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PERG 8.2 Introduction

PERG 8.2.1G

The effect of section 21 of the Act (Restrictions on financial promotion) is that in the course of business, an unauthorised person must not communicate an invitation or inducement to engage in investment activity unless either the content of the communication is approved for the purposes of section 21 by an authorised person or it is exempt. Under section 25 of the Act (Contravention of section 21), a person commits a criminal offence if he carries on activities in breach of the restriction in section 21 of the Act. A person who commits this criminal offence is subject to a maximum of two years imprisonment and an unlimited fine. However, it is a defence for a person to show that he took all reasonable precautions and used all due diligence to avoid committing the offence.

PERG 8.2.2G

Another consequence of a breach of section 21 of the Act is that certain agreements could be unenforceable (see section 30 of the Act (Enforceability of agreements resulting from unlawful communications)). This applies to agreements entered into by a person as a customer as a consequence of a communication made in breach of section 21.

PERG 8.2.3G

An authorised person will not breach section 21 when communicating a financial promotion. Nevertheless, this guidance may be relevant where an authorised person needs to know whether the financial promotion rules apply1 to a particular communication.

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PERG 8.2.4G

A person who is concerned to know whether his communications will require approval or, if he is an authorised person, whether the appropriate financial promotion rules1 will apply to his communications will need to consider the following:

1
  1. (1)

    am I making a communication or causing a communication to be made? (see PERG 8.6);

  2. (2)

    if so, is it an invitation or inducement? (see PERG 8.4);

  3. (3)

    if so, does the invitation or inducement relate to a controlled investment? (see PERG 8.7);

  4. (4)

    if so, is the invitation or inducement to engage in investment activity? (see PERG 8.7);

  5. (5)

    if so, is it made in the course of business? (see PERG 8.5);

  6. (6)

    if so, and the financial promotion originates outside the United Kingdom, is it capable of having an effect in the United Kingdom? (see PERG 8.8);

  7. (7)

    if so, or if the answer to (5) is yes and the financial promotion was made in the United Kingdom, is the promotion exempt? (see PERG 8.12 to PERG 8.15 and PERG 8.21);

  8. (8)

    if not, am I an authorised person?

PERG 8.2.5G

If the answer to PERG 8.2.4G (8) is yes then the appropriate financial promotion rules1 will potentially 2apply (subject to the application provisions in COBS 1 and COBS 42). If the answer is no, then the promotion must be approved by an authorised person if it is a non-real time financial promotion. Authorised persons are not allowed to approve real time financial promotions (seeCOBS 4.10.4 R2). PERG 8.36.1G contains a flowchart explaining these steps.

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PERG 8.2.6G

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PERG 8.2.7G

The restriction in section 21 applies to all forms of communication such as advertising, broadcasts, websites, e-mails and all other forms of written or oral communication whether sent to one person or many. However, the restrictions only apply to a communication made in the course of business and not, for example, to personal communications between individuals.

PERG 8.2.8G

There are extensive exemptions in the Financial Promotion Order. This is explained in greater detail in PERG 8.11 to PERG 8.15 and PERG 8.21.