PERG The Perimeter Guidance Manual

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PERG 1

Introduction to the Perimeter Guidance manual

PERG 1.1

Application and purpose

01/07/2005

Application

PERG 1.1.1

This manual applies to:

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

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

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

(4) persons generally.

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Purpose

PERG 1.1.2

The purpose of this manual is to give guidance about 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.

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PERG 1.2

Introduction

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PERG 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 Regulated Activities Order, carried on by way of business in relation to one or more of the investments specified in the Regulated Activities Order. PERG 2 gives further general guidance on regulated activities and specified investments.

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PERG 1.2.2

(1) The Act, and the secondary legislation made under the Act, is complex. Although PERG gives guidance about regulated activities and financial promotions, it does not aim to, nor can it, 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 secondary legislation made under it can be obtained from HMSO at http://www.legislation.hmso.gov.uk/legislation/uk.htm or can be accessed through the Treasury's website (www.hm-treasury.gov.uk).

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PERG 1.2.3

PERG 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 Chapter 7 of the Reader's Guide to the Handbook at http://fsahandbook.info/FSA/pdf/rguide.pdf). For the meanings of defined terms used in PERG, see the Glossary. It is essential that readers refer to these definitions.

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Future version of PERG 1.2.3 after 01/11/2007

PERG 1.2.4

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

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PERG 1.3

Status of guidance

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PERG 1.3.1

This guidance is issued under section 157 of the Act (Guidance). It represents the FSA's views and does not bind the courts. For example, it would not bind the courts in an action for damages brought by a private person for breach of a rule (see section 150 of the Act (Actions for damages)), or in relation to the enforceability of a contract where there has been a breach of sections 19 (The general prohibition) or 21 (Restrictions on financial promotion) of the Act (see sections 26 to 30 of the Act (Enforceability of agreements)). Although the guidance does not bind the courts, it may be of persuasive effect for a court considering whether it would be just and equitable to allow a contract to be enforced (see sections 28(3) and 30(4) of the Act). Anyone reading this guidance should refer to the Act and to the relevant secondary legislation to find out the precise scope and effect of any particular provision referred to in the guidance and any reader should consider seeking legal advice if doubt remains. If a person acts in line with the guidance in the circumstances mentioned by it, the FSA will proceed on the footing that the person has complied with the aspects of the requirement to which the guidance relates.

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PERG 1.4

General guidance to be found in PERG

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PERG 1.4.1

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

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PERG 1.4.2

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

Chapter:

Applicable to:

About:

PERG 2:

Authorisation and regulated activities

•an unauthorised person wishing to find out whether he needs to be authorised or exempt• an authorised person wishing to know whether he needs to vary his Part IV permission

• the regulatory scope of the Act• the Regulated Activities Order•the Exemption Order•the Business Order

PERG 3:

Issuing e-money

a person who needs to know

• whether a particular electronic payment product ise-money and whether the person issuing it needs to beauthorised under the Act• whether any communications about the product will be restricted

• the scope of the regulated activity of issuing e-money• the application of the restriction in section 21 of the Act (Restrictions on financial promotion) to communications about e-money

PERG 4:

Regulated activities connected with mortgages

any person who needs to know whether the activities he conducts in relation to mortgages are subject to FSA regulation. This is likely to include:

•lenders•administration service providers•mortgage brokers and advisers

the scope of relevant orders (in particular, the Regulated Activities Order) as respects activities concerned with mortgages

PERG 5:

Insurance mediation activities

any person who needs to know whether he carries on insurance mediation activities and is, thereby, subject to FSA regulation. This is likely to include:

•insurance brokers• insurance advisers•insurance undertakings• other persons involved in the sale or administration of contracts of insurance, where these activities are secondary to their main business.

the scope of relevant orders (in particular, the Regulated Activities Order) as respects activities concerned with the sale or administration of insurance

PERG 6:

Identification of contracts of insurance

any person who needs to know whether a contract with which he is involved is a contract of insurance

the general principles and range of specific factors that the FSA regards as relevant in deciding whether any arrangement is a contract of insurance

PERG 7:

Periodical publications, news services and broadcasts: application for certification

any person who needs to know whether he will be regulated for providing advice about investments through the medium of a periodical publication, a broadcast or a news service

• the circumstances in which such persons will be carrying on the regulated activities of advising on investments or advising on regulated mortgage contracts (including where a request for a certificate may be appropriate)•how the FSA will exercise its power to grant certificates

PERG 8:

Financial promotion and related activities

any person who needs to know

•whether his communications are financial promotions or are subject to the restriction in section 21 of the Act or both•whether his activities in making or helping others to make financial promotions are regulated activities.

•the scope of the restriction on financial promotion under section 21 of the Act and the main exemptions provided•the circumstances in which persons who are primarily involved in making or helping others to make financial promotions may themselves be conducting regulated activities requiring authorisation or exemption

PERG 9:

Meaning of open-ended investment company

any person who needs to know whether a body corporate is an open-ended investment company as defined in section 236 of the Act (Open-ended investment companies) and is therefore a collective investment scheme.

the circumstances in which a body corporate will be an open-ended investment company

PERG 10:

Activities related to pension schemes

Any person who needs to know whether his activities in relation to pension schemes will amount to regulated activities or whether the restriction in section 21 of the Act will apply to any financial promotions he may make.

•the regulated activities that arise in connection with the establishment and operation of pension schemes and any exclusions that may be relevant

•the circumstances in which financial promotions about pension schemes may be exempt from the restriction in section 21 of the Act

PERG 11:

Property investment clubs and land investment schemes

Any person who needs to know whether his activities in relation to property investment clubs and land investment schemes will amount to regulated activities or whether the restriction in section 21 of the Act will apply to any financial promotions he may make.

•the regulated activities that may arise in connection with the establishment and operation of property investment clubs and land investment schemes and any exclusions that may be relevant

•the extent to which the financial promotion restriction in section 21 of the Act applies

PERG 1.5

What other guidance about the perimeter is available from the FSA?

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PERG 1.5.1

General guidance on the perimeter is also contained in various FSA documents (mainly fact sheets and frequently asked questions) that are available on the FSA website at www.fsa.gov.uk.These documents, and the URL on which they may be accessed, include:

(1) guidance about the position under the Insurance Mediation Directive and the Regulated Activities Order of group risk managers and co-participants in a joint enterprise - http://www.fsa.gov.uk/Pages/Doing/small_firms/insurance/library/archive/risk.shtml;

(2) guidance about the scope of the exclusion in article 72B of the Regulated Activities Order (Activities carried on by a provider of relevant goods or services) as it applies to services related to travel - http://www.fsa.gov.uk/pages/Doing/small_firms/insurance/faq/travel.shtml;

(3) [deleted]

(4) guidance about the position under the Insurance Mediation Directive and the Regulated Activities Order of property owners and tenants - http://www.fsa.gov.uk/pages/Doing/small_firms/insurance/faq/property.shtml;

(5) guidance about the scope of the exclusion in article 72C of the Regulated Activities Order (Provision of information on an incidental basis) http://www.fsa.gov.uk/pages/Doing/small_firms/insurance/faq/exclusion.shtml;

(6) guidance on passporting for insurers and insurance intermediaries - http://www.fsa.gov.uk/pages/Doing/small_firms/insurance/faq/insurers.shtml;

(7) guidance about the position under the Insurance Mediation Directive and the Regulated Activities Order of the company appointed to manage a PPP or similar construction and operation project - www.fsa.gov.uk/pubs/other/letter_pppforum.pdf ;

(8) guidance about the position under the Insurance Mediation Directive and the Regulated Activities Order of property managing agents - http://www.fsa.gov.uk/pages/Doing/small_firms/insurance/library/imd.shtml; and

(9) guidance for employers about how to provide advice and information to their employees on pension matters without contravening the Act - www.fsa.gov.uk/pubs/other/guide4employers.pdf.

PERG 1.5.2

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

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PERG 1.5.3

In addition, the FSA has established a team to provide general assistance and guidance to persons generally about the scope of the Act. Enquiries of this kind may be made:

(1) by authorised firms, to either the FirmContact Centre (email fcc@fsa.gov.uk, Tel 0845 606 9966) or their normal supervisory contact; or

(2) by individuals or non-authorised firms, to the Consumer Contact Centre (email ccc@fsa.gov.uk, Tel 0845 606 1234) or the Perimeter Enquiries Team (email authorisationenquiries@fsa.gov.uk, Tel 020 7066 0082)

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PERG 1.5.4

The FSA will review its general 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 PERG 1.3.1 G.

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Export chapter as

Legal Instruments that change this Chapter Introduction to the Perimeter Guidance manual

PERG 2

Authorisation and regulated activities

PERG 2.1

Application and purpose

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Application

PERG 2.1.1

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

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Purpose

PERG 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; and

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

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PERG 2.2

Introduction

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PERG 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.

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Future version of PERG 2.2.1 after 06/10/2007

PERG 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.

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PERG 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 PERG 2 Annex 1 G):

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

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

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

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

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

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

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

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

(9) If not, do I benefit from the few provisions of the Act that 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 PERG 2 Annex 2 G and AUTH 3)?

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Future version of PERG 2.2.3 after 06/10/2007

PERG 2.2.4

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

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Future version of PERG 2.2.4 after 01/11/2007

PERG 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 PERG 2 Annex 2 G). You may find this helpful in providing an overview of the activities that are regulated. The list is included here because, with some exceptions, the investments and activities for which permission may be given are the same as the investments and activities specified in the Regulated Activities Order. 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.

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Future version of PERG 2.2.5 after 06/10/2007

PERG 2.3

The business element

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PERG 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'.

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PERG 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 2001/1177), the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2003 (SI 2003/1476) and the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2005 (SI 2005/922). The result is that the business element differs depending on the activity in question. This in part reflects certain differences in the nature of the activities:

(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 PERG 2.3.2G (2A) and PERG 2.3.2G (3), the business element is not to be regarded as satisfied for any of the regulated activities carried on in relation to securities or contractually based investments (or for those regulated activities carried on in relation to 'any property') unless a person carries on the business of engaging in one or more of the activities. This also applies to the regulated activities of 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. PERG 2.3.3 G gives guidance on the factors that are relevant to the meaning of 'by way of business' in section 22 of the Act. PERG 5.4 (The business test) gives further guidance on the business element as applied to insurance mediation activities.

(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 (as amended) 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 or administering regulated mortgage contracts (see PERG 2.7.20 G).

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Future version of PERG 2.3.2 after 06/04/2007

PERG 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.

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PERG 2.4

Link between activities and the United Kingdom

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PERG 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.

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PERG 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.

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PERG 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.

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Future version of PERG 2.4.3 after 01/11/2007

PERG 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.

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PERG 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).

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PERG 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 PERG 2.9.15 G).

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PERG 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 PERG 2.9.18G (2)).

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PERG 2.5

Investments and activities: general

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PERG 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 PERG 2.6). The second is that the activities, carried on in relation to those specified investments, are regulated under the Act (see PERG 2.7). Both investments and activities are defined in the Regulated Activities Order made by the Treasury under section 22 of the Act.

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PERG 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 PERG 2.6, together with the outline of the specified investments. The exclusions that relate to activities are considered separately from the outline of activities (see PERG 2.8 and PERG 2.9).

