Regulated And Prohibited Activities

March 2003 

80.5 The general prohibition 

Only an authorised person or an exempt person may carry on a regulated activity in the United Kingdom. Under section 31(1) an authorised person is described as:

  • a person who has permission under Part IV of the Act to carry on one or more regulated activities;
  • an EEA firm qualifying for authorisation under Schedule 3 (EEA Passport Rights);
  • a Treaty firm qualifying for authorisation under Schedule 4 (Treaty Rights);
  • a person who is otherwise authorised by a provision of, or made under the Act.

A limited company can be an authorised person.

An exempt person may be exempt because of who he/she is, e.g. the European Community or the Act specifies him/her as being exempt. The official receiver is an exempt person.

Any person who carries on, or purports to carry on, a regulated activity who is not an authorised person or an exempt person is guilty of an offence punishable by imprisonment or a fine or both. In addition, agreements entered into by them in the course of or in consequence of the illegal activity will be unenforceable against the other party, subject to the court’s discretion to permit enforcement. In addition, the other party is entitled to recover any money or other property paid or transferred by him/her under the agreement and compensation for any loss sustained by him/her as a result of having parted with it. Also any person who in the course of business communicates an invitation or inducement to engage in investment activity and is not an authorised person is guilty of an offence punishable by imprisonment or a fine, or both. Where the official receiver considers that an offence has been committed, he/she should report it to Prosecution Section and should also advise the FSA direct (see paragraph 80.31).

Notes: [s19 and s31(1)] [Part IV] [s38] [s26, s27 and s28] [s25]

80.6 Regulated activities 

The core of the Act is the regulated activities. Section 22(1) states that an activity is a regulated activity if it is an activity specified in an order made by HM Treasury and which is carried on by way of business and relates to an investment (including any asset, right or interest) of a specified kind, or is carried on in relation to property of any kind.

The Act, Schedule 2, lists in general terms the regulated activities. The following activities are included:

  • Dealing in investments;
  • Effecting and carrying out contracts of insurance;
  • Arranging deals in investments;
  • Dealing in investments as an agent;
  • Deposit taking;
  • Safekeeping and administration of assets;
  • Managing investments;
  • Investment advice;
  • Establishing, operating or winding up collective investment schemes (see paragraph 80.14);
  • Using computer-based systems for giving investment instructions;
  • Establishing, operating or winding up a stakeholder pension;
  • Advice on syndicate participation at Lloyd’s;
  • Managing the underwriting capacity of a Lloyd’s syndicate;
  • Arranging deals in contracts of insurance written at Lloyd’s;
  • Entering as provider into a funeral plan contract; and
  • Entering into or administering a regulated mortgage contract.

The Act, Schedule 2 Part II, also lists in general terms the regulated investments. The schedule includes:

  • Securities, e.g. shares in the share capital of a company;
  • Instruments creating or acknowledging indebtedness, e.g. debentures and bonds;
  • Government and public securities, e.g. loan stock or bonds issued by or on behalf of a government, local authority or public authority;
  • Instruments giving entitlement to investments, e.g. warrants;
  • Certificates representing securities;
  • Units in collective investment schemes including shares in an open-ended investment company;
  • Options to acquire or dispose of property;
  • Futures contracts for commodities or property;
  • Contracts for differences whose value is linked to the value of any kind of property or to an index, e.g. a stock market index;
  • Rights under a contract of insurance;
  • Participation in Lloyd’s syndicates;
  • Deposits;
  • Loans secured on land; and
  • Rights in investments.

Notes: [s22(1)] [Schedule 2, Part II]

80.7 [The Financial Services and Markets Act 2000 (Regulated Activities) Statutory Instrument 2001 No 544]

The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, (SI 2001 No. 544) also specifies categories of regulated activities (see Annex B). This order is amended from time to time to reflect the regulation of new categories of activity, but an up to date version of the Order can be found on the HM Treasury website, www.hm-treasury.gov.uk.

80.8 Financial Promotion

The Act pays particular attention to the marketing of financial services. Section 21(1) prohibits a person, in the course of business, from communicating ‘an invitation or inducement to engage in investment activity’. The general prohibition does not apply to an authorised person or if an authorised person approves the content of the communication. Breach of this financial promotion restriction may lead to imprisonment, a fine or both.

Notes: [s21] [s25(1)]

 

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