PERG 2.5 Investments and activities: general

PERG 2.5.1GRP

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.

PERG 2.5.1BGRP

4The 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.

PERG 2.5.2GRP

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).

Modification of certain exclusions as a result of MiFID, the Insurance Mediation Directives and the Mortgage Credit Directive6

PERG 2.5.3GRP

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 are subject to MiFID2, the Insurance Mediation Directive and the MCD.6 The reasons for this and the consequences of it are explained in PERG 2.5.4 G 6for MiFID2, PERG 5 (Insurance mediation activities), for6 the Insurance Mediation Directive and PERG 4.10A for the MCD.6

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Investment services and activities2

PERG 2.5.4GRP

It remains the Government's responsibility to ensure the proper implementation of MiFID2. Certain2 persons subject to the requirements of MiFID2 must be brought within the scope of regulation under the Act. A core element of MiFID is the concept of investment firm.2 An investment firm is any person whose regular occupation or2 business is2 the provision of one or more2 investment services to third parties or the performance of one or more investment activities on a professional basis.2 An investment firm is not subject to MiFID requirements if it falls within one or more of the exemptions in article 2 MiFID. Further information about these exemptions is contained in PERG 13.5. To the extent that an investment firm falls within one of these exemptions, it will not be a MiFID investment firm. Where a firm is not a MiFID investment firm because one or more of the exemptions in article 2 apply, it may still be carrying on regulated activities and therefore require authorisation unless it is an exempt person.2

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PERG 2.5.4ARP

2The UK has exercised part of7 the optional exemption in article 3 of MiFID. Further information about this exemption is contained in Q48 to 53 in PERG 13.5. 7The investment services to which article 3 apply (namely reception and transmission of orders and investment advice in relation to either transferable securities or units in collective investment undertakings) correspond to regulated activities (see PERG 13 Annex 2 Tables 1 and 2).

PERG 2.5.5GRP

For persons who are MiFID2 investment firms, the activities that must be caught by the Regulated Activities Order are those that are caught by MiFID2. To achieve this result, some of the exclusions in the Order (that will apply to persons who are not caught by MiFID2) have been made unavailable to MiFID2 investment firms when they provide or perform investment services and activities. A "MiFID investment firm", for these purposes, includes credit institutions to which MiFID applies (see PERG 13, Q5 and 9); collective portfolio management investment firms5 providing the services of portfolio management and personal recommendations in relation to financial instruments or the ancillary service of safekeeping and administration in relation to units5of collective investment undertakings; and AIFM investment firms providing the ancillary service of reception and transmission of orders in relation to financial instruments.5 The same exclusions are also unavailable to third country investment firms when they provide investment services and activities2. Article 4(4) of the Regulated Activities Order (Specified activities: general) lists a number of exclusions that must be disregarded. These relate to the exclusions concerned with:

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  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));7

  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);7

  6. (4)

    persons acting under powers of attorney (see PERG 2.8.7 G);

  7. (4A)

    2professions 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);

    1
  10. (7)

    sale of a body corporate (see PERG 2.9.11 G); and1

  11. (8)

    1business angel-led enterprise capital funds (see PERG 2.9.20 G to PERG 2.9.22 G).

Insurance mediation or reinsurance mediation

PERG 2.5.6GRP

The Insurance Mediation Directive has in part been implemented through various amendments to the Regulated Activities Order. These include article 4(4A) (Specified activities: general) which precludes a person who, for remuneration, takes up or pursues insurance mediation or reinsurance mediation in relation to a risk or commitment situated in an EEA State from making use of certain exclusions. 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 (Insurance mediation activities).

Wider definition of certain specified investments when carrying on some kinds of EU business

PERG 2.5.7GRP

7Some specified investments are defined so that certain products only come within that specified investment when a person is providing services under certain EU legislation in relation to that product.

PERG 2.5.8GRP

7When PERG 2.5.7G applies, the product is only treated as falling within the definition of the specified investment concerned if (in relation to that product):

  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 EEA;

    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 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 EEA) 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 article 6.4 of the AIFMD (provision of services in addition to AIF management).

PERG 2.5.9GRP

7PERG 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).

PERG 2.5.10GRP
  1. (1)

    7When 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.