTH App 5 (Insurance mediation activities) has more guidance on these regulated activities where they are insurance mediation activities.

03/09/2001

Dealing in investments (as principal or agent)

AUTH 2.7.5

In relation to securities or life policies (or rights or interests in either), dealing as principal is only a regulated activity if certain conditions are satisfied (see AUTH 2.8.4 G (1)).

03/09/2001

AUTH 2.7.6

Both the activities of dealing in investments as principal and dealing in investments as agent are defined in terms of 'buying, selling, subscribing for or underwriting' certain investments. These investments are:

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

(2) for dealing in investments as agent, securities and relevant investments (except rights under a funeral plan contract);

03/09/2001

Arranging deals in investments and arranging regulated mortgage activities

AUTH 2.7.7

[deleted]

(1) [deleted]

(2) [deleted]

18/10/2001

AUTH 2.7.7A

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

(1) arranging (bringing about) deals in investments which are securities, relevant investments or the underwriting capacity of a Lloyd's syndicate or membership of a Lloyd's syndicate (article 25(1));

(2) making arrangements with a view to transactions in investments which are securities, relevant investments or the underwriting capacity of a Lloyd's syndicate or membership of a Lloyd's syndicate (article 25(2));

(3) arranging (bringing about) regulated mortgage contracts, which includes arranging for another person to vary the terms of a regulated mortgage contract entered into before 31 October 2004 (article 25A(1)); and

(4) making arrangements with a view to regulated mortgage contracts (article 25A(2)).

01/10/2002

Managing investments

AUTH 2.7.8

The regulated activity of managing investments includes several elements.

(1) First, a person must exercise discretion. Non-discretionary portfolio management (where the manager buys and sells, as principal or agent, on the instructions of some other person) is not caught by this activity, although it may be caught by a different regulated activity such as the activity of dealing in investments as principal or dealing in investments as agent. The discretion must be exercised in relation to the composition of the portfolio under management and not in relation to some other function (such as proxy voting) carried on by the manager.

(2) Second, the property that is managed must belong beneficially to another person. This excludes from the regulated activity the management by a person of his own property. But discretionary management of assets by a person acting in his capacity as trustee will be caught even though he is the legal owner of the assets.

(3) Third, the property that is managed must consist of (or include) securities or contractually based investments. Alternatively, discretionary management will generally be caught if it is possible that the property could consist of or include such securities or investments. This is the case even if there never has been any investment in securities or contractually-based investments, as long as there have been representations that there would be.

03/09/2001

Safeguarding and administering investments

AUTH 2.7.9

The activity of safeguarding and administering investments belonging to another is regulated, as is providing a service under which a person undertakes to arrange on a continuing basis for others actually to carry out the safeguarding and administering. In each case, both the elements of safeguarding and administering must be present before a person will be said to carry on the activity.

(1) Safeguarding is acting as custodian of the property, for example, holding any documents evidencing the investments such as the share certificate (although it is worth noting that there is express provision that an uncertificated investment may be safeguarded and administered).

(2) Administration covers services provided to the owner or manager of the property, such as settlement of sale transactions relating to an investment, dealing with income arising from the investment and carrying out corporate actions such as voting. The nature of administration services must be such that the custodian has no discretion (otherwise he is likely to be caught by the regulated activity of managing investments (see AUTH 2.7.8 G)).

03/09/2001

AUTH 2.7.10

The property that is safeguarded and administered must belong beneficially to another person. It must consist of (or include) securities or contractually based investments. Alternatively, safeguarding and administration will generally be caught if it is possible that the property could consist of (or include) such securities or investments. This is the case even if the property in question has never consisted of (or included) such securities or investments, as long as there have been representations that it would do.

03/09/2001

Sending dematerialised instructions

AUTH 2.7.11

The regulated activities relating to sending dematerialised instructions relate to the operation of the system for electronic transfer of title to security or contractually based investments. This is the system maintained under the Uncertificated Securities Regulations 2001 (and currently operated by CREST). Sending instructions on behalf of another is a regulated activity, as is causing such instructions to be sent if the person causing the sending is a system-participant, as defined in those Regulations. A system-participant is the person who has the computer and network connection to CREST.

03/09/2001

Establishing etc collective investment schemes

AUTH 2.7.12

The regulated activities carried on in relation to a collective investment scheme generally are the establishing, operating or winding up a collective investment scheme. Acting as the depositary and acting as sole director of an open-ended investment company are also separate regulated activities. In all these cases, the activities are regulated where the schemes themselves are authorised schemes for the purposes of the UK product regulation regime under Part XVII of the Act (Collective investment schemes) as well as where the schemes are unregulated schemes. The process for applying for authorisation of a collective investment scheme is described in CIS 2 (Authorised fund applications) and CIS 16 (Application and notification).

01/04/2004

AUTH 2.7.13

In addition, express provision is included in the Regulated Activities Order to make acting as trustee of an authorised unit trust scheme into a regulated activity. The full picture for authorised schemes (that is, schemes that can be promoted to the public) is as follows:

(1) Acting as trustee of an authorised unit trust scheme is expressly included as a regulated activity.
(2) Acting as a depositary of an open-ended investment company that is authorised under regulations made under section 262 of the Act (Open-ended investment companies), is a regulated activity.
(3) Acting as a sole director of such a company is a regulated activity.
(4) Managing an authorised unit trust scheme will amount to operating the scheme and so will be a regulated activity. A person acting as manager is also likely to be carrying on other regulated activities (such as dealing (see AUTH 2.7.5 G) or managing investments (see AUTH 2.7.8 G)).
(5) An open-ended investment company will, once it is authorised under regulations made under section 262 of the Act, become an authorised person in its own right under Schedule 5 to the Act (Persons concerned in Collective Investment Schemes). Under ordinary principles, a company operates itself and an authorised open-ended investment company will be operating the collective investment scheme constituted by the company. It is not required to go through a separate process of authorisation as a person because it has already undergone the process of product authorisation.
(6) Operators, trustees or depositaries of UCITS schemes constituted in other EEA States are also authorised persons under Schedule 5 of the Act if those schemes qualify as recognised collective investment schemes for the purposes of section 264 of the Act.

03/09/2001

Establishing etc stakeholder pension schemes

AUTH 2.7.14

The regulated activities carried on in relation to stakeholder pension schemes are the establishment, operating or winding up of a stakeholder pension scheme. Managers of such schemes will require authorisation as they will be operating the schemes.

03/09/2001

Advising on investments

AUTH 2.7.15

The regulated activity of advising on investments under article 53 of the Regulated Activities Order applies to advice on securities or relevant investments. It does not, for example, include giving advice about deposits or about things that are not specified investments for the purposes of the Regulated Activities Order (such as interests under the trusts of an occupational pension scheme). Giving advice on certain other specified investments is, however, regulated under other parts of the Regulated Activities Order (see AUTH 2.7.16A G and AUTH 2.7.17 G (2). Giving a person generic advice about specified investments (for example, invest in Japan rather than Europe) is not a regulated activity nor is giving information as opposed to advice (for example, listings or company news). However, the context in which something is communicated may affect its character; for example, if a person gives information on share price against the background that, when he does so, that will be a good time to sell, then this will constitute advice.

03/09/2001

AUTH 2.7.16

The advice must also be given to someone who holds specified investments or is a prospective investor (including trustees, nominees or discretionary fund managers). This requirement excludes advice given to a person who receives it in another capacity. An example of this might be a tax professional to whom advice is given to inform the practice of his profession or advice given to an employer for the purposes of setting up a group personal pension scheme. Further guidance on the meaning of advising on investments is in AUTH App 1.24 (Advising on investments).

03/09/2001

Lloyd's activities

AUTH 2.7.17

Certain activities carried on in connection with business at Lloyd's will be regulated. In addition to those already mentioned (arranging deals in the underwriting capacity of a Lloyd's syndicate or membership of a Lloyd's syndicate), there are three other regulated activities as follows.

(1) Managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's is a regulated activity. 'Managing agent' is defined in article 3(1) of the Regulated Activities Order.

(2) Advising on syndicate participation at Lloyd's, that is advising a person to become, or continue or cease to be, a member of a particular syndicate is also caught. Giving advice about syndicate participation (such as how members should use their capital within the market and arrange their syndicate participation) is a separate regulated activity to that of providing advice in relation to securities and contractually based investments (see AUTH 2.7.15 G). Appropriate permission will be needed.

(3) Arranging deals in contracts of insurance written at Lloyd's is also a regulated activity for the Society of Lloyd's itself.

03/09/2001

Entering funeral plan contracts

AUTH 2.7.18

Entering as provider into a funeral plan contract is a regulated activity. The 'provider' is the person to whom the pre-payments are made and who undertakes to provide, or secure the provision of, the funeral at some future point. He may be the funeral director or a third party who arranges for another person to provide the funeral. Certain types of funeral plan contract are excluded (see AUTH 2.8.14 G). This became a regulated activity on 1 January 2002.

01/10/2002

AUTH 2.7.19

In addition, other activities carried on in relation to rights under certain funeral plan contracts are regulated (see AUTH 2.7.5 G to AUTH 2.7.11 G and AUTH 2.7.15 G and AUTH 2.7.16 G). This is because such rights are classified as contractually based investments.

03/09/2001

Entering into and administering a regulated mortgage contract

AUTH 2.7.20

Entering into as lender, and administering a regulated mortgage contract are regulated activities under article 61 of the Regulated Activities Order (Regulated mortgage contracts). Guidance on these regulated activities is in AUTH App 4.7 (Entering into a regulated mortgage contract) and AUTH App 4.8 (Administering a regulated mortgage contract).

01/10/2002

Agreeing

AUTH 2.7.21

Agreeing to carry on most regulated activities is itself a regulated activity. But this is not the case if the underlying activities to which the agreement relates are those of accepting deposits, issuing e-money, effecting or carrying out contracts of insurance or carrying on any of the activities that are regulated in relation to collective investment schemes and stakeholder pension schemes. A person will need to make sure that he has appropriate authorisation at the stage of agreement and before he actually carries on the underlying activity (such as the dealing or arranging).

01/10/2002

AUTH 2.8

Exclusions applicable to particular regulated activities

01/12/2004

AUTH 2.8.1

Most regulated activities are subject to exclusions that are set out in the Regulated Activities Order directly following each activity.

03/09/2001

Accepting deposits

AUTH 2.8.2

Only one exclusion applies to the regulated activity of accepting deposits. A deposit taker providing its services as an electronic commerce activity from another EEA State into the United Kingdom (see AUTH 2.9.18 G) does not carry on a regulated activity. In addition to the situations that are excluded from being 'deposits' (see AUTH 2.6.2 G to AUTH 2.6.4 G), several persons are exempt persons in relation to the regulated activity of accepting deposits (see AUTH 2.10.8 G (2)).

21/08/2002

Issuing e-money

AUTH 2.8.2A

Certain 'small issuers' of e-money may apply to the FSA for a certificate to be excluded from the regulated activity of issuing e-money. To be eligible, the issuer must be a body corporate or a partnership (other than a full credit institution) with its head office in the United Kingdom and it must meet certain conditions. The FSA must give that issuer a certificate if it appears to the FSA that the issuer meets those conditions. Further guidance on those conditions and how the application is made is given in ELM 8.4 (The conditions for giving a small e-money issuer certificate).

27/04/2002

Effecting and carrying out contracts of insurance

AUTH 2.8.3

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

(1) In specified circumstances, the activities of an EEA firm when participating in a Community co-insurance operation are excluded. A Community co-insurance operation is defined in the Community Co-insurance Directive.

(2) Activities that are carried out in connection with the provision of on-the-spot accident or breakdown assistance for cars and other vehicles (such as repairs, vehicle retrieval, delivery of parts or fuel) are excluded.

(3) Electronic commerce activities provided by an incoming ECA provider where those activities are outside the scope of the Insurance Directives (see AUTH 2.9.18 G).

21/08/2002

Dealing in investments as principal

AUTH 2.8.4

The regulated activity of dealing in investments as principal applies to specified transactions relating to any security or to any contractually based investment (apart from rights under funeral plan contracts or rights to or interests in such contracts). The activity is cut back by exclusions as follows.

