PERG 2.5 Investments and activities: general

PERG 2.5.1G

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 2.5.1BG

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 2.5.2G

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 2.5.3G

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 2.5.4G

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 2.5.4A

2The UK has exercised the optional exemption in article 3 of MiFID. Further information about this exemption is contained in Q48 to 53 in PERG 13.5. It is a requirement of article 3 MiFID that the activities of firms relying on the exemption are "regulated at national level". The 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 2.5.5G

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. (3)

    risk management (see PERG 2.8.4G (5) and PERG 2.8.5G (2));

  4. (4)

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

  5. (4A)

    2professions or businesses not involving regulated activities (see PERG 2.9.5 G);

  6. (5)

    sale of goods (see PERG 2.9.7 G);

  7. (6)

    groups and joint enterprises (see PERG 2.9.9 G);

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  8. (7)

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

  9. (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 2.5.6G

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).