Appendix 1. Financial promotion and related activities

Part

AUTH Authorisation (to see AUTH derivations and destinations tables, go to Useful links)

Chapter

Appendix 1. Financial promotion and related activities

Printed on: 01/11/2024

Rulebook at: 01/04/2005

AUTH App 1

Appendix 1. Financial promotion and related activities

AUTH App 1.1

Application and purpose

01/12/2004

Application

AUTH App 1.1.1

This appendix applies to persons who need to know whether their communications are subject to or comply with the Act. It also helps them decide whether their activities in making or helping others to make financial promotions are regulated activities.

01/06/2002

Purpose of guidance

AUTH App 1.1.2

The purpose of this guidance is two fold:

(1) to outline the restriction on financial promotion under section 21 of the Act (Restrictions on financial promotion) and the main exemptions from this restriction; and

(2) to outline the main circumstances in which persons who are primarily involved in making or helping others to make financial promotions may be conducting regulated activities requiring authorisation or exemption themselves; this part of the guidance may also be of more general relevance to persons who may be concerned whether or not they are carrying on the regulated activities of advising on investments or making arrangements with a view to transactions in investments.

01/10/2002

AUTH App 1.1.3

In particular, this guidance covers:

(1) invitations and inducements (see AUTH App 1.4);

(2) meaning of 'in the course of business' (see AUTH App 1.5);

(3) meaning of 'communicate' (see AUTH App 1.6);

(4) meaning of 'engage in investment activity' (see AUTH App 1.7);

(5) meaning of 'having an effect in the United Kingdom' (see AUTH App 1.8);

(6) circumstances where the restriction in section 21 does not apply (see AUTH App 1.9);

(7) types of financial promotion, including:

(a) meaning of 'real time financial promotion' (see AUTH App 1.10.2 G); and

(b) meaning of 'unsolicited real time financial promotion' (see AUTH App 1.10.8 G);

(8) types of exemption under the Financial Promotion Order, including:

(a) exemption for certain one-off promotions (see AUTH App 1.14.3 G);

(b) exemption for financial promotions not directed at the United Kingdom (see AUTH App 1.12.2 G);

(9) financial promotions concerning deposits and contracts of insurance other than life policies (see AUTH App 1.13);

(10) financial promotions concerning promotions by members of the professions (see AUTH App 1.15);

(11) financial promotions concerning funeral plans (see AUTH App 1.16);

(12) financial promotions concerning the Lloyd's market (see AUTH App 1.18);

(13) additional restrictions on the promotion of:

(a) life policies (see AUTH App 1.19);

(b) collective investment schemes (see AUTH App 1.20);

(14) company statements, announcements and briefings (see AUTH App 1.21);

(15) financial promotions made on the Internet (see AUTH App 1.22);

(16) regulated activities:

(a) advising on investments (see AUTH App 1.24);

(b) making arrangements with a view to transactions in investments (see AUTH App 1.32); and

(17) the business test for regulated activities (see AUTH App 1.34).

01/06/2002

AUTH App 1.1.4

This guidance is issued under section 157 of the Act. It represents the FSA's views and does not bind the courts. For example, it would not bind the courts in an action for damages brought by a private person for breach of a rule (see section 150 of the Act (Actions for damages)), or in relation to the enforceability of a contract where there has been a breach of sections 19 (The general prohibition) or 21 (Restrictions on financial promotion) of the Act (see sections 26 to 30 of the Act (Enforceability of agreements)). Although the guidance does not bind the courts, it may be of persuasive effect for a court considering whether it would be just and equitable to allow a contract to be enforced (see sections 28(3) and 30(4) of the Act). Anyone reading this guidance should refer to the Act and to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (SI 2001/1335) (as amended) (the Financial Promotion Order) and the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (as amended) (the Regulated Activities Order). These should be used to find out the precise scope and effect of any particular provision referred to in the guidance and any reader should consider seeking legal advice if doubt remains. If a person acts in line with the guidance in the circumstances mentioned by it, the FSA will proceed on the footing that the person has complied with the aspects of the requirement to which the guidance relates.

01/06/2002

AUTH App 1.2

Introduction

01/12/2004

AUTH App 1.2.1

The effect of section 21 of the Act (Restrictions on financial promotion) is that in the course of business, an unauthorised person must not communicate an invitation or inducement to engage in investment activity unless either the content of the communication is approved for the purposes of section 21 by an authorised person or it is exempt. Under section 25 of the Act (Contravention of section 21), a person commits a criminal offence if he carries on activities in breach of the restriction in section 21 of the Act. A person who commits this criminal offence is subject to a maximum of two years imprisonment and an unlimited fine. However, it is a defence for a person to show that he took all reasonable precautions and used all due diligence to avoid committing the offence.

01/06/2002

AUTH App 1.2.2

Another consequence of a breach of section 21 of the Act is that certain agreements could be unenforceable (see section 30 of the Act (Enforceability of agreements resulting from unlawful communications)). This applies to agreements entered into by a person as a customer as a consequence of a communication made in breach of section 21.

01/06/2002

AUTH App 1.2.3

An authorised person will not breach section 21 when communicating a financial promotion. Nevertheless, this guidance may be relevant where an authorised person needs to know whether COB 3 (Financial promotion) applies to a particular communication. For example, to find out if the communication would be subject to an exemption if it were made by an unauthorised person (see COB 3.2.3A R and COB 3.2.5 R).

01/06/2002

AUTH App 1.2.4

A person who is concerned to know whether his communications will require approval or, if he is an authorised person, whether COB 3 will apply to his communications will need to consider the following:

(1) am I making a communication or causing a communication to be made? (see AUTH App 1.6);

(2) if so, is it an invitation or inducement? (see AUTH App 1.4);

(3) if so, does the invitation or inducement relate to a controlled investment? (see AUTH App 1.7);

(4) if so, is the invitation or inducement to engage in investment activity? (see AUTH App 1.7);

(5) if so, is it made in the course of business? (see AUTH App 1.5);

(6) if so, and the financial promotion originates outside the United Kingdom, is it capable of having an effect in the United Kingdom? (see AUTH App 1.8);

(7) if so, or if the answer to (5) is yes and the financial promotion was made in the United Kingdom, is the promotion exempt? (see AUTH App 1.12 to AUTH App 1.15 and AUTH App 1.21).

(8) if not, am I an authorised person?

01/06/2002

AUTH App 1.2.5

If the answer to AUTH App 1.2.4 G (8) is yes then COB 3 will apply (subject to additional exemptions in COB 3.2.5 R). If the answer is no, then the promotion must be approved by an authorised person if it is a non-real time financial promotion. Authorised persons are not allowed to approve real time financial promotion (see COB 3.12.2 R). AUTH App 1.36.2 G contains a flowchart explaining these steps.

01/06/2002

AUTH App 1.2.6

One of the main effects of the Act is to bring together in one statute the regulation of persons who provide financial services. These would previously have been regulated under the Financial Services Act 1986, the Banking Act 1987, the Insurance Companies Act 1982 or under laws relating to building societies, friendly societies and credit unions. The Act also consolidates the provisions of those statutes which governed advertising and making unsolicited personal communications.

01/06/2002

AUTH App 1.2.7

The restriction in section 21 applies to all forms of communication such as advertising, broadcasts, websites, e-mails and all other forms of written or oral communication whether sent to one person or many. However, the restrictions only apply to a communication made in the course of business and not, for example, to personal communications between individuals.

01/06/2002

AUTH App 1.2.8

There are extensive exemptions in the Financial Promotion Order. This is explained in greater detail in AUTH App 1.11 to AUTH App 1.15 and AUTH App 1.21.

01/06/2002

AUTH App 1.3

Financial promotion

01/12/2004

AUTH App 1.3.1

The basic restriction on the communication of financial promotions is in section 21(1) of the Act. Sections 21(2) and (5) disapply the restriction in certain circumstances. Their combined effect is that a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity unless:

(1) he is an authorised person; or

(2) the content of the communication is approved for the purposes of section 21 by an authorised person; or

(3) the communication is exempt under an order made by the Treasury under section 21(5) - the Financial Promotion Order (as amended).

01/06/2002

AUTH App 1.3.2

Section 21 of the Act does not itself (other than in its heading and side-note) refer to a 'financial promotion' but rather to the communication of 'an invitation or inducement to engage in investment activity'. References in this guidance to a financial promotion mean an invitation or inducement to engage in investment activity.

01/06/2002

AUTH App 1.3.3

Section 21 of the Act contains a number of key expressions or phrases which will determine whether or not it will apply. These are:

(1) 'invitation or inducement' (see AUTH App 1.4);

(2) 'in the course of business' (see AUTH App 1.5);

(3) 'communicate' (see AUTH App 1.6);

(4) 'engage in investment activity' (see AUTH App 1.7); and

(5) 'having an effect in the United Kingdom' (see AUTH App 1.8).

01/06/2002

AUTH App 1.3.4

The FSA's views as to the meaning of these are explained in AUTH App 1.4 to AUTH App 1.8.

01/06/2002

AUTH App 1.3.5

In addition, this guidance deals with other factors such as when the exemptions in the Financial Promotion Order can be applied, including the exemptions relating to territorial scope and one-off financial promotions.

01/06/2002

AUTH App 1.3.6

Section 21 of the Act was commenced, for most purposes, on 1 December 2001. However, it did not come into effect as respects financial promotions about funeral plan contracts until 1 January 2002 and will not come into effect for financial promotions about agreements for qualifying credit until a date in 2004 yet to be set by the Treasury. Guidance on the application of section 21 to financial promotions about funeral plans is in AUTH App 1.16.

01/06/2002

AUTH App 1.4

Invitation or inducement

01/12/2004

Promotional element

AUTH App 1.4.1

The Act does not contain any definition of the expressions 'invitation' or 'inducement', leaving them to their natural meaning. The ordinary dictionary entries for 'invitation' and 'inducement' offer several possible meanings to the expressions. An 'invitation' is capable of meanings ranging from merely asking graciously or making a request to encouraging or soliciting. The expression 'inducement' is given meanings ranging from merely bringing about to prevailing upon or persuading. In the FSA's view it is appropriate, in interpreting the expressions, to take due account of the context in which they are being used and their purpose.

01/06/2002

AUTH App 1.4.2

The Treasury, responding to consultation on the draft Financial Promotion Order, stated its intention that only communications containing a degree of incitement would amount to 'inducements' and that communications of purely factual information would not. This is provided the facts are presented in such a way that they do not also amount to an invitation or inducement. This was made clear both in the Treasury's consultation document on financial promotion and during the passage of the Act through Parliament. Under questioning, the Minister confirmed that the government's policy was 'to capture promotional communications only'. The Minister also stated that 'inducement', in its Bill usage, already incorporates an element of design or purpose on the part of the person making the communication and that 'design or purpose is implicit in this context' (Hansard HL, 18 May 2000 cols 387 and 388). In the same debate, the Minister stated that the restriction would not apply to such things as 'public announcements, exchange of draft share purchase agreements in corporate finance transactions or cases in which the recipient of a communication simply misunderstands its contents and engages in investment activity as a result'.

01/06/2002

AUTH App 1.4.3

The FSA recognises that the matter cannot be without doubt. However, it is the FSA's view that the context in which the expressions 'invitation' or 'inducement' are used clearly suggests that the purpose of section 21 is to regulate communications which have a promotional element. This is because they are used as restrictions on the making of financial promotions which are intended to have a similar effect to restrictions on advertising and unsolicited personal communications in earlier legislation. Such communications may be distinguished from those which seek merely to inform or educate about the mechanics or risks of investment. In this respect, the FSA supports the views expressed by Ministers as referred to in AUTH App 1.4.2 G. To the extent that doubt may remain as to the true meaning of 'invitation' or 'inducement' when used in section 21, it is the opinion of the FSA that the courts are likely to take account of the ministerial statements under the judgement in Pepper (Inspector of Taxes) v Hart [1993] AC593.

01/06/2002

AUTH App 1.4.4

The FSA considers that it is appropriate to apply an objective test to decide whether a communication is an invitation or an inducement. In the FSA's view, the essential elements of an invitation or an inducement under section 21 are that it must both have the purpose or intent of leading a person to engage in investment activity and be promotional in nature. So it must seek, on its face, to persuade or incite the recipient to engage in investment activity. The objective test may be summarised as follows. Would a reasonable observer, taking account of all the circumstances at the time the communication was made:

(1) consider that the communicator intended the communication to persuade or incite the recipient to engage in investment activity or that that was its purpose; and

(2) regard the communication as seeking to persuade or incite the recipient to engage in investment activity.

It follows that a communication which does not have any element of persuasion or incitement will not be an invitation or inducement under section 21.

01/06/2002

Invitations

AUTH App 1.4.5

An invitation is something which directly invites a person to take a step which will result in his engaging in investment activity. It follows that the invitation must cause the engaging in investment activity. Examples of an invitation include:

(1) direct offer financial promotions;

(2) a prospectus with application forms; and

(3) Internet promotions by brokers where the response by the recipient will initiate the activity (such as 'register with us now and begin dealing online').

A communication may contain a statement that it is not an invitation. Such statements may be regarded as evidence that the communication is not an invitation unless its contents indicate otherwise.

01/06/2002

AUTH App 1.4.6

Merely asking a person if they wish to enter into an agreement with no element of persuasion or incitement will not, in the FSA's view, be an invitation under section 21. For example, the FSA does not consider an invitation to have been made where:

(1) a trustee or nominee receives an offer document of some kind and asks the beneficial owner whether he wishes it to be accepted or declined;

(2) a person such as a professional adviser enquires whether or not his client would be willing to sign an agreement; or

(3) a person is asked to sign an agreement on terms which he has already accepted or to give effect to something which he has already agreed to do.