(1) Of particular significance is the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc). This applies where dealing in investments as principal involves entering into transactions relating to any security or assigning rights under a life policy (or rights or interests in such a contract). In effect, it superimposes an additional condition that must be met before a person's activities become regulated activities. The additional condition is that a person must hold himself out as making a market in the relevant specified investments or as being in the business of dealing in them, or he must regularly solicit members of the public with the purpose of inducing them to deal. This exclusion does not apply to dealing activities that relate to any contractually based investment except the assigning of rights under a life policy.
(2) Entering into a transaction relating to a contractually based investment is not regulated if the transaction is entered into by an unauthorised person and it takes place in either of the following circumstances (a transaction entered into by an authorised person would be caught). The first set of circumstances is where the person with whom the unauthorised person deals is either an authorised person or an exempt person who is acting in the course of a business comprising a regulated activity in relation to which he is exempt. The second set of circumstances is where the unauthorised person enters into a transaction through a non-UK office (which could be his own) and he deals with or through a person who is based outside the United Kingdom. This non-UK person must be someone who, as his ordinary business, carries on any of the activities relating to securities or contractually based investments that are generally treated as regulated activities.
(3) A person (for example, a bank) who provides another person with finance for any purpose can accept an instrument acknowledging the debt (and as security for it) without risk of dealing as principal as a result.
(4) A company does not deal as principal by issuing its own shares or share warrants and a person does not deal as principal by issuing his own debentures or debenture warrants.
(5) Risk-management activities involving options, futures and contracts for differences will not require authorisation if specified conditions are met. The conditions include the company's business consisting mainly of unregulated activities and the sole or main purpose of the risk management activities being to limit the impact on that business of certain kinds of identifiable risk.
(6) A person will not be treated as carrying on the activity of dealing in investments as principal if, in specified circumstances (outlined in AUTH 2.9), he enters as principal into a transaction:

(a) while acting as bare trustee (or, in Scotland, as nominee);
(b) in connection with the sale of goods or supply of services;
(c) that takes place between members of a group or joint enterprise;
(d) in connection with the sale of a body corporate;
(e) in connection with an employee share scheme;
(f) as an overseas person;
(g) as an incoming ECA provider (see AUTH 2.9.18 G).

01/10/2002

Dealing in investments as agent

AUTH 2.8.5

The regulated activity of dealing in investments as agent applies to specified transactions relating to any security or to any relevant investment (apart from rights under funeral plan contracts or rights to or interests in such contracts). In addition, the activity is cut back by exclusions as follows.

(1) An exclusion applies to certain transactions entered into by an agent who is not an authorised person which depend on him dealing with (or through) an authorised person. It does not apply if the transaction relates to a contract of insurance. There are certain conditions which must be satisfied for the exclusion to apply. These are that the agent must not give any relevant advice on the transaction and that he must not receive any remuneration from the transaction unless account is made to his client.

(2) There is an exclusion for risk-management transactions where the agent is dealing on behalf of a group company or a co-participant in a joint enterprise.

(3) In addition, exclusions apply in specified circumstances (outlined in AUTH 2.9 (Regulated activities: exclusions available in certain circumstances)) where a person enters as agent into a transaction:

(a) in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see AUTH 2.9.5 G);

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

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

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

(f) as an overseas person (see AUTH 2.9.15 G);

(g) as an incoming ECA provider (see AUTH 2.9.18 G);

(h) as a provider of non-motor goods or travel services where the transaction involves a general insurance contract that satisfies certain conditions (see AUTH 2.9.19 G);

(i) that involves a contract of insurance covering large risks situated outside the EEA (see AUTH 2.9.19 G).

More detailed guidance on the exclusions that relate to contracts of insurance is in AUTH App 5 (Insurance mediation activities).

21/08/2002

Arranging deals in investments and arranging regulated mortgage contracts

AUTH 2.8.6

The exclusions in relation to the regulated activities of arranging are of particular relevance in the context of raising corporate finance. Many of the exclusions outlined below relate to both the elements of the activity; that is, arranging (bringing about) deals in investments (under article 25(1) of the Regulated Activities Order) and making arrangements with a view to transactions in investments (under article 25(2) of the Regulated Activities Order). But several exclusions relate only to one of those activities.

(1) Under article 26, arrangements that do not or would not bring about the transaction to which they relate are excluded from article 25(1) and article 25A(1) only. A person will bring about an investment transaction only if his involvement in the chain of events leading to a transaction is of sufficient importance that without that involvement the transaction would not take place. This will require something more than the mere giving of advice (although giving such advice may be the regulated activity of advising on investments).

(2) Under article 27, simply providing the means by which parties to a transaction (or possible transaction) are able to communicate with each other is excluded from article 25(2) and article 25A(2) only. This will ensure that persons such as Internet service providers or telecommunications networks are excluded if all they do is provide communication facilities (and these would otherwise be considered to be arrangements made with a view to the participants entering into transactions). If a person makes arrangements that go beyond providing the means of communication, and add value to what is provided, he will lose the benefit of this exclusion.

(3) Under article 28, arranging investment transactions to which the arranger is to be a party is excluded from both article 25(1) and (2). The main purpose is to ensure that a person is not regarded as arranging deals for another when the transaction in question is one to which he intends to be a party. As a result, a person cannot both be engaging in a dealing activity (as principal or agent) and arranging deals for another as regards any particular transaction. But where the transaction involves a contract of insurance, article 28 will not apply if the person making the arrangements:

(a) is the only policyholder; or

(b) as a result of the transaction, would become the only policyholder.

Under article 28A, a person is excluded from article 25A(1) and (2) if he is to enter into the contract to which the arrangements relate. The article also excludes from article 25A(1) a person who arranges a variation to a contract to which he is or is to become a party.

(4) Under article 29, an unauthorised person who arranges investment transactions, with a view to a transaction between a third party and an authorised person, is excluded from article 25(1) and (2) and article 25A(1) and (2) if specified conditions as to advice and remuneration are satisfied. For example, the exclusion is dependent on the third party not receiving any advice on the transactions from the unauthorised person making the arrangements. The exclusion does not apply where the investment is a contract of insurance.

(5) Under article 29A, an unauthorised person is excluded from the regulated activity of arranging for another person to vary the terms of a regulated mortgage contract entered into after 31 October 2004 (article 25A(1)(b)). This is if the arranging is the result of:

(a) anything done in the course of the administration of a regulated mortgage contract by an authorised person under article 62(a); or

(b) anything done by the person making the arrangements in connection with the administration of a regulated mortgage contract under article 62(b).

(6) Under article 30, arranging investment transactions in connection with lending on the security of contracts of insurance is excluded from article 25(1) and (2) but only where a person is not carrying on insurance mediation or reinsurance mediation.

(7) Under article 31, making arrangements for finance (in whatever form) to be supplied to a person by a third party is excluded from article 25(1) and (2) if the finance is given in exchange for an instrument acknowledging the debt. This mirrors the exclusion from dealing in investments as principal in similar circumstances (see AUTH 2.8.4 G (3)).

(8) Under article 32, arrangements the only purpose of which is to provide finance to enable persons to enter into investment transactions are excluded from article 25(2) only. There is no equivalent exemption from article 25(1). But arrangements for the provision of finance will only be caught by that provision if the arrangements actually bring about the transaction.

(9) Under article 33, making arrangements under which clients will be introduced to third parties who will provide independent services (consisting of advice or the exercise of discretion in relation to certain investments) is excluded from article 25(2) and article 25(2A) only. The person to whom the introduction is made must be of a specified standing (including that of an authorised person). The exclusion does not apply where the arrangements relate to a contract of insurance.

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

(a) an authorised person who has permission to carry on certain regulated activities concerned with regulated mortgage contracts; or

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

is excluded from article 25A(2) subject to certain conditions related to the holding of client money and the disclosure of certain information.

(11) Under article 34, a company is not carrying on a regulated activity under article 25(1) or (2) of the Regulated Activities Order (Arranging deals in investments) by arranging for the issue of its own shares or share warrants and a person is not doing so by arranging for the issue of his own debentures or debenture warrants.

(12) Under article 35, a body carrying out international securities business of a specified type can apply to the Treasury for approval as an international securities self-regulating organisation (ISSRO). Arrangements made in order to carry out the functions of an ISSRO are excluded from article 25(1) and (2). The exclusion applies whether the arrangements are made by the ISSRO or by a person acting on its behalf.

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

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

(b) in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see AUTH 2.9.5 G);

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

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

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

(g) as an overseas person (see AUTH 2.9.15 G);

(h) as an incoming ECA provider (see AUTH 2.9.18 G);

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

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

(k) that involve a contract of insurance covering large risks situated outside the EEA (see AUTH 2.9.19 G).

More detailed guidance on the exclusions that relate to contracts of insurance is in AUTH App 5 (Insurance mediation activities).

01/10/2002

Managing investments

AUTH 2.8.7

The activities of persons appointed under a power of attorney are excluded, under article 38 of the Regulated Activities Order, from the regulated activity of managing investments, if specified conditions are satisfied. The exclusion only applies where a person is not carrying on insurance mediation or reinsurance mediation. In addition, the following exclusions (outlined in AUTH 2.9) apply in specified circumstances where a person manages assets:

(1) while acting as trustee or personal representative;

(2) in connection with the sale of goods or supply of services;

(3) that belong to a group member or participator in a joint enterprise.

(4) as an incoming ECA provider (see AUTH 2.9.18 G).

21/08/2002

Safeguarding and administering investments

AUTH 2.8.8

The exclusions from the regulated activity of safeguarding and administering investments are as follows.

(1) Safeguarding and administration activities carried on by one person are excluded if a specified third party undertakes a responsibility for the assets which is no less onerous than it would have if he were doing the safeguarding and administration himself. The effect of this is that an authorised person with permission to carry on this regulated activity (or in certain circumstances an exempt person) can delegate all or part of the activities without the delegate needing to be authorised and without loss of protection to the owner of the assets.

(2) Introductions to an authorised person, or to an exempt person acting within the scope of his exemption and in the course of a business, are excluded from that aspect of this regulated activity which consists of arranging safeguarding and administration of assets by another person (see AUTH 2.7.9 G).

(3) Certain specified activities (such as currency conversion and document handling) are excluded from being the administration of investments. A person who safeguards and administers assets will not be carrying on regulated activities if these are the only administration activities in which he engages. This is because a person must be carrying on both the activity of safeguarding and that of administration, or be arranging for both to be carried on by another, before he requires authorisation (see AUTH 2.7.9 G).

(4) The following exclusions apply in specified circumstances where a person safeguards and administers assets (or arranges for another to do so):

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

(b) in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see AUTH 2.9.5 G);

(d) which belong to a group member or participator in a joint enterprise (see AUTH 2.9.9 G);

(e) in connection with an employee share scheme (see AUTH 2.9.13 G).

(f) as an incoming ECA provider (see AUTH 2.9.18 G); and

(g) that are contracts of insurance and, in so doing, provides information to policyholders or potential policyholders on an incidental basis in the course of his carrying on a business or profession not otherwise consisting of regulated activities (see AUTH 2.9.19 G (2)).

21/08/2002

Sending dematerialised instructions

AUTH 2.8.9

Exclusions from the regulated activity of sending dematerialised instructions apply in relation to certain types of instructions sent in the operation of the system maintained under the Uncertificated Securities Regulations 2001. The various exclusions relate to the roles played by participating issuers, settlement banks and network providers (such as Internet service providers) and to instructions sent in connection with takeover offers (as long as specified conditions are met). In addition, the following exclusions (outlined in AUTH 2.9) apply in specified circumstances where a person sends dematerialised instructions:

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

(2) on behalf of a group member (see AUTH 2.9.3 G);

(3) as an incoming ECA provider (see AUTH 2.9.18 G).

01/10/2002

Establishing etc collective investment schemes

AUTH 2.8.10

There is only one exclusion from the range of activities specified as being regulated in relation to collective investment schemes. This exclusion relates to incoming ECA providers (see AUTH 2.9.18 G). In other cases, the key issue is whether or not what is being done relates to something that is a collective investment scheme. Exclusions exist in relation to that issue (see AUTH 2.6.18 G).

21/08/2002

Establishing etc stakeholder pension schemes

AUTH 2.8.11

The only exclusion from the range of activities specified as being regulated in relation to stakeholder pension schemes relates to incoming ECA providers (see AUTH 2.9.18 G).

01/10/2002

Advising on investments

AUTH 2.8.12

In certain circumstances, advice that takes the form of a regularly updated news or information service and advice which is given in one of a range of different media (for example, newspaper or television) is excluded from the regulated activity of advising on investments and advising on regulated mortgage contracts (see AUTH 7 (Periodical publications: news services and broadcasts: applications for certification)). Advice given in the course of the administration of a regulated mortgage contract by an authorised person is also excluded subject to certain conditions. In addition:

(1) the following exclusions apply in specified circumstances where a person is advising on investments or regulated mortgage contracts:

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

(b) in connection with the carrying on of a profession or of a business not otherwise consisting of regulated activities (see AUTH 2.9.5 G); and

(2) the following exclusions apply in specified circumstances where a person is advising on investments:

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

(b) to a group member or participator in a joint enterprise (see AUTH 2.9.9 G);

(d) as an overseas person (see AUTH 2.9.15 G);

(e) that are limited to certain contracts of insurance covering risks to non-motor goods or related to travel (see AUTH 2.9.19 G);

(f) that are contracts of insurance covering large risks situated outside the EEA (see AUTH 2.9.19 G).

More detailed guidance on certain of these exclusions is in AUTH App 4 (Regulated activities connected with mortgages) and AUTH App 5 (Insurance mediation activities).