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

PERG 2.5.3

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

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Future version of PERG 2.5.3 after 01/11/2007

Investment services

PERG 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 basisof 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.

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Future version of PERG 2.5.4 after 01/11/2007

PERG 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 PERG 2.8.4G (1));

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

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

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

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

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

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

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Future version of PERG 2.5.5 after 06/10/2006

Insurance mediation or reinsurance mediation

PERG 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 PERG 5 (Insurance mediation activities).

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PERG 2.6

Specified investments: a broad outline

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PERG 2.6.1

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

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Deposits

PERG 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).

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PERG 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). PERG 3.2.15 G to PERG 3.2.19 G contain guidance on the exclusion relating to electronic money.

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Future version of PERG 2.6.3 after 10/02/2011

PERG 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.

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Electronic money

PERG 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 (SI 2002/682)). It is defined, in article 2 of that Order, as monetary value, as represented by a claim on the issuer, which is stored on an electronic device, issued on receipt of funds and accepted as a means of payment by persons other than the issuer. Further guidance is given in PERG 3 (Guidance on the scope of the regulated activity of issuing e-money).

01/07/2005
Future version of PERG 2.6.4A after 10/02/2011

Rights under a contract of insurance

PERG 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. Detailed guidance on identifying a contract of insurance is in PERG 6 (Guidance on the Identification of Contracts of Insurance).

01/07/2005

PERG 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)).

01/07/2005

PERG 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 PERG 5 (Insurance mediation activities) for further guidance on such activities).

01/07/2005

PERG 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 PERG 2.6.26 G) as well as arrangements that are excluded from the regulated activity of entering as provider into funeral plan contracts (see PERG 2.8.14 G).

01/07/2005

Shares etc

PERG 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 PERG 2.6.10 G).

01/07/2005

PERG 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 PERG 2.6.17 G). Exclusions from this category also apply to shares or stock in the share capital of certain mutuals or in equivalent EEA bodies. This takes out building society or credit union accounts and non-transferable shares in industrial and provident societies. These may nevertheless be specified investments in another category (such as deposits in the case of building society accounts).

01/07/2005

Debt instruments

PERG 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).

01/07/2005

PERG 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.

01/07/2005
Future version of PERG 2.6.12 after 26/02/2010

Warrants

PERG 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).

01/07/2005
Future version of PERG 2.6.13 after 26/02/2010

PERG 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.

01/07/2005

Certificates representing securities

PERG 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.

01/07/2005

PERG 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.

01/07/2005

Units

PERG 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 that apply to other forms of body corporate). For exclusions from the restrictions on the provisions of collective investment schemes, see the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060). Guidance on the meaning of open-ended investment company is in PERG 9 (Meaning of open-ended investment company).

01/10/2005
Past version of PERG 2.6.17 before 01/10/2005

PERG 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 Act 2000 (Collective Investment Schemes) Order 2001 (SI 2001/1062). The result is that units in certain arrangements are excluded from being collective investment schemes (for example, closed-ended bodies corporate, franchise arrangements, timeshare schemes).

01/07/2005

Rights under a stakeholderpension scheme

PERG 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 Pensions Regulator and approved by the Board of HM Revenue and Customs. Rights under such schemes are specified investments for the purposes of the Regulated Activities Order. There are no exclusions in the Order.

01/07/2005
Future version of PERG 2.6.19 after 06/04/2007

Options

PERG 2.6.20

The specified investment category of optionsis 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 PERG 2.6.23 G).

01/07/2005
Future version of PERG 2.6.20 after 01/11/2007

Futures

PERG 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.

01/07/2005

PERG 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).

01/07/2005

Contracts for differences

PERG 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.

01/07/2005
Future version of PERG 2.6.23 after 01/11/2007

PERG 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.

01/07/2005

Lloyd's investments

PERG 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.

01/07/2005

Rights under a funeral plan

PERG 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.

01/07/2005

Rights under a regulated mortgage contract

PERG 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 PERG 4.4 (Guidance on regulated activities connected with mortgages).

01/07/2005

Rights under a home purchase plan

PERG 2.6.28

Rights to, or interests in, all the specified investments in PERG 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.

01/07/2005
Future version of PERG 2.6.28 after 06/04/2007

PERG 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 PERG 2.8.14 G), then rights to, or interests in, the contracts of insurance or interests under the trusts, to which the contracts relate are also excluded from this specified investment category.

01/07/2005

PERG 2.7

Activities: a broad outline

01/07/2005

PERG 2.7.1

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

01/07/2005

Accepting deposits

PERG 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.

01/07/2005

Issuing e-money

PERG 2.7.2A

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

01/07/2005
Future version of PERG 2.7.2A after 10/02/2011

Effecting or carrying out contracts of insurance as principal

PERG 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, be regulated as insurance mediation activities (see PERG 5 (Guidance on insurance mediation activities)).

01/07/2005

PERG 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 PERG 2.7.5 G);

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

(d) agreeing to carry on any of those activities (see PERG 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 PERG 2.7.5 G);

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

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

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

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

01/07/2005

Dealing in investments (as principal or agent)

PERG 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 PERG 2.8.4G (1)).

01/07/2005

PERG 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).

01/07/2005

PERG 2.7.6A

Because of the different nature of the specified investments in relation to which these activities are carried on, 'buying' and 'selling' are defined terms that have an extended meaning. For example, some of the specified investments listed in PERG 2.6 are particular things that can be bought and sold in the ordinary meaning of the words. Others fall outside the ordinary meaning of 'buy' and 'sell' because their transfer involves an assumption of a potential liability under a bilateral contract (contracts for differences are an example of this). To deal with the possible range of circumstances, 'buying' is defined in the Regulated Activities Order to include acquiring for valuable consideration. 'Selling' is defined to include disposing for valuable consideration and 'disposing' is itself given a specified meaning that covers a range of possible transactions according to the nature of the investment being transferred (including, for example, surrendering a life insurance contract).

01/07/2005

Arranging deals in investments and arranging regulated mortgage activities

PERG 2.7.7

[not used]

01/07/2005

PERG 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)).

PERG 2.7.7B

The activity of arranging (bringing about) deals in investments is aimed at arrangements that would have the direct effect that a particular transaction is concluded (that is, arrangements that bring it about). The activity of making arrangements with a view to transactions in investments is aimed at cases where it may be said that the transaction is "brought about" directly by the parties. This is where this happens in a context set up by a third party specifically with a view to the conclusion by others of transactions through the use of that third party's facilities. This will catch the activities of persons such as exchanges, clearing houses and service companies (for example, persons who provide communication facilities for the routing of orders or the negotiation of transactions). A person may be carrying on this regulated activity even if he is only providing part of the facilities necessary before a transaction is brought about.

01/07/2005
Future version of PERG 2.7.7B after 06/08/2009

PERG 2.7.7C

Further guidance on the arranging activities as they relate to regulated mortgage contracts and contracts of insurance is in PERG 4.5 (Arranging regulated mortgage contracts) and PERG 5.6 (The regulated activities: arranging deals in, and making arrangements with a view to transactions in, contracts of insurance) respectively.

01/07/2005
Future version of PERG 2.7.7C after 06/04/2007

Managing investments

PERG 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.

01/07/2005

Assisting in the administration and performance of a contract of insurance

PERG 2.7.8A

The activity of assisting in the administration and performance of a contract of insurance is a regulated activity that is identified in the Insurance Mediation Directive. Further guidance on this activity is in PERG 5.7 (The regulated activities: assisting in the administration and performance of a contract of insurance).

01/07/2005

Safeguarding and administering investments

PERG 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 PERG 2.7.8 G)).

01/07/2005

PERG 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.

01/07/2005

Sending dematerialised instructions

PERG 2.7.11

The regulated activities relating to sending dematerialised instructions relate to the operation of the system for electronic transfer of title to securities or contractually based investments. This is the system maintained under the Uncertificated Securities Regulations 2001 (SI 2001/3755) (and currently operated byCREST). 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.

01/07/2005

Establishing etc collective investment schemes

PERG 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 COLLG 2 (Authorised fund applications) and CIS 16 (Application and notification). Guidance on whether certain types of scheme (property and land investment schemes) may amount to collective investment schemes is set out in PERG 11 (Property investment clubs and land investment schemes).

PERG 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 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 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 PERG 2.7.5 G) or managing investments (see PERG 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.

01/07/2005

PERG 2.7.13C

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

(1) trustee of an authorised unit trust scheme; or

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

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

01/07/2005

Establishing etc stakeholder pension schemes

PERG 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.

01/07/2005
Future version of PERG 2.7.14 after 06/04/2007

Providing basic advice on stakeholder products

PERG 2.7.14A

This activity covers advice in the form of a recommendation given to a retail consumer. The recommendation must relate to a stakeholder product and certain conditions must be met. These conditions are based on the need for the adviser to make an assessment of the consumer's needs based on the answers that the consumer provides to a series of pre-scripted questions. A fuller description of the activity is given in PERG 2.7.14B G and explains what is meant by "retail customer". This activity is separate to the regulated activity of advising on investments (see PERG 2.7.15 G (Advising on investments)). The existence of this separate advising activity does not prevent a person from giving advice on stakeholder products in circumstances that do not satisfy the conditions set out in PERG 2.7.14B G. But such advice is likely to amount to advising on investments unless the stakeholder product is a deposit. Neither does the existence of the activity prevent a person from selling stakeholder products in any other manner provided the person has the appropriate permission.

01/07/2005

PERG 2.7.14B

A person ('P') carries on the regulated activity of providing basic advice on a stakeholder product when:

(1) P gives the advice:

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

(b) in the course of a business that P carries on;

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

(3) the following conditions are met:

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

(b) if P, relying solely on the information provided by C in response to the questions referred to in (a), assesses that a stakeholder product is appropriate for C, P:

(i) describes that product to C; and

(ii) gives a recommendation of that product to C; and

(4) C has indicated to P that he has understood the description and recommendation referred to in (3)(b).

01/07/2005

Advising on investments

PERG 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 PERG 2.7.16A G and PERG 2.7.17G (2). Giving a person generic advice about specified investments (for example, invest in Japan rather than Europe) is not a regulated activity nor is giving information as opposed to advice (for example, listings or company news). However, the context in which something is communicated may affect its character; for example, if a person gives information on share price against the background that, when he does so, that will be a good time to sell, then this will constitute advising on investments.

01/07/2005

PERG 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 PERG 8.24 (Advising on investments).

01/07/2005

PERG 2.7.16A

In certain circumstances, the activity of advising on investments can also amount to providing basic advice on a stakeholder product (see PERG 2.7.14A G (Providing basic advice on stakeholder products)).

01/07/2005

Advising on regulated mortgage contracts

PERG 2.7.16B

Under article 53A of the Regulated Activities Order, giving advice to a person in his capacity as borrower or potential borrower is a regulated activity if it is advice on the merits of the person:

(1) entering into a particular regulated mortgage contract; or

(2) varying the terms of a regulated mortgage contract.

Advice on varying terms as referred to in (2) comes within article 53A only where the borrower entered into the regulated mortgage contract on or after 31 October 2004 and the variation varies the borrower's obligations under the contract. Further guidance on the scope of the regulated activity under article 53A is in PERG 4.6 (Advising on regulated mortgage contracts).

