PERG 13.2 General

Q-1. Are all the different types of investment firm mentioned at the start of this chapter basically the same?
They are very similar and the guidance in this chapter is applicable to them all. The following is a list of the factors that the definitions use:
• an investment firm is a person whose regular occupation or business is the provision or performance of investment services and activities on a professional basis (see Q4);
• a person exempt under Schedule 3 to the Regulated Activities Order is excluded (see PERG 13.5);
• a person whose home State is not the United Kingdom and who would be exempt under Schedule 3 if the person’s registered office (or head office, in the case of a person that is not a body corporate or a person that is a body corporate but has no registered office) was in the United Kingdom is excluded; and
• a person who is exempt under the MiFI Regulations is excluded (see Q48).
However, the factors do not all appear in each definition. The following table explains this by reference to each factor listed above.
Table: Different kinds of investment firm 

The definition of a MiFID investment firm has some additional elements, which are covered in the answers to Q6 to Q7.
The definition of a MIFIDPRU investment firm also has additional elements, which are not covered in this chapter. They are set out in the Glossary definition.
Q1. Why does it matter whether or not we are an investment firm?

Depending on whether or not you are one of the kinds of investment firm referred to at the start of this chapter, you may be subject to:

• UK law on markets in financial instruments; and

• • other FCA rules or legislation whose scope is drawn by reference to one of those kinds of investment firm (for example, the Prudential sourcebook for MiFID investment firms (MIFIDPRU)).
  Whether or not you are an investment firm as defined in the Regulated Activities Order is an essential element of whether the override in the Regulated Activities Order described in PERG 2.5.4G to PERG 2.5.5BG (Investment services and activities) applies.

Q2. Is there anything else we should be reading?

The Q and As complement, and should be read in conjunction with, the relevant legislation and the general guidance on regulated activities, which is in chapter 2 of our Perimeter Guidance manual (‘PERG’).

Q3. How much can we rely on these Q and As?

The answers given in these Q and As represent the FCA's views but the interpretation of financial services legislation is ultimately a matter for the courts. How the matters discussed in this chapter affect the regulatory position of any particular person will depend on their individual circumstances. If you have doubts about your position after reading these Q and As, you may wish to seek legal advice. The Q and As are not a substitute for reading the legislative and Handbook provisions discussed in this chapter.

MiFID has been subject to guidance and communications by the European Commission, the European Securities and Markets Authority (‘ESMA’) and the European Banking Authority (‘EBA’). This material can still be helpful in interpreting the provisions discussed in this chapter if there is no FCA guidance on the point and the drafting of the UK provision is close to the corresponding MiFID one. However, care should be taken as the legislative context is different and the provisions have effect under different legal systems.

Q4. We provide investment services to our clients - are we an investment firm?
If your regular occupation or business includes the provision of investment services in relation to financial instruments to others on a professional basis, you are an investment firm.
Where you are a firm with more than one business, you can still be an investment firm. 
What amounts to a ‘professional basis’ depends on the individual circumstances and, in our view, relevant factors will include the existence or otherwise of a commercial element and the scale of the relevant activity.
However, you are not an investment firm if you have the benefit of an exemption in Schedule 3 to the Regulated Activities Order, except as otherwise shown in the table in the answer to Q-1 (Are all the different types of investment firm mentioned at the start of this chapter basically the same?).

See the flow charts in Annex 1 for further information and PERG 13.5 for guidance relating to exemptions. See Q8 for further guidance on whether you are an investment firm.

Q5. We are a credit institution. Is this chapter relevant to us?

If you are a credit institution, you are an investment firm for the purpose of all the types of investment firm mentioned at the start of PERG 13.1 as long as you otherwise meet the definitions. However, the position is a bit different for the purpose of the definition of a MiFID investment firm. If you otherwise meet the definition, you are only a MiFID investment firm for certain purposes of the Handbook, as described in the Glossary definition of MiFID investment firm.
PERG 2.5.5AG (Investment services and activities) describes how the definition of investment firm in the Regulated Activities Order applies to credit institutions. The answer to Q9 in this section (We are a credit institution that does not provide investment services to customers but we do have a treasury function. Are we an investment firm?) also has further details about credit institutions.

Q6. We are a UCITS management company that, in addition to managing unit trusts, contractual schemes and investment companies, provides portfolio management services to third parties. Is this chapter relevant to us?