21/08/2002

Lloyd's activities

AUTH 2.8.13

Electronic commerce activities provided by an incoming ECA provider are excluded from the regulated activities that relate expressly to business carried on at Lloyd's (see AUTH 2.9.18 G). Otherwise the only exclusions that apply concern the regulated activity of arranging deals in its application to business carried on at Lloyd's.

03/09/2001

Entering funeral plan contracts

AUTH 2.8.14

Entering as provider into a funeral plan contract is not treated as a regulated activity where:

(1) the contract is one under which the sums received from the customer will be applied towards a contract of insurance on the life of the person whose funeral is to be provided or be held on trust for the purpose of providing a funeral; in each case certain specified conditions must be met for the exclusion to apply;

(2) the customer and the provider intend or expect that the funeral will be provided within one month of the contract being entered into;

(3) the contract is entered into before 1 January 2002.

(4) it is provided as an electronic commerce activity by an incoming ECA provider (see AUTH 2.9.18 G).

21/08/2002

Agreeing

AUTH 2.8.15

A person who agrees to carry on certain other regulated activities (which is itself a regulated activity - see AUTH 2.7.21 G) does not require authorisation where the person concerned is an overseas person and the agreement is reached as a result of a legitimate approach (see AUTH 2.9.12 G). For this exclusion to apply, the agreement must be one to arrange deals, manage investments, safeguard and administer investments or send dematerialised instructions. The provision of electronic commerce activities by an incoming ECA provider is also excluded from the regulated activity of agreeing to carry on certain other regulated activities (see AUTH 2.7.21 G). But this is not the case where the agreement relates to the regulated activity of effecting or carrying out contracts of insurance falling under the Insurance Directives (see AUTH 2.8.3 G). This is still a regulated activity when provided as an electronic commerce activity.

21/08/2002

AUTH 2.8.16

To the extent that an exclusion applies in relation to a regulated activity, then 'agreeing' to carry on an activity falling within the exclusion will not be a regulated activity. This is the effect of article 4(3) of the Regulated Activities Order.

03/09/2001

AUTH 2.9

Regulated activities: exclusions applicable into certain circumstances

01/12/2004

AUTH 2.9.1

The various exclusions outlined below deal with a range of different circumstances.

(1) Each set of circumstances described in AUTH 2.9.3 G to AUTH 2.9.17 G has some application to several regulated activities relating to securities, relevant investments or regulated mortgage contracts. They have no effect in relation to the separate regulated activities of accepting deposits, issuing e-money, effecting or carrying out contracts of insurance, advising on syndicate participation at Lloyd's, managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's, or entering as provider into a funeral plan contract. Within each set of circumstances, the Regulated Activities Order, in Chapter XVII of Part II of the Order, makes separate provision for each regulated activity affected. This is necessary because each exclusion has to be tailored to reflect the different nature of the regulated activity involved and the different language required (for example, some activities involve entering directly into transactions while others relate to the provision of services).

(2) The exclusion described in AUTH 2.9.18 G relates to electronic commerce activities provided by an incoming ECA provider. This exclusion applies to all regulated activities except effecting contracts of insurance or carrying out contracts of insurance.

01/10/2002

AUTH 2.9.2

The exclusions grouped together in the Regulated Activities Order are descr2.9.7ibed below in this chapter in general terms. The exact terms of each exclusion will need to be considered by any person who is considering whether they need authorisation. Each description is accompanied by an indication of which regulated activities are affected.

03/09/2001

Trustees, nominees or personal representatives

AUTH 2.9.3

This group of exclusions applies, in specified circumstances, to the regulated activities of:

(1) dealing in investments as principal;

(2) arranging (bringing about) deals in investments, arranging (bringing about) regulated mortgage contracts, making arrangements with a view to transactions in investments and making arrangements with a view to regulated mortgage contracts;

(3) managing investments;

(4) assisting in the administration and performance of a contract of insurance;

(5) safeguarding and administering investments;

(6) sending dematerialised instructions;

(7) advising on investments or regulated mortgage contracts;

(8) entering into regulated mortgage contracts; and

(9) administering regulated mortgage contracts.

The exclusion is, however, disapplied where a person is carrying on insurance mediation or reinsurance mediation. This is due to article 4(4A) of the Regulated Activities Order. Guidance on exclusions relevant to insurance mediation activities is in AUTH App 5 (Insurance mediation activities).

03/09/2001

AUTH 2.9.4

A person carrying on certain regulated activities does not require authorisation in specified circumstances if he is acting in a representative capacity. The representative capacities covered by the exclusions depend on the regulated activity concerned but, in most cases, the focus is on persons who are acting as trustee or personal representative. In broad terms, the exclusions apply to specified transactions, or activities, that are part of the discharge of his general obligations by the trustee or representative when he is acting as such. Many of the exclusions require that the trustee or representative must not hold himself out as providing services consisting of the regulated activity in question. In addition, he must not receive remuneration that is additional to any he receives for acting in the representative capacity (although a person is not to be regarded as receiving additional remuneration merely because his remuneration as trustee or representative is calculated by reference to time spent). The exclusions for entering into and for administering regulated mortgage contracts, however, work on a different basis. They apply where the activity relates to a regulated mortgage contract under which the borrower is a beneficiary.

03/09/2001

Professions or business not involving regulated activities

AUTH 2.9.5

This group of exclusions applies, in specified circumstances, to the regulated activities of:

(1) dealing in investments as agent;

(3) assisting in the administration and performance of a contract of insurance;

(4) safeguarding and administering investments; and

(5) advising on investments or regulated mortgage contracts.

03/09/2001

AUTH 2.9.6

The exclusions apply where the regulated activity is carried out in the course of a profession or business which does not otherwise consist of the carrying on of regulated activities in the United Kingdom. However, activities are only excluded to the extent that they may reasonably be regarded as a necessary part of the other services provided in the course of the profession or business. The exclusion does not apply if separate remuneration is received in respect of any regulated activity that is carried on. (See separate guidance for authorised professional firms in PROF).

21/02/2002

Sale of goods and supply of services

AUTH 2.9.7

This group of exclusions applies, in specified circumstances, to the regulated activities of:

(1) dealing in investments as principal;

(2) dealing in investments as agent;

(3) arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

(4) managing investments;

(5) safeguarding and administering investments; and

(6) advising on investments.

03/09/2001

AUTH 2.9.8

Broadly speaking, the exclusions focus on cases where the main business of a person is to sell goods or supply services but where certain activities may have to be carried on for the purposes of that business which would otherwise be regulated activities. The exclusions are not available where the customer to whom goods are sold or services are supplied is an individual. They are also not available where what is at issue is a transaction entered into, or service provided, in relation to rights under a contract of insurance or units in a collective investment scheme (or rights to, or interests in, either).

31/10/2004

Group and joint enterprises

AUTH 2.9.9

This group of exclusions applies, in specified circumstances, to the regulated activities of:

(1) dealing in investments as principal;

(2) dealing in investments as agent;

(3) arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

(4) managing investments;

(5) safeguarding and administering investments;

(6) sending dematerialised instructions; and

(7) advising on investments.

03/09/2001

AUTH 2.9.10

These exclusions apply to intra-group dealings and activities and to dealings or activities involving participators in a joint enterprise which take place for the purposes of, or in connection with, the enterprise. The general principle here is that, as long as activities that would otherwise be regulated activities take place wholly within a group of companies, then there is no need for authorisation. The same principle applies to dealings or activities that take place wholly within a joint enterprise entered into for commercial purposes related to the participators' unregulated business. The exclusions in (2), (3), (4) and (7) are disapplied where they concern a contract of insurance. Guidance on exclusions relevant to insurance mediation activities is in AUTH App 5 (Insurance mediation activities).

03/09/2001

Sale of body corporate

AUTH 2.9.11

This group of exclusions applies, in specified circumstances, to the regulated activities of:

(1) dealing in investments as principal;

(2) dealing in investments as agent;

(3) arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

(4) advising on investments.

03/09/2001

AUTH 2.9.12

The exclusions only apply where the object of the transaction may reasonably be regarded as being the acquisition of day-to-day control of the affairs of a body corporate. Whether or not day-to-day control is at stake is a question of fact based on an objective test. The Regulated Activities Order contains a non-exhaustive list of circumstances in which the day-to-day control requirement will be regarded as satisfied. These include the case where it is the acquisition or disposal of at least 50 per cent of the voting shares in the body corporate that is at issue. Certain additional requirements must also be satisfied. These exclusions do not have effect in relation to shares in an open-ended investment company. The exclusions in (2), (3), (4) and (7) are disapplied where they concern a contract of insurance. Guidance on exclusions relevant to insurance mediation activities is in AUTH App 5 (Insurance mediation activities).

03/09/2001

Employee share schemes

AUTH 2.9.13

This group of exclusions applies, in specified circumstance, to the regulated activities of:

(1) dealing in investments as principal;

(2) dealing in investments as agent;

(3) arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

(4) safeguarding and administering investments.

03/09/2001

AUTH 2.9.14

In broad terms, the exclusions apply to activities which further an employee share scheme, or are carried on in operation of such a scheme. They apply to activities carried on by the company whose securities or debentures (which are given an extended meaning for this exclusion) are the subject of the scheme. They also apply to activities of any company in the same group or of any trustee who holds certain types of securities or debentures under the scheme.

03/09/2001

Overseas persons

AUTH 2.9.15

This group of exclusions applies, in specified circumstances, to the regulated activities of:

(1) dealing in investments as principal;

(2) dealing in investments as agent;

(3) arranging (bringing about) deals in investments, making arrangements with a view to transactions in investments, arranging (bringing about) regulated mortgage contracts and making arrangements with a view to regulated mortgage contracts;

(4) advising on investments;

(5) entering into regulated mortgage contracts;

(6) administering regulated mortgage contracts;

(7) agreeing to carry on the regulated activities of managing investments, arranging (bringing about) deals in investments, making arrangements with a view to transactions in investments, safeguarding and administering investments or sending dematerialised instructions.

03/09/2001

AUTH 2.9.16

An overseas person is defined as a person who carries on what would be regulated activities (including any activity that is excluded from being a regulated activity) but who does not do so, or offer to do so, from a permanent place of business maintained by him in the United Kingdom. Where a person does not have a permanent place of business in the United Kingdom, he will not, in any event, need to rely on these exclusions unless what he does is regarded as carried on in the United Kingdom (see AUTH 2.4).

03/09/2001

AUTH 2.9.17

The exclusions are available for regulated activities other than those that relate to regulated mortgage contracts, in the two broad cases set out below. For some of these regulated activities, the exclusions apply in each case. In others, they apply in only one.

(1) The first case is where the nature of the regulated activity requires the direct involvement of another person and that person is authorised or exempt (and acting within the scope of his exemption). For example, this might occur where the person with whom an overseas person deals is an authorised person or where the arrangements he makes are for transactions to be entered into by such a person;

(2) The second case is where a particular regulated activity is carried on as a result of what is termed a 'legitimate approach'. An approach to an overseas person that has not been solicited by him in any way, or has been solicited in a way that does not contravene the restrictions on financial promotion in section 21 of the Act, is a legitimate approach. An approach that is made by him in a way that does not contravene section 21 of the Act is also a legitimate approach. In such circumstances, the overseas person can, without requiring authorisation, enter into deals with (or on behalf of) a person in the United Kingdom, give advice in the United Kingdom or enter into agreements in the United Kingdom to carry on certain regulated activities. The exemptions to the financial promotion restrictions made by the Treasury under section 21 of the Act (Restrictions on financial promotion) will be relevant to the question of whether those restrictions have been contravened (see separate guidance on financial promotion in AUTH App 1 (Financial promotion and related activities)).

03/09/2001

Incoming ECA providers

AUTH 2.9.18

(1) In accordance with article 3(2) of the E-Commerce Directive, all requirements on persons providing electronic commerce activities into the United Kingdom from the EEA are lifted, where these fall within the co-ordinated field and would restrict the freedom of such a firm to provide services. The coordinated field includes any requirement of a general or specific nature concerning the taking up or pursuit of electronic commerce activities. Authorisation requirements fall within the coordinated field. The services affected are generally those provided electronically, for example through the Internet or solicited e-mail.

(2) The Regulated Activities Order was amended by the Financial Services and Markets Act 2000 (Regulated Activities)(Amendment)(Electronic Commerce Directive) Order 2002 (SI 2002/[number to be added later]). This Order creates a general exclusion from regulated activities (except for the regulated activities of effecting or carrying out contracts of insurance). Where activities consist of electronic commerce activities, an incoming ECA provider will not require authorisation for such activities in the United Kingdom. This does not extend to the regulated activity of effecting or carrying out contracts of insurance falling under the Insurance Directives (see AUTH 2.8.3 G). However, services provided off-line in the United Kingdom (that is, other than as an electronic commerce activity) by such a firm which amount to regulated activities still require authorisation. ECO provides guidance and sets out rules that are relevant to both incoming and outgoing ECA providers. Incoming ECA providers have also to comply with any authorisation requirements in the country of origin of the services.