01/07/2005

Lloyd's activities

PERG 2.7.17

Certain activities carried on in connection with business at Lloyds will be regulated. In addition to those already mentioned (arranging deals in the underwriting capacity of a Lloyd's syndicate or membership of a Lloyd'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 PERG 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.

01/07/2005

Entering funeral plan contracts

PERG 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 PERG 2.8.14 G).

01/07/2005

PERG 2.7.19

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

01/07/2005

Entering into and administering a regulated mortgage contract

PERG 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 PERG 4.7 (Entering into a regulated mortgage contract) and PERG 4.8 (Administering a regulated mortgage contract).

01/07/2005

Agreeing

PERG 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).

01/07/2005
Future version of PERG 2.7.21 after 06/04/2007

PERG 2.8

Exclusions applicable to particular regulated activities

01/07/2005

PERG 2.8.1

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

01/07/2005

Accepting deposits

PERG 2.8.2

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

01/07/2005

Issuing e-money

PERG 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).

01/07/2005

Effecting and carrying out contracts of insurance

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

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

01/07/2005

Dealing in investments as principal

PERG 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.
(4A) A company does not carry on the activity of dealing in investments as principal by purchasing its own shares where section 162A of the Companies Act 1985 (Treasury shares) applies to the shares purchased or by dealing in its own shares held as Treasury shares, in accordance with section 162D of that Act (Treasury shares: disposal and cancellation).
(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 PERG 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 PERG 2.9.18 G).

01/07/2005
Future version of PERG 2.8.4 after 26/02/2010

PERG 2.8.4A

Persons who enter as principal into transactions involving rights under a contract of insurance of any kind will need to consider whether they may, as a result, be carrying on the regulated activity of:

(1) arranging (bringing about) deals in investments; or

(2) making arrangements with a view to transactions in investments; or

(3) agreeing to do (1) or (2).

01/07/2005

PERG 2.8.4B

The possibility referred to in PERG 2.8.4 G will only arise where it is not the case that the person who enters into the transaction as principal either:

(1) is the only policyholder; or

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

01/07/2005

Dealing in investments as agent

PERG 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 rights). 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 PERG 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 PERG 2.9.5 G );

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

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

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

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

(g) as an incoming ECA provider (see PERG 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 PERG 2.9.19 G);

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

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

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

01/07/2005
Future version of PERG 2.8.5 after 06/10/2006

Arranging deals in investments and arranging regulated mortgage contracts

PERG 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 PERG 2.8.4G (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 PERG 2.9) apply in specified circumstances where a person makes arrangements:

(a) while acting as trustee or personal representative (see PERG 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 PERG 2.9.5 G );

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

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

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

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

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

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

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

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

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

01/07/2005
Future version of PERG 2.8.6 after 06/10/2006

Managing investments

PERG 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 PERG 2.9) apply in specified circumstances where a person manages assets:

(1) While acting as trustee or personal representative; or

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

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

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

01/07/2005
Future version of PERG 2.8.7 after 06/10/2006

Assisting in the administration and performance of a contract of insurance

PERG 2.8.7A

Assisting in the administration and performance of a contract of insurance is excluded under article 39B where it is carried on by a person acting in the capacity of:

(1) an expert appraiser; or

(2) a loss adjuster acting for a relevant insurer; or

(3) a claims manager acting for a relevant insurer.

The term 'relevant insurer' is defined in article 39B(2).

01/07/2005

PERG 2.8.7B

The following exclusions from assisting in the administration and performance of a contract of insurance also apply to a person in specified circumstances:

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

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

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

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

(5) that involve the provision, on an incidental basis, of information to policyholders or potential policyholders about contracts of insurance (see PERG 2.9.19G (2)); or

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

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

01/07/2005

Safeguarding and administering investments

PERG 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 been if he were doing the safeguarding and administration himself. The effect of this is that an authorised person with permission to carry on this regulated activity (or in certain circumstances an exempt person) can delegate all or part of the activities without the delegate needing to be authorised and without loss of protection to the owner of the assets.

(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 PERG 2.7.9 G).

(2A) Trustees are excluded from arranging for another person to safeguard and administer assets where that other person is either:

(a) an authorised person who has permission to safeguard and administer investments; or

(b) an exempt person whose exemption permits him to safeguard and administer investments; or

(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 PERG 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 PERG 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 PERG 2.9.5 G);

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

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

(f) as an incoming ECA provider (see PERG 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 PERG 2.9.19G (2)).

(j)

Sending dematerialised instructions

PERG 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 (SI 2001/3755). The various exclusions relate to the roles played by participating issuers, settlement banks and network providers (such as Internet service providers) and to instructions sent in connection with takeover offers (as long as specified conditions are met). In addition, the following exclusions (outlined in PERG 2.9) apply in specified circumstances where a person sends dematerialised instructions:

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

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

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

01/07/2005

Establishing etc collective investment schemes

PERG 2.8.10

There are two exclusions from the range of activities specified as being regulated in relation to collective investment schemes. These exclusions relate to incoming ECA providers (see PERG 2.9.18 G) and to business angel-led enterprise capital funds (see PERG 2.9.20 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 PERG 2.6.18 G).

01/10/2005
Past version of PERG 2.8.10 before 01/10/2005

Establishing etc stakeholderpension schemes

PERG 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 PERG 2.9.18 G).

01/07/2005
Future version of PERG 2.8.11 after 06/04/2007

Advising on investments

PERG 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 activities of advising on investments and advising on regulated mortgage contracts (see PERG 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 PERG 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 PERG 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 PERG 2.9.7 G);

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

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

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

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

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

01/07/2005
Future version of PERG 2.8.12 after 06/10/2006

Lloyd's activities

PERG 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 Lloyds (see PERG 2.9.18 G). Otherwise the only exclusions that apply concern the regulated activity of arranging deals in its application to business carried on at Lloyd's.

01/07/2005

Entering funeral plan contracts

PERG 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; or

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

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

01/07/2005

Administering regulated mortgage contracts

PERG 2.8.14A

Exclusions from the regulated activity of administering a regulated mortgage contract are provided where persons arrange for administration by an authorised person and where persons administer under an agreement with an authorised person.These exclusions are subject to certain conditions and are explained in greater detail in Auth 4.8 (Administering a regulated mortgage contract).

01/07/2005
Future version of PERG 2.8.14A after 06/04/2007

Agreeing

PERG 2.8.15

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

01/07/2005

PERG 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.

01/07/2005

PERG 2.9

Regulated activities: exclusions applicable in certain circumstances

01/07/2005

PERG 2.9.1

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

(1) Each set of circumstances described in PERG 2.9.3 G to PERG 2.9.17 G has some application to several regulated activities relating to securities, relevant investments 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 PERG 2.9.18 G relates to electronic commerce activities provided by an incoming ECA provider. This exclusion applies to all regulated activities except effecting or carrying out contracts of insurance.

01/07/2005
Future version of PERG 2.9.1 after 06/04/2007

PERG 2.9.2

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

01/07/2005

Trustees, nominees or personal representatives

PERG 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 PERG 5 (Insurance mediation activities).

01/07/2005
Future version of PERG 2.9.3 after 06/04/2007

PERG 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.

01/07/2005
Future version of PERG 2.9.4 after 06/04/2007

Professions or business not involving regulated activities

PERG 2.9.5

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

(1) dealing in investments as agent;

(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) 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.

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 PERG 5 (Insurance mediation activities).

01/07/2005
Future version of PERG 2.9.5 after 06/04/2007

PERG 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.)

01/07/2005

Sale of goods and supply of services

PERG 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.

01/07/2005

PERG 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).

01/07/2005
Future version of PERG 2.9.8 after 06/10/2006

Group and joint enterprises

PERG 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.

01/07/2005

PERG 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 PERG 2.9.9G (2), (3), (4) and (7) are disapplied where they concern a contract of insurance. Guidance on exclusions relevant to insurance mediation activities is in PERG 5 (Insurance mediation activities).

01/07/2005
Future version of PERG 2.9.10 after 06/10/2006

Sale of body corporate

PERG 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; and

(4) advising on investments.

01/07/2005

PERG 2.9.12

The exclusions apply in relation to transactions to buy or sell shares in a body corporate where, in broad terms:

(1) the transaction involves the acquisition or disposal of a least 50 per cent of the voting shares in the body corporate and is, or is to be, between certain specified kinds of person; or

(2) the object of the transaction may otherwise reasonably be regarded as being the acquisition of day-to-day control of the affairs of the body corporate.

These exclusions also apply to transactions that are entered into for the purposes of the above transactions (such as transactions involving the offer of securities in the offeror as consideration or part consideration for the sale of the shares in the body corporate). These exclusions do not have effect in relation to shares in an open-ended investment company. The exclusions in PERG 2.9.11G (2), (3) and (4) are disapplied where they concern a contract of insurance. Guidance on exclusions relevant to insurance mediation activities is in PERG 5 (Guidance on insurance mediation activities).

01/07/2005
Future version of PERG 2.9.12 after 06/10/2006

PERG 2.9.12A

The Treasury, in its consultative document Financial Services and Markets Act two year review: Changes to secondary legislation - Proposals for change, February 2004 proposed changes to these exclusions aimed primarily at limiting their scope in relation to the objective test referred to in PERG 2.9.12G (2). In its response to the comments received during the consultation, the Treasury announced, in its document Financial Services and Markets Act two year review: Changes to secondary legislation Government response, November 2004, that it intends to make certain changes to the exclusions in due course.

01/10/2005

Employee share schemes

PERG 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.

01/07/2005

PERG 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.

01/07/2005
Future version of PERG 2.9.14 after 01/11/2007

Overseas persons

PERG 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; and

(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, assisting in the performance and administration of a contract of insurance, safeguarding and administering investments or sending dematerialised instructions.

01/07/2005
Future version of PERG 2.9.15 after 06/04/2007

PERG 2.9.16

An overseas person is defined as a person who carries on what would be regulated activities (including any activity that would otherwise be excluded from being a regulated activity by virtue of the exclusions for overseas persons referred to in PERG 2.9.15 G) but who does not do so, or offer to do so, from a permanent place of business maintained by him in the United Kingdom. Where a person does not have a permanent place of business in the United Kingdom, he will not, in any event, need to rely on these exclusions unless what he does is regarded as carried on in the United Kingdom (see PERG 2.4).

01/07/2005
Future version of PERG 2.9.16 after 01/11/2007

PERG 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 PERG 8 (Financial promotion and related activities)).

01/07/2005
Future version of PERG 2.9.17 after 06/04/2007

PERG 2.9.17A

The exclusions for overseas persons who carry on certain regulated activities related to regulated mortgage contracts work in a different way. They depend on the residency of the borrower or borrowers. Guidance on these exclusions is in PERG 4.11 (Link between activities and the United Kingdom).

01/07/2005
Future version of PERG 2.9.17A after 06/04/2007

Incoming ECA providers

PERG 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 2002/2157). This Order creates a general exclusion from regulated activities (except for the regulated activities of effecting or carrying out contracts of insurance). Where activities consist of electronic commerce activities, an incoming ECA provider will not require authorisation for such activities in the United Kingdom. This does not extend to the regulated activity of effecting or carrying out contracts of insurance falling under the Insurance Directives (see PERG 2.8.3 G). However, services provided off-line in the United Kingdom (that is, other than as an electronic commerce activity) by such a firm which amount to regulated activities still require authorisation. 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 SUP 13A).

