Does my business need to be authorised by the FCA?
May201602

It’s extremely important that you first establish as to whether your company’s proposed business requires the business employer to request for authorisation to continue with regulated activities. For the majority of smaller firms, this would usually involve intermediaries negotiating or  selling investments and/or home financing exercises and/or general insurance. The specific activities and specified investments are highlighted within The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, of which are secondary in terms of legislation under the FSMA.

The Financial Services & Markets Act 2000 (FSMA)

FSMA is considered troubled with the current regulation of financial services and markets within the United Kingdom. Any person, employee, employer who carries out a regulated activity in the United Kingdom under the Section 19 of FSMA must be clearly authorised by the FCA or exempt. Breach of section 19 can be considered a criminal offence and can also be a punishable offence on indictment with a maximum term of up to two years imprisonment and/or a considerable fine.

What activities are regulated?

Specified activities have been defined in Part II of the RAO and consist of:

  • 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
  • arranging home finance activities
  • operating a multilateral trading facility
  • managing investments
  • assisting in the administration and performance of a contract of insurance
  • safeguarding and administering investments
  • sending dematerialised instructions
  • establishing collective investment schemes
  • establishing stakeholder pension schemes
  • providing basic advice on stakeholder products
  • advising on investments
  • advising on home finance activities
  • Lloyd’s market activities
  • entering funeral plan contracts
  • entering into a home finance activity
  • administering a home finance activity
  • agreeing to do most of the above activities

Specified investments have been defined in Part III of the RAO and consist of:

  • deposits
  • electronic money
  • rights under a contract of insurance
  • shares
  • instruments creating or acknowledging indebtedness
  • sukuk (shariah compliant debt instruments)
  • government and public securities
  • instruments giving entitlement to investments
  • certificates representing certain securities
  • units in a collective investment scheme
  • rights under a stakeholder pension scheme
  • rights under personal pension scheme
  • options
  • futures
  • contracts for differences
  • Lloyd’s syndicate capacity and syndicate membership
  • rights under funeral plan contracts
  • rights under regulated mortgage contracts
  • rights under a home reversion plan
  • rights under a home purchase plan
  • rights to or interests in anything that is a specified investment listed, excluding ‘Rights under regulated mortgage contracts’, ‘Rights under regulated home reversion plans’ and Rights under regulated home purchase plans’

For considerably smaller businesses, there has been several developed standard permission profiles that contain regulated investment and activities types. These can be found within business application packs. If there are no suitable profiles that match your business you will unfortunately need to put together your own.

The specified investment and activities types that are regulated are described in further detail within chapter two of the Perimeter Guidance Manual (PERG).

Business Test

For an activity or investment to be regulated, it needs to be carried on ‘By way of business’, under section 22 of the FSMA.

Business Exclusions

Exclusions are known as provisions that turn activities into unregulated activities, if they would otherwise be regulated activities. If you have significant confidence on an exclusion for an activity, you do not require FCA authorisation to implement it.

Examples of exclusions:

  • overseas persons exclusion
  • introducer exclusion

Who is cleared from authorisation?

A person who is a selected delegate is exempt from requiring authorisation. Further information on this subject can be located within the factsheet ‘Becoming an appointed representative’. Other examples can also include:

  • a professional business (a business of accountants, actuaries, or solicitors) continuing with specific regulated activities that are entirely incidental to its primary business
  • a local authority or specific type of housing body continuing with mortgage activities or insurance mediation

Financial promotions

An invitation or inducement to engage in investment activity or also known as a financial promotion. Investment activity is outlined under section 21(8) in the FSMA as:

  • offering to enter into or entering an agreement the production or performance of which by or or the other party constitutes a reserved activity
  • exercising any privileges conferred by a controlled investment to gain, dispose of, endorse or convert a reserved investment

Nevertheless, under section 21 of the FSMA, a person who is unauthorised is disallowed to communicate a financial promotion within the United Kingdom, in the progress of business, unless either:

  • its contents are approved and confirmed for the intention of section 21 by an authorised person or (2) it’s subject to an exception under the Financial Services & Markets Act 2000 (Financial Promotion) Order 2005 (FPO)
  • controlled activities and investments are recommended under Schedule 1 of the FPO and contain such things as buying bonds or shares, managing investments and also selling insurance.

Anyone wishing to continue with one or more regulated activity, through the way of business, must first request authorisation (unless they can submit to the terms of exclusion or are cleared).

Money Laundering Regulations 2007 (MLR)

There are also organisations responsible for the registration of businesses that handle activities under Annex 1 of the Banking Coordination Directive (BCD), in extension to business authorised by the FCA under FSMA. These activities are also outlined under the Money Laundering Regulations 2007.

Payment Services Regulations 2009 (PSRs)

The Payment Services Directive (PSD) primary goal is to supply a common regulatory path to the supplying of electronic payment services. This regulation came into force within the United Kingdom on 1st November back in 2009 with assistance from the PSRs.

Electronic Money Regulations 2011 (EMRs)

The EMRs, is known to implement the secondary Electronic Money Directive (2EMD) within the United Kingdom, which came into action back in 2011 on the 30th of April. 2EMD primary goal is to stimulate the growth of the current electronic money market.

As ever we always recommend seeking advice from a professional compliance company such as Pragmatic Compliance. They help with FCA authorisation & the latest introduction, Annex IV – Gabriel.