(3) Incoming ECA providers should note that notification requirements under the Single Market Directives still apply (see AUTH 5 ).

03/09/2001

Insurance mediation activities

AUTH 2.9.19

The exclusions in this group apply to certain regulated activities involving certain contracts of insurance. The exclusions and the regulated activities to which they apply are as follows.

(1) The first exclusion of this kind relates to certain activities carried on by a provider of non-motor goods or services related to travel in connection with general insurance contracts only. The contracts must be for five years duration or less and have an annual premium of no more than ?500. The contract must cover breakdown or loss of or damage to non-motor goods supplied by the provider or risks linked to travel services booked with the provider. There must not be any liability risk cover. The insurance must be complementary to the goods or services being supplied by the provider in the course of his carrying on a business or profession not otherwise consisting of regulated activities. This exclusion applies where the regulated activities concerned are:

(a) dealing in investments as agent;

(b) arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

(d) advising on investments.

(2) The second exclusion applies where information is provided to a policyholder by a person on an incidental basis in the course of that person's profession or business that does not otherwise consist of regulated activities. This exclusion applies where the regulated activities are:

(a) arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

(b) managing investments;

(d) safeguarding and administering investments;

(3) The third exclusion applies to certain general insurance contracts covering large risks where the risk is situated outside the EEA. This exclusion applies where the regulated activities concerned are:

(a) dealing in investments as agent;

(b) arranging (bringing about) deals in investments and making arrangements with a view to transactions in investments;

(d) advising on investments.

Guidance on these and other exclusions relevant to insurance mediation activities is in AUTH App 5 (Insurance mediation activities).

03/09/2001

AUTH 2.10

Persons carrying on regulated activities who do not need authorisation

01/12/2004

AUTH 2.10.1

There are various provisions that disapply the general prohibition from specific persons in relation to the carrying on by them of particular regulated activities. There is, however, no general provision for persons to apply for an exemption.

03/09/2001

AUTH 2.10.2

Persons may be exempted from the general prohibition in relation to one or more particular regulated activities. The extent of any exemption may also be limited to specified circumstances (such as where another person who is authorised and has relevant permission has accepted responsibility for the regulated activities in question) or subject to specified conditions (such as a requirement that the activity is not carried on for pecuniary gain).

03/09/2001

AUTH 2.10.3

The Act provides that appointed representatives (see AUTH 2.10.5 G), recognised investment exchanges and recognised clearing houses (see AUTH 2.10.6 G) and certain other persons exempt under miscellaneous provisions (see AUTH 2.10.7 G) are exempt persons. Members of Lloyd's and members of the professions are not 'exempt persons' as such, but the general prohibition in section 19 of the Act only applies to them in certain circumstances. The distinction is significant in relation to various provisions (such as those in the Regulated Activities Order) that apply only to transactions and other activities that involve exempt persons.

03/09/2001

AUTH 2.10.4

Appointed representatives and the persons exempt under miscellaneous provisions cannot be exempt in relation to some regulated activities and authorised in relation to others. If a person is already authorised, and proposes to carry on additional regulated activities in respect of which he would otherwise be exempt as an appointed representative or under miscellaneous provisions, he must seek an extension to his existing permission to cover those additional activities. A person in either of these categories who would otherwise be exempt in relation to particular activities will, if he becomes authorised, no longer be able to rely on the exemption.

03/09/2001

Appointed representatives

AUTH 2.10.5

A person is exempt if he is an appointed representative of an authorised person. See SUP 12 (Appointed representatives). But where an appointed representative carries on insurance mediation or reinsurance mediation he will not be exempt unless he is included on the register kept by the FSA under article 93 of the Regulated Activities Order (Duty to maintain a record of unauthorised persons carrying on insurance mediation activities) (see AUTH App 5.13 (Appointed representatives).

03/09/2001

Recognised Investment Exchanges and Recognised Clearing Houses

AUTH 2.10.6

Investment exchanges and clearing houses can apply for recognition under Part XVIII of the Act (Recognised investment exchanges and clearing houses). See REC.

03/09/2001

Particular exempt persons

AUTH 2.10.7

Various named persons are exempted by Order made by the Treasury under section 38 of the Act from the need to obtain authorisation. Some of the exemptions are subject to restrictions as to the circumstances in which they apply. For example, a person is only exempt when acting in a particular capacity or for particular purposes.

03/09/2001

AUTH 2.10.8

The exemptions apply so as to confer exemption on persons from the general prohibition in respect of four distinct categories of regulated activities.

(1) The first category is carrying on any regulated activity, apart from effecting or carrying out contracts of insurance (or agreeing to do so). Exempt persons here are generally supranational bodies of which the United Kingdom or another EEA State is a member.

(2) The second category is the regulated activity of accepting deposits . Exempt persons here include municipal banks, local authorities, charities and industrial and provident societies.

(3) The third category is carrying on any of those regulated activities relating to securities or relevant investments or to 'any property' (or agreeing to do so). Exempt persons here include persons whose activities are subject to a certain degree of control or oversight by the Government.

(4) The fourth category is carrying on one or more specified regulated activities (or agreeing to do so). Exempt persons here cover a range of different persons.

03/09/2001

Members of Lloyd's

AUTH 2.10.9

Several activities carried on in connection with business at Lloyd's are regulated activities in respect of which authorisation must be obtained. These include the regulated activities of advising on syndicate participation at Lloyd's or managing the underwriting capacity of Lloyd's syndicate as a managing agent at Lloyd's or arranging (bringing about) deals in investments or making arrangements with a view to transactions in investments for another in relation to such participation or underwriting capacity.

03/09/2001

AUTH 2.10.10

But under section 316 of the Act (Direction by the FSA) the general prohibition does not apply to a person who is a member of the Society of Lloyd's unless the FSA has made a direction that it should apply. The general prohibition is disapplied in relation to any regulated activity carried on by a member relating to contracts of insurance written at Lloyd's. Directions can be made by the FSA in relation to individual members or the members of the Society of Lloyd's taken together. Alternatively, instead of being required to obtain authorisation, a member of the Society of Lloyd's may, as a result of a direction under section 316 of the Act, become subject to specific provisions of the Act even though he is not an authorised person.

03/09/2001

AUTH 2.10.11

A person who ceased to be an underwriting member at any time on or after 24 December 1996 may, without authorisation, carry out contracts of insurance he has underwritten at Lloyd's. But this is subject to any requirements or rules that the FSA may impose under sections 320 to 322 of the Act (Former underwriting members).

03/09/2001

Members of the professions

AUTH 2.10.12

The general prohibition does not in certain circumstances apply to a person providing professional services that are supervised and regulated by a professional body designated by the Treasury under section 326 of the Act (Designation of professional bodies) (see PROF). Certain of the exclusions from regulated activities outlined in AUTH 2.8 and AUTH 2.9 will be relevant to members of designated professional bodies. The regime outlined below applies only where no exclusion applies and a person will be carrying on a regulated activity.

03/09/2001

AUTH 2.10.13

Such a person may carry on regulated activities if the conditions outlined below are met, that is the person:

(1) is not affected by an order or direction made by the FSA under section 328 or 329 of the Act (Directions and orders in relation to the general prohibition) which has the effect of re-imposing the general prohibition in any particular case.

(2) is, or is controlled by, a member of a profession.

(3) does not receive any pecuniary reward or other advantage from the regulated activities which is given to him by any person other than his client (or if he does, he must account to his client for it).

(4) provides any service in the course of carrying on the regulated activities in a manner which is incidental to the provision of professional services.

(5) carries on only those regulated activities which are permitted by the rules of the professional body or in respect of which they are an exempt person.

(6) is not an authorised person.

03/09/2001

AUTH 2.10.14

The regulated activities that may be carried on in this way are restricted by an Order made by the Treasury under section 327(6) of the Act (Exemption from the general prohibition). Accordingly, under that section, a person may not by way of business carry on any of the following activities without authorisation:

(1) accepting deposits;

(2) effecting or carrying out contracts of insurance;

(3) dealing in investments as principal;

(4) establishing, operating or winding up a collective investment scheme;

(5) establishing, operating or winding up a stakeholder pension scheme;

(6) managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's;

(7) entering as provider into funeral plan contracts;

(8) agreeing to do certain of the above activities.

03/09/2001

AUTH 2.10.15

In addition, there are restrictions on carrying on (or agreeing to carry on) certain other regulated activities. These relate to managing investments, advising on investments or regulated mortgage contracts, advising on syndicate participation at Lloyd's and entering into a regulated mortgage contract or administering a regulated mortgage contract.

03/09/2001

AUTH 2.10.16

A person carrying on regulated activities under the regime for members of the professions will be subject to rules made by the professional body designated by the Treasury. Such bodies are obliged to make rules governing the carrying on by their members of those regulated activities that they are able to carry on without authorisation under the Act. Where such a person is carrying on insurance mediation or reinsurance mediation, he must also be included on the register kept by the FSA under article 93 of the Regulated Activities Order (Duty to maintain a record of unauthorised persons carrying on insurance mediation activities) (see AUTH App 5.10 (Exemptions)).

03/09/2001

AUTH 2.11

What to do now?

01/12/2004

AUTH 2.11.1

Any person who concludes or is advised that he will need to make an application for Part IV permission should look at AUTH 2 Annex 2 G to determine the categories of specified investment and regulated activities that are relevant to the next step and should then refer to AUTH 3 for details of the application process.

03/09/2001

AUTH 2 Annex 1

Authorisation and regulated activities

01/12/2004

Do you need authorisation?

AUTH 2 Annex 1

03/09/2001

AUTH 2 Annex 2

Regulated activities and the permission regime

01/12/2004

AUTH 2 Annex 2.1

1.1 G

Table 1 is designed to relate the permission regime to regulated activities. Section 42(6) of the Act gives the FSA the power to describe the regulated activity or regulated activities for which it gives permission in such manner as the FSA considers appropriate. Table 1 details how the FSA has chosen to describe the regulated activities and specified investments for the purposes of the permission regime.

1.2 G

In an application for Part IV permission, an applicant will need to state the regulated activities it requires permission to carry on. This will involve an applicant identifying the regulated activities and the specified investments associated with those activities for which it requires Part IV permission.

1.3 G

Part II of the Regulated Activities Order (Specified activities) specifies the activities for the purposes of section 22 of the Act. This section states that an activity is a regulated activity if it is an activity of a specified kind which is carried on by way of business and:

(1)

relates to an investment of a specified kind; or

(2)

in the case of an activity specified for the purposes of section 22(1)(b) of the Act, is carried on in relation to property of any kind.

Part III of the Regulated Activities Order (Specified investments) specifies the investments referred to at AUTH 2 Annex 2.

1.4 G

Column 1 of Table 1 lists the regulated activities and column 2 lists the associated specified investments. Descriptions of some categories of specified investments are expanded in Tables 2 and 3. There are notes to all three tables which provide further explanation where appropriate.

1.5 G

A reference to an article in the tables in AUTH 2 Annex 2 G is to the relevant article in the Regulated Activities Order.

Table 1: Regulated Activities [See note 1 to Table 1]

Regulated activity

Specified investment in relation to which the regulated activity (in the corresponding section of column one) may be carried on

Accepting deposits

(a) accepting deposits (article 5)

deposit (article 74)

Issuing electronic money

(aa) issuing electronic money (article 9B)

electronic money (article 74A)

Insurance business

(b) effecting contracts of insurance (article 10(1))

contract of insurance (article 75) [Expanded in Table 2]

Designated investment business [see note 1A and 1B to Table 1]

(d) dealing in investments as principal (article 14) [see note 2 to Table 1]

security [Expanded in Table 3]; or

(e) dealing in investments as agent (article 21) [see note 2 to Table 1]

contractually based investment [Expanded in Table 3]

(f) arranging (bringing about) deals in investments (article 25(1)) [see note 1B to Table 1] [also see Sections of Table 1 headed 'Lloyd's market' and 'regulated mortgage activities']

(g) making arrangements with a view to transactions in investments (article 25(2)) [see note 1B to Table 1] [also see Sections of Table 1 headed 'Lloyd's market' and 'regulated mortgage activities']

(h) managing investments (article 37) [see note 3 to Table 1]

(i) safeguarding and administering investments (article 40) [see note 3 Table 1]

For the purposes of the permission regime, this regulated activity is subdivided into:

(i)

safeguarding and administration of assets (without arranging);

(ii)

arranging safeguarding and administration of assets

(j) advising on investments (article 53) [see note 1B to Table 1] [also see Section of Table 1 headed 'Lloyd's market' and 'regulated mortgage activity']

For the purposes of the permission regime, this regulated activity is subdivided into:

(i)

advising on investments (except pension transfers and pension opt-outs);

(ii)

advising on pension transfers and pension opt-outs [see note 4 to Table 1]

(k) sending dematerialised instructions (article 45(1))

(l) causing dematerialised instructions to be sent (article 45(2))

(m) establishing, operating or winding up a collective investment scheme (article 51(1(a))

