Regulation

Any person who carries on a regulated activity in the EU must be authorised by the national financial authority or exempt. Breach of this may be a criminal offence.

Does my firm need to be regulated?
You need to establish whether your firm’s proposed business requires you to apply for authorisation to carry on regulated activities. For most smaller firms, this would typically include intermediaries selling investments and/or home finance activities and/or general insurance.

For each regulated activity you must also identify with which investment type your activities will be concerned.

Which activities are regulated?
Specified activities comprise:

arranging deals in investments;
arranging home finance activities;
operating a multilateral trading facility;
managing investments;
assisting in the administration and performance of a contract of insurance;
safeguarding and administering investments;
sending dematerialised instructions;
establishing etc collective investment schemes;
establishing etc stakeholder pension schemes;
providing basic advice on stakeholder products;
advising on investments;
accepting deposits;
issuing e-money;
effecting or carrying out contracts of insurance as principal;
dealing in investments (as principal or agent);
advising on home finance activities;
entering into a home finance activity;
administering a home finance activity;
agreeing to do most of the above activities.

Specified investments comprise:

government and public securities;
instruments giving entitlement to investments;
certificates representing certain securities;
units in a collective investment scheme;
rights under a stakeholder pension scheme;
rights under personal pension scheme;
options;
futures;
contracts for differences (CFDs);
rights under funeral plan contracts;
rights under regulated mortgage contracts;
rights under a home reversion plan;
rights under a home purchase plan;
deposits;
electronic money;
rights under a contract of insurance;
shares etc;
instruments creating or acknowledging indebtedness;
sukuk (shariah compliant debt instruments)

Business test
Under section 22 of the FSMA, for an activity to be a regulated activity, it must be carried on ‘By way of business’.

Financial promotions
A financial promotion is an invitation or inducement to engage in investment activity. Investment activity may be:

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

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

How to be regulated?Any person wishing to carry on one or more regulated activities, by way of business, must apply for authorisation (unless they can abide by the terms of exclusion or are exempt).

Payment services directive
The Payment Services Directive has been introduced to provide a common regulatory approach to the provision of electronic payment services

The Payment Services Directive PSD firms providing payment services and their customers. These firms include:

banks;
building societies;
e-money issuers;
money remitters;
non-bank credit card issuers; and
non-bank merchant acquirers.

The Payment Services Directive created a new class of regulated firms known as payment institutions (PIs), who must either be authorised or registered. Authorised PIs are subject to prudential requirements. duct of business requirements apply to all payment service providers, including banks, building societies, e-money issuers and the new PIs.

Authorised and registered PIs need to provide with two types of information while they are being regulated – we categorise these as ‘reporting’ and ‘notifications’.

Reporting information is the information reported on a periodic basis to comply with supervisory and EU reporting obligations.

Notifications are what PIs need to send when there is a change in the information they have already provided. PIs must provide details of the change without undue delay – usually within 28 days of the change.