Insurance mediation activities

PERG 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 loss of or damage to baggage and other risks linked to travel services booked with the provider. There must not be any liability risk cover other than where this is ancillary to the main risk covered in a travel policy). The insurance must be complementary to the goods or services being supplied by the provider in the course of his carrying on a business or profession not otherwise consisting of regulated activities, and the policy must be in standard form. This exclusion applies where the regulated activities concerned are:

(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 PERG 5 (Insurance mediation activities).

01/07/2005
Future version of PERG 2.9.19 after 01/01/2009

Business angel-led enterprise capital funds

PERG 2.9.20

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

(1) dealing in investments as agent;

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

(3) managing investments;

(4) safeguarding and administering investments;

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

(6) advising on investments.

01/10/2005

PERG 2.9.21

The exclusions apply, in general terms:

(1) to a body corporate with limited liability:

(a) that is formed in accordance with the law of, and having its registered office, central administration or principal place of business in, an EEA State;

(b) that operates a business angel-led enterprise capital fund, being a fund that invests only in securities of unlisted companies and whose participants are made up solely of persons of a specified kind; and

01/10/2005

PERG 2.10

Persons carrying on regulated activities who do not need authorisation

01/07/2005

PERG 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.

01/07/2005

PERG 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).

01/07/2005

PERG 2.10.3

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

01/07/2005

PERG 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.

01/07/2005

Appointed representatives

PERG 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 PERG 5.13 (Appointed representatives)).

01/07/2005

Recognised Investment Exchanges and Recognised Clearing Houses

PERG 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.

01/07/2005
Future version of PERG 2.10.6 after 22/12/2011

Particular exempt persons

PERG 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 (the Exemption Order). Some of the exemptions are subject to restrictions as to the circumstances in which they apply. For example, a person is only exempt when acting in a particular capacity or for particular purposes.

01/07/2005

PERG 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.

01/07/2005

Members of Lloyd's

PERG 2.10.9

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

01/07/2005

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

01/07/2005

PERG 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 Lloyds. But this is subject to any requirements or rules that the FSA may impose under sections 320 to 322 of the Act (Former underwriting members).

01/07/2005

Members of the professions

PERG 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 PERG 2.8 and PERG 2.9 will be relevant to members of designated professional bodies. The regime outlined below applies only where no exclusion applies and a person will be carrying on a regulated activity.

01/07/2005

PERG 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; and

(6) Is not an authorised person.

01/07/2005

PERG 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) (the Non-Exempt Activities Order). Accordingly, under that section, a person may not by way of business carry on any of the following activities without authorisation:

(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.

01/07/2005
Future version of PERG 2.10.14 after 06/04/2007

PERG 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.

01/07/2005
Future version of PERG 2.10.15 after 06/04/2007

PERG 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 PERG 5.10 (Exemptions)).

01/07/2005

PERG 2.11

What to do now ?

01/07/2005

PERG 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 PERG 2 Annex 2 G to determine the categories of specified investment and regulated activities that are relevant to the next step and should then refer to AUTH 3 for details of the application process.

01/07/2005
Future version of PERG 2.11.1 after 06/10/2007

PERG 2 Annex 1

Authorisation and regulated activities

01/07/2005

PERG 2 Annex 1

Do you need authorisation?

01/07/2005

PERG 2 Annex 2

Regulated activities and the permission regime

01/07/2005

1 Table

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 in (1).

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 PERG 2 Annex 2 G is to the relevant article in the Regulated Activities Order.

2 Table

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))

(c) carrying out contracts of insurance (article 10(2))

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

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

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

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

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

(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 'The Lloyd's market' and 'Regulated mortgage activity']

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

(in relation to (d) to (l)) security [expanded in Table 3]; or

contractually based investment [expanded in Table 3.]

(in relation to (e) to (g) and (j) only) a long-term care insurance contract which is a pure protection contract.

(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); and(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 '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); and(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)

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

(i)establishing, operating or winding up a regulated collective investment scheme; and(ii)establishing, operating or winding up an unregulated collective investment scheme.

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

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

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

[see note 5 to Table 1]

(pp) providing basic advice on a stakeholder product (article 52B)

those specified investments that are also a stakeholder product [see note 7]

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

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

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

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

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

(pe) advising on investments (article 53)

For the purpose of the permission regime, this regulated activity is sub-divided 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].

life policy [see note 5B to Table 1]

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

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

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

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))

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

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

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

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

Funeral plan providers

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

funeral plan contract (article 87)

Regulated mortgage activity

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

(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))

regulated mortgage contract (article 88)

3 Table

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(1)(a));•acting as trustee of an authorised unit trust scheme (article 51(1)(b));•acting as the sole 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 ofcontractually based investments [expanded in Table 3] excludes a funeral plan contract (article 87) and rights to or interests in funeral plan contracts.

Note 3:

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

Note 4:

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

unit (article 81);stakeholder pension scheme (article 82);life policy (explained in note 5); andrights 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:

In PERG, 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). For the purpose of the permission regime, the term also includes a long-term care insurance contract which is a pure protection contract and a pension term assurance policy.

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); andrights 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.

Note 7:

A stakeholder product is defined in the Glossary as:

an investment of a kind specified in the Stakeholder Regulations:a stakeholder pension scheme; anda stakeholder CTF.

4 Table

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 )

Number

Accident (paragraph 1)

life and annuity (paragraph I)

Sickness (paragraph 2)

marriage or the formation of a civil partnership and birth (paragraph II)

Land vehicles (paragraph 3)

linked long-term (paragraph III)

Railway rolling stock (paragraph 4)

permanent health (paragraph IV)

Aircraft (paragraph 5)

tontines (paragraph V)

Ships (paragraph 6)

capital redemption (paragraph VI)

Goods in transit (paragraph 7)

pension fund management (paragraph VII)

fire and natural forces (paragraph 8)

collective insurance (paragraph VIII)

damage to property (paragraph 9)

social insurance (paragraph IX)

motor vehicle liability (paragraph 10)

aircraft liability (paragraph 11)

liability of ships (paragraph 12)

general liability (paragraph 13)

credit (paragraph 14)

suretyship (paragraph 15)

miscellaneous financial loss (paragraph 16)

legal expenses (paragraph 17)

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.

5 Table

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 investments (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:

(i)option (excluding a commodity option and an option on a commodity future);(ii)commodity option and option on a commodity future.

future (article 84)

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

(i)future (excluding a commodity future and a rolling spot forex contract);(ii)commodity future;(iii)rolling spot forex contract.

contract for differences (article 85)

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

(i)contract for differences (excluding a spread bet and a rolling spot forex contract);(ii)spread bet;(iii)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 investments (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:

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

Note 2:

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

Export chapter as

Legal Instruments that change this Chapter Authorisation and regulated activities

PERG 3

Guidance on the scope of the regulated
activity of issuing e-money

PERG 3.1

Application and purpose

01/07/2005

Application

PERG 3.1.1

This chapter applies to a person who needs to know whether a particular electronic payment product is e-money and whether the person issuing it needs to be authorised under the Act.

01/07/2005

PERG 3.1.2

This appendix also applies to a person who needs to know the extent to which section 21 of the Act (Restrictions on financial promotion) and COB 3 (Financial promotion) apply to e-money.

01/07/2005
Future version of PERG 3.1.2 after 06/10/2009

Purpose

PERG 3.1.3

There are two main purposes of this guidance on the definition of e-money. These are:

(1) to outline the main features of the regulated activity of issuing e-money; and

(2) to explain the application of the restriction on financial promotion under section 21 of the Act so far as it concerns issuing e-money.

01/07/2005

PERG 3.1.4

This guidance is issued under section 157 of the Act. It represents the FSA's views and does not bind the courts. For example, it would not bind the courts in an action for damages brought by a private person for breach of a rule (see section 150 of the Act (Action for damages)), or in relation to the enforceability of a contract where there has been a breach of section 19 (The general prohibition) or 21 (Restrictions on financial promotion) of the Act (see sections 26 to 30 of the Act (Enforceability of agreements)).

01/07/2005

PERG 3.1.5

Although the guidance does not bind the courts, it may be of persuasive effect for a court considering whether it would be just and equitable to allow a contract to be enforced (see sections 28(3) and 30(4) of the Act). Anyone reading this guidance should refer to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (as amended) (the Regulated Activities Order), the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2002 (SI 2002/682) and to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (SI 2001/1335) (as amended) (the Financial Promotion Order). These should be used to find out the precise scope and effect of any particular provision referred to in this guidance, and any reader should consider seeking legal advice if doubt remains. If a person acts in line with the guidance in the circumstances mentioned by it, then the FSA will proceed on the footing that the person has complied with the aspects of the requirement to which the guidance relates.

01/07/2005

PERG 3.2

The regulated activity of issuing e-money

01/07/2005

The Regulated Activities Order

PERG 3.2.1

Under section 19 of the Act (The general prohibition), no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is authorised or exempt under the Act.

01/07/2005

PERG 3.2.2

A regulated activity means an activity of a kind specified in the Regulated Activities Order which is carried on by way of business and which (generally) relates to an investment of a kind specified in the Regulated Activities Order.

01/07/2005

PERG 3.2.3

Further guidance on section 19 and regulated activities can be found in PERG 2.

01/07/2005

PERG 3.2.4

Article 9B of the Regulated Activities Order says that issuing e-money is a specified activity of the kind described in PERG 3.2.2 G. Article 74A of the Regulated Activities Order says that e-money is a specified investment for that purpose.

01/07/2005

PERG 3.2.5

E-money is defined in article 3(1) of the Regulated Activities Order. It says that e-money means monetary value, as represented by a claim on the issuer, which is:

(1) stored on an electronic device;

(2) issued on receipt of funds; and

(3) accepted as a means of payment by persons other than the issuer.

01/07/2005

The E-Money Directive

PERG 3.2.6

The E-Money Directive introduces a framework for the regulation of e-money at a European level.

01/07/2005

PERG 3.2.7

The definition of e-money in the Regulated Activities Order is based on the definition of electronic money in the E-Money Directive. The definition in the E-Money Directive is that e-money is "monetary value as represented by a claim on the issuer which is:

(1) stored on an electronic device;

(2) issued on receipt of funds of an amount not less in value than the monetary value issued; and

(3) accepted as means of payment by undertakings other than the issuer".

31/12/2005
Past version of PERG 3.2.7 before 31/12/2005

PERG 3.2.8

The main difference is that the words "of an amount not less in value than the monetary value issued" in article 1(3)(b)(ii) of the E-Money Directive are not reproduced in the Regulated Activities Order.

31/12/2005
Past version of PERG 3.2.8 before 31/12/2005

PERG 3.2.9

The words in article 1(3)(b)(ii) omitted from the definition in the Regulated Activities Order are aimed at stopping e-money issuers from issuing e-money at a discount. They were omitted from the Regulated Activities Order to make it clear that issuing electronic monetary value at a discount is not an unregulated activity. Instead, the prohibition on issuing e-money at a discount is left to FSA rules. The FSA rules on this are in ELM 4 (Limitations on activities).

