Styperson POPE

Strategy & Compliance for Investment Firms


Who needs to be FSA Authorised?

As is so often the case with regulation, it’s almost impossible to get an answer to a simple question like this without ending up being barraged by unhelpful and unfamiliar technical terms.  With respect to investment firms like our clients, the answer is easy:

“If, in the course of business, you carry out designated investment business with respect to specified investments and the activity isn’t excluded, or you’re not exempt, you need to be authorised.” 

But really, what use is that?!

The rules genuinely are detailed and complicated, and the terminology is technical so this can’t be a full guide but we can unpack the ‘easy answer’ above, separate out the different concepts and give a quick introduction to them so that you know what questions to ask next…

1) in the course of business
This part of the answer is not clearly defined by law but most people know whether they are doing something in the course of business or not.  If it could make you money (whether or not it actually does) and if it’s a regular activity rather than a one-off happening, it’s likely to fall within “the course of business”.

2) designated investment business
This is just a part of the much wider “regulated activities” which range from insurance business to banking but these are the ones undertaken by most investment firms.  These include (among others):

Again, common sense applies; if it feels like it should be regulated, it probably is.

3) specified investments
These are the investment instruments that are regulated.  This category includes shares, options, warrants, debentures, units in a collective investment scheme (fund), government securities, &c..

There are several popular alternative asset classes that aren’t specified investments, most notably property (real estate) but also art, wine, stamps, antiques, and the like.  You do not, therefore, need to be regulated in order to advise someone on their portfolio of wines. 

Even within these asset classes, some caution is required; because units and shares are specified investments, advising somebody to buy into an art fund, or to buy a special purpose vehicle which owns a building, is likely to be regulated.

4) excluded activity
These are activites which, were it not for the specific exemption, would require you to be authorised.  They include publishing media reports on financial matters, setting up employee share schemes, and buying or selling investments on your own behalf (as long as you don’t hold yourself out to the market as willing to do so).

5) exempt persons
Finally, these are people who have specific exemptions from requiring FSA authorisation because of who they are.  These include regulated professional firms (mainly lawyers and accountants, where the activity is incidental to the professional services they offer), appointed representatives, central banks, and certain large investment exchanges.  If you were going to fall into this category, you’d probably know already.

If you’re not sure whether you need to be authorised, it’s likely to be because you’re not sure if the activity you’re undertaking counts as ‘regulated activity’ or if you’re involved with ‘specified investments’ (2 & 3 above).  These are the key areas where you may want to seek more advice.

Of course, if you’d like to discuss with us, whether or not you need regulation, please contact Simon Webber, StypersonPOPE’s MD, either by telephone or on sw@strategic-compliance.co.uk.


Types of Investor under FSA rules

If you are a potential investor, we’d be very grateful if you could take 30 seconds to complete the anonymous poll at the bottom of the page to let us know which certificates (if any) you currently hold.

The Financial Services Authority (FSA) categorises individual investors in a number of ways and allows certain firms to promote their services, products, investment schemes and funds to different groups.  These categories include:

An investor may fall into any or all of these categories and may, at the same time, be either a “retail” or “elective professional” client.  An  investor may also fall into one category for a certain instrument (eg shares in unlisted companies) but not for others (eg derivatives).  Also, depending on the structure of the investment (eg an EIS or a Collective Investment Scheme) certain categories may or may not be used.

It’s a complicated overlap of different restrictions, trying to acheive different objectives – if you’re promoting an investment or a regulated service and you need to understand it, please do call or e-mail Simon Webber to talk it through. 


Promoting an unregulated collective investment scheme

IFAs are not the only route. 
“Unregulated Collective Investment Scheme” (UCIS) is something of a misnomer.  Far from being unregulated, the FSA restrict these schemes very tightly indeed – for funds structured as a UCIS, there is a simple edict:

Such schemes cannot be marketed to the general public and are otherwise restricted in their promotion.

As a result, the promotion of unregulated collective investment schemes, must be carried out very carefully and only to selected groups of investors.  Often the only route considered is through IFAs but in fact any authorised firm, and even unauthorised firms, can promote a UCIS as long as the approach is planned carefully and carried out correctly.

Summary Documents
For the sake of making the fund more attractive to investors, the detail of the information memorandum (IM) needs to be distilled, summarised and presented in a more user-friendly, marketing-led form.  Although secondary to the IM, this document must still meet the stringent demands of the FSA.  We produce summary documents, ensuring compliance, and with marketing expertise on hand, as well as design and print facilities, we can offer a full service if required.

Alternative Routes to Market
For some funds, IFAs may not be the best (or at least the only) route to market and with our assistance, General Partners, Managers, Advisers, and Promoters of such schemes can negotiate a marketing plan with their Operators, draft documents and produce a set of procedures which allows them to engage with individual investors under specific exemptions to the rules.