01/06/2002

Inducements

AUTH App 1.4.7

An inducement may often be followed by an invitation or vice versa (in which case both communications will be subject to the restriction in section 21 of the Act). An inducement may be described as a link in a chain where the chain is intended to lead ultimately to an agreement to engage in investment activity. But this does not mean that all the links in the chain will be an inducement or that every inducement will be one to engage in investment activity. Only those that are a significant step in persuading or inciting or seeking to persuade or incite a recipient to engage in investment activity will be inducements under section 21. The FSA takes the view that the mere fact that a communication may be made at a preliminary stage does not, itself, prevent that communication from being a significant step. However, in many cases a preliminary communication may simply be an inducement to contact the communicator to find out what he has to offer. For example, an advertisement which merely holds out a person as having expertise in or providing services about investment management or venture capital will not be an inducement to engage in investment activity. It will merely be an inducement to make contact for further material and will not be a significant step in the chain. However, that further material may well be a significant step and an invitation or inducement to engage in investment activity. In contrast, an advertisement which claims that what the recipient should do in order to make his fortune is to invest in securities and that the communicator can provide him with the services to achieve that aim will be a significant step and an inducement to engage in investment activity.

01/06/2002

AUTH App 1.4.8

AUTH App 1.4.9 G to AUTH App 1.4.34 G apply the principles in AUTH App 1.4.4 G to AUTH App 1.4.7 G to communications made in certain circumstances. They do not seek to qualify those principles in any way. A common issue in these circumstances arises when contact details are given (for example, of a provider of investments or investment services). In the FSA's view, the inclusion of contact details should not in itself decide whether the item in which they appear is an inducement or, if so, is an inducement to engage in investment activity. However, they are a factor which should be taken into account. The examples also refer, where appropriate, to specific exemptions which may be relevant if a communication is an invitation or inducement to engage in investment activity.

01/06/2002

Directory listings

AUTH App 1.4.9

Ordinary telephone directory entries which merely list names and contact details (for example where they are grouped together under a heading such as 'stockbrokers') will not be inducements. They will be sources of information. Were they to be presented in a promotional manner or accompanied by promotional material they would be capable of being inducements. Even so, they may merely be inducements to make contact with the listed person. Specialist directories such as ones providing details of venture capital providers, unit trust managers or investment trusts will usually carry greater detail about the services or products offered by the listed firms and are often produced by representatives bodies. Such directories may also be essentially sources of information. Whether or not this is the case where individual entries are concerned will depend on their contents. If they are not promotional, the entries will not be inducements to engage in investment activity. However, it is possible that other parts of such a directory might seek to persuade recipients that certain controlled investments offer the best opportunity for financial gain. They may go on to incite recipients to contact one of the member firms listed in the directory in order to make an investment. In such cases, that part of the directory will be an inducement to engage in investment activity. But this does not mean that the individual entries or any other part of the directory will be part of the inducement. AUTH App 1.6 provides guidance on the meaning of 'communicate' and 'causing a communication'. This is of relevance to this example and those which follow.

01/06/2002

Tombstone advertisements (announcements of a firm's past achievements)

AUTH App 1.4.10

Such advertisements are almost invariably intended to create awareness, hopefully generating future business. So they may or may not be inducements. This depends on the extent to which their contents seek to persuade or incite persons to contact the advertiser for details of its services or to do business with it. Merely stating past achievements with no contact details will not be enough to make such an advertisement an inducement. Providing contact details may give the advertisement enough of a promotional feel for it to be an inducement. But, if this is the case, it will be an inducement to contact the advertiser to find out information or to discuss what he can offer. Only if the advertisement contains other promotional matter will it be capable of being an inducement to engage in investment activity. In practice, such advertisements are often aimed at influencing only investment professionals. Where this is the case, the exemption in article 19 of the Financial Promotion Order (Investment professionals) may be relevant (see AUTH App 1.12.21 G). Tombstone advertisements will not usually carry the indicators required by article 19 to establish conclusive proof. However, article 19 may apply even if none of the indicators are present if the financial promotion is in fact directed at investment professionals.

01/06/2002

Links to a website

AUTH App 1.4.11

Links on a website may take different forms. Some will be inducements. Some of these will be inducements under section 21 and others not. Links which are activated merely by clicking on a name or logo will not be inducements. The links may be accompanied by or included within a narrative or, otherwise, referred to elsewhere on the site. Whether or not such narratives or references are inducements will depend upon the extent to which they may seek to persuade or incite persons to use the links. Simple statements such as 'these are links to stockbrokers' or 'click here to find out about stockmarkets' we provide links to all the big exchanges - will either not amount to inducements or be inducements to access another site to get information. If they are inducements, they will be inducements to engage in investment activity only if they specifically seek to persuade or incite persons to use the link for that purpose. Where this is the case, but the inducement does not identify any particular person as a provider of a controlled investment or as someone who carries on a controlled activity, the exemption in article 17 of the Financial Promotion Order (Generic promotions) may be relevant (see AUTH App 1.12.14 G).

01/06/2002

Banner advertisements on a website

AUTH App 1.4.12

These are the Internet equivalent to an advertisement in a newspaper and are almost bound to be inducements. So whether they are inducements to engage in investment activity will depend upon their contents as with any other form of advertising and the comments in AUTH App 1.4.11 G will be relevant.

01/06/2002

Publication or broadcast of prices of investments (historic or live)

AUTH App 1.4.13

These may or may not involve invitations or inducements. Where a person such as a newspaper publisher, broadcaster or data supplier merely presents prices of investments whether historic or live the information can be purely factual and not be an inducement. Historic prices on their own will never be invitations or inducements. Merely adding simple contact details to such prices will not make them invitations or inducements to engage in investment activity. However, any additional wording seeking to persuade or incite persons to contact firms so that they may buy or sell such investments may do so. In other circumstances, the publication of prices may involve an invitation or an inducement to engage in investment activity. For example, persons may use an electronic trading system to display prices and other terms such as lot size and volume at which they are prepared to deal, on screens viewed by potential counterparties. The price and other terms may be firm or indicative. The persons using the trading systems will have accepted the general terms and conditions for trading. Where prices and terms quoted are firm, the screen display may be an invitation to engage in investment activity by entering into a transaction at that price and on those terms. This will be where the offer may be accepted by the counterparty by a simple electronic response. Where the price or other terms are indicative, the screen display may be an inducement to engage in investment activity after negotiating acceptable terms. But in either case, the display of prices and other terms will only be invitations or inducements to engage in investment activity if it also contains material which seeks to persuade or incite the recipient to do so.

01/06/2002

Company statements and announcements and analyst briefings

AUTH App 1.4.14

Encouraging (or discouraging) statements may be made by a company director. These will typically be made in reports or accounts or at a presentation or road show or during a briefing of analysts. Alternatively, such statements may be made on the company's behalf by its public relations adviser. Statements of fact about a company's performance or activities will not, themselves, be inducements to engage in investment activity even if they may lead persons to decide to buy or sell the company's shares. However, statements which speculate about the company's future performance or its share price may have an underlying purpose or intent to encourage investors to act. If this is so, whether they will be inducements to engage in investment activity will depend entirely on their contents and the extent to which they seek to promote investment in the company. AUTH App 1.21 contains detailed guidance on the various exemptions which may apply in this area.

01/06/2002

Journalism

AUTH App 1.4.15

Journalism can take many forms. But typically a journalist may write an editorial piece on a listed company or about the investments or investment services that a particular firm provides. This may often be in response to a press release. The editorial may or may not contain details of or, on a website, a link to the site of the company or firm concerned. Such editorial may specifically recommend that readers should consider buying or selling investments (whether or not particular investments) or obtaining investment services (whether or not from a particular firm). If so, those recommendations are likely to be inducements to engage in investment activity (bearing in mind that a recommendation not to buy or sell investments cannot be an inducement to engage in investment activity). In other cases, the editorial may be an objective assessment or account of the investment or its issuer or of the investment firm and may not encourage persons to make an investment or obtain investment services. If so, it will not be an inducement to engage in investment activity. Article 20 of the Financial Promotion Order (Communications by journalists) contains a specific exemption for journalism and journalists may be able to make good use of the generic promotions exemption in article 17 of the Financial Promotion Order (see AUTH App 1.12.23 G and AUTH App 1.12.14 G). Journalists should bear in mind that they may communicate a financial promotion by repeating a recommendation that originates from another source. That source could be, for example, an authorised person, an academic or another publication. Such a financial promotion would be viewed as communicated by the journalist where he has editorial control over its form and content. In the FSA's view, a person is not causing the communication of a financial promotion merely by providing material, including a press release or a quotation, to a journalist who uses it in an article. This is provided that the person has no control over the way in which the article is prepared and published. The press release or quotation itself, if it is a financial promotion, should be exempt under article 47 of the Financial Promotion Order (Persons in the business of disseminating information) - see AUTH App 1.21.10 G.

01/06/2002

Performance tables

AUTH App 1.4.16

League tables showing the past performance of investment products of a particular kind or investment firms of a particular class (such as investment managers) and determined by the application of pre-set criteria will not, in themselves, be inducements. The fact that such tables represent pure information could, for example, be made clear by their being accompanied by a statement to the effect that the fact of a product or firm being well placed in the tables based on past performance is no guide to their likely future performance. The effectiveness of such a statement will, of course, depend upon it being the case that they do, in fact, represent mere information. But if, for example, the tables are accompanied by or presented or provided in a way that they are an actual or implied recommendation that a particular product's performance suggests it is a potential buy or sell they may become inducements.

01/06/2002

AUTH App 1.4.17

Tables or other forms of list may identify products with their relevant features such as interest rates, redemption periods and charges. Again, provided that the tables amount to purely factual information enabling comparison of products they will not be inducements. This includes such things as electronic systems that allow users to programme in their requirements and find details of the products that meet them. Producers of the table or list may, to some extent, expect that the information will lead persons to make investments. Or they might have negotiated a payment from the firms featured that reflects leads generated. In either case, the absence of a promotional element in the table will be determinative. As with performance tables, these can become inducements to engage in investment activity. This will happen when there is an actual or implied recommendation that either the products which come out best in respect of certain features or a specific combination of features or those that have been chosen for inclusion are likely to be good or best buys. This might, for example, include identifying the top ten deposit accounts for persons looking for deposit accounts offering certain features. The mere inclusion in tables of the kind referred to generally in this paragraph or those in AUTH App 1.4.16 G of contact details should not turn what is otherwise factual or neutral information into an inducement. Both types of table may benefit, if necessary, from the exemption for journalists in article 20 (see AUTH App 1.12.23 G). This will be where they are prepared by a person acting as a journalist and are included in a publication, service or broadcast as described in article 20(5)(b). Where the tables are merely a reproduction of information supplied by a third party data source which does not provide them as a journalist article 20 will not be available.

01/06/2002

Decision Trees

AUTH App 1.4.18

A decision tree (or flow chart) will generally be used in one of two ways. Either it will be an educational tool (for instance, where an employer wishes to help his employees understand their pension options) or a promotional tool. As an educational tool which does no more than enable a person to identify generic investment options it will not be an inducement. But if its use is intended to procure business for an investment firm then it is likely to be an inducement. For example, electronic decision trees on websites may typically invite persons to enter basic information about their circumstances and objectives leading to a recommendation or choice of products or services, or both, possibly with links to other firms' sites. These decision trees will be inducements to engage in investment activity although, in some cases, the journalists' exemption in article 20 of the Financial Promotion Order may be relevant (see AUTH App 1.12.23 G).

01/06/2002

Investment agreements, share purchase agreements and customer agreements

AUTH App 1.4.19

These types of agreements will only rarely be inducements or invitations. For instance, where the terms of a deal have been agreed in principle and the agreement is merely the means of giving it effect, the inducement phase has clearly passed. And an agreement or draft agreement itself may usually be seen as a document setting out the terms and conditions of a deal and not itself an inducement (or an invitation) to deal. However, an agreement or draft agreement may often be accompanied by an invitation or inducement such as a covering letter or an oral communication that seeks to persuade or incite a person to enter into the agreement. Whilst such accompaniments are capable of being inducements (or invitations), merely offering concessions or amendments to a draft agreement during negotiations will not turn those accompaniments into inducements. It is, however, possible for an agreement itself to be or to include an invitation or inducement. For example, an advertisement that contains the terms and conditions and the means to enter into it as a binding contract, a direct offer financial promotion or a prospectus with an application form included.

01/06/2002

Image advertising

AUTH App 1.4.20

Activities which are purely profile raising and which do not identify and promote particular investments or investment services may not amount to either an invitation or inducement of any kind. Examples of this include where listed companies sponsor sporting events or simply put their name or logo on the side of a bus or on an umbrella. This is usually done with a view, among other things, to putting their names in the minds of potential investors or consumers. In other cases, an image advertisement for a company which provides investment services (for example, on a pencil or a diary) may include, along with its name or logo, a reference to its being an investment adviser or fund manager or a telephone or fax number or both. Profile raising activities of this kind may involve an inducement (to contact the advertiser) but will be too far removed from any possible investment activity to be considered to be an inducement to engage in investment activity.

01/06/2002

Advertisements which invite contact with the advertiser

AUTH App 1.4.21

These will be advertisements that contain encouragement to contact the advertiser. They are likely to be inducements to do business with him or to get more information from him. If so, they will be inducements to engage in investment activity if they seek to persuade or incite persons to buy or sell investments or to get investment services. See AUTH App 1.4.7 G for more guidance on preliminary communications and whether they are a significant step in the chain of events which are intended to lead to the recipient engaging in investment activity. Where advertisements invite persons to send for a prospectus, article 73 (Material relating to prospectus for public offer of unlisted securities) may provide an exemption. Any financial promotion which contains more information than is allowed by article 73 but which is not the prospectus itself is likely to require approval by an authorised person unless another exemption applies. AUTH 1.9.1 G explains about approval.

