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PART 2 U.K.Exempt and third-country investment firms

CHAPTER 1U.K.Exempt investment firms

Applications to be an exempt investment firmU.K.

4.—(1) A person may apply in accordance with section 55A M1 (application for permission) of the Act for a Part 4A permission to carry on regulated activities as an exempt investment firm.

(2) An authorised person may become entitled to carry on regulated activities as an exempt investment firm only by applying for a variation of its Part 4A permission in accordance with section 55H M2 (variation by FCA) or 55I M3 (variation by PRA) of the Act.

(3) A person may only apply for a Part 4A permission as mentioned in paragraph (1), and an authorised person may only apply for a variation of their Part 4A permission as mentioned in paragraph (2), if the person or authorised person has its relevant office in the United Kingdom.

(4) In this regulation “relevant office” means—

(a)in relation to a body corporate, its registered office or, if it has no registered office, its head office; and

(b)in relation to a person, or authorised person other than a body corporate, the person's head office.

Marginal Citations

M1Section 55A was inserted by section 11(2) of the Financial Services Act 2012.

M2Section 55H was inserted by section 11(2) of the Financial Services Act 2012 and amended by S.I. 2013/1773.

M3Section 55I was inserted by section 11(2) of the Financial Services Act 2012.

Limitation on exempt investment firmsU.K.

F15.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

Requirements applying to exempt investment firmsU.K.

6.—(1) If the appropriate regulator—

(a)gives to a person who has applied under regulation 4(1) a Part 4A permission to carry on regulated activities as an exempt investment firm; or

(b)varies the Part 4A permission of an authorised person who has applied as mentioned in regulation 4(2) for a variation to permit them to carry on regulated activities as an exempt investment firm,

the requirements specified in paragraph (3) (“the specified requirements”) shall be treated as being imposed under section 55L M4 (imposition of requirements by FCA) (where the FCA is the appropriate regulator) or 55M M5 (imposition of requirements by PRA) (where the PRA is the appropriate regulator) of the Act.

(2) Notwithstanding paragraph (1)—

(a)the treatment of the specified requirement as a requirement imposed under section 55L or 55M of the Act does not—

(i)amount for the purpose of section 55X(1) M6 (determination of applications: warning notices and decision notices) of the Act to a proposal to exercise the power of the appropriate regulator under section 55L(1) or 55M(1) of the Act;

(ii)amount for the purpose of section 55X(4) M7 of the Act to a decision to exercise the power of the appropriate regulator under section 55L(1) or 55M(1) of the Act; or

(iii)entitle the person to refer a matter under section 55Z3(1) M8 (right to refer matters to the Tribunal) of the Act;

(b)the specified requirements shall not expire until the person ceases to be an exempt investment firm; and

(c)no application under section 55L(5) or 55M(5) of the Act to vary or cancel any of the specified requirements may be made by the person unless they inform the appropriate regulator when making the application that they wish to cease to be an exempt investment firm.

(3) The requirements are that the person—

(a)does not hold clients' funds or securities and does not, for that reason, at any time, place themselves in debit with their clients;

(b)does not provide any investment service other than the—

(i)reception and transmission of orders in transferable securities and units in collective investment undertakings; and

(ii)provision of investment advice in relation to the financial instruments mentioned in paragraph (i); and

(c)in the course of providing the investment services mentioned in sub-paragraph (b), transmits orders only to—

[F2(i)an investment firm which—

(aa)has a Part 4A permission to carry on regulated activities relating to investment services and activities; or

(bb)is authorised in accordance with the markets in financial instruments directive;]

[F3(ii)a credit institution which—

(aa)has a Part 4A permission to carry on the regulated activity of accepting deposits and falls within paragraph (3A); or

(bb)is authorised in accordance with Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and investment firms;]

[F4(iii)a branch of an investment firm or of a credit institution authorised in a third country and which is subject to, and complies with, prudential rules considered by the appropriate regulator to be at least as stringent as those laid down in the markets in financial instruments directive, the capital requirements regulation, and the solvency 2 directive;]

(iv)a collective investment undertaking authorised under the law of [F5the United Kingdom or of] an EEA State to market units to the public and to a manager of such an undertaking; or

(v)an investment company with fixed capital, the securities of which are listed or dealt in on [F6a UK regulated market or] a regulated market in an EEA State.