01/07/2005

PERG 3.2.10

On this basis, the FSA believes that the definition of e-money in the Regulated Activities Order should be interpreted consistently with the E-Money Directive.

01/07/2005

Exclusions

PERG 3.2.11

Article 9C of the Regulated Activities Order says that the issuing of e-money by a person to whom the FSA has given a certificate under that article is not a regulated activity provided that the certificate has not been revoked. The FSA may only issue such certificates to small or local e-money schemes. Further guidance on this topic can be found in ELM 8 (Small e-money issuers).

01/07/2005

The issuer of e-money

PERG 3.2.12

As explained in PERG 3.2.4 G, the regulated activity relating to e-money is issuing e-money.

01/07/2005

PERG 3.2.13

In some e-money schemes an originator creates e-money and then sells it to banks and other distributors. The latter then sell the e-money to the public. In the FSA's view, references to the issuer of e-money in the Regulated Activities Order are to the originator and not the distributors.

01/07/2005

PERG 3.2.14

The issuer is the issuer of the e-money rather than the issuer of the electronic device on which it is stored, if they are different.

01/07/2005

Exclusion from the definition of deposit

PERG 3.2.15

Article 9A of the Regulated Activities Order says that a sum is not a deposit if it is immediately exchanged for e-money.

01/07/2005

PERG 3.2.16

Thus if a customer pays for e-money but the e-money is not issued until later, that initial payment will be a deposit, as long as the payment comes within the definition of deposit in the Regulated Activities Order.

01/07/2005

PERG 3.2.17

PERG 2.6.2 G to PERG 2.6.4 G has guidance on the meaning of deposit.

01/07/2005

PERG 3.2.18

Some e-money products may be charged up by means of scratch cards that can be purchased from shops. The price paid for the card is the monetary value of the e-money. The card contains a number. The purchaser then enters the number on a web site to activate the e-money account. There is thus a delay between the payment for the e-money and its use by the holder.

31/12/2005
Past version of PERG 3.2.18 before 31/12/2005

PERG 3.2.19

The delay referred to in PERG 3.2.18 G does not make the payment for the e-money a deposit. This is because the means of spending the e-money is put into the hands of the purchaser when he purchases the card.

31/12/2005
Past version of PERG 3.2.19 before 31/12/2005

PERG 3.3

Elements of the definition of e-money

01/07/2005

Monetary value

PERG 3.3.1

The definition of e-money says that for a product to be e-money, it must be monetary value as represented by a claim on the issuer. Guidance on the meaning of issuer can be found at PERG 3.2.12 G to PERG 3.2.14 G.

01/07/2005

Storage on an electronic device

PERG 3.3.2

The definition of e-money says that for a product to be e-money, it must be stored on an electronic device.

01/07/2005

PERG 3.3.3

E-money is an electronic payment product. The value is held electronically and payments using the value are made electronically.

01/07/2005

PERG 3.3.4

The fact that the device may be magnetic does not stop it being an electronic device for the purpose of the definition of e-money. Thus, for example, value stored on a personal computer does not fall outside the definition merely because it is stored on the computer's magnetic hard disk. Similarly, value stored on a plastic card that uses magnetic stripe technology may also fall within the definition if the value is transferred for spending using electronic technology.

01/07/2005

Prepayment

PERG 3.3.5

The definition of e-money says that for a product to be e-money, it must be issued on receipt of funds.

01/07/2005

PERG 3.3.6

This part of the definition means that e-money is a prepaid product. That is, unlike credit provided through a credit card, the customer pays for the spending power in advance. This is why credit cards are excluded from the definition of e-money.

01/07/2005

PERG 3.3.7

This does not mean that e-money paid for with a credit card falls outside the definition. The purchase of the e-money represents the purchase of monetary value. The fact that the purchaser is lent the funds to buy the e-money does not affect this. There are two contracts, one for the sale of e-money and one for credit.

01/07/2005

PERG 3.3.8

Value on a debit card may be e-money or a deposit. Guidance on this is given in PERG 3.3.14 G to PERG 3.3.20 G.

01/07/2005

PERG 3.3.9

The fact that the device on which monetary value is stored is made available on a plastic card that also functions as a debit or credit card does not stop that monetary value from being e-money.

01/07/2005

Multipurpose

PERG 3.3.10

For a product to be e-money, persons other than the issuer must accept it as a means of payment.

01/07/2005

PERG 3.3.11

PERG 3.3.10 G means that the e-money holder must be able to use it to buy goods and services from persons other than the issuer.

01/07/2005

PERG 3.3.12

Thus, for example, electronic value issued by an employer to its employees that can only be used to buy food and drink from the employer in its canteen is not e-money.

01/07/2005

PERG 3.3.13

If monetary value can be spent with third parties, it does not stop being e-money just because the e-money can also be spent with the issuer. This is so even if in practice most of the e-money is spent with the issuer and only a small portion is ever spent with third parties.

31/12/2005
Past version of PERG 3.3.13 before 31/12/2005

Accounted e-money schemes

PERG 3.3.14

An electronic payment scheme that involves prepaid monetary value that can be spent without the involvement of the issuer is likely to be e-money. However, a product does not cease to be e-money merely because the scheme is account based.

01/07/2005

PERG 3.3.15

The document published by HM Treasury in March 2002 called "Implementation of the Electronic Money Directive: A Response to Consultation" says:

"An important issue that respondents [to HM Treasury's consultation on the implementation of the E-Money Directive] requested clarification on was whether the Directive's definition should catch account-based schemes (i.e. e-money held remote from the owner and spent at the owner's direction) as well as, for example, card-based schemes (i.e. e-money in the possession of the owner, whether stored on a personal computer or a smart card, and directly spent by them). The Treasury believes that the Directive's definition does allow for the possibility of account-based schemes being e-money. Not allowing account-based e-money schemes would effectively create a regulatory gap between the e-money and deposit-taking regimes - and a difference of treatment between schemes that pose similar regulatory risks. Rather than attempting to amend the definition in the Order (which is already expressed suitably widely), the Treasury has clarified in the accompanying Explanatory Memorandum that the definition of e-money is to be interpreted as covering account-based schemes (so long as they remain distinct from deposit-taking)."

01/07/2005

PERG 3.3.16

That explanatory memorandum says:

"The Treasury believes the Directive's definition includes both e-money schemes in which value is stored on a card that is used by the bearer to make purchases, and account-based e-money schemes where value is stored in an electronic account that the user can access remotely."

01/07/2005

PERG 3.3.17

Thus monetary value issued under an account-based scheme can be e-money. On the other hand, not all monetary value recorded electronically on an account will be e-money. If all such monetary value were e-money, any deposit recorded in records maintained electronically could be e-money, thereby turning most conventional bank accounts into e-money. Thus it is necessary to distinguish between an account-based e-money scheme and a conventional bank deposit.

01/07/2005

PERG 3.3.18

Recital (3) to the E-Money Directive says that "electronic money can be considered an electronic surrogate for coins and banknotes, which is stored on an electronic device such as a chip card or computer memory and which is generally intended for the purpose of effecting electronic payments of limited amounts."

01/07/2005

PERG 3.3.19

The European Commission published an explanatory memorandum along with its proposal for a Directive about e-money. It said that it is appropriate to emphasise that e-money does not represent a deposit. Unlike a depositor, a user does not advance funds to an issuer in order to ensure their safe keeping and handling. Neither the issuer nor the customer pursues this objective. The Commission said that the underlying contract between the customer and the issuer is that the user will get value for the e-money from those merchants that accept it and that the issuer will honour his commitment to give value.

01/07/2005

PERG 3.3.20

In distinguishing e-money and deposits, relevant factors include the following.

(1) As explained in PERG 3.3.3 G, e-money is a purely electronic product. If the monetary value is kept on an account that can be used by non-electronic means, that points towards it being a deposit. For example, an account on which cheques can be drawn is unlikely to be e-money.

(2) If a product is designed in such a way that it is only likely to be used for making payments of limited amounts and not as a means of saving, that feature points towards it being e-money. Relevant features might include how long value is allowed to remain on the account, disincentives to keeping value on the account and the payment of interest on it.

(3) If an account has features on it in addition to those necessary for a pure payment facility, such as an overdraft or direct debit facility, that points towards it not being e-money.

(4) One should have regard to whether the product is sold as e-money or as a deposit.

01/07/2005

PERG 3.3.21

In other words, a deposit involves the creation of a debtor-creditor relationship under which the person who accepts the deposit stores value for eventual return. E-money, in contrast, involves the purchase of a means of payment.

01/07/2005

Substance of the scheme

PERG 3.3.22

When deciding whether a particular scheme involves issuing e-money or not, it is necessary to take into account the substance of the scheme. In particular it is necessary to consider whether:

(1) the scheme involves the issue of prepaid electronic monetary value that the holder can spend with third parties; or

(2) the provision by the issuer of some other sort of service.

31/12/2005

PERG 3.3.23

In considering the question in PERG 3.3.22 G, relevant factors include:

(1) the risks incurred by the holder of the value;

(2) the nature of the rights and obligations of the holder of the prepaid value, the issuer of the value and third parties involved in the scheme; and

(3) what the scheme allows the holder of the value to do.

31/12/2005

PERG 3.3.24

Therefore artificial features of a scheme that disguise, or try to disguise, the payment function as the supply of another sort of service are not likely to prevent the scheme from involving issuing e-money.

31/12/2005

PERG 3.3.25

The European Commission Services published a separate guidance note in January 2005 on the application of the E-money Directive to mobile network operators. The full text of this guidance is available at the following link: http://europa.eu.int/comm/internal_market/bank/docs/e-money/guidance_en.pdf. The FSA will have regard to such guidance when considering whether the issue of prepaid airtime to a mobile phone user, which can be used to pay for third party goods and services, whether delivered through or outside the telephone operator's network, constitutes the regulated activity of issuing e-money.

31/12/2005

PERG 3.4

Financial promotion

01/07/2005

PERG 3.4.1

Guidance on the restrictions on financial promotion under section 21 of the Act (Restrictions on financial promotion) can be found in PERG 8. PERG 3.4 gives further guidance on its application to e-money.

01/07/2005

PERG 3.4.2

As explained in PERG 8, section 21 of the Act applies to the communication of an invitation or inducement to engage in investment activity. Section 21(8) defines engaging in investment activity as:

(1) entering or offering to enter into an agreement the making or performance of which by either party constitutes a controlled activity; or

(2) exercising any rights conferred by a controlled investment to acquire, dispose of, underwrite or convert a controlled investment.

01/07/2005

PERG 3.4.3

Controlled activity and controlled investment are both defined by reference to Schedule 1 to the Financial Promotion Order. Issuing e-money is not included as a controlled activity and e-money is not included as a controlled investment.

01/07/2005

PERG 3.4.4

Accepting deposits is however a controlled activity and a deposit is a controlled investment. As explained in PERG 3.2.15 G, the definition of deposit under the Regulated Activities Order says that a sum is not a deposit for the purposes of the Regulated Activities Order if it is immediately exchanged for e-money.