01/06/2002

Introductions

AUTH App 1.4.22

Introductions may take many forms but typically involve an offer to make an introduction or action taken in response to an unsolicited request. An introduction may be an inducement if the introducer is actively seeking to persuade or incite the person he is introducing to do business with the person to whom the introduction is made. So it may fall under section 21 if its purpose is to lead to investment activity. For example, if a person answers the question 'do you or can you provide investment advice with a simple 'no, but I can introduce you to someone who does', that may be an inducement. But, if so, it is likely to be an inducement to contact someone to find out information about his services rather than to engage in investment activity. Where a person calls in to an office or branch of a company and asks to see 'the investment adviser', a person who responds merely by directing or showing the way is not making an inducement. Neither would a person be making an inducement by responding to an enquiry with 'we do not provide investment services' you need to consult an authorised person - or words to that effect. That is provided he does not go on to seek to persuade or incite the enquirer to contact a particular authorised person for investment services. But a person would be making an inducement to engage in investment activity if, for example, he seeks to persuade or incite persons to allow him to introduce them to a particular authorised person so that they may take advantage of the cheap dealing rates which that person offers. Where introductions do amount to inducements under section 21 they may fall under the exemption for generic promotions (article 17 of the Financial Promotion Order) (see AUTH App 1.12.14 G). This will be the case provided the financial promotion does not identify any particular investment or person to whom introductions are to be made or identify the introducer as a person who carries on a regulated activity (typically of making arrangements with a view to transactions in investments under article 25(2) of the Regulated Activities Order - (see AUTH App 1.33 (Introducing)) or making arrangements with a view to regulated mortgage contracts under Article 25A(2) of the Regulated Activities Order (see AUTH App 4.5 (Arranging regulated mortgage contracts)). It is most likely to apply where the financial promotion relates to deposits or contracts of insurance which are not contractually based investments. The journalists' exemption in article 20 of the Financial Promotion Order (Communications by journalists) may be relevant where the introduction is made through or in a publication, broadcast or regularly updated news or information service (see AUTH App 1.12.23 G). Article 15 (Introductions) may apply where the introduction is a real time financial promotions financial promotion (see AUTH App 1.12.11 G). In addition, Article 28B (Real time communications: introductions in connection with qualifying credit) may apply where an introduction that is a real time financial promotion relates to an agreement for qualifying credit (see AUTH App 1.17.12 G).

01/06/2002

Distributors

AUTH App 1.4.23

A person may be distributing financial promotions which have been issued or approved by an authorised person. This may be by displaying copies or delivering them or handing them out whether or not on request. AUTH App 1.6 explains when such a person will be communicating the financial promotions. Where this is so, the exemption for mere conduits in article 18 of the Financial Promotion Order may apply (see AUTH App 1.12.18 G). But article 18 will not apply if the distributor creates his own financial promotion by seeking to persuade or incite the recipient to act upon the financial promotions he is distributing.

01/06/2002

Investment trading methods and training courses

AUTH App 1.4.24

Trading methods and techniques, such as traded options training courses and software-based or manual trading tools will, in many cases, be too remote from any eventual investment dealing activities to be inducements to engage in investment activity. Promotions of such things will be inducements (or invitations) to receive training and general trading tips and techniques. However, such things may be sold on the basis that they are almost certain to produce profits from the trading which the recipient will undertake using the training or technique. If this is the case, the promotions are capable of being inducements to engage in those trading activities. Such financial promotions are capable of being generic promotions under article 17 of the Financial Promotion Order (see AUTH App 1.12.14 G).

01/06/2002

Invitations to attend meetings or to receive telephone calls or visits

AUTH App 1.4.25

These are clearly invitations or inducements. Whether they will involve invitations or inducements to engage in investment activity rather than to attend the meeting or receive the call or visit, will depend upon their purpose and content. AUTH App 1.4.7 G discusses communications which are a significant step in the chain of events leading to an agreement to engage in investment activity. The purpose of the meeting, call or visit to which the invitation or inducement relates may be to offer the audience or recipient investment services. In this case, the invitation or inducement will be a significant step in the chain if it seeks to persuade or incite the invitee to engage in investment activity at the meeting, call or visit. Any financial promotions made during the meeting, call or visit would still need to be communicated or approved by an authorised person or be exempt.

01/06/2002

Explanation of terms

AUTH App 1.4.26

An explanation of the terms of an agreement or of the consequences of taking a particular course of action can be merely factual information unless it includes or is accompanied by encouragement to enter into the agreement or take the course of action. The mere fact that the explanation may present the investment in a good light or otherwise influence the recipient will not make it an inducement. Where such communications are financial promotions they may fall under one of the exemptions for one-off promotions in articles 28 and 28A of the Financial Promotion Order (see AUTH App 1.14.3 G).

01/06/2002

Enquiries about a person's status or intentions

AUTH App 1.4.27

A person ('A') may enquire:

(1) whether another person is certified as a high net worth individual or a sophisticated investor so that A may determine whether an exemption applies;

(2) whether a person has received material sent to him; or

(3) how a person might propose to react to a take-over offer.

Enquiries of this or a similar kind will not amount to inducements to engage in investment activity unless they involve persuasion or incitement to do so. The enquiry may be accompanied by a brief statement of the reason why it is being made. This may, for example, include a reference to the type of investment to which any subsequent financial promotions would relate. Such initial enquiries may be followed up with an inducement but this fact alone will not turn the initial enquiry into a financial promotion. For example, an enquiry about whether a person is certified for the purposes of article 48 (Certified high net worth individuals) or article 50 (Sophisticated investors) may, where the answer is positive, be followed by a financial promotion. That financial promotion can then rely on article 48 or 50 as the case may be.

01/06/2002

Solicited and accompanying material

AUTH App 1.4.28

Solicited or accompanying material which does not contain any invitation or inducement to engage in investment activity will not itself be a financial promotion. This is provided that the material is not part of any financial promotion which may accompany it. This is explained in greater detail in AUTH App 1.4.29 G to AUTH App 1.4.30 G.

01/06/2002

AUTH App 1.4.29

Persons may sometimes be asked to send material which has not been prepared for use as a financial promotion to a person who is interested in making an investment. For example, a prospective participant in a Lloyd's syndicate may ask for a copy of the business plan or forecast prepared by the managing agent to comply with Lloyd's requirements. As another example, a prospective purchaser of, or investor in, a company may wish to see a valuation report, a due diligence report or legal advice. The fact that the person requesting the material may intend to rely on it in making his investment decision does not, itself, make the material an inducement under section 21.

01/06/2002

AUTH App 1.4.30

The person who responds to the request for the material in the circumstances in AUTH App 1.4.29 G may make a financial promotion in the form of a covering letter or oral communication ('C'). This will not mean that the material accompanying C must itself be treated as an inducement. This will depend on the circumstances. The material itself would only become an inducement if it is turned into part of the financial promotion in C. For example, C may refer to the contents or part of the contents of the accompanying material and claim that they will convince the recipient that he should engage in investment activity. In such a case, the contents, or the relevant part of the contents as the case may be, would become part of the financial promotion in C. In other cases, C may simply refer to the fact that certain material has been enclosed or is available without using it as a selling point to persuade or incite the recipient to engage in investment activity. In that case, the material will not become part of the financial promotion. A similar situation arises if a person other than the person who originated an oral or written communication which is not itself a financial promotion uses it to persuade or incite a potential investor.

01/06/2002

Telephone services

AUTH App 1.4.31

A person ('P') may be engaged, typically by investment product companies, to provide telephone services. Where such services require P to seek to persuade or incite prospective customers to receive investment literature or a personal call or visit from a representative of his principal they will frequently involve inducements to engage in investment activity. This is so whether the inducement results from P making unsolicited calls or by his raising the issue during a call made by the prospective customer. Generally speaking, it is likely that P would be carrying on a regulated activity under article 25(2) of the Regulated Activities Order and require authorisation or exemption (for example, as an appointed representative) if he is required to procure leads for his principal. In other cases, P may merely respond to a request from a prospective customer. This may be a request for investment literature or to arrange a call or visit. P will not be making an inducement simply by agreeing to send the literature, referring the caller to a representative of his principal or agreeing to arrange for the visit or call. Where persons providing telephone services are appointed representatives the exemption in article 16 of the Financial Promotion Order (Exempt persons) may apply (see AUTH App 1.12.12 G).

01/06/2002

Personal illustrations

AUTH App 1.4.32

A personal illustration (for instance, of the costs of and benefits under a particular investment product) may or may not be an invitation or inducement. This will depend on the extent to which it seeks to persuade or incite the recipient to invest as opposed to merely providing him with information. A personal illustration may, however, be accompanied by an invitation or inducement to buy the investment in which case the exemptions for one-off financial promotions in articles 28 or 28A may apply (see AUTH App 1.14.3 G). Authorised persons should note that, where personal quotations or illustrations do amount to a financial promotion COB 3 will not usually apply to them (see COB 3.2.5 R).

01/06/2002

Instructions or guidance on how to invest

AUTH App 1.4.33

Things such as help-lines for persons who wish to make an investment will not usually involve invitations or inducements to engage in investment activity. This is where their purpose is merely to explain or offer guidance on how to invest or to accept an offer. In such cases, the investor will already have decided to invest and there will be no element of persuasion on the part of the person giving the explanation or guidance.

01/06/2002

Communications by employers to their employees

AUTH App 1.4.34

Employers may communicate with their employees on matters which involve controlled investments. For example, personal pension schemes (including stakeholder schemes) and other employee benefit schemes other than occupational pension schemes. Interests under the trusts of an occupational pension scheme are not a controlled investment (see paragraph 27 (2) of Schedule 1 to the Financial Promotion Order). Such communications will only be invitations or inducements to engage in investment activity if they seek to persuade or incite employees to do things such as:

(1) participate in or leave the pension or other benefit scheme;

(2) exercise certain rights under such a scheme, include making additional contributions or exercising options.

Communications which are intended to educate or give employees information with no element of persuasion or incitement will not be invitations or inducements under section 21. Employers may wish to give their employees investment material prepared and approved by an authorised person. This material may be given under cover of a communication from the employer. If so, the covering communication will not itself be an inducement if all it does is to refer employees to the material and explain what they should do if they wish to act on it, without seeking to persuade or incite them to act. Where the covering communication is itself a financial promotion it will need to be approved by an authorised person provided it is a non-real time financial promotion unless an exemption applies. If it is a real time financial promotion it cannot be approved (see COB 3.12.2 R). In such cases, an exemption would need to apply. Where employee share schemes are concerned, the exemption in article 60 of the Financial Promotion Order (Participation in employee share schemes) is likely to apply to any financial promotions made by employers or members of their group. Where an employer's financial promotions relate to such things as company health or general insurance benefit packages, the exemptions in article 24 (Relevant insurance activity: non real time communications) or 26 (Relevant insurance activity: real time communications) of the Financial Promotion Order may apply. Any financial promotion made by an employer for the purpose of meeting his obligations under the Welfare Reform and Pensions Act 1999 to offer his employees a stakeholder pension scheme should be able to use the exemption in article 29 (Communications required or authorised by enactments).

01/06/2002

AUTH App 1.5

In the course of business

01/12/2004

AUTH App 1.5.1

Under section 21(4) of the Act, the Treasury has the power to specify circumstances in which a person is viewed as 'acting in the course of business' or 'not acting in the course of business'. The power under section 21(4) relates only to financial promotions and is distinct from the power in section 419 which relates to regulated activites. To date, the Treasury has not used the power in section 21(4). As a result, the phrase has its ordinary or natural meaning.

01/06/2002

AUTH App 1.5.2

The FSA considers that 'in the course of business' requires a commercial interest on the part of the communicator. This does not necessarily have to be a direct interest. And the communicator does not need to be carrying on regulated activities (the test in section 19 of the Act) as or as part of his business. Neither does the communication need to be made in the course of carrying on activities as a business in their own right (the test in article 3 of the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001). For example, if a holding company proposes to sell one of its subsidiaries, that sale will be 'in the course of business' irrespective of the fact that the company may well not be in the business of selling subsidiaries.

01/06/2002

AUTH App 1.5.3

The position is slightly more blurred with individuals. The 'in the course of business' test is intended to exclude genuine non-business communications. Examples of these would be friends talking in a pub, letters between family members or e-mails sent by individuals using an Internet chat-room or bulletin board for personal reasons. An issue arises where capital is raised for small private companies. Where such a company is already in operation, it will be acting 'in the course of business' when seeking to generate additional share or loan capital. At the pre-formation stage, however, it will often be the case that individuals who are proposing to run the company will approach a small number of friends, relatives and acquaintances to see if they are willing to provide start-up capital. In the FSA's view, such individuals will not be acting 'in the course of business' during the pre-formation stage of a small private company. This is provided that they are not:

(1) forming companies with such regularity that they would be regarded as carrying on the business of forming companies; or

(2) already running the business which the company will carry on (for example, as a partnership).

01/06/2002

AUTH App 1.5.4

There is, of course, no reason why an individual cannot act 'in the course of business'. For example, sole traders who are independent financial advisers will give investment advice 'in the course of business' and so satisfy the test. Individuals who are merely seeking to make personal investments will not be acting 'in the course of business' by approaching a company about making an investment in its shares. However, it is possible that an individual who regularly seeks to invest in companies who are seeking to raise venture capital with a view to becoming a director and influencing their affairs may be regarded as acting in the course of business. In approaching companies, such as a person should be able to make use of the exemptions for one-off financial promotions in articles 28 and 28A of the Financial Promotion Order (see AUTH App 1.14.3 G).

