The Financial Services Authority applies two items of legislation:

The Financial Services and Markets Act 2000.

The  Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544).3

known as the Regulated Activities Order.


REGULATED ACTIVITY

What are the regulated activities?

The general prohibition.

(1)No person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is—

(a)an authorised person; or

(b) an exempt person.

An activity is a controlled activity if—

it is an activity of a specified kind or one which falls within a specified class of activity; and

it relates to an investment of a specified kind, or to one which falls within a specified class of investment.

An investment is a controlled investment if it is an investment of a specified kind or one which falls within a specified class of investment.

Specified activities are defined in Part II of the RAO and comprise:

accepting deposits:

(1) (except in COMP) the investment, specified in article 74 and defined in articles 5(2) and 5(3) of the Regulated Activities Order, which is in summary: a sum of money (other than one excluded by any of articles 6 to 9 AB28 of the Regulated Activities Order) paid on terms:

(a) under which it will be repaid, with or without interest or a premium, and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it; and

(b) which are not referable to the provision of property (other than currency) or services or the giving of security;

in this definition, money is paid on terms which are referable to the provision of property or services or the giving of security if, and only if:

(i) it is paid by way of advance or part payment under a contract for the sale, hire or other provision of property or services, and is repayable only in the event that the property or services is or are not in fact sold, hired or otherwise provided; or

(ii) it is paid by way of security for the performance of a contract or by way of security in respect of loss which may result from the non-performance of a contract; or

(iii) without prejudice to (ii), it is paid by way of security for the delivery up or return of any property, whether in a particular state of repair or otherwise.


dealing in investments (as principal or agent)

Under Section 19 of FSMA, any person who carries on a regulated activity in the UK must be authorised by the FSA or exempt. You need to establish whether your firm's proposed business requires you to apply for authorisation to carry on regulated activities. For each regulated activity you must also identify with which investment type your activities will be concerned. The activities and specified investments are detailed in The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001

Specified investments are defined in Part III of the RAO and comprise:

deposits;

A deposit is defined in article 5(2) of the Regulated Activities Order. This focuses on a sum of money paid by one person to another on terms that it will be repaid when a specified event occurs (for example, a demand is made).
 
Certain transactions are excluded. The definition of deposit itself excludes money paid in connection with certain transactions such as advance payments for the provision of goods or services.
 
The circumstances in which payments are excluded from the definition itself are exhaustively stated in article 5(3) of the Regulated Activities Order (Accepting deposits).
In addition, there is a separate exclusion in article 9 of the Order (Sums received in consideration for the issue of debt securities) and another in article 9A (Sums received in exchange for electronic money). PERG 3.2.15 G to PERG 3.2.19 G contain guidance on the exclusion relating to electronic money.

shares etc;

Shares are defined in the Regulated Activities Order as shares or stock in a wide range of entities; that is, any body corporate wherever incorporated and unincorporated bodies formed under the law of a country other than the United Kingdom

a share or stock in the share capital of:

(a) any body corporate (wherever incorporated);

(b) any unincorporated body constituted under the law of a country or territory outside the United Kingdom.

designated investment means: a security

body corporate means:  1(in accordance with section 417(1) of the Act (Definitions)) any body corporate, including a body corporate constituted under the law of a country or territory outside the United Kingdom.

(b) share (article 76);

(c) debenture (article 77);

(ca) alternative debenture (article 77A);23

Investment Activity means:

(a) enter or offer to enter into an agreement the making or performance of which by either party constitutes a controlled activity; or7

(b) exercise any rights conferred by a controlled investment to acquire, dispose of, underwrite or convert a controlled investment.

The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001

“security” means (except where the context otherwise requires) any investment of the kind specified by any of articles 76 to 82 or, so far as relevant to any such investment, article 89; ie., shares, bonds, debentures.

(in accordance with article 3(1) of the Regulated Activities Order (Interpretation)) any of the following investments specified in that Order:

(a) share (article 76);

(b) debenture (article 77);

the investment, specified in article 77 of the Regulated Activities Order (Instruments creating or acknowledging indebtedness), which is in summary: any of the following :

(a) debentures;  (b) debenture stock; (c) loan stock;  (d) bonds;

alternative debenture (article 77A);53

Instruments creating or acknowledging indebtedness

Debentures; Bonds; but an instrument acknowledging or creating indebtedness for, or for money borrowed to defray, the consideration payable under a contract for the supply of goods or services is excluded.

Financial Promotions

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.

the regulated activity, specified in article 14 of the Regulated Activities Order (Dealing in investments as principal), which is in summary: buying, selling, subscribing for or underwriting designated investments as principal.1

Regulated Activity

(in accordance with section 22 of the Act (The classes of activity and categories of investment)) any of the following activities specified in Part II of the Regulated Activities Order (Specified Activities):

(a) accepting deposits (article 5);

(aa) issuing electronic money (article 9B);

(b) effecting contracts of insurance (article 10(1));

(c) carrying out contracts of insurance (article 10(2));

(d) dealing in investments as principal (article 14);

(e) dealing in investments as agent (article 21);

(f) arranging (bringing about) deals in investments (article 25(1));

(g) making arrangements with a view to transactions in investments (article 25(2));

designated investment

a security or a contractually-based investment (other than a funeral plan contract and a right to or interest in a funeral plan contract), that is, any of the following investments, specified in Part III of the Regulated Activities Order (Specified Investments), and a long-term care insurance contract which is a pure protection contract:34,  35

(a) life policy (subset of article 75 (Contracts of insurance));

(b) share (article 76);

(c) debenture (article 77);

(ca) alternative debenture (article 77A);23

(d) government and public security (article 78);

(e) warrant (article 79);

(f) certificate representing certain securities (article 80);

(g) unit (article 81);