01/07/2005

PERG 3.4.5

The definition of deposit in the Financial Promotion Order follows the definition of deposit in the Regulated Activities Order. Therefore the purchase price paid for e-money is not a deposit for the purposes of the Financial Promotion Order.

01/07/2005

PERG 3.4.6

Hence the provisions in the Act and the Handbook about financial promotions do not apply to e-money.

01/07/2005

PERG 3.4.7

However, if the purchase price for e-money is not immediately exchanged for e-money, the purchase price may be a deposit if the payment comes within the definition of deposit in the Regulated Activities Order. PERG 2.6.2 G to PERG 2.6.4 G has guidance on the meaning of deposit. In such a case, the provisions in the Act and the Handbook about financial promotions relating to deposits apply.

01/07/2005

PERG 3.5

The application of the e-money definition to various products

31/12/2005

PERG 3.5.1

This section of PERG 3 contains guidance on whether certain products involve issuing e-money.

31/12/2005

Electronic travellers cheques

PERG 3.5.2

An electronic travellers cheque is a product, based on a plastic card, designed to replace paper travellers cheques. There are two types of electronic travellers cheques:

(1) ones whose only function is to allow the holder to withdraw cash in a foreign currency from automated teller machines ("ATMs") when abroad; and

(2) ones that can also be used to buy goods and services from third parties.

31/12/2005

PERG 3.5.3

The card referred to in PERG 3.5.2 G is loaded with value. The holder pays for the value on issue. The value therefore complies with the part of the definition of e-money that says that the value must be issued on receipt of funds (see PERG 3.3.5 G - PERG 3.3.9 G). The card is likely to be an electronic device for the purpose of paragraph (a) of the definition of e-money (which is explained in PERG 3.3.2 G - PERG 3.3.4 G).

31/12/2005

PERG 3.5.4

The remaining condition that value must meet if it is to be e-money is that the value must be accepted as a means of payment by persons other than the issuer. This part of the definition is explained in PERG 3.3.10 G - PERG 3.3.13 G.

31/12/2005

PERG 3.5.5

An electronic travellers cheque falling into PERG 3.5.2 G (2) meets the part of the definition of e-money referred to in PERG 3.5.4 G.

31/12/2005

PERG 3.5.6

An electronic travellers cheque falling into PERG 3.5.2 G (1) does not meet the part of the definition of e-money referred to in PERG 3.5.4 G if the scheme is set up in such a way that:

(1) it can only be used to withdraw foreign currency from ATMs owned by the issuer of the value; or

(2) (if (1) does not apply) the withdrawal of foreign currency by a cardholder will never involve the purchase of the currency from the owner of the ATM but instead the repayment of the prepaid value by the issuer of the prepaid value.

31/12/2005

Trust accounts

PERG 3.5.7

A prepaid electronic value payment system may involve the "float" being paid into a trust account. The float is the running balance of money held by the issuer of the electronic value representing payments for the issue of electronic value less the amount of electronic value that has been redeemed.

31/12/2005

PERG 3.5.8

Holding the float on trust:

(1) does not prevent the electronic value from being monetary value as represented by a claim on the issuer (this part of the definition of e-money is described in PERG 3.3.1 G);

(2) is not relevant to the other elements of the definition of e-money; and

(3) does not mean that the person who accepts the payment for the electronic value is not the issuer of that value.

31/12/2005

PERG 3.5.9

The result of PERG 3.5.8 G is that putting the float into a trust account does not prevent the person who accepts the payment for the electronic value from issuing e-money.

31/12/2005

Export chapter as

Legal Instruments that change this Chapter Guidance on the scope of the regulated activity of issuing e-money

PERG 4

Guidance on regulated activities connected with mortgages

PERG 4.1

Application and purpose

01/07/2005

Application

PERG 4.1.1

This chapter applies to any person who needs to know whether the activities he conducts in relation to mortgages are subject to FSA regulation.

01/07/2005

Purpose of guidance

PERG 4.1.2

With effect from 31 October 2004 certain activities relating to mortgages have been regulated by the FSA. The purpose of this guidance is to help persons decide whether they need authorisation and, if they do, to determine the scope of the Part IV permission for which they will need to apply.

01/07/2005

Effect of guidance

PERG 4.1.3

This guidance is issued under section 157 of Act (Guidance). It is designed to throw light on particular aspects of regulatory requirements, not to be an exhaustive description of a person's obligations. If a person acts in line with the guidance in the circumstances contemplated by it, then the FSA will proceed on the footing that the person has complied with aspects of the requirement to which the guidance relates.

01/07/2005

PERG 4.1.4

Rights conferred on third parties cannot be affected by guidance given by the FSA . This guidance represents the FSA's view, and does not bind the courts, for example, in relation to an action for damages brought by a private person for breach of a rule (see section 150 of the Act (Action for damages)), or in relation to the enforceability of a contract where there has been a breach of the general prohibition on carrying on a regulated activity in the United Kingdom without authorisation (see sections 26 to 29 of the Act (Enforceability of agreements)). A person may need to seek his own legal advice.

01/07/2005

PERG 4.1.5

Anyone reading this guidance should refer to the Act and to the various Orders that are referred to in this guidance. These should be used to find out the precise scope and effect of any particular provision referred to in this guidance.

01/07/2005

Guidance on other activities

PERG 4.1.6

A person may be intending to carry on activities related to other forms of investment in connection with mortgages, such as advising on and arranging an endowment policy or ISA to repay an interest-only mortgage. Such a person should also consult the guidance in PERG 2 (Authorisation and regulated activities) and PERG 8 (Financial promotion and related activities), and PERG 5 (Mediation of general and pure protection insurance.

01/07/2005
Future version of PERG 4.1.6 after 06/04/2007

PERG 4.2

Introduction

01/07/2005

Requirement for authorisation or exemption

PERG 4.2.1

In most cases, any person who carries on a regulated activity in the United Kingdom by way of business must either be an authorised person or an exempt person. Otherwise, the person commits a criminal offence and certain agreements may be unenforceable. PERG 2.2 (Introduction) contains further guidance on these consequences. In order to be authorised, a person must either:

(1) hold a Part IV permission given by the FSA (see AUTH 1.3 (The Authorisation manual) and AUTH 3 (Application for Part IV permission)); or
(2) qualify for authorisation (see SUP 13A (Qualifying for authorisation under the Act)), for example if the person is an EEA firm or a Treaty firm.

Professional firms

PERG 4.2.2

Certain professional firms are allowed to carry on some regulated activities without authorisation so long as they comply with specified conditions (see PERG 4.14 (Mortgage activities carried on by professional firms)).

01/07/2005

Questions to be considered to decide if authorisation is required

PERG 4.2.3

A person who is concerned to know whether 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 flowchart in PERG 4.18):

(1) will I be carrying on my activities by way of business (see PERG 4.3.3 G (The business test))?

(2) if so, will my activities relate to regulated mortgage contracts (see PERG 4.4 (What is a regulated mortgage contract?))?

(3) if so, will I be carrying on any of the regulated mortgage activities (see PERG 4.5 (Arranging regulated mortgage contracts) to PERG 4.9 (Agreeing to carry on a regulated activity))?

(4) if so, there is the necessary link with the United Kingdom (see PERG 4.11 (Link between activities and the United Kingdom))?

(5) if so, will any or all of my activities be excluded (see PERG 4.5 (Arranging regulated mortgage contracts) to PERG 4.10 (Exclusions applying to more than one regulated activity))?

(6) if it is not the case that all of my activities are excluded, am I a professional firm whose activities are exempted under Part XX of the Act (see PERG 4.14 (Mortgage activities carried on by professional firms))?

(7) if not, am I exempt as an appointed representative (see PERG 4.12 (Appointed representatives))?

(8) if not, am I otherwise an exempt person (see PERG 4.13 (Other exemptions))?

If a person gets as far as question (8) and the answer to that question is 'no', that person requires authorisation and should refer to AUTH 3 (Applications for Part IV permission).

01/07/2005
Future version of PERG 4.2.3 after 06/10/2007

PERG 4.2.4

Even if the person does not require authorisation, he may still require a licence under the Consumer Credit Act 1974 to carry on the activity (see PERG 4.17 (Interaction with the Consumer Credit Act 1974)).

01/07/2005

Financial promotion

PERG 4.2.5

An unauthorised person who intends to carry on activities connected with mortgages will also need to comply with section 21 of the Act (Restrictions on financial promotion). This guidance does not cover financial promotions that relate to mortgages. Persons should refer to the general guidance on financial promotion in Appendix 1 to the Authorisation manual, PERG 8 (Financial promotion and related activities)) and, in particular, to PERG 8.17 (Financial promotions concerning agreements for qualifying credit).

01/07/2005

PERG 4.3

Regulated activities related to mortgages

01/07/2005

PERG 4.3.1

There are six regulated mortgage activities requiring authorisation or exemption if they are carried on in the United Kingdom. These are set out in the Regulated Activities Order. They are:

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

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

(3) advising on regulated mortgage contracts (article 53A (Advising on regulated mortgage contracts));

(4) entering into a regulated mortgage contract as lender (article 61(1) (Regulated mortgage contracts));

(5) administering a regulated mortgage contract where that contract is entered into by way of business on or after 31 October 2004 (article 61(2) (Regulated mortgage contracts)); and

(6) agreeing to carry on any of the above (article 64 (Agreeing to carry on specific kinds of activity)).

01/07/2005

PERG 4.3.2

The scope of these activities is limited by certain exclusions contained in Parts II and III of the Regulated Activities Order. These exclusions are referred to in PERG 4.5 (Arranging regulated mortgage contracts) to PERG 4.10 (Exclusions applying to more than one regulated activity).

01/07/2005

The business test

PERG 4.3.3

A person will only need authorisation or exemption if he is carrying on a regulated activity 'by way of business' (see section 22 of the Act (Regulated activities)). There are, in fact, three different forms of business test applied to the regulated mortgage activities. In the FSA's view, however, the difference in the business tests should have little practical effect.

01/07/2005

PERG 4.3.4

There is power in the Act for the Treasury to change the meaning of the business test by including or excluding certain things. The Business Order has been made using this power (partly reflecting differences in the nature of the different activities). The result (which is summarised in PERG 4.3.5 G) is that:

(1) the 'by way of business' test in section 22 of the Act applies unchanged in relation to the activity of entering into a regulated mortgage contract;

(2) the 'by way of business' test in section 22 of the Act applies unchanged in relation to the activity of administering a regulated mortgage contract, but another 'by way of business' test arises because the contract being administered by way of business must itself have been entered into by way of business (see PERG 4.8.2 G); and

(3) in the case of arranging and advising, the effect of article 3A of the Business Order (Arranging and advising on regulated mortgage contracts) is that a person is not to be regarded as acting 'by way of business' unless he is 'carrying on the business of engaging in one or more of those activities'.

01/07/2005

PERG 4.3.5

Summary of which variant of the business test applies to the different regulated mortgage activities. This table belongs to PERG 4.3.4 G.