[F7(3A) A credit institution falls within this paragraph if—

(a)it has its head office in the United Kingdom; and

(b)it is not a credit union within the meaning of the Credit Unions Act 1979 or the Credit Unions (Northern Ireland) Order 1985, or a friendly society within the meaning of section 417(1) of the Act.]

[F8(4) In paragraph (3), “investment company with fixed capital” means a company—

(a)the exclusive object of which is to invest its funds in various stocks and shares, land or other assets with the sole aim of spreading investment risks and giving its shareholders the benefit of the results of the management of their assets; and

(b)which offers its own shares for subscription by the public.]

F9(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F10(6) In this regulation—

“appropriate regulator” means the appropriate regulator for the purposes of section 55A in relation to an application under regulation 4(1);

“the capital requirements regulation” means Regulation (EU) No EU 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms; and

“the solvency 2 directive” means Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).]

Textual Amendments

Marginal Citations

M4Section 55L was inserted by section 11(2) of the Financial Services Act 2012.

M5Section 55M was inserted by section 11(2) of the Financial Services Act 2012.

M6Section 55X(1) was inserted by section 11(2) of the Financial Services Act 2012.

M7Section 55X(4) was inserted by section 11(2) of the Financial Services Act 2012.

M8Section 55Z3 was inserted by section 11(2) of the Financial Services Act 2012.

Transitional provision: exempt investment firmsU.K.

7.—(1) An authorised person who immediately before 3rd January 2018 was—

(a)an exempt investment firm by virtue of regulation 9A M9(transitional provision: exempt investment firms) of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2007; or

(b)permitted to carry on regulated activities as an exempt investment firm in accordance with permission granted in accordance with regulation 4C M10 (requirements to be applied to exempt investment firms) of those Regulations,

becomes an exempt investment firm with effect from that day as if they had applied as mentioned in regulation 4(1) or (2) M11 and had been granted the permission or variation on that day.

Marginal Citations

M10Regulation 4C was inserted by S.I. 2007/263 and was amended by S.I. 2013/472 and 2013/3115.

M11Regulation 4(1) and (2) were amended by S.I. 2013/472.

Meaning of “exempt investment firm” in Chapter 1U.K.

8.  In this Chapter “exempt investment firm” means an authorised person who—

(a)is an investment firm; and

(b)has a Part 4A permission;

[F11but to whom the appropriate regulator has granted exemption from authorisation and operating conditions which usually apply to investment firms.]

Textual Amendments

CHAPTER 2U.K.Third country investment firms

Third country firms with an EEA branch: provision of servicesU.K.

F129.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

FCA power to intervene in relation to third country firms with an EEA branchU.K.

F1310.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

Third country firms registered with [F14the FCA]: provision of servicesU.K.

11.—[F15(1)]  A third country firm registered with [F16the FCA] is not to be regarded as carrying on a regulated activity if it carries on the activity in the course of exercising rights under Article 46.1 (general provisions) of the markets in financial instruments regulation.

[F17(2) For the purposes of this regulation, third country firms which are included on the register with ESMA immediately before IP completion day under Article 46.2 of the markets in financial instruments regulation are to be treated after exit day as being registered with the FCA.]

Textual Amendments

FCA power to intervene in relation to third country firms registered with [F18the FCA] U.K.

12.—(1) The FCA may exercise its power of intervention in relation to a third country firm registered [F19with it] where it considers that —

(a)the firm has acted, or is acting, in a manner which is clearly prejudicial to the interests of investors or the orderly functioning of the markets; or

(b)the firm has seriously infringed provisions—

(i)applicable to the firm in the country in which it is established; and

[F20(ii)on the basis of which—

(aa)the Commission has adopted a decision in relation to the country under paragraph 1 of Article 47 of the markets in financial instruments regulation before IP completion day; or

(bb)the Treasury have made regulations in relation to the country under that paragraph after IP completion day;]

(2) Section 197 (procedure on exercise of power of intervention) applies to the exercise by the FCA of its power of intervention under paragraph (1) [F21as it applied] to the exercise by the FCA [F22before IP completion day] of its power of intervention under Part 13 of the Act generally.