[see note 5 to Table 1]

For the purposes of the permission regime, this regulated activity is subdivided into:

(i)

establishing, operating or winding up a regulated collective investment scheme;

(ii)

establishing, operating or winding up an unregulated collective investment scheme

(n) acting as trustee of an authorised unit trust scheme (article 51(1)(b))

(o) acting as the depositary or sole director of an open-ended investment company (article 51(1)(c))

(p) establishing, operating or winding up a stakeholder pension scheme (article 52)

Insurance mediation activity [see note 5A to Table 1]

(pa) dealing in investments as agent (article 21)

life policy [see note 5B to Table 1]

(pb) arranging (bringing about) deals in investments (article 25(1))

pure protection contract [see note 5C to Table 1]

(pc) making arrangements with a view to deals in investments (article 25(2))

general insurance contract [see note 5D to Table 1]

(pd) assisting in the administration and performance of a contract of insurance (article 39A)

rights to or interests in investments (Article 89) in so far as they relate to a life policy

(pe) advising on investments (article 53)

For the purposes of the permission regime, this regulated activity is subdivided into:

(i)

advising on investments (except pension transfers or pension opt-outs);

(ii)

advising on pension transfers or pension opt-outs [See note 5E to Table 1]

The Lloyd's market [see note 6 to Table 1]

(q) advising on syndicate participation at Lloyd's (article 56)

membership of a Lloyd's syndicate (article 86(2))

(r) managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's (article 57)

underwriting capacity of a Lloyd's syndicate (article 86(1))

(s) arranging (bringing about) deals in investments (article 25(1))

underwriting capacity of a Lloyd's syndicate (article 86(1)), membership of a Lloyd's syndicate (Article 86(2)) or rights to or interests in investments (Article 89) in so far as they relate to underwriting capacity of a Lloyd's syndicate or membership of a Lloyd's syndicate

(t) making arrangements with a view to transactions in investments (article 25(2))

Funeral plan providers

(u) entering as provider into a funeral plan contract (article 59) [see note 1A]

funeral plan contract (article 87)

Regulated mortgage activity

(v) arranging (bringing about) regulated mortgage contracts (article 25(A)(1))

regulated mortgage contract (Article 88)

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

(x) advising on regulated mortgage contracts (article 53A)

(y) entering into a regulated mortgage contract (article 61(1))

(z) administering a regulated mortgage contract (article 61(2))

Notes to Table 1

Note 1:

In addition to the regulated activities listed in Table 1, article 64 of the Regulated Activities Order specifies that agreeing to carry on a regulated activity is itself a regulated activity in certain cases. This applies in relation to all the regulated activities listed in Table 1 apart from:

• accepting deposits (article 5);

• issuing electronic money (article 9B)

• effecting and carrying out contracts of insurance (article 10);

•establishing, operating or winding up a collective investment scheme (article 51(a));

• acting as trustee of an authorised unit trust scheme (article 51(1)(b));

• acting as the depositary or sole director of an open-ended investment company (article 51(1)(c)); and

• establishing, operating or winding up a stakeholder pension scheme (article 52).

Permission to carry on the activity of agreeing to carry on a regulated activity will be given automatically by the FSA in relation to those other regulated activities for which an applicant is given permission (other than those activities in articles 5, 9B, 10, 51 and 52 detailed above).

Note 1A:

Funeral plan contracts are contractually based investments. Accordingly, the following are regulated activities when carried on in relation to a funeral plan contract: (a) arranging (bringing about) deals in investments, (b) making arrangements with a view to transactions in investments, (c) managing investments, (d) safeguarding and administering investments, (e) advising on investments, (f) sending dematerialised instructions and (g) causing dematerialised instructions to be sent (as well as agreeing to carry on each of the activities listed in (a) to (g)). However, they are not designated investment business.

Note 1B:

Life policies are contractually based investments. Where the regulated activities listed as designated investment business in (e) to (g) and (j) are carried on in relation to a life policy, these activities also count as 'insurance mediation activities'. The full list of insurance mediation activities is set out in (pa) to (pe). The regulated activities of agreeing to carry on each of these activities will, if carried on in relation to a life policy, also come within both designated investment business and insurance mediation activities.

Note 2:

For the purposes of the regulated activities of dealing in investments as principal (article 14) and dealing in investments as agent (article 21), the definition of contractually based investments [expanded in Table 3] excludes a funeral plan contract (article 87) and rights to or interests in funeral plan contracts.

Note 3:

(i) The regulated activities of managing investments (article 37) and safeguarding and administering investments (article 40) may apply in relation to any assets, in particular circumstances, if the assets being managed or safeguarded and administered include, or may include, any security or contractually based investment.

Note 4:

(j) For the purposes of the permission regime, the activity in (j)(ii) of advising on pension transfers and pension opt-outs is carried on in respect of the following specified investments:

• unit (article 81);

• stakeholder pension scheme (article 82); and

• life policy (as defined in note 5);

• rights to or interests in investments in so far as they relate to a unit, a stakeholder pension scheme or a life policy.

Note 5:

Article 4(2) of the Regulated Activities Order specifies the activities (m) to (p) for the purposes of section 22(1)(b) of the Act. That is, these activities will be regulated activities if carried on in relation to any property and are not expressed as relating to a specified investment.

Note 5A:

Where they are carried on in relation to a life policy, the activities listed as insurance mediation activities in (pa) to (pe) (as well as the regulated activity of agreeing to carry on those activities) are also designated investment business.

Note 5B:

Life policy is the term used in the Handbook to mean 'qualifying contract of insurance' (as defined in Article 3(1) of the Regulated Activities Order), and except in COB 3, AUTH App 1 and AUTH App 5 the term also includes a long-term care insurance contract which is a pure protection contract.

Note 5C:

Pure protection contract is the term used in the Handbook to mean a long-term insurance contract which is not a life policy.

Note 5D:

General insurance contract is the term used in the Handbook to mean contract of insurance within column 1 of Table 2.

Note 5E:

For the purposes of the permission regime, the activity in (pe)(ii) of advising on pension transfers and pension opt-outs is carried on in respect of the following specified investments:

• life policy (explained in note 5A);

• rights to or interests in investments in so far as they relate to a life policy.

Note 6:

• Section 315 of the Act (The Society: authorisation and permission) states that the Society of Lloyd's has permission to carry on the regulated activities referred to in that section, one of which is specified in article 58 of the Regulated Activities Order. This permission is unique to the Society of Lloyd's.

Table 2: Contracts of insurance

Contract of insurance (article 75 of the RAO)

(a) general insurance contract (Part I of Schedule 1 to the Regulated Activities Order)

(b) long-term insurance contract (Part II of Schedule 1 to the Regulated Activities Order)

1.1.3 Number

(1)

Accident (paragraph 1)

life and annuity (paragraph I)

(a)

Sickness (paragraph 2)

marriage and birth (paragraph II)

(i)

Land vehicles (paragraph 3)

linked long-term (paragraph III)

(ii)

Railway rolling stock (paragraph 4)

permanent health (paragraph IV)

(iii)

Aircraft (paragraph 5)

tontines (paragraph V)

(iv)

Ships (paragraph 6)

capital redemption (paragraph VI)

(v)

Goods in transit (paragraph 7)

pension fund management (paragraph VII)

(vi)

fire and natural forces (paragraph 8)

collective insurance (paragraph VIII)

(vii)

damage to property (paragraph 9)

social insurance (paragraph IX)

(viii)

motor vehicle liability (paragraph 10)

(ix)

aircraft liability (paragraph 11)

(x)

liability of ships (paragraph 12)

(xi)

general liability (paragraph 13)

(xii)

credit (paragraph 14)

(xiii)

suretyship (paragraph 15)

(xiv)

miscellaneous financial loss (paragraph 16)

(xv)

legal expenses (paragraph 17)

(xvi)

assistance (paragraph 18)

Notes to Table 2

Note 1: See IPRU(INS) Ann 10.2 Part II for the groups of classes of general insurance business from the Annex to the First non-Life Directive.

Note 2: See IPRU(INS) 11.8 and the definition of ancillary risks in IPRU(INS) and AUTH 3.12.6 G to AUTH 3.12.12 G for guidance on the treatment of supplementary and ancillary provisions in relation to contracts of insurance.

Table 3: Securities, contractually based investments and relevant investments [see notes 1 and 2 to Table 3]

Security (article 3(1))

Contractually based investment (article 3(1))

Relevant investment (article 3(1))

share (article 76)

debenture (article 77)

government and public security (article 78)

warrant (article 79)

certificate representing certain security (article 80)

unit (article 81)

stakeholder pension scheme (article 82)

rights to or interests in investments (article 89) in so far as they relate to any of the above categories of security

option (article 83)

For the purposes of the permission regime, option is subdivided into:

• option (excluding a commodity option and an option on a commodity future);

• commodity option and option on a commodity future.

future (article 84)

For the purposes of the permission regime, future is subdivided into:

• future (excluding a commodity future and arolling spot forex contract);

• commodity future;

• rolling spot forex contract.

contract for differences (article 85)

For the purposes of the permission regime, contract for differences is subdivided into:

• contract for differences (excluding a spread bet and a rolling spot forex contract);

• spread bet;

• rolling spot forex contract.

life policy (but excluding a long-term care insurance contract which is a pure protection contract) [see note 5B to Table 1]

funeral plan contract (article 87) [see note 1A to Table 1]

rights to or interests in investments (article 89) in so far as they relate to any of the above categories of contractually based investment.

contractually based investment (article 3(1))

pure protection contract [see note 5C to Table 1]

general insurance contract [see note 5D to Table 1]

Notes to Table 3

Note 1:

1. Security, contractually based investment and relevant investment are not, in themselves, specified investments they are defined as including a number of specified investments as set out in Table 3. Relevant investments is the term that is used to cover contractually based investments together with rights under a general insurance contract and a pure protection contract.

Note 2:

(1) For the purposes of the regulated activities of dealing in investments as principal (article 14) and dealing in investments as agent (article 21), the definition of contractually based investments excludes a funeral plan contract (article 87) and rights to or interests in funeral plan contracts.

31/10/2004
Future version of AUTH 2 Annex 2.1 after 06/04/2005

Export chapter as

Legal Instruments that change this Chapter Authorisation and regulated activities

AUTH 3

Applications
for Part IV permission

AUTH 3.1

Application and purpose

01/12/2004

Application

AUTH 3.1.1

This chapter applies to:

(1) an individual, a body corporate (including a branch of a body corporate), a partnership or an unincorporated association which is not an authorised person and which wishes to apply for Part IV permission to carry on regulated activities in the United Kingdom;

(2) an EEA firm or a Treaty firm seeking to carry on regulated activities in the United Kingdom other than through the exercise of an EEA right or Treaty right;

(3) an EEA firm, Treaty firm or UCITS qualifier wishing to apply for a top-up permission to carry on any regulated activity.

03/09/2001

Purpose

AUTH 3.1.2

This chapter gives guidance to applicants on how the FSA will exercise the powers granted to it in Part IV of the Act (Permission to carry on regulated activities) to determine an application and give Part IV permission. In particular, the chapter gives guidance on:

(1) permission under Part IV of the Act;

(2) the procedures, under section 51 of the Act (Application under this Part), for making an application to the FSA for Part IV permission;

(3) when and how the FSA will determine applications under section 52 of the Act (Determination of applications); and

(4) when and how a person becomes authorised under the Act.

03/09/2001

AUTH 3.2

Introduction

01/12/2004

AUTH 3.2.1

(1) With certain exceptions (for example, EEA firms), a person wanting to carry on any one or more regulated activities must apply to the FSA for Part IV permission. If the FSA gives an applicant such permission, the applicant will become an authorised person.

(2) Authorisation gives a firm the ability to carry on regulated activities without breaching the general prohibition and incurring criminal liability (see AUTH 2.2.1 G ). A firm may, however, be subject to regulatory action if it does not have the necessary Part IV permission for each regulated activity it carries on (see AUTH 3.3.3 G).

21/02/2002
Future version of AUTH 3.2.1 after 01/07/2005

AUTH 3.2.2

AUTH 3 Annex 1 G gives an overview of the application process from receipt of the application by the FSA.

03/09/2001

AUTH 3.3

When is Part IV permission required and what does it contain?

01/12/2004

AUTH 3.3.1

A person will, broadly speaking, be treated as carrying on a regulated activity in the United Kingdom (and so, under section 20(1), need permission), where it is carried on in the circumstances described in AUTH 2.4 (Link between activities and the United Kingdom). A Part IV permission under Part IV of the Act is required before the person carries on regulated activities unless the person has permission resulting from any other provisions in the Act (see AUTH 2.10 (Persons carrying on regulated activities who do not need authorisation)).

03/09/2001
Future version of AUTH 3.3.1 after 01/07/2005

AUTH 3.3.2

Under section 20(1) of the Act (Requirement for permission), a firm must not carry on a regulated activity in the United Kingdom (or purport to do so) otherwise than in accordance with its permission.