In general, the management company of a UCITS scheme is not an investment firm for the purpose of any of the types of investment firm mentioned at the start of this chapter (see PERG 13.5 (Exemptions from the definition of investment firm)). However, the position is a bit different for the purpose of the definition of a MiFID investment firm. If you are the management company of a UCITS scheme with a permission to manage investments including financial instruments pursuant to article 6.3 of the UCITS Directive, you are a UCITS investment firm for the purposes of the Handbook. You are also a MiFID investment firm for certain purposes of the Handbook, as  reflected in paragraph (3) of the Handbook definition of “MiFID investment firm”.
When you carry out these additional activities, you will be carrying on a regulated activity. 

Q6A. We are an AIFM that, in addition to managing AIFs, provides portfolio management services to third parties. Is this chapter relevant to us?

In general, an AIFM is not an investment firm for the purpose of any of the types of investment firm mentioned at the start of this chapter (see PERG 13.5 (Exemptions from the definition of investment firm)). However, the position is a bit different for the purpose of the definition of a MiFID investment firm. If you are the AIFM of an AIF with a Part 4A permission to manage investments including financial instruments pursuant to article 6.4 of AIFMD, you are an AIFM investment firm for the purposes of the Handbook. You are also a MiFID investment firm for certain purposes of the Handbook, as  reflected in paragraph (3) of the Handbook definition of "MiFID investment firm".
When you carry out these additional activities, you will be carrying on a regulated activity. 

Q7. We provide investment services to our clients. How do we know whether we are an investment firm for the purposes of article 4.1(1) MiFID?

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Q8. We do not provide investment services to others but we do buy and sell financial instruments (for example, shares and derivatives) on a regular basis. Are we an investment firm?

Yes, if you are trading in financial instruments for your own account as a regular occupation or business on a “professional basis”. You can be an investment firm even if you are not providing investment services to others; this arises from the fact that you are also an investment firm where you perform investment activities on a professional basis.

Even if you are an investment firm you may still be able to rely on one or more exemptions in Schedule 3 to the Regulated Activities Order (Exemptions from the definition of ‘investment firm’) for the purpose of the definition of investment firm in the Regulated Activities Order and of most of the other types of investment firm listed at the start of this chapter  (see PERG 13.5 and in particular paragraph 1(d) of Part 1 of that schedule (see Q40 to Q41) and paragraph 1(k) of Part 1 of that schedule (see Q44 to Q45)).

Q9. We are a credit institution that does not provide investment services to customers but we do have a treasury function. Are we an investment firm?

Not necessarily. Although you may be dealing on own account in relation to financial instruments, you may be able to rely upon the exemption in paragraph 1(e) of Part 1 of Schedule 3 to the Regulated Activities Order (Exemptions from the definition of ‘investment firm’) (see Q40). In our view, credit institutions can rely on exemptions in Schedule 3 to the Regulated Activities Order where they meet the conditions of the exemptions.

Q10. Is there any change to the “by way of business” test in the definition of regulated activities?

No. The test for whether you are carrying on 'regulated activities by way of business' and require authorisation is the same for a person who provides investment services in relation to financial instruments as it is for other people.

Q10a. The Glossary definition of ‘systematic internaliser’ (SI) says that SI activity must be ‘held out as being carried on by way of business, in a manner consistent with article 3(2)(a) of the Business Order’. What does this mean?

The SI activity must be carried out in a manner consistent with the ‘by way of business’ test applicable to the regulated activity of ‘dealing in investments as principal’ in article 14 of the RAO. For these purposes, this means that the activity must form a part of the services the MiFID investment firm typically or ordinarily offers to clients in the relevant financial instrument to be considered SI activity.

A MiFID investment firm will not be considered to be carrying on SI activity purely as a result of some degree of automation in the execution of orders – for example, where:

• such activity is only ancillary to the principal nature of the commercial relationship between the parties, in respect of the relevant financial instrument; or

• the firm does not advertise such activity to clients, including by broadcasting offers to deal in the relevant financial instrument.

In such circumstances, the MiFID investment firm would not be ‘holding itself out’ to be carrying on activity as an SI.

Whether or not activity is a part of the services the MiFID investment firm typically or ordinarily offers to clients such that it constitutes SI activity is ultimately a question of judgement that takes account of several factors. These include:

• the extent to which the activity is conducted or organised separately;

• the monetary value of the activity; and

• its comparative significance in terms of revenue by reference to the firm’s overall activity in the market for the relevant financial instrument.

The meaning of ‘dealing on own account when executing client orders’ for the purposes of the definition of SI remains unchanged and can be found in article 16a of the MiFID Org Reg.

Q11. How will we know whether we are a tied agent (article 4.1(29))?

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