Financial Services and Markets Act 2000
2000 CHAPTER 8
Commentary on Sections
777.This Schedule does not define what activities are regulated under the Act. The regulated activities will be those activities which are prescribed using the power conferred by section 22. The Schedule sets out a list of “activities” and “investments” which, together, indicate the broad scope of activities which are potentially regulated under the Act. The scope of the Act is not strictly limited by the Schedule, but rather by the overall object and purpose of the Act. However, the general nature of the activities set out in the Schedule serves to inform and therefore indirectly limit the extent of the Treasury’s power to bring further activities within the scope of the Act.
778.It is within this overall object and purpose that the power under section 22 to prescribe the regulated activities operates. Orders made under that section will be an exhaustive statement of the regulated activities.
779.The Schedule is in three parts. The first Part describes certain activities which when carried on in relation to “investments” may be regulated. The second describes the “investments”. The third makes further provisions as to the scope of the order-making power under section 22.
780.The activities, which in each case include offering or agreeing to carry on the activity as well as actually carrying it out, are:
dealing in investments, which includes buying, selling, subscribing for or underwriting investments. It covers a person acting as either principal or agent. In relation to insurance, dealing also includes carrying out a contract of insurance;
arranging deals in investments on behalf of others, or making arrangements which enable other persons to deal;
safeguarding or administering assets for another person, or arranging for their assets to be safeguarded or administered;
managing assets on behalf of another person, where those assets are or may include investments;
giving advice on the buying, selling, subscribing for or underwriting of an investment or about the exercise of any right conferred by an investment to buy or sell, subscribe or otherwise convert an investment (examples of conversions on which advice might be given would include a corporate bond which, in certain circumstances, could be converted into, or redeemed in return for, a share of the equity in the company concerned);
establishing, operating or winding up a collective investment scheme, including acting as trustee, or depositary or sole director of certain types of scheme;
sending, or causing to be sent, instructions by means of a computer based system as to the transfer of investments. This element would cover computer-based clearing systems such as that operated by CREST.
781.Part II of the Schedule is an indicative list of the investments relevant to the question whether an activity could be brought within regulation under section 22. These are:
stocks and shares in companies incorporated in the United Kingdom or elsewhere, or in unincorporated bodies constituted under the law of any territory;
instruments creating or acknowledging indebtedness, such as loan stock, certificates of deposit, debentures and bonds, including debt issued by Governments, local authorities or international organizations of which the United Kingdom or any other EU member State is a member, such as the United Nations or the OECD;
instruments, such as warrants, conferring a right to subscribe in other types of investment (including investments which are not yet in existence or which, like ordinary shares in a company, are not individually identifiable);
instruments which confer contractual or property rights to underlying investments and which can be traded or transferred without reference to the party holding the underlying investments. Explicit inclusion of this element reflects the established practice whereby a public issue of securities might be made by issuing the securities themselves to a third party, which would issue certificates (which may confer only a proportionate property right to a security) to the subscribing public, which are then tradable as if they were the underlying securities themselves;
units in, or securities issued by, collective investment schemes and open-ended investment companies;
options to buy or sell property;
futures, which are contractual rights to buy or sell a commodity or property at a future date and at a price agreed at the time that the contract is made (though the price might still be contingent on other factors). This includes both bilateral “forward” contracts as well as standardized futures contracts traded on a futures exchange such as London International Financial Futures Exchange (“LIFFE”);
contracts for differences and other contracts whose value depends on fluctuations in the value of some factor such as property or index, for example interest rate swaps;
contracts of insurance;
membership and potential membership of a Lloyd’s syndicate and the underwriting capacity of such a syndicate;
deposits, that is contracts under which money is paid other than in return for goods or services and on the basis that it will be repaid, with or without interest, on demand or at some specified times or circumstances;
loans secured on land, such as mortgages; and
any other right or interest in any other investment.
782.Part III makes provision as to the scope of the order-making power under section 22. The first order to be made under that section must be subject to an affirmative resolution procedure - that is, it must be laid before Parliament after being made, and it will cease to have effect if it is not approved by a resolution of each House within 28 days of being made. The same procedure will apply where an order under section 22 has the effect of extending the scope of activities to be regulated under the Act.
Part Ii: Regulated and Prohibited Activities
Section 22: The classes of activity and categories of investment
63.This section makes provision as to the classes of regulated activity, if carried on by way of business, and types of investment which are to be regulated under the Act. These are to be prescribed by the Treasury by order to be made under subsection (1). An activity will only be a regulated activity if it is carried on by way of business and is specified in the order under subsection (1). The Treasury will have the power under section 419 to specify circumstances in which an activity shall or shall not be regarded as being carried on by way of business.
64.Schedule 2 indicates the general range of activities and investments that the Treasury may include within the order defining the scope of regulation, but it does not exhaustively list them. It is therefore possible that other activities or investments may be brought within the scope of the regulation under the Act. However, the general nature of the activities set out in Schedule 2 serves as a limitation on the extent of the Treasury’s power to bring further activities within the scope of the Act.
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