03/09/2001

AUTH 3.3.3

Following a successful application to the FSA, an applicant will be given Part IV permission. The Part IV permission will specify all or some of the following elements:

(1) a description of the activities the firm can carry on (see AUTH 3.4), including any limitations (see AUTH 3.6);

(2) the specified investments involved (see AUTH 3.5); and

(3) if appropriate, requirements (see AUTH 3.7).

03/09/2001

AUTH 3.3.4

(1) Section 42(6) of the Act (Giving permission) requires the FSA to describe the regulated activities for which a firm is given Part IV permission; this description may include limitations (see AUTH 3.6). The Part IV permission may also include requirements (see AUTH 3.7).

(2) After being given Part IV permission, a firm can apply at any time to have a limitation or a requirement varied or removed, following the procedures in SUP 6 (Application to vary or cancel Part IV permission).

03/09/2001

AUTH 3.3.5

Under section 51(3) of the Act, an application for permission must be made in such manner as the FSA directs (see AUTH 3.9.3 D).

03/09/2001

AUTH 3.4

Activities

01/12/2004

AUTH 3.4.1

(1) The activities for which an applicant may apply for Part IV permission are listed in AUTH 2 Annex 2 G (Regulated activities and the permission regime). The FSA has described these activities in the same way as regulated activities are specified in the Regulated Activities Order (see AUTH 2.7 to AUTH 2.8 ) but with three sub-divisions.

(2) The sub-divisions are that:

(a) advising on pension transfers and pension opt-outs is a separate category from advising on other investments; this distinction has been made because pension transfers and pension opt-outs are considered to be transactions which are high risk to consumers and it is appropriate to differentiate advice on them from other forms of advice;

(b) establishing, operating or winding up a collective investment scheme been sub-divided to distinguish regulated collective investment schemes from unregulated ones; this is because of the different regulatory requirements and risk characteristics of the two types of scheme; and

(c) safeguarding and administering investments has been divided into safeguarding and administration of assets (without arranging) and arranging safeguarding and administration of assets; this is because some firms arrange the provision of safe custody for clients instead of providing the facilities themselves.

03/09/2001
Future version of AUTH 3.4.1 after 01/07/2005

AUTH 3.4.2

It should be noted that some combinations of regulated activities are restricted by other legislation, such as the UCITS Directive and the Insurance Directives. In addition, applicants seeking to carry on specified activities in certain business areas, for example, ISA management, will be required to demonstrate that they satisfy additional regulatory obligations. Details of these restrictions and obligations are in AUTH 3.11 to AUTH 3.17.

03/09/2001

AUTH 3.4.3

If an applicant is uncertain whether the FSA will give Part IV permission for a particular combination of activities, it should seek professional advice and discuss the matter with the FSA before making a formal application for Part IV permission. These discussions with the FSA will not be part of the formal application process.

03/09/2001

AUTH 3.5

Specified investments

01/12/2004

AUTH 3.5.1

The specified investments for which an applicant may apply for Part IV permission are listed in AUTH 2 Annex 2 G . In general, the FSA has described these specified investments in a way that mirrors the activities specified in the Regulated Activities Order (see AUTH 2.6 ). The FSA has, however, sub-divided certain specified investments in the Regulated Activities Order to distinguish those investments which, among other things, are considered to have significantly different risk profiles. These are:

(1) commodity futures and commodity options and options on commodity futures, which have been distinguished from other futures and options;

(2) spread bets, which have been distinguished from other contracts for differences; and

(3) rolling spot forex contracts, which have been distinguished from other contracts for differences and futures.

03/09/2001
Future version of AUTH 3.5.1 after 01/07/2005

AUTH 3.6

Limitations

01/12/2004

AUTH 3.6.1

The FSA may include appropriate limitations in a description of the regulated activities in a Part IV permission.

03/09/2001

AUTH 3.6.2

Generally speaking, a limitation limits, in some way, a particular regulated activity. Unlike requirements (see AUTH 3.7), each limitation is specific to a particular regulated activity (either to the specified activity, the specified investments or both). This is why the Act refers to a limitation being incorporated within the actual description of the regulated activity.

03/09/2001

AUTH 3.6.3

As part of its application for Part IV permission, an applicant may wish to apply for certain limitations (details of which are given in the application pack). Alternatively, the FSA may impose a limitation where it considers it appropriate after reviewing the application. Examples of limitations which may be applied for or imposed include:

(1) a limit on the types of client that a firm may deal with; this would be used either where an applicant's business plan makes it clear that it only intends to provide services for specific types of clients (for example, see AUTH 3.6.4 G) or where the FSA wishes to limit the types of clients a firm can deal with; or

(2) a limit on the number of clients with whom a firm may carry on a particular regulated activity during, for example, an initial period of operation; this might be used where, for example, a firm's systems are not yet adequate to be able to process a high volume of transactions; or

(3) a limit on the types of specified investments that a firm can deal in; this would be used either where an applicant's business plan makes it clear that it only intends to provide services in respect of certain specified investments or where the FSA wishes to limit the categories of specified investments a firm can deal with; or

(4) a limit on the type of insurance business which a firm may carry on in connection with certain categories of specified investments for which Part IV permission may be granted; for example, a limitation specifying that only reinsurance business may be carried on in relation to certain specified investments; (note that for direct insurance business, the Insurance Directives restrict the ability of the FSA to impose limitations on an individual class of specified investment).

18/10/2001

AUTH 3.6.4

(1) In relation to the carrying on of designated investment business (and related ancillary activities, including communication and approval of related financial promotions), COB 4.1.4 R (Requirement to classify) requires a firm to classify a client before conducting designated investment business with him or for him and that classification is relevant to the application of Principles 6,7,8 and 9. The classification of clients is used to apply appropriately differentiated market conduct and conduct of business provisions based on the expertise of the different clients. An applicant may, therefore, wish to apply to carry on designated investment business in respect of one or more of the following classifications:

(a) private customer;

(b) intermediate customer;

(2) In practice, a firm may be permitted to carry on regulated activities that fall within the definition of designated investment business with one, or more, of these client categories.

(3) As explained in PRIN 1.2.4 G, a firm carrying on business other than designated investment business may choose to distinguish between customers and market counterparties in complying with the Principles. An applicant may, therefore, wish to apply to carry on business only with market counterparties.

(4) In relation to accepting deposits, the limitations which may be applied for or imposed include a limitation that the firm may accepting deposits from wholesale depositors only. A firm with such a limitation may receive less intensive supervision by the FSA, because of the reduced risk it poses to the regulatory objective of protecting consumers. However, the precise arrangements that would apply would be determined case by case and would be based on an assessment of the risks the firm posed to all four of the regulatory objectives.

15/11/2001
Future version of AUTH 3.6.4 after 06/04/2005

AUTH 3.6.5

If, after reviewing an application, the FSA proposes to impose a limitation, the applicant will be advised formally (that is, the applicant will be sent a warning notice) and given an opportunity to make representations before the FSA reaches a final decision. For an overview of how the FSA determines applications and a summary of the FSA's decision-making procedures, see AUTH 8 (Determining applications).

03/09/2001
Future version of AUTH 3.6.5 after 20/10/2005

AUTH 3.6.6

After the FSA gives a Part IV permission, a firm can apply at any time to vary that Part IV permission, including any limitation, following the procedures set out in SUP 6.

03/09/2001

AUTH 3.7

Requirements

01/12/2004

AUTH 3.7.1

(1) Section 43 of the Act (Imposition of requirements) gives the FSA power to include any requirements in a Part IV permission that it considers appropriate. A requirement may be imposed on a firm to:

(a) take a particular action; or

(b) refrain from taking a particular action.

(2) The requirement may extend to activities which are not regulated activities (for example, see AUTH 3.7.6 G (3)) and the FSA may set a time at which the requirement expires.

(3) As part of its application for Part IV permission, an applicant may wish to apply for certain requirements (details of which are given in the application pack).

03/09/2001

AUTH 3.7.2

Generally speaking, a requirement will either be unrelated to the performance of regulated activities (for example, a requirement that relates to reporting) or will relate to all, or a number of, the regulated activities which an applicant wishes to carry on. This can be contrasted with a limitation, which is specific to one particular regulated activitiy (either to the specified activity, the specified investments or both), as in AUTH 3.6.

03/09/2001

AUTH 3.7.3

(1) Requirements can, among other things, be used by the FSA to control the performance of certain business activities which are not in themselves regulated activities; although in many cases a firm will require permission for a combination of regulated activities before the business activity can be carried on. The business activities controlled in this way are those which, in the interests of consumer protection, have certain minimum standards, for example in respect of the systems and controls required to meet regulatory or other obligations (for example, see the client money rules in CASS 4).

(2) As a result, applicants will be asked to specify as part of their application whether or not they wish to carry on business activities that include:

(a) the holding or controlling of client money; or

(b) ISA, PEP, or CTF management (including, in the case of CTF management, details of any third party administrator that it engages and with details of whether it intends to offer Revenue allocated CTF's and whether it intends to provide its own stakeholder CTF); or

(d) management of a broker fund.

(3) As part of demonstrating that it can satisfy and continue to satisfy the threshold conditions in respect of the regulated activities it wishes to carry on, an applicant will be expected to demonstrate that it is ready, willing and organised to satisfy, and continue to satisfy, any relevant regulatory obligations that would apply to any business activities it wishes to carry on (for example, CASS 4 (Client money)). An applicant that does not wish to engage in these activities should apply for a requirement to exclude performance of these activities from the scope of its Part IV permission.

13/02/2004

AUTH 3.7.4

(1) A requirement can also be used by the FSA to define the scope of a number of regulated activities carried on by a firm so that a particular differentiated regulatory regime applies. Examples of such regimes include those for oil market participants, energy market participants, locals, venture capital firms, corporate finance advisory firms and service companies. Where this is relevant, an applicant may wish to apply for Part IV permission which includes a requirement defining the scope of each of its regulated activities.

(2) As an example, an applicant wishing to act as a corporate finance advisory firm may be given Part IV permission to carry on the activities of advising on investments and arranging (arranging (bringing about) deals in investments), subject to a requirement that the firm carries on these activities only within the definition of a corporate finance advisory firm.

(3) As part of the application pack, an applicant will be asked whether it wishes to apply for a requirement to define the scope of its Part IV permission. An applicant that applies for Part IV permission with a requirement to reduce the scope of that permission will only be required to demonstrate to the FSA that it is able to satisfy, and continue to satisfy, the threshold conditions in respect of the reduced scope.

21/02/2002

AUTH 3.7.5

As part of the application process, an applicant will need to determine which prudential category it falls into and, in some cases, which sub-category (see AUTH 3.8.5 G). In some cases, a requirement may form part of the description of such a category or sub-category, in which case the applicant may wish to apply for Part IV permission subject to appropriate requirements. The FSA may also impose a requirement on a firm to require it to comply with certain financial requirements (see SUP 7.4 (Individual requirements)).

03/09/2001

AUTH 3.7.6

Examples of requirements which may be applied by the FSA in particular circumstances, include:

(1) a requirement, imposed under section 48 of the Act (Prohibitions and restrictions), that a firm given Part IV permission obtain the approval of the FSA before payment of a dividend; or

(2) a requirement to submit financial returns more often than normal, for example during the firm's first months or years of business; or

(3) a requirement to submit audited financial accounts of a parent company; or

(4) a requirement, on the permission of an insurer, to carry on only reinsurance business; or

(5) a requirement to submit periodic independent compliance reviews, performed by an appropriate person, during the first months or years of business.

03/09/2001

AUTH 3.7.7

If, after reviewing an application, the FSA proposes to impose a requirement, the applicant will be advised formally (that is, the applicant will be sent a warning notice) and given an opportunity to make representations before the FSA reaches a final decision. For an overview of how the FSA determines applications and a summary of the FSA's decision making procedures, see AUTH 8.

03/09/2001
Future version of AUTH 3.7.7 after 20/10/2005

AUTH 3.7.8

Following the giving of a Part IV permission, a firm can apply, at any time, to vary that Part IV permission, including any requirement or limitation, following the procedures in SUP 6.

03/09/2001

AUTH 3.8

The threshold conditions and financial resources

01/12/2004

The threshold conditions

AUTH 3.8.1

(1) Under section 41(2) of the Act (The threshold conditions), the FSA is required, in giving Part IV permission or imposing any requirement, to ensure that the applicant satisfies, and will continue to satisfy, the threshold conditions in relation to all the regulated activities for which it has or will have permission. The threshold conditions are in Schedule 6 to the Act.

(2) The FSA has provided guidance on the threshold conditions in COND. This guidance is not exhaustive and is written at a high level of generality as satisfaction of the threshold conditions is considered on a case-by-case basis, in relation to each regulated activity an applicant is seeking to carry on.

