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Status: You are viewing the version of the handbook as on 2005-06-30.

AUTH 2.4 Link between activities and the United Kingdom

AUTH 2.4.1G

Section 19 of the Act (The general prohibition) provides that the requirement to be authorised under the Act only applies in relation to activities that are carried on 'in the United Kingdom'. In many cases it will be quite straightforward to identify where an activity is carried on. But when there is a cross border element, for example because a client is outside the United Kingdom or because some other element of the activity happens outside the United Kingdom, the question may arise as to where the activity is carried on.

AUTH 2.4.2G

Even with a cross border element a person may still be carrying on an activity 'in the United Kingdom'. For example, a person who is situated in the United Kingdom and who is safeguarding and administering investments will be carrying on activities in the United Kingdom even though his client may be overseas.

AUTH 2.4.3G

Section 418 of the Act (Carrying on regulated activities in the United Kingdom) takes this one step further. It extends the meaning that 'in the United Kingdom' would ordinarily have by setting out five additional cases. The Act states that, in these five cases, a person who is carrying on a regulated activity but who would not otherwise be regarded as carrying on the activity in the United Kingdom is, for the purposes of the Act, to be regarded as carrying on the activity in the United Kingdom.

  1. (1)

    The first case is where a UK-based person carries on a regulated activity in another EEA State in exercise of rights under a Single Market Directive.

  2. (2)

    The second case consists of the marketing in another EEA State of a UK-based collective investment scheme by the scheme's manager where the scheme in question is one to which the UCITS Directive applies.

  3. (3)

    The third case is where a regulated activity is carried on by a UK-based person and the day-to-day management of the activity is the responsibility of an establishment in the United Kingdom.

  4. (4)

    The fourth case is where a regulated activity is carried on by a person who is not based in the United Kingdom but is carried on from an establishment in the United Kingdom. This might occur when each of the stages that make up a regulated activity (such as managing investments) takes place in different countries. For example, a person's management is in country A, the assets are held by a nominee in country B, all transactions take place in country B or country C but all decisions about what to do with the investments are taken from an office in the United Kingdom. Given that the investments are held, and all dealings in them take place, outside the United Kingdom there may otherwise be a question as to where the regulated activity of managing investments is taking place. For the purposes of the Act, it is carried on in the United Kingdom.

  5. (5)

    The fifth case, inserted by the ECD Regulations is, in effect, where an electronic commerce activity is carried on, from an establishment in the United Kingdom, in another EEA State. The ECO includes rules and guidance that apply to ECA providers based in the United Kingdom.1

AUTH 2.4.4G

The application of the third and fourth cases will depend on how the activities carried on from the UK establishment are set up and operated.

AUTH 2.4.5G

A person who is based outside the United Kingdom but who sets up an establishment in the United Kingdom must therefore consider the following matters. First, he must not, unless he is authorised, carry on regulated activities in the United Kingdom. Second, unless he is authorised, the day-to-day management of the carrying on of the regulated activity must not be the responsibility of the UK establishment. This may, for example, affect those UK establishments that in the context of deposit-taking activities were, before the commencement of the Act, treated as representative offices of overseas institutions. Such institutions will need to seek authorisation if the responsibility for the day to day management of the accepting of deposits by them outside the United Kingdom is nevertheless effectively that of their UK establishment. Third, such a person will need to ensure that he does not contravene other provisions of the Act that apply to persons who are not authorised. These include the controls on financial promotion (section 21 of the Act (Financial promotion)), and on giving the impression that a person is authorised (section 24).

AUTH 2.4.6G

A person based outside the United Kingdom may also be carrying on activities in the United Kingdom even if he does not have a place of business maintained by him in the United Kingdom (for example, by means of the internet or other telecommunications system or by occasional visits). In that case, it will be relevant to consider whether what he is doing satisfies the business test as it applies in relation to the activities in question. In addition, he may be able to rely on the exclusions from certain regulated activities that apply in relation to overseas persons (see AUTH 2.9.15 G).

AUTH 2.4.7G