01/06/2002

AUTH App 1.5.5

Persons who carry on a business which is not a regulated activity will need to be particularly careful in making communications which may amount to financial promotions (because they seek to persuade or incite persons to engage in investment activity (see AUTH App 1.4)). For example, where a company makes financial promotions to its employees, they may well be made in the course of business. Examples of these include financial promotions concerning employee share schemes, group wide insurance arrangements and stakeholder pension schemes. These would need to be approved by an authorised person unless an appropriate exemption is available. AUTH App 1.4.34 G provides further guidance on this.

01/06/2002

AUTH App 1.6

Communicate

01/12/2004

AUTH App 1.6.1

The word 'communicate' is extended under section 21(13) of the Act and includes causing a communication to be made. This means that a person who causes the communication of a financial promotion by another person is also subject to the restriction in section 21. Article 6(d) of the Financial Promotion Order also states that the word 'communicate' has the same meaning when used in exemptions in the Order. Article 6(a) also states that the word 'communication' has the same meaning as 'financial promotion'. It appears to the FSA that a person is communicating where he gives material to the recipient or where, in certain circumstances (see AUTH App 1.6.5 G), he is responsible for transmitting the material on behalf of another person. As both causers and communicators communicate under section 21 the distinction between them is not usually of great significance. What is important is whether a person who is not himself communicating is or is not causing a communication to be made by another. In the FSA's view, primary responsibility for a communication to which section 21 applies and which is capable of being read will rest with its originator. This is the person responsible for its overall contents. Where it is an oral communication primary responsibility will rest with the speaker. A speaker will, of course, be an individual. But where the individual speaks on behalf of his employer, it will be the employer who is responsible. The same will apply if the individual is an officer of a company or partner in a partnership and speaks on behalf of the company or partnership. Individuals who make financial promotions otherwise than in their capacity as employees, officers or partners will need to consider their own position (they may not be acting in the course of business (see AUTH App 1.5)). Where a person other than the originator (for example a newspaper publisher) transmits a communication on the originator's behalf he is communicating it and the originator is causing its communication.

01/06/2002

Persons who communicate or cause a communication

AUTH App 1.6.2

Apart from the originators of a financial promotion, the FSA considers the following persons to be communicating it or causing it to be communicated:

(1) publishers and broadcasters who carry advertisements (including websites carrying banner advertisements); and

(2) intermediaries who redistribute another person's communication probably with their own communications.

01/06/2002

Persons who do not communicate or cause a communication

AUTH App 1.6.3

In the FSA's view, the following persons will not be causing or communicating:

(1) advertising agencies and others when they are designing advertising material for originators;

(2) persons who print or produce material for others to use as advertisements;

(3) professional advisers when they are preparing material for clients or advising them on the need to communicate or the merits or consequences of their communicating a financial promotion; and

(4) persons who are responsible for securing the placing of an advertisement provided they are not responsible for its contents.

01/06/2002

Need for an active step to communicate or cause a communication

AUTH App 1.6.4

The FSA considers that, to communicate, a person must take some active step to make the communication. This will be a question of fact in each case. But a person who knowingly leaves copies of a document where it is reasonable to presume that persons will pick up copies and may seek to act on them will be communicating them.

01/06/2002

AUTH App 1.6.5

The Financial Promotion Order contains an exemption for mere conduits in article 18. It does not follow that all persons who provide services for facilitating the distribution of financial promotions are communicating. Where persons of this kind would normally be unaware of the fact that they may be distributing financial promotions or are indifferent as to whether they are doing so, or both, they will not be regarded as communicating them. This may, for example, include:

(1) postal services providers;

(2) telecommunication services providers;

(3) broadcasting services providers;

(4) courier services providers;

(5) persons employed to hand out or disseminate communications.

(6) a newsagent who sells newspapers and journals containing financial promotions.

In other cases, persons of this kind may need to rely on the mere conduit exemption (see AUTH App 1.12.18 G).

01/06/2002

Website operators

AUTH App 1.6.6

Where a website operator provides links to other sites he is not usually to be regarded as causing the communication of the contents of those other sites to persons who may use the links. See further guidance on Internet issues in AUTH App 1.22.

01/06/2002

Application of exemptions to persons causing a communication

AUTH App 1.6.7

A general point arises about causing and communicating on whether a particular exemption includes a person who is causing a communication to be made by another person. For example, article 43 of the Financial Promotion Order (Members and creditors of certain bodies corporate) applies only to a communication by a body corporate to its own shareholders or creditors about its own securities. This exemption may apply where a company ('P') wishes to acquire another company ('C') for cash and arranges for C to communicate its offer to C's shareholders. In this case, where P causes C to communicate, it is the FSA's view that the exemption that applies to C will also apply to P. This is because, as 'communicate' includes 'causing to communicate', the exemption applies where P causes the communication of the financial promotion by C.

01/06/2002

Application of exemptions to persons who communicate on behalf of others

AUTH App 1.6.8

Another general point arises about the scope of exemptions that apply only to financial promotions by a particular person. This is whether the exemption applies to the communication of a financial promotion by an unauthorised person on behalf of the person to whom the exemption applies. In the FSA's view, this will not be the case unless the exemption specifically states that it applies to a communication made on behalf of the person identified in the exemption. For example, article 62 (Sale of body corporate) applies to 'any communication by or on behalf of a body corporate'.

01/06/2002

Meaning of 'made to', 'directed at' and 'recipient'

AUTH App 1.6.9

Section 21(1) of the Act refers only to the communication of an invitation or inducement. It says nothing about communications being 'made to' or 'directed at' persons or about who the 'recipient' of a communication will be. These facts are determined by the following sequence:

(1) section 21(13) of the Act indicates that communications are 'made';

(2) article 6 of the Financial Promotion Order (Interpretation: communications) indicates that communications are made by being 'addressed to' a person;

(3) article 6 then indicates that communications may be addressed:

(a) to a particular person or persons whether verbally or in a legible form (for example, in a telephone call or letter) - these are referred to as communications which are 'made to' persons; or

(b) to persons generally (for example, in a television broadcast or on a website) - these are referred to as communications which are 'directed at' persons;

(4) article 6 also indicates that a recipient of a communication is the person to whom the communication is made, or, in the case of a non-real time communication directed at persons generally, anyone who reads or hears the communication.

01/06/2002

AUTH App 1.6.10

In the FSA's opinion, the matters in AUTH App 1.6.9 G have the following effects.

(1) Any one particular communication will either be real time or non-real time but not both. This is because:

(a) a real time communication is one made in the course of an interactive dialogue (see AUTH App 1.10.2 G for guidance on the meaning of real time);

(b) those exemptions which concern real time communications apply only to communications which are made to persons and not those which are directed at persons;

(d) the persons to whom a real time communication is addressed are those persons who take part in the interactive dialogue; and

(e) where a communication is addressed to a particular person or persons it is not made to anyone else who may read or hear it.

This means that a real time communication cannot also be a non-real time communication made to persons other than those to whom it is addressed. But it is possible for the same communication to be issued in different forms. For example, the text of a real time financial promotion may be made available to persons generally in writing intending to persuade or incite them to engage in investment activity. In that case, the written version will be a separate non-real time financial promotion which will need to be approved or exempt. A similar situation may arise where a real time financial promotion made during a meeting is recorded on video and then made available to the public. Also, a person may, in the course of an interactive dialogue with a particular person, address an invitation or inducement to others who may be present. Where this does not result in an interactive dialogue taking place with those other persons, the invitation or inducement will be a separate non-real time communication.

(2) A communication in the form of a letter or e-mail addressed to a particular person is not made to anyone else who, legitimately or otherwise, may read it. For example, it will not be made to any persons to whom it is copied unless any invitation or inducement that may be in it is addressed also to those persons.

(3) A communication in the form of a personal conversation or telephone call will not be communicated to anyone else who may eavesdrop or otherwise listen to the conversation.

(4) The recipient of a communication to whom it is addressed, will not always be the person who physically receives it. As a communication under section 21 is an invitation or inducement to engage in investment activity, it will be addressed to the person or persons (P) who is or are being invited or induced. An invitation or inducement may be communicated to someone such as a friend or relative of P who is asked to pass it on. If so, the communication will be regarded as addressed to P and not to the friend or relative. The same will usually apply where an invitation or inducement is communicated to P's adviser or other agent. However, this will not always be the case. The communication made to the agent may be aimed at getting him to act in a particular way. For example, to exercise discretion on his client's behalf. In this case, the communication may be an invitation or inducement to the agent himself to engage in investment activity, In the FSA's view, the friend, relative or agent should not himself be regarded as communicating the invitation or inducement simply because he faithfully relays the message to P. This is provided that the friend, relative or adviser, in relaying the message, does not make his own invitation or inducement. Friends and relatives would not, in any case, be communicating in the course of business. Should agents be making their own financial promotions in relaying messages, it is likely that the exemptions for one-off financial promotions in articles 28 and 28A of the Financial Promotion Order will apply.

(5) It is important to consider whether any particular financial promotion is 'made to' or 'directed at' persons as some exemptions in the Financial Promotion Order apply only to financial promotions which are made to persons.

01/06/2002

AUTH App 1.7

Engage in investment activity

01/12/2004

AUTH App 1.7.1

A communication must be an invitation or inducement to engage in investment activity for the restriction in section 21 to apply. Section 21(8) defines this phrase as:

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

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

01/06/2002

AUTH App 1.7.2

Controlled activity and controlled investment are defined in Schedule 1 to the Financial Promotion Order and are listed in AUTH App 1.36.4 G and AUTH App 1.36.5 G. Broadly speaking, controlled activities and controlled investments are similar to regulated activities and specified investments under the Regulated Activities Order. However, with controlled activities, the exclusions set out in the Regulated Activities Order do not, in most cases, apply. It is important to note, however, that there are certain differences between controlled activities and regulated activities and between controlled investments and specified investments. This is most notable where the financial promotion is about:

(1) certain credit agreements (see AUTH App 1.17 (Financial promotions concerning agreements for qualifying credit));

(2) funeral plan contracts (see AUTH App 1.16 (Financial promotions concerning funeral plans)); and

(3) contracts of insurance other than life policies (see AUTH App 1.17A (Financial promotions concerning insurance mediation activities)).

So, it is quite possible for a person to be carrying on a business in the United Kingdom for which he does not require authorisation because the business activity either is not connected with financial services or falls within one of the exclusions in the Regulated Activities Order but find that the restriction in section 21 applies to his communications. It should also be noted that e-money is not a controlled investment. This means that the restriction in section 21 does not apply to the communication of an invitation or inducement that concerns e-money. This is unless the communication is a financial promotion for some other reason.

01/10/2002

AUTH App 1.7.3

The overall effect is that a financial promotion must relate in some way to a controlled investment and may be summarised as the communication, in the course of business, of an invitation or inducement to:

(1) acquire, dispose of or underwrite certain investments or exercise rights conferred by such an investment for such purpose or for the purpose of converting it; or

(2) receive or undertake investment services such as dealing in investments as principal or as agent, managing investments, advising on investments or safeguarding and administering investments.

01/06/2002

AUTH App 1.7.4

So a financial promotion will not include an invitation or inducement to:

(1) refrain from doing any of the things in AUTH App 1.7.3 G; or

(2) exercise rights conferred by an investment other than to acquire, dispose of, underwrite or convert an investment.

This means that most invitations or inducements to exercise voting rights will not be financial promotions.

01/06/2002

AUTH App 1.7.5

In the FSA's opinion, section 21 will apply to a communication (made in the course of business) if it contains an invitation or inducement to engage in investment activity which is addressed to a particular person or to persons generally. Where this is the case, it will not matter that the communication may be physically delivered to someone other than the person who is intended to engage in investment activity. AUTH App 1.6.10 G gives more guidance on this.

01/06/2002

AUTH App 1.8

Having an effect in the United Kingdom

01/12/2004

AUTH App 1.8.1

Section 21(3) of the Act states that, in the case of a communication originating outside the United Kingdom, the restriction in section 21(1) applies only if it is capable of having an effect in the United Kingdom. In this respect, it is irrelevant whether the communication has an effect provided it is capable of doing so.

01/06/2002

AUTH App 1.8.2

This appears to give a potentially broad jurisdictional scope to section 21. It seems clear that a communication which originates overseas will be capable of having an effect in the United Kingdom if it is an invitation or inducement to engage in investment activity which is communicated to a person in the United Kingdom. It would seem that communications made in other circumstances may also be capable of having an effect in the United Kingdom. However, the exemption for communications to overseas recipients in article 12 of the Financial Promotion Order (Communications to overseas recipients) (see AUTH App 1.12.2 G) prevents section 21 from applying to communications which are not directed at persons in the United Kingdom.

01/06/2002

AUTH App 1.8.3

Where communications by persons in another EEA State are made to or directed at persons in the United Kingdom account must be taken of the effect of any relevant EU Directives. For example, the E-Commerce Directive will, with limited exceptions, prevent the United Kingdom from imposing restrictions on incoming financial promotions in information society services. The Treasury has given effect to this through changes made in the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (Electronic Commerce Directive) Order 2002 (SI 2002/2157). This is explained more fully in AUTH App 1.12.38 G. Other potentially relevant directives include the Television Without Frontiers Directive (89/552/EEC). This prevents the United Kingdom from restricting the re-transmission in the United Kingdom of television broadcasts from other EEA States. The Financial Promotion Order does not have any specific provisions about the Television Without Frontiers Directive. However, it is not intended to block incoming television programmes from other EEA States. The FSA will take this into account in interpreting the Financial Promotion Order and enforcing the restriction in section 21 of the Act.

