A number of controls apply under the Act to the promotion of shares or securities that are issued by any body corporate. These controls differ according to whether the person making the promotion is an unauthorised person (see AUTH App 2.10.2 G) or an authorised person (see AUTH App 2.10.3 G to AUTH App 2.10.6 G). In addition, where a body corporate is not an open-ended investment company:
The controls under the Act that apply to promotions of shares or securities by unauthorised persons are in section 21 of the Act (Restrictions on financial promotion). These controls apply where an unauthorised person makes a financial promotion in, or from, the United Kingdom that relates to the shares in or securities of any body corporate. The same controls apply regardless of whether the shares or securities being promoted are issued by a body corporate that is an open-ended investment company or one that is not. There are a number of exemptions from the restriction in section 21 of the Act. These are explained in AUTH App 1 (Financial promotion and related activities).
Promotions made by authorised persons in the United Kingdom are generally subject to the controls in COB 3 (Financial Promotion). However, in the case of shares in, or securities of, a body corporate which is an open-ended investment company, additional controls are imposed by Chapter II of Part XVII of the Act (Restrictions on promotion of collective investment schemes) (see AUTH App 1.20). Section 238 of the Act (Restrictions on promotion) prevents an authorised person communicating any invitation or inducement to buy shares or securities issued by an open-ended investment company. Section 240 of the Act (Restriction on approval of promotion) prevents an authorised person approving a financial promotion to be communicated by an unauthorised person. This is if the authorised person would not be able to promote the share or security himself.
The restrictions mentioned in AUTH App 2.10.3 G are subject to a number of exemptions. For example, the controls in sections 238 and 240 do not apply to financial promotions about certain kinds of collective investment scheme. These are:
The position with respect to the promotion by authorised persons of open-ended investment companies formed in Northern Ireland will be considered as part of the implementing process for the relevant Northern Ireland legislation (see AUTH App 2.1.4 G (Other guidance that may be relevant)).1
There are a number of other exemptions in the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060). In general terms, these exemptions are equivalent to the exemptions from section 21 of the Act that apply to units. There is guidance on those exemptions in AUTH App 1.20.3 G (Additional restriction on the promotion of collective investment schemes).
The FSA has also made rules under section 238(5) which allow authorised persons to communicate or approve a financial promotion for an open-ended investment company that is an unregulated collective investment scheme (that is, one that does not fall within AUTH App 2.10.4 G). The circumstances in which such a communication or approval is allowed are explained in COB 3 Annex 5 (which is introduced by COB 3.11).
In the Regulated Activities Order, shares in or securities of an open-ended investment company are treated differently from shares in other bodies corporate. They are treated as units in a collective investment scheme under article 81 of the Regulated Activities Order (Units in a collective investment scheme) rather than shares under article 76 (Shares etc).
In order to be authorised, a person must have permission to carry on the regulated activities in question. What the permission needs to cover may differ according to whether the regulated activity being carried on relates to units or shares. So, for example, a body corporate that is an open-ended investment company will need permission if it carries on the regulated activity of dealing as principal or agent, arranging (bringing about) or making arrangements with a view to transactions in its own shares or securities in the United Kingdom. This applies also to a body corporate that is not an open-ended investment company except that it will not need permission to issue or arrange for the issue of its own shares or securities.
A person carrying on the regulated activity of establishing, operating or winding up a collective investment scheme that is constituted by an open-ended investment company will need permission for those activities. In line with section 237(2) of the Act (Other definitions), the operator of a collective investment scheme that is an open-ended investment company is the company itself. But where the open-ended investment company is incorporated outside the United Kingdom, it will only require permission if its operation takes place in the United Kingdom.