(3) Where it appears to the FCA that the power of intervention is exercisable under paragraph (1) in relation to a third country firm registered [F23with it] the FCA must give—

F24(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)the firm written notice of its concerns which—

(i)requires the firm to put an end to the conduct which gives rise to the concern;

(ii)states that the FCA's power of intervention will become exercisable in accordance with this regulation; and

(iii)indicates any requirements that the FCA proposes to impose on the firm in exercise of its power of intervention in the event the power becomes exercisable.

(4) The FCA may then only exercise its power of intervention under paragraph (1) if—

(a)the FCA considers a reasonable time has elapsed since it gave the written [F25notice] under paragraph (3); [F26and]

(b)the firm has not put an end to the concerning conduct;

F27(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F27(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F28(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F28(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

Third country firms: provision of services to eligible counterparties or clients considered to be professionalsU.K.

13.  A third country firm is not to be regarded as carrying on a regulated activity if it carries on the activity in the course of exercising rights under the third paragraph of Article 46.5 (general provisions) of the markets in financial instruments regulation.

Third country firms: financial promotionsU.K.

14.—(1) The communication, in the course of business, of an invitation or inducement to engage in investment activity is not to be regarded as a communication for the purposes of section 21(1) (restrictions on financial promotion) of the Act if it is made in the course of exercising rights under Title 8 of the markets in financial instruments regulation.

(2) For the purposes of paragraph (1) a communication is made in the course of exercising rights under Title 8 of the markets in financial instruments regulation if it is made—

(a)by a third country firm registered with [F29the FCA] to eligible counterparties or to clients considered to be professionals in the course of exercising rights under Article 46.1 (general provisions) [F30of the Regulation]; [F31or]

(b)by a third country firm to eligible counterparties or to clients considered to be professionals in the course of exercising rights under Article 46.5 of the Regulation provided that—

(i)the counterparty or client has initiated at his or her own exclusive initiative the provision by the firm of an investment service or activity under that Article to the counterparty or client; and

(ii)the communication is in respect of the investment service or activity; F32...

F33(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) An order made by the Treasury under section 21(5) of the Act does not apply to a person who, in the course of business, communicates an invitation or inducement to engage in investment activity if—

(a)the communication is made in the course of providing investment services or performing investment activities with or without ancillary services to eligible counterparties or clients considered to be professionals; and

(b)the person is—

(i)established in a country which is subject to an equivalence [F34determination]; or

(ii)permitted to provide those services under Article 46.5 of the markets in financial instruments regulation.

(4) For the purposes of paragraph (3)—

[F35(a)“equivalence determination” means—

(i)a decision adopted by the Commission in relation to a country under paragraph 1 of Article 47 of the markets in financial instruments regulation before IP completion day which has not been withdrawn by a subsequent decision adopted by the Commission under that Article before exit day; or

(ii)regulations made by the Treasury in relation to a country under that paragraph after IP completion day which have not subsequently been revoked;]

[F36(b)a country is subject to an equivalence determination if a period of more than three years has elapsed since—

(i)the adoption of the decision by the Commission, beginning on the day after the date of the adoption of the decision; or

(ii)the making of the regulations by the Treasury, beginning on the day after the day on which the regulations were made;]

Textual Amendments

Interpretation of Chapter 2U.K.

15.  In this Chapter—

“clients considered to be professionals” means professional clients (as defined by [F37Article 2(1)(8) of the markets in financial instruments regulation]) who fall within [F38Part 2 of Schedule 1 to that regulation];

[F39“power of intervention” means the power of the regulator to impose any requirement in relation to the firm in respect of which the power is exercisable which the regulator could impose if—

(a)

the firm's permission was a Part 4A permission, within the meaning of the Act; and

(b)

the regulator was entitled to exercise its power under section 55L(3) or 55M(3) of the Act;]

“third country firm” has the same meaning as in [F40Article 2.1.42 of the markets in financial instruments regulation];

“third country firm registered with [F41the FCA]” means a third country firm which—

(a)

is registered in the register of third-country firms kept by [F41the FCA] in accordance with [F42Article 48 (register) of the markets in financial instruments regulation]; and

(b)

has the right under Article 46.1 (general provisions) [F43of the markets in financial instruments regulation] to provide investment services or perform investment activities with or without any ancillary services to eligible counterparties and to clients considered to be professionals;

F44...

Textual Amendments