01/10/2002

AUTH App 1.9

Circumstances where the restriction in section 21 does not apply

01/12/2004

AUTH App 1.9.1

Section 21(2) of the Act sets out two circumstances in which a financial promotion will not be caught by the restriction in section 21(1). These are where the communicator is an authorised person or where the content of the financial promotion has been approved for the purposes of section 21 by an authorised person. Where approval is concerned it must be specifically for the purposes of enabling the financial promotion to be communicated by unauthorised persons free of the restriction under section 21. For example, if a solicitor who is an authorised person approves a financial promotion for legality generally, that would not suffice unless the solicitor also specifically approves the financial promotion for the purposes of section 21. And it will not be enough that an authorised person has ensured that the financial promotion complies with COB 3 purely so that he can communicate it himself. In the FSA's view an unauthorised person should be able to rely on a statement made by an authorised person on the face of a financial promotion that its approval has been given for the purpose of section 21. Such approval may be stated to be made for limited purposes. For example, as with the approval of a financial promotion for an unregulated collective investment scheme (see AUTH App 1.20). In other cases, the unauthorised person may satisfy himself that it is evident from the facts that approval has been given for the purposes of section 21.

01/06/2002

AUTH App 1.9.2

Where an authorised person makes a financial promotion, he is not subject to the restriction in section 21. So, the communication of the financial promotion by the authorised person will not be a criminal offence under the provisions of section 25 of the Act (Contravention of section 21) and any resulting contract will not be unenforceable under section 30 of the Act (Enforceability of agreement resulting from unlawful communications). However, COB 3 may apply wholly or partially to any such financial promotion.

01/06/2002

AUTH App 1.9.3

An unauthorised person may wish to pass on a financial promotion made to him by an authorised person. In this case, the fact that the financial promotion was made to him by an authorised person will not be enough for the restriction in section 21 not to apply to him. The authorised person must also both have approved its content and have done so for the purpose of section 21 of the Act. If an authorised person wishes to ensure that an unauthorised person can communicate a financial promotion made by the authorised person to third parties, it may approve its own financial promotion for the purposes of section 21 of the Act (see COB 3.12.1 G (3)).

01/06/2002

AUTH App 1.9.4

With approval generally, issues may arise as to what would be subject to the restrictions in section 21 where an invitation or inducement to engage in investment activity is made through a publication, broadcast or website or is accompanied by other material. In any such instances, it is necessary to consider the circumstances in which the financial promotion is made. For example, where a financial promotion takes the form of an advertisement or advice in a newspaper, broadcast or website, the rest of the newspaper, broadcast or website would not ordinarily be part of the financial promotion. There may, of course, be a number of financial promotions in the same publication, broadcast or website. They will be regarded as separate financial promotions unless it is clear that they are part of the same invitation or inducement. AUTH App 1.4.28 G offers guidance about when accompanying material may be part of a financial promotion.

01/06/2002

AUTH App 1.9.5

The restriction in section 21 is also disapplied under section 21(5) where provided for by the Treasury by order. The Treasury made such an order on 2 April 2001 (the Financial Promotion Order). This contains a number of specific exemptions which are referred to in AUTH App 1.12 to AUTH App 1.15 and AUTH App 1.21. The Financial Promotion Order has been amended by:

(1) The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2001 (SI 2001/2633));

(2) The Financial Services and Markets Act 2000 (Miscellaneous Provisions) Order 2001 (SI 2001/3650);

(3) The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment No2) Order 2001 (SI 2001/3800);

(4) The Financial Services and Markets Act 2000 (Financial Promotion and Miscellaneous Amendments) Order 2002 (SI 2002/1310);

(5)
The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (Electronic Commerce Directive) Order 2002 (SI 2002/2157); and

(6) The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2003 (SI 2003/ 1676).

A consolidated version of the Financial Promotion Order is available on the Treasury website www.hm-treasury.gov.uk under Documents/Financial Services/Regulating Financial Services/FSMA/ Secondary legislation ordered by date of laying.

01/10/2002

AUTH App 1.10

Types of financial promotion

01/12/2004

AUTH App 1.10.1

Although the restriction in section 21 addresses all forms of financial promotion, it is necessary to distinguish between particular types of financial promotion as these are treated differently under the Financial Promotion Order. This regime recognises two types of financial promotion. These are real time financial promotion and non-real time financial promotions. Real time financial promotions are then divided into solicited or unsolicited real time financial promotions.

01/06/2002

Real time v non-real time financial promotions

AUTH App 1.10.2

The terms real time financial promotion and non-real time financial promotion are defined in article 7 of the Financial Promotion Order (Interpretation: real time communications). Article 7(1) defines a real time financial promotion as a financial promotion made in the course of a personal visit, telephone conversation or other interactive dialogue. A non-real time financial promotion is one that is not a real time financial promotion. Article 7(5) states that financial promotions made by letter or e-mail or in a publication (defined in article 2 (Interpretation: general) as a newspaper, journal, magazine or other periodical publication, a website, a television or radio programme or a teletext service) are non-real time financial promotions. Articles 7(4) and (5) provide certain indicators that a financial promotion is a non-real time financial promotion. These are that:

(1) the financial promotion is made to or directed at more than one recipient in identical terms (save for details of the recipient's identity);

(2) the financial promotion is made or directed by way of a system which in the normal course is or creates a record of the financial promotion which is available to the recipient to refer to at a later time; and

(3) the financial promotion is made by way of a system which in the normal course does not enable or require the recipient to respond to it immediately.

AUTH App 1.6.9 G explains the meaning of 'made to' and 'directed at'.

01/06/2002

AUTH App 1.10.3

In the FSA's view, the matters identified in AUTH App 1.10.2 G mean that:

(1) for a communication to be real time it must be made in course of an interactive dialogue; but that

(2) if the interactive dialogue takes place by means of the exchange of letters or e-mails or in a publication, the communication will be deemed to be non-real time. In this case, publications include newspapers, journals, magazines or other periodical publications, websites or similar systems for the electronic display of information, television or radio programmes and teletext services.

01/10/2002

AUTH App 1.10.4

The words 'personal visit, telephone conversation or other interactive dialogue' clearly imply that the first two are types of the third. In the FSA's view, it is difficult to envisage circumstances in which a personal visit or telephone conversation would not be interactive. The very fact of a conversation taking place would mean two or more persons were interacting with each other. A telephone call is not the same thing as a conversation. It may be made to, or even by, an intelligent machine which asks questions and responds to answers. That is, in the FSA's view, no more an interactive dialogue than a questionnaire or an electronic decision tree. The FSA cannot see how a scripted call can avoid being an interactive dialogue. The caller presumably has prompts as to what to say depending on the response given or question asked by the recipient of the call. However, the recipient is clearly able to and likely to interact and the degree of interaction cannot be determined in advance.

01/06/2002

AUTH App 1.10.5

In the FSA's view, the fact that scope for interaction is essential if a financial promotion is to be real time leads to the following conclusions.

(1) Most communications made in written or pictorial form will not offer scope for interaction. The most likely exception to this is where persons are expected to respond immediately. This situation may arise, for example, where the equivalent of a telephone conversation is conducted by e-mail. This is the basis of the exemption in article 20A(1)(b)(ii) (see AUTH App 1.12.37 G). However, the only communications in written or pictorial form which can be real time communications are those which are not contained in a letter, e-mail or publication. This results from article 7(3) as explained in AUTH App 1.10.2 G and AUTH App 1.10.3 G (2).

(2) The factors in article 7(5), whilst they are helpful as indicators, do not necessarily have to be satisfied for a communication to be non-real time provided it does not represent an interactive dialogue. For example, in the FSA's view, a broadcast made by megaphone from a moving vehicle or temporary chalk markings on a board are non-real time communications even though there may be no lasting record.

(3) Some oral communications will not involve an interactive dialogue. This is because:

(a) they are recorded or broadcast, so preventing interaction; or

(b) they represent a one-way flow such as a speech, address or presentation.

01/06/2002

AUTH App 1.10.6

An issue arises where a person (P), during the course of a presentation or meeting, invites or is asked to answer questions from the audience. P's response may or may not be a real time communication. For example, the question may not be personal to the questioner and P may respond by addressing the audience in a way that precludes or does not call for any interaction. This will be a non-real time communication. On the other hand, the question may call for P to pursue a conversation with the questioner, in which case the communication will be an interactive dialogue and a real time communication. In this case, the communication will not involve a non-real time communication made to or directed at the rest of the audience as it is addressed and made to the questioner. It may be that P, in the course of an interactive dialogue with a questioner, makes an invitation or inducement that is addressed to the audience as a whole. This will be a separate communication that will be non-real time. Any handout or slide or other visual aids used during the presentation will be non-real time communications.

01/06/2002

AUTH App 1.10.7

In the FSA's view, a communication which may exist in enduring form will be a non-real timecommunication. Examples of this include videos, audio cassettes, bulletin boards, websites and recorded telephone messages. Messages placed on Internet chat-rooms will also be non-real time. Radio or television programmes or teletext services may contain communications that involve an interactive dialogue. For example, a communication made by the broadcaster and addressed to an interviewee studio guest, a member of the audience or a person who speaks to the broadcaster by telephone. These will always be non-real time communications. This is again the effect of article 7(3) as explained in AUTH App 1.10.2 G and AUTH App 1.10.3 G (2). Broadcasters may be able to use the exemption for journalists in article 20 of the Financial Promotion Order (see AUTH App 1.12.23 G). Interviewee studio guests, if they make financial promotions during a broadcast, may be able to use the exemption in article 20A of the Financial Promotion Order (Promotion broadcast by company director etc) (see AUTH App 1.12.32 G).

01/06/2002

Solicited v unsolicited real time financial promotions

AUTH App 1.10.8

Article 8(1) of the Financial Promotion Order (Interpretation: solicited and unsolicited real time communications) states that a real time financial promotion is solicited where it is made in the course of a personal visit, telephone conversation or other interactive dialogue which was initiated by or takes place in response to an express request from the recipient. An express request for these purposes may have been made before section 21 entered into force. An unsolicited real time financial promotion is any real time financial promotion which is not solicited.

01/06/2002

AUTH App 1.10.9

Article 8(3) of the Financial Promotion Order clarifies that a person will not have expressly requested a call, visit or dialogue merely :

(1) because he does not indicate that he does not wish to receive any or any further visits or calls or to engage in any or any further dialogue; or

(2) because he agrees to standard terms that state that such visits, calls or dialogue will take place, unless he has signified clearly that, in addition to agreeing to the terms, he is willing for the visit, call or dialogue to take place.

01/06/2002

AUTH App 1.10.10

Article 8(3) of the Financial Promotion Order also has the effect in broad terms that financial promotions made during a visit, call or dialogue will be solicited only if they relate to controlled activities or controlled investments of the kind to which the recipient envisaged that they would relate. In determining whether this is the case, account must be taken of all the circumstances when the call, visit or dialogue was requested or initiated. For example, a person may ask for a visit from a representative of an investment product company with a view to receiving advice on an appropriate pension product. In this case, the representative would be likely to be making an unsolicited real time financial promotion if, during conversation,he attempts to persuade or incite the recipient to make an investment which would not be for the purposes of pension provision.

14/01/2005

AUTH App 1.10.11

AUTH App 1.6.9 G explains that article 6 of the Financial Promotion Order has the broad effect that a communication is made to another person where it is addressed to a particular person or persons. It also states that a 'recipient' of a communication is the person or persons to who it is made (that is to whom it is addressed). This takes on importance where certain exemptions which apply to real time financial promotions made to a person are concerned. It appears to the FSA that, in certain situations, a person may make a financial promotion to someone who has expressly asked that it be made or who has initiated it but where, at the same time, it is also made (that is addressed) to persons who may have not requested or initiated it. For example, a married couple may visit their financial adviser. One partner may request or initiate the dialogue which the adviser then addresses to both. Article 8(4) of the Financial Promotion Order recognises this and has the effect that an unsolicited real time financial promotion will have been made to the persons other than the person who expressly asked for or initiated the call, visit or dialogue in which it was made unless they are:

(1) close relatives of that person (that is, a person's spouse, children and step-children, parents and step-parents and brothers and sisters and step-brothers and step-sisters, including a spouse of any of those persons); or

(2) expected to engage in any investment activity jointly with that person.

01/06/2002

AUTH App 1.10.12

In the FSA's view, persons who may be engaging in investment activity jointly include:

(1) a married couple;

(2) two or more persons, who will invest jointly in a product (for example, a cohabiting couple who are not married or members of a family);

(3) the directors of a company or partners in a firm;

(4) members of a group of companies;

(5) the participants in a joint commercial enterprise;

(6) the members of an investment club; and

(7) the managers or prospective managers of a company who are involved in a management buy-out or buy-in.

01/06/2002

AUTH App 1.10.13

There will be occasions when financial promotions are received by persons other than those in AUTH App 1.10.11 G (1) or AUTH App 1.10.11 G (2) who will not have solicited them. For example, a more distant relative or friend ('F') who acts as a support to the person who is to engage in investment activity ('P') or P's professional adviser ('A'). As explained in AUTH App 1.6.10 G, in such cases the financial promotion will not be made to F or A unless it is also addressed to them. And it will only be addressed to F or A if the invitation or inducement relates to F or A engaging in investment activity. So a solicited financial promotion made to P will not also be an unsolicited financial promotion made to F or A.

01/06/2002

AUTH App 1.10.14

In the FSA's view, the mere fact of a person accepting an invitation to attend a meeting does not automatically mean that he has initiated any dialogue which may take place during the meeting and which may amount to a financial promotion. This will depend on the facts of each case and such matters as the manner in which the invitations are made, the arrangements for acceptance and how the meeting is conducted. For example, the fact that investments or investment services will be offered during the meeting may be made clear in the invitation.

