Use the flowchart (and accompanying notes) below to consider whether the restriction in section 21 of FSMA 2000 applies to your communications:
Source: Financial Conduct Authority (FCA)
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 of the Financial Services & Markets Act 2000 by an authorised person or it is exempt. A person will commit a criminal offence if in breach of this restriction (subject to a maximum of two years imprisonment and an unlimited fine).
Below is a brief summary for each reference made to PERG (the Perimeter Guidance Manual) in the diagram above. All of the information has been extracted from the FCA's Handbook and you are advised to refer to the Handbook for detailed guidance https://fshandbook.info/FS/html/FCA/PERG/8.
Perimeter Guidance Manual (PERG):
PERG 8.6 Communicate
Communication has the same meaning as financial promotion. According to the FCA, a person is communicating where he gives the material to the recipient or where, in certain circumstances, he is responsible for transmitting the material on behalf of another person.
PERG 8.4 Invitation or Inducement
Invitation: an invitation is a communication which directly invites a person to take a step which will result in engaging in investment activity (see PERG 8.7 Investment Activity).
Inducement: an inducement may often be followed by an invitation or vice-versa. This may be described as a link in the chain where the chain is intended to lead ultimately to an agreement to engage in investment activity.
PERG 8.7 Investment Activity
- Enter or offer to enter into an agreement the making or performance of which by either party constitutes a *controlled activity; or
- Exercise any rights conferred by a **controlled investment to acquire, dispose of, underwrite or convert a controlled investment.
*Controlled activities may include any of the following:
1. Accepting deposits
2. Effecting and carrying out contracts of insurance
3. Dealing in securities and contractually based investments
4. Arranging deals in investments
4A. Operating a multilateral trading facility
4B. Credit Broking
4C. Operating an electronic system in relation to lending
5. Managing investments
5A. Debt adjusting
5B. Debt counselling
6. Safeguarding and administering investments
7. Advising on investments
8. Advising on syndicate participation at Lloyd's
9. Providing funeral plan contracts
10. Providing qualifying credit
11. Arranging qualifying credit etc
12. Advising on qualifying credit etc
12A. Providing relevant consumer credit
12B. Providing consumer hire
13. Providing a home reversion plan
14. Arranging a home reversion plan
15. Advising on a home reversion plan
16. Providing a home purchase plan
17. Arranging a home purchase plan
18. Advising on a home purchase plan
18A. Providing a regulated sale and rent back agreement
18B. Arranging a regulated sale and rent back agreement
18C. Advising on a regulated sale and rent back agreement
19. Agreeing to do anything in 3 to 18C above.
1. A deposit
2. Rights under a contract of insurance
4. Instruments creating or acknowledging indebtedness (referred to in the FCA's Glossary as debentures and alternative debentures)
5. Government and public securities
6. Instruments giving entitlement to investments (referred to in the FCA's Glossary as warrants)
7. Certificates representing certain securities
8. Units in a collective investment scheme
9. Rights under a stakeholder pension scheme or a personal pension scheme
12. Contracts for differences etc
13. Lloyd's syndicate capacity and syndicate membership
14. Funeral plan contracts
15. Agreements for qualifying credit
16. Rights under a home reversion plan
17. Rights under a home purchase plan
17A. Rights under a regulated sale and rent back agreement
17B. Rights under a relevant credit agreement (including rights under a paragraph 4C agreement)
17C. Rights under a consumer hire agreement
18. Rights to or interests in anything falling under 1 to 14 above.
PERG 8.5 In the course of business
'In the course of business' requires a commercial interest (direct or indirect) on the part of the communicator. The 'in the course of business' test applies to businesses and individuals. Even where a business does not carry out regulated activities as part of its day-to-day general service offering, a communication may still amount to a financial promotion (i.e. if it seeks to persuade or incite persons to engage in investment activity).
PERG 8.8 Having an effect in the UK
A communication which originates overseas will be capable of having an effect in the UK if it is an invitation or inducement to engage in investment activity which is communicated to a person in the UK. It is irrelevant whether the communication has an effect provided it is capable of doing so.
PERG 8.12 to 8.15 Exemptions
8.12 Exemptions applying to all controlled activities:
- Financial promotions to overseas recipients (Article 12)
- Financial promotions from customers and potential customers (Article 13)
- Follow up financial promotions (Article 14)
- Introductions (Article 15)
- Exempt persons (Article 16)
- Generic promotions (Article 17)
- Mere conduits (Articles 18 and 18A)
- Investment Professionals (Article 19)
- Journalists (Article 20)
- Promotion broadcast by company director etc (Article 20A)
- Incoming electronic commerce communications (Article 20B)
8.13 Exemptions applying to financial promotions concerning deposits and certain contracts of insurance.
8.14 Other financial promotions:
- One-off financial promotions (Articles 28 and 28A)
- Overseas communicators (Articles 30-33)
- Nationals of EEA States other than the UK (Article 36)
- Joint enterprises (Article 39)
- Certified high net worth individuals (Article 48)
- High net worth companies, unincorporated associations and trusts (Article 49)
- Sophisticated investors (Articles 50 and 50A)
- Associations of high net worth individuals or sophisticated investors (Article 51)
- Common interest group of a company (Article 52)
- Sale of body corporate (Article 62)
- Pension products offered to employees by employers (Article 72) and third parties (Article 72A)
- Insurance product offers communicated to employees by employers (Article 72B) and third parties (Article 72C)
- Staff Mortgage offers communicated to employees by employers (Article 72D) and third parties (Article 72E)
- Credit agreements offered to employees by employers (Article 72F)
- Advice centres (Article 73)
8.15 Financial promotions by members of the professions (Articles 55 and 55A):
- Real time financial promotions by professional firms. Article 55 of the Financial Promotion Order contains a specific exemption for professional firms (i.e. those supervised and regulated by a Designated Professional Body) allowing them to make solicited or unsolicited real time financial promotions.
- Non-real time financial promotions by professional firms. Article 55A enables professional firms to brochures, websites and other non-real time financial promotions without any need for approval by an authorised person.
PERG 8.10 Types of financial promotion (Real time & Non-real time)
Real time financial promotion: is a financial promotion made in the course of a personal visit, telephone conversation or other interactive dialogue.
Non-real time financial promotion: other promotions that are not real time, such as those that are directed at more than one recipient in identical terms, those made to the recipient so that it is available to refer to at a later time and those directed in such a way that it is not required of the recipient to respond to it straight away.
COBS (Conduct of Business Sourcebook)
The conduct of business requirements and obligations applying to firms. COBS 1 through to 4, in particular, are relevant for dealing with communications to clients, including financial promotions.
You can access COBS here: https://fshandbook.info/FS/html/FCA/COBS
The purpose of this article is to help you understand whether or not your communications require approval for the purposes of section 21 FSMA 2000. The guidance notes listed above are not exhaustive but should help you decide whether or not they apply. If you are in any doubt you may contact us.