PERG 2.5 Investments and activities: general

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.

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

1. (1)

   managing a UK UCITS;

2. (2)

   acting as trustee or depositary of a UK UCITS;

3. (3)

   managing an AIF;

4. (4)

   acting as trustee or depositary of an AIF;

5. (5)

   establishing, operating and winding up a collective investment scheme;

6. (6)

   establishing, operating and winding up a stakeholder pension scheme;

7. (7)

   establishing, operating and winding up a personal pension scheme;

8. (8)

   meeting of repayment claims;

9. (9)

   managing dormant asset funds (including the investment of such funds); and

10. (10)

    dealing with unwanted asset money.

The regulated activity of administering a benchmark does not require the involvement of a specified investment in any way.

The activities of providing credit information services and providing credit references are not required to relate to a specified investment to be regulated activities, but rather relate to information about a person's financial standing.

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).

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 come within the definition of an investment firm in article 3 of the Regulated Activities Order and persons who are subject to the UK provisions which implemented the IDD and the MCD. The reasons for this and the consequences of it are explained in PERG 2.5.4G for investment firms, PERG 5 (Guidance on insurance distribution activities) for the IDD, and PERG 4.10A for the MCD.

Article 4(4) of the Regulated Activities Order says that an investment firm that provides or performs investment services and activities on a professional basis is not entitled to the benefit of specified exclusions under the Regulated Activities Order unless it falls within one or more of the exemptions in Part 1 of Schedule 3 to the Regulated Activities Order. Further information about the definition of investment firm and investment services and activities for these purposes is contained in PERG 13 and further information about these exemptions is contained in PERG 13.5. Where a firm has the benefit of one or more of the exemptions in Part 1 of Schedule 3 to the Regulated Activities Order, it may still be carrying on regulated activities and therefore require authorisation unless it is an exempt person.

The exclusions that must be disregarded as referred to in PERG 2.5.4G are concerned with:

1. (1) the absence of holding out (see PERG 2.8.4G (1));
2. (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. (2A) issuing own securities (see PERG 2.8.4G(4));
4. (3) risk management (see PERG 2.8.4G (5) and PERG 2.8.5G (2));
5. (3A) arranging for the issue of your own securities PERG 2.8.6AG(11);
6. (4)  persons acting under powers of attorney (see PERG 2.8.7 G);
7. (4A) professions or businesses not involving regulated activities (see PERG 2.9.5 G);
8. (5) sale of goods (see PERG 2.9.7 G);
9. (6) groups and joint enterprises (see PERG 2.9.9 G);
10. (7) sale of a body corporate (see PERG 2.9.11 G); and
11. (8) business angel-led enterprise capital funds (see PERG 2.9.20 G to PERG 2.9.22 G).

The IDD was in part implemented through various amendments to the Regulated Activities Order. These included article 4(4A) (Specified activities: general) which precluded a person who, for remuneration, takes up or pursues insurance distribution or reinsurance distribution, in relation to a risk or commitment situated in an EEA State from making use of certain exclusions. Post IP completion day, this provision has been amended to refer to a risk or commitment situated in the United Kingdom. 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(Guidance on insurance distribution activities).

Some specified investments have a wider meaning when a person of a specified kind is providing or performing investment services and/or activities in relation to them, as explained in PERG 2.5.8G. PERG 2.5.9G lists the provisions in PERG where such wider meanings are summarised.

A specified investment in PERG 2.5.9G has a wider meaning if (in relation to that specified investment):

1. (1)

    one of the following persons:

   1. (a)

       a MiFID investment firm; or

   2. (b)

       a third country investment firm; or

   3. (c)

       a CRD credit institution; or

   4. (d)

       a credit institution that would qualify to be a CRD credit institution if its registered or head office were in the United Kingdom;

   provides or performs investment services and/or activities on a professional basis; or

2. (2)

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

3. (3)

    a market operator (or someone who would be a market operator if it was based in the United Kingdom) is providing the investment services and/or activities of operating a multilateral trading facility or organised trading facility (these activities are described in Q24 and Q24A in PERG 13.3); or

4. (4)

    an AIFM investment firm is providing services under the UK provisions which implemented article 6.4 of the AIFMD (provision of services in addition to AIF management).

PERG 2.5.7G only applies to the following specified investments:

1. (1)

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

2. (2)

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

3. (3)

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

4. (4)

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

5. (5)

   a binary or fixed outcomes derivative treated as a contract for differences (see PERG 2.6.24AG for more details, which also explains that in certain circumstances PERG 2.5.7G does not apply to this product).

1. (1)

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

2. (2)

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

   1. (a)

      a MiFID investment firm; or

   2. (a)

      authorised under the Act;

   because of its other activities.

3. (3)

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