01/06/2002

AUTH App 1.11

Types of exemption under the Financial Promotion Order

01/12/2004

AUTH App 1.11.1

The various exemptions in the Financial Promotion Order are split into three categories:

(1) exemptions applicable to all controlled activities (Part IV of the Order);

(2) exemptions applicable only to controlled activities concerning deposits and contracts of insurance other than life policies (Part V of the Order); and

(3) exemptions applicable to any other types of controlled activity (Part VI of the Order).

01/06/2002

AUTH App 1.11.2

Each individual exemption indicates the type of financial promotion (for example, non-real time) to which it relates. AUTH App 1.36.7 contains a table showing this breakdown. Each exemption also indicates whether it applies to any communication or only to those made to or directed at persons.

01/06/2002

AUTH App 1.11.3

Article 11 of the Financial Promotion Order (Combination of different exemptions) allows for certain exemptions to be combined when no single exemption may apply. The combinations allowed are:

(1) exemptions in Part IV of the Financial Promotion Order (all controlled activities) may be combined with each other or any of the exemptions in:

(a) Part V (deposits and contracts of insurance other than life policies); or

(b) Part VI (other controlled activities);

(2) exemptions in Part V may be combined with each other; and

(3) exemptions in Part VI may be combined with each other.

However, there is no power to combine exemptions in Part V with exemptions in Part VI.

01/06/2002

AUTH App 1.11.4

In a few instances, the requirements of a particular exemption may affect the practicality of its being combined with another. These are article 12 (Communications to overseas recipients) and article 52 (Common interest group of a company). Article 12, for example, requires that financial promotions must be made to or directed only at overseas persons and certain persons in the United Kingdom. This presents no difficulty with article 12 being combined with other exemptions in Parts IV or VI of the Financial Promotion Order where financial promotions are being made to persons. But, where a financial promotion is directed at the persons mentioned in article 12, it is difficult to see how the requirement that it must be directed only at those persons can be satisfied if it is also directed at other persons under another exemption. However, in the FSA's view, this does not prevent the same financial promotion being communicated under another exemption in another form or at any other time. For example, an electronic version of a financial promotion may be directed at overseas persons from a person's website in the United Kingdom using article 12. That person may then use another exemption to send paper copies of the same financial promotion.

01/06/2002

AUTH App 1.11.5

A number of exemptions require that a financial promotion must be accompanied by certain indications. Article 9 of the Financial Promotion Order states that indications must be presented in a way that can be easily understood and in such manner as is 'best calculated' to bring the matter to the recipient's attention. In the FSA's opinion, the expression 'best calculated' should be construed in a sensible manner. It does not, for instance, demand that the indication be presented in bold red capitals at the start of a document or advertisement. If the indication is given enough prominence, taking account of the medium through which it is communicated, to ensure that the recipient will be aware of it and able to consider it before deciding whether to engage ininvestment activity, the FSA would regard article 9 as being satisfied.

01/06/2002

AUTH App 1.11.6

Some exemptions are based on the communicator believing on reasonable grounds that the recipient meets certain conditions. For example, articles 19(1)(a), 44, 47 and 49. What are reasonable grounds for these purposes will be a matter for the courts to decide. In the FSA's view, it would be reasonable for a communicator to rely on a statement made by a potential recipient that he satisfies relevant conditions. This is provided that there is no reason to doubt the accuracy of the statement. In case of doubt, further checks may be necessary. These could include:

(1) checking on the record kept by the FSA under section 347 of the Act (The record of authorised persons etc) that a person is authorised;

(2) checking with a person's employer that he is employed in a particular capacity; or

(3) in the case of a person claiming to be a certified high net worth individual or sophisticated investor, asking to see a copy of the current certificate or the signed statement or both.

01/06/2002

AUTH App 1.12

Exemptions applying to all controlled activities

01/12/2004

AUTH App 1.12.1

Part IV of the Financial Promotion Order contains several exemptions which apply to all controlled activities. These are summarised in AUTH App 1.12.2 G to AUTH App 1.12.38 G.

01/10/2002

Financial promotions to overseas recipients (article 12)

AUTH App 1.12.2

This exemption concerns financial promotions which are made to or directed only at overseas persons (except in the circumstances referred to in AUTH App 1.12.8 G).

01/06/2002

AUTH App 1.12.3

The exemption applies to situations where a financial promotion is either:

(1) made to a person who receives it outside the United Kingdom; or

(2) directed at persons who are outside the United Kingdom.

01/06/2002

AUTH App 1.12.4

The exemption applies whether or not the financial promotion is made from the United Kingdom. However, there is the exception that, if it is an unsolicited real time financial promotion, it must be made from a place outside the United Kingdom and be for the purposes of a business carried on entirely outside the United Kingdom. To give effect to the principle of country of origin regulation of information society services as required by the E-Commerce Directive, article 12(7) of the Financial Promotion Order prevents the exemption applying to an outgoing electronic commerce communication.

01/10/2002

AUTH App 1.12.5

Articles 12(3) and (4) of the Financial Promotion Order (subject to article 12(5) - see AUTH App 1.12.8 G) have the effect that, where a financial promotion is directed from a place outside the United Kingdom, it will be conclusive proof that it is not directed at persons in the United Kingdom even if it is received by a person in the United Kingdom, if:

(1) the financial promotion is not referred to in or directly accessible from another communication (for example, an advertisement in a UK newspaper or a UK website) which is itself made to or directed at persons in the United Kingdom by or on behalf of the same overseas person; and

(2) there are proper systems and procedures in place to prevent recipients in the United Kingdom other than persons to whom the communication might otherwise lawfully have been made from engaging in the investment activity to which the financial promotion relates with the overseas person or his close relative or group company.

01/06/2002

AUTH App 1.12.6

There is no definition in the Financial Promotion Order of what 'proper systems and procedures' are, and the matter will ultimately be for the courts to determine. This is unsurprising as systems and procedures may take many different forms depending upon the precise circumstances in which financial promotions are made. But it is clear that persons seeking conclusive proof that the exemption applies must consciously make arrangements to prevent their dealing with certain recipients in the United Kingdom. In the FSA's view, proper systems and procedures will involve arrangements for scrutinising enquirers or applications with a view to identifying persons who are located in the United Kingdom and are not persons to whom the communication could lawfully have been made. Persons to whom the financial promotion could lawfully have been made does not mean only those covered by article 12. For example, depending on the controlled investment which the financial promotion is about, they could include a certified high net worth individual or a sophisticated investor. Such arrangements may be conducted manually using a questionnaire or electronically through password-protected access to information or the programming of software to recognise and reject United Kingdom addresses or both. The need for proper systems and procedures does not automatically mean that there will no longer be conclusive proof should, on isolated occasions, the systems or procedures fail to prevent dealings with a recipient in the United Kingdom. Provided the systems and procedures were and remain proper there will be conclusive proof that the exemption applies. A financial promotion from overseas might lead to a recipient in the United Kingdom engaging in investment activity with another group company (G) of the person (P) who makes the financial promotion. In this situation, it is not necessary that P operates the proper systems and procedures to get conclusive proof that the exemption applies. It will be enough that G operates the proper systems and procedures.

01/06/2002

AUTH App 1.12.7

Where a financial promotion is directed from within the United Kingdom, articles 12(3) and (4) also state (subject to article 12(5) - see AUTH App 1.12.8 G) that there can be conclusive proof that the financial promotion is directed only at persons outside the United Kingdom. This will be the case if, in addition to the conditions referred to in AUTH App 1.12.5 G (1) and AUTH App 1.12.5 G (2) the financial promotion is accompanied by an indication that :

(1) it is directed only at persons outside the United Kingdom; and

(2) it must not be acted upon by persons in the United Kingdom.

01/06/2002

AUTH App 1.12.8

In any case, some but not all of the conditions referred to in AUTH App 1.12.5 G (1) to AUTH App 1.12.5 G (2) and AUTH App 1.12.7 G (1) to AUTH App 1.12.7 G (2) (or the additional condition that the communication is included in a website, newspaper or periodical publication which is principally accessed in or intended for a non-UK market or in a radio or television broadcast or teletext service transmitted principally for reception overseas) may be met. In these cases, those conditions being satisfied will be taken into account in assessing whether the financial promotion is directed only at persons outside the United Kingdom. Even if none of the conditions are satisfied, it is still possible that a financial promotion which has been received by a person in the United Kingdom may properly be regarded as not having been directed at him. In the FSA's view, it will be an indication that a financial promotion in a website is directed at the United Kingdom if the website is registered with a UK search engine. Article 12(5) of the Financial Promotion Order also states that a financial promotion may be regarded as directed only at persons outside the United Kingdom where it is also directed at persons in the United Kingdom. This is provided those persons are limited to:

(1) investment professionals (article 19); or

(2) high net worth companies etc (article 49), or both.

Where a financial promotion is also directed at such persons in the United Kingdom the conclusive conditions referred to in AUTH App 1.12.5 G (1) to AUTH App 1.12.5 G (2) andAUTH App 1.12.7 G (1) to AUTH App 1.12.7 G (2) should be read as if references to persons to whom the financial promotion may be made or directed included investment professionals or high net worth companies etc. AUTH App 1.11.4 G explains how article 12 may be combined with other exemptions.

01/06/2002

Financial promotions from customers and potential customers (article 13)

AUTH App 1.12.9

Financial promotions made by a prospective customer to a person who supplies a controlled investment or services comprising controlled activities with a view to his acquiring the investment, or receiving the services or receiving information about those investments or services, are exempted. This exemption will only be of relevance to corporate customers or others who are acting in the course of business. Other types of customers will not be subject to section 21 to begin with.

01/06/2002

Follow up financial promotions (article 14)

AUTH App 1.12.10

Financial promotions other than unsolicited real time financial promotions are exempt where they follow up an earlier financial promotion which, in compliance with another exemption (such as that for promotions made to high net worth individuals or sophisticated investors - see AUTH App 1.14.21 G and AUTH App 1.14.27 G), contains certain indications or information. This is provided the financial promotion:

(1) is made by the person who made or directed the earlier financial promotion;

(2) is made to a recipient of the earlier financial promotion;

(3) relates to the same matter as the earlier financial promotion; and

(4) is made within 12 months of the earlier financial promotion.

This exemption does not help in situations where the original financial promotion was made or directed under an exemption which did not require it to include any indications or information. However, it is likely that, in many cases where no indications or information are required, the exemption to which the earlier financial promotion applies would also apply to any follow up financial promotion. The requirement that the follow up financial promotion be made by the person who made or directed the earlier one would seem to prevent use of the exemption by someone acting on behalf of that person. However, the earlier financial promotion may have been made or directed by an individual in his capacity as an officer or employee of a company or a partner or employee of a partnership. If so, the exemption will be satisfied if the follow-up financial promotion is made by another employee, director or partner of the same company or partnership.

01/06/2002

Introductions (article 15)

AUTH App 1.12.11

This exemption applies only to a real time financial promotion that is made with a view to or for the purposes of introducing the recipient to certain kinds of person. These are authorised persons who carry on the controlled activity to which the financial promotion relates, or exempt persons where the financial promotion relates to a controlled activity that is also a regulated activity in relation to which he is an exempt person. This is subject to the requirement that:

(1) the person making the financial promotion ('P') is not a close relative or group company of the authorised or exempt person;

(2) P does not receive any financial reward for making the introduction other than from the recipient of the financial promotion; and

(3) the recipient of the financial promotion has not, in his capacity as investor, sought advice from P or, if he has, P has declined to provide it and has recommended that he seek advice from an authorised person.

For the purposes of (2), it is the FSA's view that P may be viewed as not receiving any financial reward other than from the recipient where P treats any commission or other financial benefit received from third parties to whom introductions are made as belonging to and held to the order of the recipient. P cannot simply tell the recipient that P will receive commission. The position must be that the commission belongs to the recipient and must be paid to him unless he agrees to its being kept by P. Where this occurs, the payment may be seen to be received by P from the recipient. In the FSA's opinion, the condition would be satisfied by P paying over to the recipient any third party payment he receives. Otherwise, it would be satisfied by Pinforming the recipient of the sum and that he has the right to require that the sum to be paid to him. This would allow the sum to be used to offset fees due from the recipient for other services provided to him by P. This could take the form of an agreement between P and the recipient that sums received by P will be used to offset any other fees due to P from the recipient. This is provided that P informs the recipient of sums which P has received and of the fees which they have been used to offset. However, it does not allow P to keep third party payments by seeking the recipient's agreement through standard terms and conditions. Similarly, a mere notification to the recipient that a particular sum has been received coupled with a request to keep it does not satisfy the condition.

01/10/2002

Exempt persons (article 16)

AUTH App 1.12.12

This exemption covers two distinct situations. Article 16(1) applies to all exempt persons where they make financial promotions for the purpose of their exempt activities. These persons would include appointed representatives, recognised investment exchanges, recognised clearing houses and those who are able to take advantage of the Exemption Order. So, it allows exempt persons both to promote that they have expertise in certain controlled activities and to make financial promotions in the course of carrying them on. Article 16(1) does not apply to unsolicited real time financial promotions. Persons to whom the general prohibition does not apply because of Part XX (Provision of financial services by members of the professions) or Part XIX (Lloyd's members and former underwriting members) of the Act are not, for the purposes of article 16, exempt persons for their Part XX or Part XIX activities.

01/06/2002

AUTH App 1.12.13

Article 16 (2) applies to unsolicited real time financial promotion made by an appointed representative in carrying on the business:

(1) for which his principal has accepted responsibility for the purposes of section 39 of the Act (Exemption of appointed representatives); and

(2) in relation to which the appointed representative is exempt under section 39.

In addition, the financial promotion may only be made in the circumstances in which it could be made by the appointed representative's principal under COB 3. This ensures a level playing field as between employed and tied sales forces. This exemption may be of particular use to telephone sales agencies who will often need to be appointed representatives of investment product companies.