03/09/2001

AUTH 3.8.2

(1) There are six threshold conditions and certain additional conditions applying to a firm with Part IV permission:

(a) threshold condition 1 (Legal status) sets out the legal status that the applicant must have if it wishes to carry on certain regulated activities;

(b) threshold condition 2 (Location of offices) provides that:

(i) a body corporate constituted under the law of any part of the United Kingdom must have its head office and, if it has one, its registered office, in the United Kingdom; and

(ii) a non body corporate with its head office in the United Kingdom must carry on business in the United Kingdom;

(ca) threshold condition 2A (Appointment of claims representatives) provides that if it appears to the FSA that any person is seeking to carry on, or carrying on, motor vehicle liability insurance business, that person must have a claims representative in each EEA State other than the United Kingdom;

(d) threshold condition 4 (Adequate resources) relates to the adequacy of an applicant's resources;

(e) threshold condition 5 (Suitability) relates to the suitability of the applicant;

(f) additional conditions apply to non-EEA insurers (see COND 2.6 (Additional Conditions)).

(2) Threshold conditions 2A, 3, 4, and 5 enable the FSA to assess the applicant in the light of the activities it wishes to carry on and, in particular, make it clear that suitability to carry on one regulated activity does not mean that the applicant is suitable to carry on all regulated activities. Threshold conditions 3, 4 and 5 do not apply to Swiss general insurance companies.

(3) An incoming firm applying for a top-up permission must also satisfy the threshold conditions with the exception of threshold condition 2 (Location of offices): see COND 1.1 Application) and paragraphs 6 and 7 of Schedule 6 to the Act.

(4) The application of the threshold conditions to Swiss general insurance companies was varied by the Financial Services and Markets Act 2000 (Variation of Threshold Conditions) Order 2001.

19/01/2003

AUTH 3.8.3

The FSA, in making a determination whether an applicant satisfies and will continue to satisfy the threshold conditions under section 41(2) of the Act, will consider whether an applicant can demonstrate that it is ready, willing and organised so as to enable it to comply with the specific regulatory obligations that will apply to the applicant if it is given Part IV permission to carry on the regulated activities referred to in its application.

03/09/2001

Financial resources

AUTH 3.8.4

(1) As part of its application, an applicant will be required to demonstrate that it has adequate financial resources to meet the financial resources requirement for its prudential category.

(2) The Single Market Directives, the Capital Adequacy Directive and the E-Money Directive set out minimum financial requirements for all firms which carry on banking, issuing e-money, insurance or investment services within the scope of the Single Market Directives and the E-Money Directive, that is, most firms that are credit institutions, financial institutions, insurance undertakings or investment firms as defined in these Directives. These requirements are reflected in PRU or in the relevant IPRU for each type of firm.

31/12/2004

AUTH 3.8.5

(1) An applicant will need to determine its prudential category and, in some cases, its sub-category. The application pack and AUTH 3 Annex 2 G give further details.

(2) In determining its prudential sub-category, an applicant may need to consider whether it falls under the scope of a Single Market Directive or the E-Money Directive, for example whether it will be an investment firm as defined in the ISD.

(3) However, an applicant which falls outside the Single Market Directive or the E-Money Directive will not have a right to passport into the EEA and will be subject to separate prudential requirements.

27/04/2002

AUTH 3.8.6

An applicant in the prudential category of bank or insurer should note that the FSA will give it individual guidance on its likely capital requirements: for example, the individual capital ratios for a bank (see IPRU(BANK) CO 4.1.1 (Individual capital ratios)) or the capital resources requirements of an insurer (see PRU 2.1)) during pre-application discussions (see AUTH 3.9.2 G).

31/12/2004

AUTH 3.8.7

Applicants should note that the prudential category and, where relevant, sub-category, not only determines which provisions in the relevant IPRU or PRU will apply, but which provisions on auditors, financial reporting and transaction reporting in the SUP will apply.

31/12/2004
Future version of AUTH 3.8.7 after 31/01/2005

AUTH 3.8.8

An applicant that is a member of a group should note that the FSA may take into consideration the impact of other members of the group on the adequacy of its resources (see the relevant sections of PRU or IPRU).

31/12/2004

AUTH 3.9

Procedures in relation to applications for Part IV permission

01/12/2004

Pre-application meetings

AUTH 3.9.1

All applicants for Part IV permission are encouraged to contact the Authorisation and Approvals Department of the FSA to discuss their application before they send in an application form.

01/07/2003

AUTH 3.9.2

(1) If an applicant's plans are complex (for example, including insurance business or accepting deposits and some designated investment business), high risk or innovative (for example, raising new or unusual issues), the FSA will expect the applicant to discuss its plans with them before submitting an application for Part IV permission.

(2) FSA staff will be available to attend a pre-application meeting with such applicants to discuss the application and any issues or problem areas. If appropriate, for example in the case of an application to carry on insurance business or accepting deposits, FSA staff may, by agreement with the applicant discuss aspects of the application during its preparation, for example, the applicant's draft business plan or other relevant documentation. If relevant, FSA staff will discuss likely capital and, where relevant, liquidity ratios with the applicant to enable the applicant to prepare capital adequacy projections.

(3) Applicants should note that:

(a) a pre-application meeting is not a substitute for an applicant obtaining any professional assistance;

(b) a pre-application meeting is to give informal assistance to applicants (as set out in AUTH 3.9.2 G). A meeting might, for example, be used to help an applicant prepare its formal application for Part IV permission and to identify and address issues or problem areas at an early stage before time and costs are incurred in preparing a complete application. This assistance is not part of the application process outlined in the rest of AUTH 3.9.

(c) the submission of an incomplete application will start the formal application process, including the time limits for determination of incomplete applications (see AUTH 3.9.31 G) and the requirements for a fee (see AUTH 3.9.4 G (1)).

03/09/2001

The application for permission

AUTH 3.9.3

(1) An applicant for Part IV permission, except in so far as the FSA may direct in an individual case, must apply in writing in the manner directed, and with the information required, in the application pack provided by the FSA.

(2) The application for Part IV permission must be:

(a) given to a member of, or addressed for the attention of, the Authorisation and Approvals Department; and

(b) delivered to the FSA by one of the methods in (3).

(3) The application may be delivered by:

(a) post to the address in (4);

(b) leaving the application at the address in (4) and obtaining a time-stamped receipt; or

(4) The address for applications is: The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.

(5) Until the application has been determined, an applicant which submits an application for Part IV permission must inform the FSA of any significant change to the information given in the application immediately it becomes aware of the change.

01/07/2003

AUTH 3.9.4

(1) An application should be accompanied by the application fee set by the FSA (see AUTH 4 (Authorisation Fees)).

(2) The application pack and accompanying guidance notes are available on www.fsa.gov.uk or from the Authorisation and Approvals Department of the FSA. To contact the Authorisation and Approvals Department:

(a) telephone on 020 7066 3954; or

(b) write to the Authorisation and Approvals Department at the address in AUTH 3.9.3 D (4); or

01/07/2003

AUTH 3.9.5

The application pack is made up of several sections and the ones which need to be completed will depend on the category of applicant. For example, the insurance sections will contain different application questions according to the type of applicant (for example, matters needing to be addressed vary for overseas applicants and Swiss general insurance companies). In addition, applicants will need to submit forms for approved persons (see AUTH 6 (Approved persons)) and controllers as part of the pack (see AUTH 3.9.24 G).

03/09/2001

Information to be supplied to the FSA

AUTH 3.9.6

Under section 51(1)(b) of the Act, an application for Part IV permission must give an address in the United Kingdom for service of any document required by the Act.

03/09/2001

AUTH 3.9.7

The application forms ask for general information about the applicant, its intended activities and any proposed or current unregulated activities. They also ask for details of how the applicant plans to comply with the FSA's regulatory obligations relating to the activities it seeks Part IV permission to carry on. The forms contain notes on completion and details of how the FSA can help.

03/09/2001

AUTH 3.9.8

In addition to the information in the application pack, the FSA may require the applicant to provide such further information as it reasonably considers necessary to enable it to determine the application, and to verify it as the FSA directs. This may include the provision of documents. The FSA may request such additional information during a pre-application meeting or after reviewing a submitted application pack. Should the FSA require further information on reviewing an application pack, the applicant will be advised in writing as early as possible.

03/09/2001

AUTH 3.9.9

The FSA will assess the applicant having regard to the regulatory objectives and will, therefore, be proportional in its procedures, including in the information which it seeks from applicants (see AUTH 1.4.4 G). Thus the nature of the information and documents requested by the FSA, either in the application pack or subsequently, will be proportional to the nature of the business the applicant intends to carry on. For example, a small company seeking to carry on low risk business will be required to submit a business plan and other information relevant to its size and the scope of the proposed business. Information which is requested from applicants as part of the application pack includes but is not limited to the following.

(1) A business plan which describes the regulated activities and any unregulated activities (except where not permitted, for example see AUTH 3.12.2 G) which the applicant proposes to carry on, the management and organisational structure of the applicant and details of any proposed outsourcing arrangements. The level of detail required in the business plan will be appropriate to the risks to consumers arising from the proposed regulated and unregulated activities. For an applicant seeking to carry on insurance business, the business plan should include a scheme of operations in accordance with SUP App 2 (Insurer and friendly societies: schemes of operation).

(2) Appropriately analysed financial budget and projections which demonstrate that the applicant expects to comply with the relevant financial resources requirements appropriate to the applicant's prudential category (and in some cases sub-category).

(3) Details of systems to be used (which do not have to be in place at the time of initial application), compliance procedures and documentation.

(4) Details of the individuals to be involved in running the proposed business (such as directors, partners and members of the governing body, all of whom will be performing controlled functions) and any connected persons (see AUTH 3.9.23 G). AUTH 6 gives guidance on the approved person regime and the procedures for approval.

03/09/2001

AUTH 3.9.10

(1) The application pack should be accompanied by such other information as the applicant reasonably considers the FSA should be aware of for the purposes of determining the application. Any relevant supporting documentation should also be enclosed. The guidance notes to the application pack give further details about information to be provided by applicants, to enable them to answer the questions.

(2) In certain circumstances, the interests of the customers of an applicant would be significantly affected by the death or incapacity of an individual within the applicant. If this is the case, the applicant will be required to provide information on its arrangements to protect the interests of customers in that event. Examples include arrangements to enable urgent transactions to be carried out and unfinished transactions to be completed. The information should include the name and address, and such other details as the FSA may reasonably require, of an authorised person with whom arrangements have been made for the protection of customers. The guidance notes to the application pack give further details.

03/09/2001

AUTH 3.9.11

The application forms also require a statement from one or more members of the applicant's governing body confirming, to the best of their knowledge, the completeness and accuracy of information supplied.

03/09/2001

AUTH 3.9.12

Applicants should be aware that there may be a delay in processing applications if the information given to the FSA is inaccurate or incomplete; for example, if the business plan for an applicant does not describe in adequate detail the regulated activities for which the applicant seeks Part IV permission. Applicants should discuss any problems with the Enquiries and Applications Department (Applications team) before submitting the application or, if necessary, consider seeking appropriate professional advice.

01/07/2003

AUTH 3.9.13

At any time after receiving an application and before determining it, the FSA may give notice to the applicant to require it to provide additional information or documents. The circumstances of each application will determine what additional information or procedures are appropriate.

03/09/2001

AUTH 3.9.14

While applicants will often wish to discuss applications with the Enquiries and Applications Department (Applications team) during the application process; similarly, the FSA will often need to discuss and clarify information that has been submitted within the application pack. The exchange of information during the application process is viewed as important by the FSA, since the final decision about an application needs to be based on as complete a picture of the application as possible.

01/07/2003

AUTH 3.9.15

In addition, in considering the application, the FSA may:

(1) carry out any enquiries which it considers appropriate, for example, discussions with other regulators or exchanges;

(2) ask the applicant, or any specified representative of the applicant, to attend meetings at the FSA to give further information and explain any matter the FSA considers relevant to the application;

(3) require any information given by the applicant to be verified in such a way as the FSA may specify (for example, see AUTH 3.9.16 G);

(4) take into account any information which it considers appropriate in relation to the application, for example any unregulated activities which the applicant carries on or proposes to carry on;

(5) visit the premises which the applicant intends to use as its place of business.

03/09/2001

Reports from third parties

AUTH 3.9.16

Under section 51(6) of the Act, the FSA may require the applicant to verify information provided in such a way as the FSA directs. Thus, as part of the application, the FSA may require the applicant to provide, at its own expense, a report by an auditor, reporting accountant, actuary or other qualified person approved by the FSA. The report may be on such aspects of the information provided, or to be provided, by the applicant as the FSA may specify.

03/09/2001

AUTH 3.9.17

Applicants seeking to carry on long-term insurance business are also required to provide a certificate from an actuary confirming the appropriateness of the projections for the long-term insurance business and, in particular, the adequacy of premium rates and technical provisions and margin of solvency and how quickly capital strains from effecting new business will be overcome.