By way of business

Carrying on the business

Entering into a regulated mortgage contract (article 61(1))

Arranging (bringing about) regulated mortgage contracts (article 25A(1))

Administering a regulated mortgage contract (article 61(2)) (and the contract administered must have been entered into by way of business)

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

Advising on regulated mortgage contracts (article 53A)

01/07/2005

PERG 4.3.6

The 'carrying on the business' test in the Business Order is a narrower test than that of carrying on regulated activities 'by way of business' in section 22 of the Act as it requires the regulated activities to represent the carrying on of a business in their own right. Whether or not the business test is satisfied in any particular case is ultimately a question of judgement that takes account of a number of factors (none of which is likely to be conclusive). The nature of the particular regulated activity that is carried on will also be relevant to the factual analysis. The relevant factors include:

(1) the degree of continuity;

(2) the existence of a commercial element; and

(3) the scale of the activity and, for the 'by way of business' test, the proportion which the activity bears to the other activities carried on by the same person but which are not regulated.

In the case of the 'carrying on the business' test, these factors will need to be considered having regard to all the activities together.

01/07/2005

PERG 4.3.7

The main factor that might cause an activity to satisfy the 'by way of business' test in section 22 but not the narrower 'carrying on the business' test in the Business Order is that of frequency or regularity. As a general rule, the activity would need to be undertaken with some degree of frequency or regularity to satisfy the narrower 'carrying on the business' test. Conversely, the 'by way of business' test in section 22 could be satisfied by an activity undertaken on an isolated occasion (provided that the activity would be regarded as done by 'way of business' in all other respects).

01/07/2005

PERG 4.3.8

It follows that whether or not any particular person may be carrying on a regulated mortgage activity 'by way of business' will depend on his individual circumstances. However, some typical examples where the applicable business test would be likely to be satisfied are where a person:

(1) enters into one or more regulated mortgage contracts as lender in the expectation of receiving interest or another form of payment that would enable him to profit from his actions;

(2) administers a regulated mortgage contract in return for a payment of some kind (whether in cash or in kind); and

(3) arranges or advises on regulated mortgage contracts, or does both, on a regular basis and receives payment of some kind (whether in cash or in kind and whether from the borrower or from some other person).

01/07/2005

PERG 4.3.9

Some typical examples where the business test is unlikely to be satisfied are:

(1) when an individual enters into or administers a one-off mortgage securing a loan to a friend or member of his family whether at market interest rates or not; or

(2) when a person provides a service without any expectation of reward or payment of any kind, such as advice given or arrangements made by many Citizens Advice Bureaux and other voluntary sector agencies (but see PERG 4.3.8G (3) where payment is received for advice).

01/07/2005

PERG 4.4

What is a regulated mortgage contract?

01/07/2005

The definition of "regulated mortgage contract"

PERG 4.4.1

Article 61(3)(a) of the Regulated Activities Order defines a regulated mortgage contract as a contract which, at the time it is entered into, satisfies the following conditions:

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

(2) the contract provides for the obligation of the borrower to repay to be secured by a first legal mortgage on land (other than timeshare accommodation) in the United Kingdom; and

PERG 4.4.2 G to PERG 4.4.9 G set out the understanding of some key concepts contained in article 61(3)(a).

01/07/2005
Future version of PERG 4.4.1 after 06/04/2007

Provision of credit

PERG 4.4.1A

(1) Article 61(3)(c) of the Regulated Activities Order states that credit includes a cash loan and any other form of financial accommodation. Although 'financial accommodation' has a potentially wide meaning, its scope is limited by the terms used in the definition of a regulated mortgage contract set out in PERG 4.4.1 G. Whatever form the financial accommodation may take, article 61(3)(a) envisages that it must involve an obligation to repay on the part of the individual who receives it.

(2) In the FSA's view, an obligation to repay implies the existence, or the potential for the existence, of a debt owed by the individual to whom the financial accommodation is provided (the 'borrower') to the person who provides it (the 'lender'). Consequently, for any facility under which any form of financial accommodation is being provided, the test is whether it allows for the possibility that the person providing the financial accommodation may be placed in a position where he becomes a creditor of the individual to whom he is providing it. An example of this would be the issue of a guarantee by a bank to a third party for an individual customer (such as a rent guarantee or a performance bond) where the guarantee is secured on a first legal charge over the customer's residential property. In the FSA's view, this would amount to a regulated mortgage contract as the customer would owe a debt to the bank in the event that the bank had to pay the third party under the guarantee.

01/07/2005

Which borrowers?

PERG 4.4.2

The condition set out in PERG 4.4.1G (1) limits the range of borrowers to whom the protections of the mortgage regulation regime apply to individuals and trustees. If a company (which is not acting as a trustee) borrows money for the purpose of funding the company's business, and the loan is secured by a mortgage over the company's property, the mortgage contract is not a regulated mortgage contract. So a lender will not carry on a regulated activity by entering into that contract, nor will the lender carry on a regulated activity if it advises on, arranges or administers that contract. However, if the lender makes a loan for business purposes to an individual sole trader, or (in England and Wales) a partnership, and the loan is secured on the borrower's house or houses, the contract will be a regulated mortgage contract.

01/07/2005

Date the contract is entered into

PERG 4.4.3

In order to meet the definition of a regulated mortgage contract, a mortgage contract must meet the conditions set out in PERG 4.4.1G (1) to PERG 4.4.1G (3) at the time it was entered into. The effect is that contracts which meet those conditions at that time remain regulated mortgage contracts throughout their remaining term, even if there are periods of time when some or all of the conditions are not satisfied. Conversely, contracts that do not start out as regulated mortgage contracts cannot subsequently become so, even if they meet all the conditions set out in PERG 4.4.1G (1) to PERG 4.4.1G (3). A person that only administers mortgage contracts which did not meet those conditions at the time they were entered into will not, therefore, need permission to administer regulated mortgage contacts.

01/07/2005

PERG 4.4.4

There may, however, be instances where an existing contract, which was not a regulated mortgage contract at the time it was entered into, is replaced as a result of a variation (whether the variation is initiated by the customer or by the lender), and the new contract qualifies as a regulated mortgage contract. A person may therefore need to consider this possibility (which could affect contracts initially entered into before 31 October 2004 as well as subsequent loans) when deciding whether he needs permission to carry on any of the regulated mortgage activities.

01/07/2005

Land in the United Kingdom

PERG 4.4.5

The condition set out in PERG 4.4.1G (2) means that a regulated mortgage contract must be secured on land in the United Kingdom. Contracts which involve taking security over moveable property therefore cannot be regulated mortgage contracts. So a contract secured on a caravan will not be a regulated mortgage contract, unless the contract also involves a mortgage over the land on which the caravan stands.

01/07/2005

Occupancy requirement

PERG 4.4.6

The condition set out in PERG 4.4.1G (3) means that loans secured on property which is entirely used for business purposes (such as an office block) cannot fall within the definition. However, loans secured on 'mixed use' property could be covered, provided that the borrower (or trust beneficiary, where the borrowers are trustees) or a 'related person' uses at least 40% of the total of the land as or in connection with a dwelling. Loans secured on a six-floor property, half of which was occupied by the borrower and half let out for business purposes would therefore satisfy the definition. (Article 61(4)(b) makes it clear that 'land', in the context of a multi-storey building, means the aggregate of the floor area of each of the storeys.)

01/07/2005

PERG 4.4.7

The expression 'as or in connection with a dwelling' set out in PERG 4.4.1G (3) means that loans to buy a small house with a large garden would in general be covered. However, if at the time of entering into the contract the intention was for the garden to be used for some other purpose - for example, if it was intended that a third party were to have use of the garden - the contract would not constitute a regulated mortgage contract. Furthermore, the FSA would not regard a loan to purchase farmland and a farmhouse as constituting a regulated mortgage contract (where the farmhouse and garden amount to less than 40% of the land area), since it does not appear that the land could properly be said to be used 'in connection with' the farmhouse. The presence of the farmhouse is unconnected with the use to which the farmland is put (in contrast to a residential property's garden, which would have no existence independent of the property).

01/07/2005

PERG 4.4.8

The requirement that at least 40% of the land area be used as or in connection with a dwelling means that 'buy to let' loans secured on the property to be let will usually be excluded. However, such loans will not be excluded if:

(1) the lessee is a 'related person' to the borrower. This will be the case even if the borrower subsequently takes possession of the property, as the conditions set out in PERG 4.4.1G (1) to PERG 4.4.1G (3) were not satisfied at the outset of the contract (see PERG 4.4.3 G); or

(2) at the time the contract is entered into, the borrower has a real intention to use the land as, or in connection with, a dwelling (for example a member of the British Forces Posted Overseas who buys a property in the United Kingdom intending to live there on his return but which he lets out in the meantime).

01/07/2005

PERG 4.4.9

'Related person' is defined in article 61(4)(c) of the Regulated Activities Order as meaning the borrower's spouse, civil partner, parents, grandparents, siblings, children and grandchildren. An unmarried partner of the borrower whose relationship with the borrower has the characteristics of the relationship between a husband and wife is also included; this can include a person of the same sex as the borrower. Stepchildren, however, would seem to be excluded.

05/12/2005
Past version of PERG 4.4.9 before 05/12/2005

Purpose of the loan is irrelevant

PERG 4.4.10

The definition of regulated mortgage contract contains no reference to the purpose for which the loan is being made. So, in addition to loans made to individuals to purchase residential property, the definition is wide enough to cover other loans secured on land, such as loans to consolidate debts, or to enable the borrower to purchase other goods and services.

01/07/2005

Type of lending

PERG 4.4.11

The definition of regulated mortgage contract also covers a variety of types of product. Apart from the normal mortgage loan for the purchase of property, the definition also includes other types of secured loan, such as secured overdraft facility, a secured bridging loan, a secured credit card facility, and so-called 'equity release loans' (defined as regulated lifetime mortgage contracts in this guidance) under which the borrower (usually an older person) takes out a loan where repayment of the capital (and in some cases the interest) is not required until the property is sold, usually on the death of the borrower.

01/07/2005
Future version of PERG 4.4.11 after 01/04/2012

PERG 4.4.12

A number of products, however, are excluded from the definition, such as:

(1) loans secured by a second or subsequent charge (as the lender does not have a first charge);

(2) loans secured on commercial premises (as the borrower will not be using the land as or in connection with a dwelling); and

(3) so-called 'home reversion schemes', under which a property owner (usually an older person) sells some or all of his interest in the property in return for a lump sum (usually a proportion of the value of the property sold) and a right to reside at the property for the rest of his life. (It should be noted, however, that the Government announced in May 2005 that 'home reversion schemes' and 'flexible tenure products' are to be regulated by the FSA and that it would be introducing legislation to this effect.)

01/07/2005
Future version of PERG 4.4.12 after 01/04/2012

Regulated mortgage contracts and contract variations

PERG 4.4.13

The effect of the Regulated Activities Order is that mortgage contracts which are varied can fall into one of the following categories:

(1) a contract that was entered into before 31 October 2004, and that is subsequently varied on or after that date so that is satisfies the conditions set out in PERG 4.4.1G (1) to PERG 4.4.1G (3), will not be a regulated mortgage contract (because it was not a regulated mortgage contract at the time it was entered into);

(2) a contract that was originally entered into before 31 October 2004, but is subsequently changed on or after that date such that a new contract is entered into, will be a regulated mortgage contract (provided, of course, that it meets the definition in the Regulated Activities Order); and

(3) a regulated mortgage contract that was originally entered into on or after 31 October 2004, and which is subsequently varied by, for example, making a further advance, will remain a regulated mortgage contract.