01/06/2002

Generic promotions (article 17)

AUTH App 1.12.14

Under this exemption, the financial promotion itself must not relate to a controlled investment provided by a person who is identified in it, nor must it identify any person as someone who carries on any controlled activity. So, it will apply where there is a financial promotion of a class of products. For example 'ISAs are great' or 'buy into an investment trust and help the economy'. Such financial promotions may be made by a person such as a trade association which is not itself carrying on a controlled activity. But this is provided there is no mention of any particular ISA or investment trust or of any person who may give advice on or arrange, sell or manage such investments.

01/06/2002

AUTH App 1.12.15

The exemption can also be used in certain circumstances where an intermediary is advertising its services as an intermediary. This is because advising on and arranging deposits and contracts of insurance other than life policies are not controlled activities. This means that an unauthorised intermediary offering to find the best rates on deposits may identify himself in the financial promotion as he will not be carrying on a controlled activity. This is provided that the financial promotion does not identify any particular deposit-taker. The same considerations would apply to an authorised intermediary who offers to advise on the best available motor insurance.

01/06/2002

AUTH App 1.12.16

Other persons may be able to take advantage of the exemption. For example, a person making a generic financial promotion may identify himself, whether he may carry on a controlled activity or not. This is provided that the financial promotion does not (directly or indirectly) identify him as someone who carries on a controlled activity.

01/06/2002

AUTH App 1.12.17

Journalists may be able to take advantage of this exemption when writing about investments generally. But the exemption would not apply if the financial promotion recommends the purchase or sale of particular investments such as XYZ Plc shares. This is because it will be identifying XYZ Plc as a person who provides the controlled investment (being its shares) and as a person who carries on the controlled activity of dealing in securities and contractually based investments (by issuing its own shares). Nor would the exemption apply if the financial promotion identifies an exchange on which investments are traded. That would indirectly identify the exchange as a person who carries on the controlled activities of dealing in securities or contractually based investments or arranging deals in investments. Journalists may also be able to use the exemption for journalists in article 20 (See AUTH App 1.12.23 G).

01/06/2002

Mere conduits (article 18 and 18A)

AUTH App 1.12.18

The purpose of this exemption is to ensure that, subject to certain conditions, the restriction in section 21 of the Act does not apply to those who merely transport the financial promotions of other persons. Obvious examples here are postal and Internet service providers, courier companies and telecommunications companies. AUTH App 1.6.5 G explains that such persons may not be regarded as communicating a financial promotion simply because they have distributed it. Article 18 (Mere conduits) does not apply where the financial promotion is an outgoing electronic commerce communication. A person acting as a mere conduit for financial promotions of this kind will, however, be able to use article 18A (Outgoing electronic commerce communications: mere conduits, caching and hosting). Article 18A is not subject to the conditions that apply to other forms of mere conduit (as referred to in AUTH App 1.12.19 G and AUTH App 1.12.20 G). However, it does require compliance with the conditions in articles 12(1), 13(1) and 14(1) of the E-Commerce Directive that relate to the liability of intermediary service providers.

01/10/2002

AUTH App 1.12.19

The conditions in article 18(2) include a requirement that the person making the financial promotion does not select, modify or otherwise exercise control over its content before it is transmitted or received. Article 18(3) provides that a person is not selecting, modifying or exercising control merely as a result of having power to remove material which is illegal, defamatory or in breach of copyright or at the request of a regulatory body or where the law requires him to do so. However, in the FSA's view, the control normally exercised by newspaper publishers or broadcasters over traditional forms of advertising they carry is likely to be enough for the exemption not to be available to such persons.

01/06/2002

AUTH App 1.12.20

The conditions in article 18 also require that the person acting as the mere conduit must communicate in the course of a business carried on by him the principal purpose of which is transmitting or receiving material provided to him by others. In the FSA's view, what matters is that the person is carrying on a business which has the required principal purpose. Such a business might represent but a part of a person's activities (however small), so long as it represents a discrete business. A discrete business is an activity whose principal purpose is to receive and transmit other persons' communications and which is not simply a service provided incidentally or as an adjunct to another service. For example a person who operates a website will not be entitled to the exemption (should he be communicating financial promotions see AUTH App 1.6) simply because he chooses to provide a chatroom or bulletin board for the use of his customers.

01/06/2002

Investment professionals (article 19)

AUTH App 1.12.21

Financial promotions made only to or directed only at certain types of person who are sophisticated enough to understand the risks involved are exempt. These are:

(1) authorised persons;

(2) exempt persons (where the financial promotion relates to a controlled activity which is a regulated activity for which the person is exempt);

(3) governments and local authorities; and

(4) persons whose ordinary business involves carrying on a controlled activity of the kind to which the financial promotion relates and which may include:

(a) investment trust companies;

(b) companies which provide venture capital;

(d) other persons who carry on an activity such as dealing in, arranging or advising on investments but who do not require authorisation because of an exclusion in the Regulated Activities Order; and

(e) professional firms who are exempt under Part XX of the Act.

This also includes persons acting in their capacity as directors, officers or employees of such persons.

01/06/2002

AUTH App 1.12.22

Article 19(4) sets out conditions which, if all are satisfied, offer conclusive proof that a financial promotion is directed only at investment professionals. These conditions relate to indications accompanying the financial promotion and the existence of proper systems and procedures. The guidance about proper systems and procedures in AUTH App 1.12.6 G applies equally to article 19. Article 19(6) specifically states that a financial promotion may be treated as made only to or directed only at investment professionals even is it is also made to or directed at other persons to who it may lawfully be communicated. This would include overseas persons and high net worth companies, etc. Where this is the case, the conditions in article 19(4) should, in the FSA's view, be satisfied if:

(1) the indications make it clear that the financial promotion is directed only at investment professionals and other persons to whom it may lawfully be promoted; and

(2) the systems and procedures are designed to prevent persons other than such types of persons engaging in investment activity.

01/06/2002

Journalists (article 20)

AUTH App 1.12.23

The broad scope of the restriction in section 21 of the Act will inevitably mean that it will, from time to time, apply to journalists and others who make their living from commenting on news including financial affairs (such as broadcasters). This is liable to happen when such persons offer share tips or recommend the use of a particular firm for investment purposes. Such tips or recommendations are likely to amount to inducements to engage in investment activity.

01/06/2002

AUTH App 1.12.24

The Treasury, in making the Financial Promotion Order, noted that financial journalism has an important part to play in increasing consumer awareness of financial services and products. It further observed the need to strike the right balance between protecting consumers and ensuring that the level of regulation is as light as possible, while respecting the principle of the freedom of the press.

01/06/2002

AUTH App 1.12.25

With this objective in mind, the exemption in article 20 (as amended by article 2 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment No 2) Order 2001) applies to any non-real time financial promotion the contents of which are devised by a person acting as a journalist where the financial promotion is in:

(1) a newspaper, journal, magazine or other periodical publication;

(2) a regularly updated news or information service (such as a website or teletext service); or

(3) a television or radio broadcast or transmission.

In addition, the publication, service or broadcast must be one which satisfies the principal purpose test set out in article 54 of the Regulated Activities Order. This means that the principal purpose must not be to advise on or lead or enable persons to buy or sell securities or relevant investments. See AUTH 7 for further guidance on this. Article 20 does not define what is meant by a person 'acting in the capacity of a journalist'. In the FSA's opinion, this expression has a potentially wide meaning. It will apply to anyone who writes for or contributes to a publication, service or broadcast. This includes experts or analysts who may be asked to contribute articles for a publication or website service or to offer their opinion in a broadcast.

01/06/2002

AUTH App 1.12.26

Provided the conditions in AUTH App 1.12.25 G are met, the exemption in article 20 applies to any non-real time financial promotion. However, there is an additional condition where the subject matter of the financial promotion is shares or options, futures or contracts for differences relating to shares and the financial promotion identifies directly a person who issues or provides such an investment. In such cases, the exemption is subject to a disclosure requirement which is itself subject to certain exceptions (see AUTH App 1.12.27 G). This requirement is that the financial promotion must be accompanied by an indication of the nature of any financial interest held by the person responsible for the promotion (that is, the journalist or editor) or member of his family (his spouse or children under 18). A financial interest would be subject to disclosure where the person or a member of his family would be likely to get a financial benefit or avoid a financial loss if persons acted in line with the financial promotion. Article 20 does not specify the way in which a financial interest should be indicated. In the FSA's view, a financial interest should be disclosed in a way that will enable recipients to understand readily its nature. For example, 'the writer has a substantial holding of traded call options in these shares'.

01/06/2002

AUTH App 1.12.27

The exceptions to the disclosure requirement are where the financial promotion is in either :

(1) a publication, service or broadcast which has proper systems and procedures which prevent the publication of communications without disclosure of financial interests; or

(2) a publication, service or broadcast which falls within the remit of:

(a) the Code of Practice issued by the Press Complaints Commission;

(b) the Programme Code of the Radio Authority;

(d) the Programme Code of the Independent Television Commission.

01/10/2002

AUTH App 1.12.28

The effect of AUTH App 1.12.27 G (2) is that financial promotions made by journalists in publications, services or broadcasts to which one of the codes or the guidelines apply are not subject to the disclosure requirement. This is so even if a financial promotion is made in breach of the codes or guidelines. Such financial promotions would remain to be dealt with by the body responsible for the code or guidelines and the publisher concerned. The code or guidelines may, of course, themselves require disclosure but the fact that they have been specified does not necessarily mean that they will or will always require disclosure. That is something which depends on the requirements of the particular code or guidelines.

01/06/2002

AUTH App 1.12.29

The effect of AUTH App 1.12.27 G (1) is that a journalist will not breach section 21 by not disclosing a financial interest, providing that the publication, service or broadcast concerned operates proper systems and procedures. As with the exemption in article 12 of the Financial Promotion Order (see AUTH App 1.12.6 G), what proper systems and procedures are will be a matter ultimately for the courts to determine and may vary according to the medium used. It will depend upon all the circumstances surrounding the publication, service or broadcast. In the FSA's opinion, proper systems and procedures may achieve the objective of preventing the publication of communications without the required disclosure in one of two ways. They may require that disclosure be made. Or they may seek to prevent journalists from acting in a way which would enable them to profit if persons follow their published recommendations. For example, by banning their dealing in the shares or related investments for a reasonable period following the promotion. This would ensure that the journalist will not have a financial interest to disclose. For example, and in the FSA's opinion, a publication, service or broadcast may be likely to satisfy the test referred to in AUTH App 1.12.27 G (1) if it has set up procedures:

(1) for persons responsible for devising the content of financial promotions, or for deciding that they should be included in the publication, service or broadcast, to register their financial interests in a central log;

(2) for the central log to be properly maintained and regularly reviewed;

(3) where disclosure is required, for all financial promotions to be subject to review before publication or broadcast by an appropriately qualified and senior person; and

(4) for the persons referred to in (1) to be made aware in writing of the procedures and of their obligations to disclose their financial interests or to refrain from any course of action which may be likely to give them a financial interest requiring disclosure and, preferably, to have confirmed their acceptance of those obligations in writing.

01/06/2002

AUTH App 1.12.30

Persons such as experts or analysts may be approached to contribute at very short notice and may be overseas. In such cases, the systems and procedures referred to in AUTH App 1.12.29 G may not be practical. It is the FSA's opinion that, where occasional contributors are concerned, proper systems and procedures may include arrangements for ensuring that the need for disclosure (or the avoidance of financial interests) is drawn to the contributor's attention before the communication is made. The contributor's confirmation that he understands and accepts the position on disclosure would also need to be obtained. The arrangements for bringing the position on disclosure to the contributor's attention and for obtaining his understanding and acceptance should be made in whatever way is most appropriate in the circumstances. In other cases, it may be enough that the persons responsible for the broadcast satisfy themselves that contributors represent reputable regulated businesses. And that it would be reasonable to believe that they would not seek to promote an investment or investment service in which they had a financial interest without disclosing that fact. This is, of course, merely an example and not the only circumstances in which overseas broadcasts may be regarded as having proper systems and procedures.

01/06/2002

AUTH App 1.12.31

It appears to the FSA, however, that there will be situations when it may not be practical for the persons who are responsible for a publication, service or broadcast to apply proper systems and procedures to every person who may, whilst acting in the capacity of a journalist, communicate a financial promotion. For example where persons are asked to stand in at the last moment. In such cases, it is the FSA's opinion that the benefit of the exclusion will not be lost as respects those persons who are subject to the proper systems and procedures. However, any financial promotions communicated by persons who are not subject to them would still be subject to the restriction in section 21 and would need to be approved by an authorised person or otherwise exempt.

01/06/2002

Promotion broadcast by company director etc (article 20A)

AUTH App 1.12.32

Article 20A (which was added by article 3 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment No 2) Order 2001) provides a further exemption for certain financial promotions communicated by means of a service or broadcast which satisfies the principal purpose test in article 54 of the Regulated Activity Order (see AUTH App 1.12.25 G and AUTH 7). Readers of this section should also refer to the guidance on company statements in AUTH App 1.21.

01/10/2002

AUTH App 1.12.33

The main purpose of the exemption appears to be to guard against the possibility that, during the course of a broadcast interview or a live website presentation, a financial promotion is made inadvertently by a director or employee of a company or other business undertaking when he is not acting in the capacity of a journalist (see AUTH App 1.12.25 G). The exemption applies if the financial promotion relates only to:

(1) shares of the undertaking or of another undertaking in the same group or options, futures or contracts for differences related to those shares; or

(2) any controlled investment issued or provided by an authorised person in the same group as the undertaking.

01/06/2002

AUTH App 1.12.34

The exemption applies where the financial promotion:

(1) comprises words which are spoken by the director or employee and not broadcast, transmitted or displayed in writing; or

(2) is displayed in writing only because it is part of an interactive dialogue to which the director or employee is a party and in the course of which he is expected to respond immediately to questions put by a recipient of the communication.

