Under section 21(4) of the Act, the Treasury has the power to specify circumstances in which a person is viewed as ‘acting in the course of business’ or ‘not acting in the course of business’. The power under section 21(4) relates only to financial promotions and is distinct from the power in section 419 which relates to regulated activities. To date, the Treasury has not used the power in section 21(4). As a result, the phrase has its ordinary or natural meaning.
The FSA considers that ‘in the course of business’ requires a commercial interest on the part of the communicator. This does not necessarily have to be a direct interest. And the communicator does not need to be carrying on regulated activities (the test in section 19 of the Act) as or as part of his business. Neither does the communication need to be made in the course of carrying on activities as a business in their own right (the test in article 3 of the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001) (SI 2001/1177). For example, if a holding company proposes to sell one of its subsidiaries, that sale will be ‘in the course of business’ irrespective of the fact that the company may well not be in the business of selling subsidiaries.
The position is slightly more blurred with individuals. The ‘in the course of business’ test is intended to exclude genuine non-business communications. Examples of these would be friends talking in a pub, letters between family members or e-mails sent by individuals using an Internet chat-room or bulletin board for personal reasons. An issue arises where capital is raised for small private companies. Where such a company is already in operation, it will be acting ‘in the course of business’ when seeking to generate additional share or loan capital. At the pre-formation stage, however, it will often be the case that individuals who are proposing to run the company will approach a small number of friends, relatives and acquaintances to see if they are willing to provide start-up capital. In the FSA's view, such individuals will not be acting ‘in the course of business’ during the pre-formation stage of a small private company. This is provided that they are not:
There is, of course, no reason why an individual cannot act ‘in the course of business’. For example, sole traders who are independent financial advisers will give investment advice ‘in the course of business’ and so satisfy the test. Individuals who are merely seeking to make personal investments will not be acting ‘in the course of business’ by approaching a company about making an investment in its shares. However, it is possible that an individual who regularly seeks to invest in companies who are seeking to raise venture capital with a view to becoming a director and influencing their affairs may be regarded as acting in the course of business. In approaching companies, such a person should be able to make use of the exemptions for one-off financial promotions in articles 28 and 28A of the Financial Promotion Order (see PERG 8.14.3 G).
Persons who carry on a business which is not a regulated activity will need to be particularly careful in making communications which may amount to financial promotions (because they seek to persuade or incite persons to engage in investment activity (see PERG 8.4)). For example, where a company makes financial promotions to its employees, they may well be made in the course of business. Examples of these include financial promotions concerning employee share schemes, group wide insurance arrangements and stakeholder pension schemes. These would need to be approved by an authorised person unless an appropriate exemption is available. PERG 8.4.34 G provides further guidance on this.