01/07/2005

PERG 4.4.14

It is possible for more than one mortgage contract to be secured by the same (first) charge. The first contract might be entered into before 31 October 2004 (and therefore not be a regulated mortgage contract) and a second contract entered into on or after 31 October 2004 (and be a regulated mortgage contract).

01/07/2005

PERG 4.5

Arranging regulated mortgage contracts

01/07/2005

Definition of the regulated activities involving arranging

PERG 4.5.1

Article 25A of the Regulated Activities Order describes two types of regulated activities concerned with arranging regulated mortgage contracts. These are:

(1) making arrangements for another person to:

(a) enter into a regulated mortgage contract as borrower; or

(b) vary the terms of a regulated mortgage contract entered into by him as borrower on or after 31 October 2004 in such a way as to vary his obligations under the contract; and

(2) making arrangements with a view to a person who participates in the arrangements entering into a regulated mortgage contract as borrower.

01/07/2005

PERG 4.5.2

The first activity (article 25A(1)) is referred to in this guidance as arranging (bringing about) regulated mortgage contracts. Various points arise:

(1) It is not necessary for the potential borrower himself to be involved in making the arrangements.
(2) This activity is carried on only if the arrangements bring about, or would bring about a regulated mortgage contract. This is because of the exclusion in article 26 (see PERG 4.5.4 G).
(3) This activity therefore includes the activities of brokers who make arrangements on behalf of a borrower to enter into or vary a regulated mortgage contract where these arrangements go beyond merely introducing (see PERG 4.5.10 G) or advising (although giving advice may be the regulated activity of advising on regulated mortgage contracts). Such arrangements might include, for instance, negotiating the terms of the regulated mortgage contract with the eventual lender, on behalf of the borrower. It also includes the activities of certain so-called 'packagers' (see PERG 4.15 (Mortgage activities carried on by 'packagers'.)
(4) PERG 4.6.2 G contains examples of variations that are, in the FSA's view, within the definition of advising on regulated mortgage contracts and would also be covered by article 25A(1) arrangements.

01/07/2005

PERG 4.5.3

The second activity (article 25A(2)) is referred to in this guidance as making arrangements with a view to regulated mortgage contracts. This activity is different from article 25A(1)) because it requires a potential borrower to actively participate by utilising the arrangements to enter into a regulated mortgage contract. It does not require that the arrangements would bring about a regulated mortgage contract. Nor does it cover arrangements leading to contract variations. It includes the activities of introducers (see PERG 4.5.10 G below) introducing potential borrowers to brokers and lenders. It may also, in certain circumstances, extend to the activities of a publisher, broadcaster, or website operator, albeit subject to exclusions in the Regulated Activities Order (see PERG 4.5.5 G and PERG 4.5.6 G).

01/07/2005

Exclusion: article 25A(1) arrangements not causing a deal

PERG 4.5.4

Article 26 of the Regulated Activities Order (Arrangements not causing a deal) excludes from article 25A(1) arrangements which do not bring about or would not bring about the regulated mortgage contract in question. In the FSA's view, a person brings about or would bring about a regulated mortgage contract if his involvement in the chain of events leading to the transaction is of enough importance that without that involvement it would not take place.

01/07/2005

Exclusion: article 25(A)2 arrangements enabling parties to communicate

PERG 4.5.5

Article 27 of the Regulated Activities Order (Enabling parties to communicate) contains an exclusion that applies to arrangements which might otherwise fall within article 25A(2) merely because they provide the means by which one party to a regulated mortgage contract (or potential regulated mortgage contract) is able to communicate with other parties. Simply providing the means by which parties to a regulated mortgage contract (or potential regulated mortgage contract) are able to communicate with each other is excluded from article 25(A)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 regulated mortgage contracts).

01/07/2005

PERG 4.5.6

In the FSA's view, the crucial element of the exclusion in article 27 is the inclusion of the word "merely". When a publisher, broadcaster or Internet website operator goes beyond what is necessary for him to provide his service of publishing, broadcasting or otherwise facilitating the issue of promotions, he may well bring himself within the scope of article 25A(2). Further detailed guidance relating to the scope of the exclusion in article 27 is contained in PERG 8.32.6 G to PERG 8.32.11 G.

01/07/2005

Exclusion: article 25A(1) and (2) arranging of contracts to which the arranger is a party

PERG 4.5.7

Arranging a regulated mortgage contract (or contract variation) to which the arranger is to be a party is excluded from both article 25A(1) and (2) by article 28A of the Regulated Activities Order (Arranging contracts to which the arranger is a party). As a result, a person cannot both be entering into a regulated mortgage contract and arranging a regulated mortgage contract under article 25A as regards a particular regulated mortgage contract. This means that a direct sale by a mortgage lender does not involve the regulated activity of arranging but, if the transaction is completed, does involve the regulated activity of entering into a regulated mortgage contract. The FSA's rules on arranging regulated mortgage contracts, however, do apply to direct sales.

01/07/2005

Exclusion: article 25A(1) and (2) arrangements with or through authorised persons

PERG 4.5.8

An unauthorised person who makes arrangements for or with a view to a regulated mortgage contract between a borrower and an authorised person, is excluded from article 25A(1) and (2) by article 29 of the Regulated Activities Order (Arranging deals with or through authorised persons) if specified conditions as to advice and remuneration are satisfied. For example, the exclusion is dependent on the borrower not receiving any advice on the regulated mortgage contract from the unauthorised person making the arrangements. Additionally, payment must not be received unless it is accounted for to the borrower (which, in the FSA's view, means that it must be paid over to, or treated as belonging to and held to the order of, the borrower).

01/07/2005

Exclusion: article 25A(1)(b) arrangements made in the course of administration by authorised person

PERG 4.5.9

Article 29A of the Regulated Activities Order excludes from article 25A(1)(b) (which covers making arrangements for another person to vary the terms of a regulated mortgage contract) certain activities of an unauthorised person who is taking advantage of the exclusion from administering a regulated mortgage contract in article 62 (Exclusion: arranging administration by authorised persons) see PERG 4.8.4 G).

01/07/2005

Exclusion: article 25A(2) arrangements and introducing

PERG 4.5.10

Article 33A of the Regulated Activities Order (Introducing to authorised persons) excludes from article 25A(2) arrangements under which a borrower is introduced to certain persons. Introducing is only a regulated activity under article 25A(2) as it does not of itself bring about regulated mortgage contracts (see PERG 4.5.2 G).

01/07/2005

PERG 4.5.11

The exclusion applies for introductions to:

(1) an authorised person who has permission to carry on a regulated activity specified in article 25A (Arranging regulated mortgage contracts) or article 53A (Advising on regulated mortgage contracts) or article 61(1) (Entering into a regulated mortgage contract as lender); introducers can check the status of an authorised person and its permission by visiting the FSA's register at http://www.fsa.gov.uk/register/;
(2) an appointed representative who is appointed to carry on a regulated activity specified in article 25A or article 53A of the Regulated Activities Order; introducers can check the status of an appointed representative by visiting the FSA's register at http://www.fsa.gov.uk/register/; the FSA would normally expect introducers to request and receive confirmation of the regulated activities that the appointed representative is appointed to carry on, prior to proceeding with an introduction; and
(3) an overseas person who carries on a regulated activity specified in article 25A (Arranging regulated mortgage contracts) or article 53A (Advising on regulated mortgage contracts) or article 61(1) (Entering into a regulated mortgage contract).

01/07/2005

PERG 4.5.12

The exclusion in article 33A only applies when the introducer satisfies two conditions:

(1) he does not receive any money paid by the borrower in connection with any transaction that the borrower enters into with or through the person to whom the borrower is introduced as a result of the introduction, other than money payable to him on his own account; and

(2) before making the introduction he discloses to the borrower all relevant information described in PERG 4.5.14 G.

01/07/2005

PERG 4.5.13

In the FSA's view, money payable to an introducer on his own account includes money legitimately due to him for services rendered to the borrower, whether in connection with the introduction or otherwise. It also includes sums payable to an introducer (for example, a housebuilder) by a buyer in connection with a transfer of property. For example, article 33A allows a housebuilder to receive the purchase price on a property that he sells to a borrower, whom he previously introduced to an authorised person or appointed representative to help him finance the purchase and still take the benefit of the exclusion. This is because the sums that the housebuilder receives in connection with the introduction and with the sale of his property to the borrower are both "payable to him on his own account". The housebuilder may also receive a commission from the person introduced to. He may not, however, receive any sums payable by the borrower to the person to whom the borrower is introduced, for example valuation fees, as those sums are not payable to the housebuilder on his own account.

01/07/2005

PERG 4.5.14

The information that the introducer must disclose to the borrower prior to making the introduction is, where relevant:

(1) that he is a member of the same group as the person (N) to whom the borrower is introduced;

(2) details of any payment which he will receive from N, by way of fee or commission, for introducing the borrower to N; and

(3) an indication of any other reward or advantage arising out of his introducing to N.

01/07/2005

PERG 4.5.15

In the FSA's view, details of fees or commission referred to in PERG 4.5.14G (2) does not require an introducer to provide an actual sum to the borrower, where it is not possible to calculate the full amount due prior to the introduction. This may arise in cases where the fee or commission is a percentage of the eventual loan taken out and the amount of the required loan is not known at the time of the introduction. In these cases, it would be sufficient for the introducer to disclose the method of calculation of the fee or commission, for example the percentage of the eventual loan to be made by N.

01/07/2005

PERG 4.5.16

In the FSA's view, the information condition in PERG 4.5.14G (3) requires the introducer to indicate to the borrower any other advantages accruing to him as a result of ongoing arrangements with N relating to the introduction of borrowers. This may include, for example, indirect benefits such as office space, travel expenses, subscription fees and this and other relevant information may be provided on a standard form basis to the borrower, as appropriate.

01/07/2005

PERG 4.5.17

The FSA would normally expect an introducer to keep a written record of disclosures made to the borrower under article 33A of the Regulated Activities Order including those cases where disclosure is made on an oral basis only.

01/07/2005

PERG 4.5.18

In addition to the exclusion in article 33A, introducers may be able to take advantage of the exclusion in article 33 of the Regulated Activities Order (Introducing). This excludes arrangements where:

(1) they are arrangements under which persons will be introduced to another person;

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Contracts for differences

Lloyd's investments

Rights under a funeral plan

Rights under a regulated mortgage contract

Rights under a home purchase plan

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

Assisting in the administration and performance of a contract of insurance

Safeguarding and administering investments

Sending dematerialised instructions

Establishing etc collective investment schemes

Establishing etc stakeholder pension schemes

Providing basic advice on stakeholder products

Advising on investments

Advising on regulated mortgage contracts

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

Assisting in the administration and performance of a contract of insurance

Safeguarding and administering investments

Sending dematerialised instructions

Establishing etc collective investment schemes

Establishing etc stakeholderpension schemes

Advising on investments

Lloyd's activities

Entering funeral plan contracts

Administering regulated mortgage contracts

Agreeing

Regulated activities: exclusions applicable in certain circumstances

Trustees, nominees or personal representatives

Professions or business not involving regulated activities

Guidance on the scope of the regulated
activity of issuing e-money