Regulated Activity

What is a Regulated Activity?

In essence, a regulated activity is any financial service deemed by the FCA to have the potential to significantly impact consumers or the wider financial system. These activities encompass a broad spectrum, from handling investments and lending money to managing collective investment schemes and operating payment systems. The full list of regulated activities is outlined in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (as amended) and categorised into several distinct groups, including:

• Investment activities: Dealing in investments, arranging deals in investments, managing investments, operating collective investment schemes.
• Credit activities: Lending money, entering into regulated credit agreements, debt collecting, operating regulated credit brokers.
• Insurance activities: Accepting risks in respect of life insurance, accepting risks in respect of non-life insurance, carrying on insurance broking activity.
• Payment services: Operating a payment system, issuing payment instruments, money transmission services.
• MiFID activities: Providing investment advice, executing client orders, receiving and transmitting orders.

Why are some activities regulated?

The rationale behind regulating specific activities lies in protecting consumers from potential harm and ensuring the stability and integrity of the financial system. By imposing stringent rules and oversight, the FCA seeks to:

• Promote fair and transparent markets: Regulated activities are subject to strict guidelines regarding conduct, disclosure, and best practices. This helps to level the playing field and ensure consumers are treated fairly.
• Minimise financial risks: Stringent capital adequacy and risk management requirements for regulated firms aim to prevent financial misconduct and insolvencies, protecting both consumers and the wider economy.
• Enhance confidence in the financial system: A robust regulatory framework fosters trust and confidence in the financial system, encouraging investment and economic growth.

Who needs to be authorised?

Carrying out a regulated activity in the UK without authorisation is a criminal offence. To operate legally, firms and individuals must obtain authorisation from the FCA, demonstrating their:

• Fitness and propriety: Applicants must have a clean track record and meet the FCA’s standards for honesty, integrity, and competence.
• Financial soundness: Adequate capital resources and robust risk management systems are essential to ensure operational stability.
• Compliance with regulatory requirements: Firms must have systems and procedures in place to comply with all relevant FCA rules and regulations.

Exemptions and permissions:

It’s important to note that some activities fall within the broad definition of regulated activity but may be exempt from authorisation under specific circumstances. Additionally, certain activities may only require limited permission from the FCA, depending on their scope and complexity. Understanding the available exemptions and permissions is crucial for determining the specific authorisation requirements applicable to your business.

Staying compliant:

Once authorised, firms and individuals engaged in regulated activities must adhere to a wide range of ongoing regulatory obligations. These include:

• Submitting regular reports to the FCA: Providing ongoing information on financial performance, risk management practices, and compliance activities.
• Maintaining accurate and complete records: Ensuring all relevant financial transactions and client interactions are properly documented.
• Providing fair and accurate information to clients: Disclosing all material risks and ensuring marketing materials are clear and not misleading.
• Treating clients fairly: Upholding the FCA’s principles for business conduct, which prioritise fair treatment and good communication.

How can Jeremy Gordon help?

By seeking professional guidance and staying informed about relevant regulations, firms and individuals can ensure they are compliant and operating within the legal framework.  Our head of Financial Services Regulation, Tim Thompson , has advised clients in relation to FCA regulated activities, drawing on the wealth of knowledge gained from his employment at the FCA as an enforcement lawyer and in particular his experience in providing advice to authorisation teams about fitness of individual applicants and to investigation teams about what constitutes regulated activity.