This note is designed to help you navigate the main issues that you should take into consideration if you’re thinking whether or not to register with the Financial Conduct Authority (“FCA”) as a business carrying on the regulated activity of arranging deals in investments.
This note is given as guidance only and is not a formal legal opinion.
According to section 19 of FSMA, a person must not carry on any regulated activity in the UK, or purport to do so, unless they are an authorised or exempt person. This is referred to as the general prohibition.
Arranging deals in investments is a regulated activity under article 25 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (RAO). Article 25 sets out two types of arranging activities: arrangements bringing about investments (article 25(1)) and arrangements made with a view to transactions in investments (article 25(2)).
If you’re an unregulated business for the purposes of the FCA, you should consider the following issues in order to determine whether you’re carrying on the regulated activity of arranging deals in investments within the scope of article 25 of the RAO:
|Are you making an arrangement which relates to a specified investment, such as a security or a structured deposit, or a relevant investment such as a general insurance contract?|
|Would that arrangement bring about the particular transaction in question?|
|According to the FCA “a person brings about or would bring about a transaction only 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.” If the arrangement does not, or would not, bring about the transaction to which the arrangements relate, that arrangement would be excluded from article 25(1) of the RAO.|
|Would that arrangement be made for or with a view to a transaction which is to be entered by another person with or through an authorised person?|
|If YES, and the advice in connection with that transaction is given by an authorised person, or it is clear that no advice on the merits of that transaction has been given by the unauthorised person, then, it is likely that arrangement will be excluded from the scope of article 25(2) RAO. A person will not carry an activity for the purposes of article 25(2) RAO for merely providing the means to communication between two parties involved in a transaction. For example, according to the FCA, “the mere provision by a website operator of a bulletin board or chat room ought not to amount to making arrangements under article 25(2) unless making such arrangements is the specific purpose of the facility.” Therefore, a platform provider should not go beyond what is necessary for them to provide their service, meaning they should not endorse another service or encourage readers or viewers to respond to a financial promotion. Actions such as negotiating rates for readers or presenting the service as a personalised arrangement for that reader should also be avoided in order to fall under this exclusion. Article 33 of The Regulated Activities Order contains another exclusion, stating that introductions made with a view to the provision of independent advice or the independent exercise of discretion in relation to investments generally are excluded from article 25(2) RAO. One of the key elements of article 25(2) is that there is a strong purpose for transactions to be entered into as a result of the relevant arrangements. If an introducer is completely indifferent as to whether or not a transaction was concluded as a result of the advice given to the person he has introduced, the introducer will not be making arrangements with a view to transactions in investments.|
|Have you agreed to make arrangements?|
|According to article 64 RAO, agreeing to carry on the article 25 regulated activity is in itself a regulated activity. The FCA also confirmed that a person will need to ensure that they have appropriate authorisation both at the stage of agreement and before they actually carry on the underlying activity.|
|Are you carrying on the activity of making arrangements with a view to transactions in investments “by way of business”?|
|To fall within article 25 of the RAO you need to meet the “by way of business” test. For a person to be carrying on the activity of making arrangements with a view to transactions in investments they will usually need to be carrying on those activities with a degree of regularity and will need to be carrying on the activities for commercial purposes.|
|Are you carrying out the activity in the UK?|
|Only regulated activities carried on in the UK fall within the territorial scope of FSMA.|
|Have you considered any of the RAO exclusions?|
|A person who is exempt from carrying on the regulated activity of advising on investments will not breach the general prohibition in section 19 of FSMA by carrying on such an activity. You may be able to qualify for an exclusion or exemption, but you should always seek legal advice to confirm your exact regulatory position.|
If you want to know whether your activity is a regulated activity within the scope of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, please get in touch with our team of Fintech specialists.
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