03/09/2001

AUTH 3.9.18

If an applicant appoints a reporting accountant other than its own auditor to report on an application for Part IV permission, the applicant is directed to take reasonable steps to ensure that the reporting accountant satisfies the qualification and independence tests, as relevant, in SUP 3.4 (Auditor's qualifications) and SUP 3.5 (Auditor's independence).

03/09/2001

AUTH 3.9.19

If an applicant appoints an actuary, to report on an application for Part IV permission, the applicant is directed to take reasonable steps to ensure that the actuary satisfies the qualification tests in SUP 4.3.8 G (actuaries' qualifications).

31/12/2004

AUTH 3.9.20

Occasionally, the FSA may identify a need for an independent report on specific areas of an application; for example, a report from the auditors of an applicant seeking to carry on regulated activities which include accepting deposits where the applicant's business plan is innovative, complex or raises concerns as a result of matrix management. Such reports will usually be discussed and agreed with the applicant as part of the pre-application meeting (see AUTH 3.9.2 G).

03/09/2001

Applications to other bodies

AUTH 3.9.21

In addition to applying to the FSA for Part IV permission:

(1) an applicant which will need permission from the Council of the Society of Lloyd's to conduct business as underwriting agents should apply for that permission at the same time as its application to the FSA; and

(2) an applicant should also determine whether it needs to apply to any other bodies, for example, to any exchanges or to other bodies for membership, the Office of Fair Trading for a consumer credit licence or to court for licences such as a gaming licence; the applicant should check when any such applications should be made.

03/09/2001

Connected persons

AUTH 3.9.22

(1) Under section 49 of the Act (Persons connected with an application), in considering an application for Part IV permission, the FSA may have regard to any person appearing to it to be, or likely to be, in a relationship with the applicant which is relevant.

(1A) The Financial Groups Directive Regulations make special provision where the FSA is exercising its functions under Part IV of the Act (Permission to carry on regulated activities) for the purposes of carrying on supplementary provision. Broadly, where the FSA, in the course of carrying on supplementary supervision, is considering varying the Part IV permission of a person who is a member of a group which is a financial conglomerate, the consultation provision in section 49(2) of the Act are disapplied. In their place, the regulations impose special obligations, linked to the Financial Groups Directive, to obtain the consent of the relevant competent authorities, to consult those authorities and to consult with the group itself.

(2) A person in, or likely to be in, a relationship with an applicant which is relevant is known as a connected person. The FSA will assess whether a particular relationship is relevant in the light of the particular circumstances of each application. Examples of persons who might be considered connected with an applicant include, but are not limited to:

(a) a controller of the applicant; or

(b) an applicant's directors, partners or members of its governing body; or

(d) a person with whom the applicant intends to enter into a material outsourcing agreement; or

(e) any other person who may exert influence on the applicant which might pose a risk to the applicant satisfying or continuing to satisfy the threshold conditions.

03/09/2001

AUTH 3.9.23

As a result, as part of the application process, the FSA may request information about any other person who the FSA determines is in a relationship with an applicant which is relevant. The FSA may request information from the applicant on persons who are connected persons or are likely to become connected persons under any proposed transactions or relationships.

03/09/2001

AUTH 3.9.24

(1) As part of the application process, the FSA may request information on an applicant's controllers, directors, partners or members of its governing body. The FSA will assess whether:

(a) the applicant's controller is a fit and proper person to have control over the firm;

(b) the applicant's directors, partners and members of the governing body who will be performing controlled functions are fit and proper persons to be granted approval under the approved persons regime (see AUTH 6).

(2) An applicant (other than a Swiss general insurance company seeking to establish an agency or branch in the United Kingdom or an EEA firm, or a Treaty firmin the circumstances set out in AUTH 3.1.1 G (2) and in AUTH 3.1.1 G (3)) will be required to provide the following information about its controllers:

(a) in the case of a controller who is not an authorised person, the information required in Controllers Form A SUP 11 Annex 4) and one or more of Controllers Form B SUP 11 Annex 5) in accordance with SUP 11.3.8 D and SUP 11.3.9 D; or

(b) in all other cases, the information required in Controllers Form A, sections 1, 5 and 6 SUP 11 Annex 4).

03/09/2001

Commencing regulated activities

AUTH 3.9.25

(1) If Part IV permission is given, the FSA will expect a firm to commence its regulated activity in line with its current business plan. Applicants should take this into consideration when determining when to make an application to the FSA.

(2) Applicants should be aware that the FSA may exercise its own-initiative powers to vary or cancel a Part IV permission once granted if they do not:

(a) commence a regulated activity for which they have Part IV permission within a period of at least twelve months from the date the permission was given; or

(b) carry on a regulated activity for which they have Part IV permission for a period of at least twelve months (irrespective of the date of the grant of permission).

(3) If FSA considers that it may be appropriate to exercise its own-initiative powers to vary or cancel a firm's Part IV permission, FSA staff will discuss the proposed action with the firm and ascertain the firm's reasons for not commencing or carrying on the regulated activities concerned. Applicants are advised to discuss any problems about commencing a regulated activity with the Enquiries and Applications Department (Applications team).

01/07/2003

When will the FSA grant an application for Part IV permission?

AUTH 3.9.26

(1) The FSA will assess the information provided in the application process. As noted in AUTH 3.8.1 G, the FSA is required, by section 41(2) of the Act, to ensure that an applicant will satisfy, and continue to satisfy, the threshold conditions in relation to all the regulated activities for which the applicant is seeking Part IV permission. However, section 41(3) of the Act states that the FSA's duty under section 41(2) of the Act does not prevent it, having regard to that duty, from taking such steps as it considers necessary in relation to a particular applicant, to secure the consumer protection objective.

(2) As part of the assessment of whether an applicant satisfies and will continue to satisfy the threshold conditions, the FSA will consider whether the applicant is ready, willing and organised to comply with the regulatory requirements to which it will be subject if it is granted Part IV permission to carry on the regulated activities referred to in its application.

(3) The FSA will give Part IV permission in respect of some categories of regulated activity only if the applicant can meet specific requirements. For example, Part IV permission including advising on pension transfers and pension opt-outs and will only be granted to applicants that will have persons (or individuals) qualified to advise in this area.

03/09/2001

AUTH 3.9.27

As noted in AUTH 3.6 and AUTH 3.7, the FSA may decide to grant an application for Part IV permission including appropriate limitations or requirements. Where the FSA imposes limitationsor requirements on a Part IV permission that were not applied for by the applicant, their precise nature will depend on the circumstances of each application. During the application process, the FSA will discuss with applicants any limitations or requirements it is considering imposing but which they have not applied for. The applicant may ask the FSA to reconsider its preliminary views on any such limitations or requirements in the course of the application process.

03/09/2001

AUTH 3.9.28

In some cases, the FSA would be minded to grant an application for Part IV permission as long as certain conditions are fulfilled. As an example, the FSA may advise an applicant that it is minded to grant its application subject to the applicant providing proof that its share capital or its required financial resources are in place or that it has satisfied an outstanding element of its business plan. Part IV permission will not, however, be given until the FSA is content that its conditions have been satisfied by the applicant and, as a result, the applicant satisfies the threshold conditions. Applicants are welcome to discuss with the Enquiries and Applications Department (Applications team) the circumstances in which the FSA may be prepared to determine an application subject to such conditions being met.

01/07/2003

Other powers relating to the scope of Part IV permission

AUTH 3.9.29

(1) In determining an application for Part IV permission, the FSA may:

(a) specify a narrower or wider description of regulated activity than that for which Part IV permission was originally sought; or

(b) give Part IV permission for a regulated activity which was not originally applied for.

(2) Occasionally, the FSA expects to use its power to give Part IV permission for an applicant to carry on a regulated activity for which it did not originally apply. This might happen when, as a result of correspondence and discussion with an applicant, it becomes clear that it needs Part IV permission to carry on different categories of activities or activities relating to different categories of specified investments than those it had originally applied for.

(3) The Insurance Directives set out minimum information requirements for an application for authorisation which include information on the specified investments the applicant proposes to deal in. If these requirements are not met, the FSA may not be able to use the power described in AUTH 3.9.29 G (1)(b).

03/09/2001

How long will an application take?

AUTH 3.9.30

(1) Under Part IV of the Act, the FSA has six months from the date of receipt of a completed application to make its determination.

(2) When the FSA receives an application which is incomplete, that is, when information or documents required to be submitted as part of the application are not provided, Part IV of the Act requires the FSA to determine that incomplete application, in any event, within twelve months of the initial receipt of the application.

(3) Within these time limits, however, the length of the process will relate directly to the complexity of the application. The FSA publishes standard response times on its web site at www.fsa.gov.uk, setting out how long the application process is expected to take in practice, and, from time to time, the FSA publishes its performance against these times.

(4) Unless it considers it is appropriate to do so, the FSA will not grant an application for Part IV permission until it has had the opportunity to review all the information and documents which it has requested in connection with the application (whether as part of the application or at a later date).

03/09/2001

How will FSA make the decision?

AUTH 3.9.31

AUTH 8 (Determining applications) gives an overview of how the FSA will determine an application. The FSA's decision making procedures are in DEC and include the procedures the FSA will follow if it proposes to refuse an application for Part IV permission or grant an application subject to limitations or requirements not applied for.

03/09/2001
Future version of AUTH 3.9.31 after 20/10/2005

Withdrawal of applications

AUTH 3.9.32

An applicant may withdraw its application at any time before the application is granted or refused by giving written notice to the FSA. This written notice should be signed by a person with appropriate authority to bind the applicant.

03/09/2001

Authorised status

AUTH 3.9.33

(1) The Act states that an applicant which does not qualify for automatic authorisation by, or under, the Act, becomes authorised automatically if the FSA grants it Part IV permission.

(2) When the FSA grants an application for Part IV permission, it will inform the applicant by written notice, stating the date on which the permission takes effect.

03/09/2001

AUTH 3.10

The FSA register

01/12/2004

AUTH 3.10.1

(1) Section 347 of the Act (The record of authorised persons etc) requires the FSA to maintain a public record containing certain details about all firms, including information as to the services they hold themselves out as able to provide.

(2) When the FSA grants an application for Part IV permission, it will update the FSA Register with a general description of the regulated activities the firm has permission to carry on.

(3) The FSA register can be accessed at www.fsa.gov.uk.

03/09/2001

AUTH 3.11

Specific obligations: partnerships or unincorporated associations

01/12/2004

AUTH 3.11.1

Section 32 of the Act (Partnerships and unincorporated associations) treats all partnerships and unincorporated associations as if they were legal persons for the purposes of the grant of Part IV permission (Scottish partnerships already have the status of a legal person as have limited liability partnerships). So, where a partnership or unincorporated association proposes to carry on a regulated activity, the application for Part IV permission should be made in the name of the partnership or unincorporated association. However, a partnership should consider by whom the regulated activity will be carried on. If a partner carries on the regulated activity independently from the

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AUTH Authorisation (to see AUTH derivations and destinations tables, go to Useful links)

Used in

Export part as

Introduction to the Authorisation manual

Application and purpose

Application

Purpose

Introduction

The Authorisation manual

Summary of AUTH

This table belongs to AUTH 1.3.7 G

The FSA's approach to applications for Part IV permission: an overview

The FSA's approach to risk assessment

Understanding the requirements and standards of the regulatory system

Applying for Part IV permission: overview of the process

Appointed representatives

What other general guidance is available from the FSA?

Next steps?

Who to contact at the FSA

This table belongs to AUTH 1.9.1 G

Introduction to the Authorisation Manual

Where to next?

Authorisation and regulated activities

Application and purpose

Application

Purpose

Introduction

The business element

Link between activities and the United Kingdom

Investments and activities: general

Modification of certain exclusions as a result of Investment Services and Insurance Mediation Directives

Investment services

Insurance mediation or reinsurance meditation

Specified investments: a broad outline

Deposits

Electronic Money

Rights under a contract of insurance

Shares etc

Debt instruments

Warrants

Certificates representing securities

Units

Rights under a stakeholder pension scheme

Options

Futures

Contracts for differences

Lloyd's investments

Rights under a funeral plan

Rights under a regulated mortgage contract

Rights to or interests in investments

Activities: a broad outline

Accepting deposits

Issuing e-money

Effecting or carrying out contracts of insurance as principal

Dealing in investments (as principal or agent)

Arranging deals in investments and arranging regulated mortgage activities

Managing investments

Safeguarding and administering investments

Sending dematerialised instructions

Establishing etc collective investment schemes

Establishing etc stakeholder pension schemes

Advising on investments

Lloyd's activities

Entering funeral plan contracts

Entering into and administering a regulated mortgage contract

Agreeing

Exclusions applicable to particular regulated activities

Accepting deposits

Issuing e-money

Effecting and carrying out contracts of insurance

Dealing in investments as principal

Dealing in investments as agent

Arranging deals in investments and arranging regulated mortgage contracts

Managing investments

Safeguarding and administering investments

Sending dematerialised instructions

Establishing etc collective investment schemes

Establishing etc stakeholder pension schemes

Advising on investments

Applications
for Part IV permission