This is provided that the financial promotion is not part of an organised marketing campaign. AUTH App 1.14.4 G (3) provides guidance on the meaning of an organised marketing campaign. In the context of article 20A, it is the FSA's view that an individual or isolated financial promotion will not represent or be part of an organised marketing campaign. However, a company representative may use a broadcast interview or webcast to encourage or incite viewers or listeners to acquire investments or investment services which are the subject of an advertising campaign being conducted at the same time. In such cases, any financial promotion contained in that interview or webcast will be part of an organised marketing campaign. Where this is the case, the company representative may be able to rely on other exemptions depending upon the subject matter of the financial promotion - see AUTH App 1.21.

01/06/2002

AUTH App 1.12.35

The exemption also requires that the director or employee is identified as such in the financial promotion before it is communicated.

01/06/2002

AUTH App 1.12.36

The first part of the exemption (referred to in AUTH App 1.12.34 G (1)) specifically precludes any form of written communication. However, the FSA understands that the Treasury did not intend to prohibit the use of written words in the form of subtitling. These may be an aid to those with hearing difficulties or to interpret a foreign language, or the use of captions which supplement a spoken communication by highlighting aspects of it without introducing anything new. The FSA cannot fetter its discretion and must consider potential breaches of section 21 of the Act on their merits. However, where the only reason why a person may have breached section 21 of the Act is because he has used subtitling or captioning in this way the FSA would not expect to take further action. In the FSA's view, the position is different if a transcript of the spoken communication is later made available. This would be a separate communication and would need to be approved or otherwise exempt.

01/06/2002

AUTH App 1.12.37

The second part of the exemption (referred to in AUTH App 1.12.34 G (2)) envisages that the director or employee will be holding the equivalent of a conversation conducted in writing. Typically this will involve the exchange of e-mails. It is possible that this part of the exemption could be used by companies making so-called webcasts over the Internet. However, this would only be the case if the service through which the webcast is provided is a regularly updated news or information service (and which meets the principal purpose test - see AUTH App 1.12.25 G). There is no reason why the exemption should not apply to a company website which provides regularly updated news or information about the activities, products or services of the company where the website represents a service provided to those who use it. However, not all company websites will be services of this kind.

01/06/2002

Incoming electronic commerce communications (article 20B)

AUTH App 1.12.38

Article 20B gives effect to the provisions of the E-Commerce Directive by exempting incoming electronic commerce communications. However, article 20B does not apply to the following communications:

(1) an advertisement by the operator of a UCITS of units in that scheme;

(2) an invitation or inducement to enter into a contract of insurance where:

(a) it is made by an undertaking which has received official authorisation in line with article 6 of the First Life Directive or the First Non-life Directive; and

(b) the insurance falls within the scope of any of the Insurance Directives; or

(3) an unsolicited communication made by electronic mail.

For the purposes of (3), a communication is unsolicited unless it is made in response to an express request from its recipient.

01/10/2002

AUTH App 1.13

Exemptions applying to financial promotions concerning deposits and certain contracts of insurance

01/12/2004

AUTH App 1.13.1

The exemptions in Part V of the Financial Promotion Order concern financial promotions relating to deposits and contracts of insurance other than life policies. The exemptions may be combined with exemptions in Part IV but not with those in Part VI.

01/06/2002

AUTH App 1.13.2

Part V provides two kinds of exemption of a general nature and one specific exemption. The exemptions of a general nature are:

(1) any form of real time financial promotion (articles 23 (Deposits: real time communications) and 26 (Relevant insurance activity; real time communications)); and

(2) non-real time financial promotions containing certain specified information including the name, country of incorporation (if relevant) and principal place of business of the deposit-taker or insurer and whether it is regulated, details of any redress schemes and, for deposit-takers only, certain financial information (articles 22 (Deposits: non-real time communications) and 24 (Relevant insurance activity: non-real time communications)).

01/06/2002

AUTH App 1.13.3

Article 25 (Relevant insurance activity: non-real time communications: reinsurance and large risks) exempts financial promotions concerning contracts of insurance which are either contracts of reinsurance or contracts covering certain large risks.

01/06/2002

AUTH App 1.13.4

Intermediaries involved with arranging and advising on deposits may be unauthorised persons as such activities do not amount to regulated activities and so do not require authorisation under section 19 of the Act. However, the combination of the exemptions in Part V together with certain of the exemptions in Part IV (such as generic promotions - see AUTH App 1.12.14 G - and follow up communications - see AUTH App 1.12.10 G) should mean that it will often be possible for such persons to avoid any need to seek approval for their financial promotions from an authorised person. Guidance on the application of these exemptions to financial promotions about insurance mediation activities is in AUTH App 1.17A (Financial promotions concerning insurance mediation activities).

01/06/2002

AUTH App 1.14

Other financial promotions

01/12/2004

AUTH App 1.14.1

The exemptions in Part VI apply to different types of financial promotion, and the exemption available may be based on a number of facts. These may be the identity of the maker of the financial promotion, the identity of the recipient of the financial promotion, the subject matter of the financial promotion or the nature of the financial promotion itself. Some of these exemptions apply to non-real time financial promotions, others to solicited real time financial promotions and others to unsolicited real time financial promotion. Many of the exemptions apply to more than one category of financial promotion. AUTH App 1.36.7 contains a table showing which types of financial promotion are covered by each individual exemption.

01/06/2002

AUTH App 1.14.2

AUTH App 1.14.3 G to AUTH App 1.14.42 G describe some of the more significant exemptions contained in Part VI. See the Financial Promotions Order for full details of all the exemptions in Part VI.

01/06/2002

One-off financial promotions (articles 28 and 28A)

AUTH App 1.14.3

Article 28 exempts financial promotions, other than unsolicited real time financial promotions, which are one-off in nature. Whether or not any particular financial promotion is one-off in nature will depend upon the individual circumstances in which it is made. Article 28(3) sets out conditions which, if all are met, are conclusive. Otherwise they are indicative. Even if none are met the exemption may still apply. This makes it clear that the overriding issue is whether the financial promotion is, in fact, a one-off. The conditions are that:

(1) the financial promotion is made only to one recipient or to a group of recipients in the expectation that they would engage in investment activity jointly;

(2) the product or service involved has been determined having regard to the circumstances of the recipient or recipients; and

(3) the financial promotion is not part of an organised marketing campaign.

01/06/2002

AUTH App 1.14.4

The FSA considers the effect of each of the conditions in AUTH App 1.14.3 G (1) to AUTH App 1.14.3 G (3) to be as follows.

(1) The first condition requires the financial promotion to be made, so ruling out any financial promotions which are directed at persons. The effect of article 6(b) and (e) of the Financial Promotion Order is that a communication is made to a person when it is addressed to him and that person to whom the financial promotion is addressed is its recipient. This means that when one person addresses a financial promotion to another person, it will not be regarded as having been made to anyone else. So, in the case of a real time financial promotion, it is not made to any other person who may be present. And in the case of a non-real time financial promotion, it is not made to any other person who may read or hear it. If the financial promotion is addressed to more than one person they must be proposing to engage in investment activity jointly (see AUTH App 1.14.6 G).

(2) The second condition requires the financial promotion to apply to the personal circumstances of the recipient so not benefiting a financial promotion which take no account of the personal circumstances of the recipient or recipients.

(3) The third condition requires that the financial promotion must not be part of an organised marketing campaign. There is no definition of an organised marketing campaign but, in the FSA's view, it is appropriate to consider each of the words and their effect in this context:

(a) 'organised' suggests that the campaign is planned in advance and not something done on the spur of the moment;

(b) 'marketing' suggests an element of public promotion so as not to apply to anything of a personal or very limited nature even if it is promotional; and

01/06/2002

AUTH App 1.14.5

In the FSA's opinion, the indicators referred to in AUTH App 1.14.4 G suggest that there are two essential elements of a one-off financial promotion. These are that it is tailored to the circumstances of the recipient and that it is individual in nature (in that it is not simply a personalised letter sent out as part of a general mailshot). Apart from this there is no need for the communication to be an isolated instance. For example, the fact that there may be a considerable number of communications made during negotiations for a transaction will not prevent each communication from being one-off. The FSA is of the view that none of the three conditions carries significantly more weight than the others. Each financial promotion must be assessed against the conditions on its merits. The FSA regards the following to be financial promotions which will meet the conclusive conditions provided, in each case, that the financial promotion is tailored to the personal circumstances of and addressed to the recipient.

(1) Individual personal written communications or one to one conversations.

(2) A response printed in a publication or website or given during a broadcast in response to an enquiry from a reader, viewer or listener.

(3) A response given to a person who asks a question at a presentation or meeting.

(4) A response to a question raised by another person using an internet chatroom or bulletin board.

01/06/2002

AUTH App 1.14.6

In the FSA's view, a group of recipients who may be engaging in investment activity jointly could include:

(1) a married couple;

(2) two or more persons who will invest jointly in a product (for example, a cohabiting couple who are not married or members of a family);

(3) the directors of a company or partners in a firm;

(4) members of a group of companies;

(5) the participants in a joint commercial enterprise;

(6) the members of an investment club; and

(7) the managers or prospective managers of a company who are involved in a management buy-out or buy-in.

01/06/2002

AUTH App 1.14.7

A financial promotion may fail to satisfy all of the indicators referred to in AUTH App 1.14.4 G because it is addressed to more than one recipient and they are not persons who will engage in investment activity jointly. In the FSA's view, such a financial promotion is capable of being one-off where the persons are to enter into the same transaction and the promotion is tailored to their individual circumstances. This may typically happen during negotiations for the sale of a company or the raising of corporate finance where a small number of parties are involved.

01/06/2002

AUTH App 1.14.8

The fact that a financial promotion may be made following an organised marketing campaign does not mean that it must automatically be regarded as part of the campaign or that it cannot be one-off. For example, after a person has responded to a general promotion, an investment manager may make financial promotions to him and tailor them to his individual objectives. Such subsequent financial promotions can be one-off. Similarly, a person who provides corporate finance services may use an organised marketing campaign to find a potential investor or investee company. Any subsequent financial promotions made during negotiations for the deal may be one-off even though they may represent a series of communications to the same recipient. On the other hand, the situation is slightly different where an organised marketing campaign involves the sale of an investment product such as a life policy. There will be fewer instances where subsequent financial promotions to individual recipients will be capable of being one-off. For example, any financial promotion which has the basic elements of selling the product is likely to be part of an organised marketing campaign and will not be a one-off.

01/06/2002

AUTH App 1.14.9

In the FSA's view, a person such as an investment manager or adviser is not conducting an organised marketing campaign purely because he regularly provides a particular client with financial promotions as part of his service. Neither is such a person conducting an organised marketing campaign purely because he may have several clients whose personal circumstances and objectives may suggest that a particular investment opportunity may attract them. If he considers the individual circumstances and objectives of each client before determining that the opportunity would be suitable for that client the financial promotions should be capable of being one-off.

01/06/2002

AUTH App 1.14.10

In the FSA's view, a person will not be making one-off financial promotions simply by sending out a series of letters to a number of customers or potential customers where a few details are changed (such as the name and address) but the bulk of the letter is standard. Such letters would be likely to be part of an organised marketing campaign.

01/06/2002

AUTH App 1.14.11

Article 28A was added by article 2 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2001 (SI 2001/2633). It exempts one-off unsolicited real time financial promotions provided that the person making the financial promotion believes on reasonable grounds:

(1) that the recipient understands the risks associated with engaging in the investment activity to which the financial promotion relates; and

(2) (at the time the communication is made) that the recipient would expect to be contacted by him about the investment activity to which the financial promotion relates.

01/06/2002

AUTH App 1.14.12

In the FSA's view, the article 28A exemption should provide scope for persons such as professional advisers to make unsolicited real time financial promotions in various situations. For example, when approaching persons with whom their clients are proposing to do business or those persons? professional advisers. The exemption will not apply where the financial promotions are part of an organised marketing campaign (see AUTH App 1.14.4 G (G)(3)). So, in cases where a professional adviser is to contact a number of persons on a matter which involves each of them it will be necessary for him to consider whether the approaches would be part of an organised marketing campaign. For example, where they are significant shareholders in a company for which an offer has been made. In the FSA's opinion, provided the professional adviser considers the circumstances of each recipient and tailors the financial promotions to them it should be possible for the financial promotions to be regarded as one-off. Ultimately, however, the matter depends on the precise circumstances in which the financial promotions are made.

01/06/2002

AUTH App 1.14.13

Whether or not it would be reasonable to believe that any person understands the risks associated with the investment activity covered in a financial promotion or would expect to be contacted about it must be judged on the particular circumstances. In the FSA's opinion, the exemption requires that the recipient has the required understanding of risk at the time the promotion is made to him. However, it would be reasonable to believe that a person understands the risk involved if:

(1) he is understood to be a professional in relation to the investment activity to which the financial promotion relates;

(2) he is advised about the risks by a person who is professionally qualified to give such advice; or

(3) he has a position in a company which it is reasonable to suppose would require him to have such an understanding (such as a person who is in charge of a company's treasury function).

In the FSA's opinion, a person such as the managing director or finance director of a company that is seeking venture capital may reasonably be regarded as expecting to be contacted by or on behalf of a potential investor.

01/06/2002

Overseas communicators (articles 30-33)

AUTH App 1.14.14

There are a number of exemptions in the Financial Promotion Order relating to financial promotions sent into the United Kingdom by an overseas communicator who does not carry on certain controlled activities in the United Kingdom. These exemptions apply in addition to any other exemptions which may apply to any particular financial promotion by an overseas communicator.

01/06/2002

AUTH App 1.14.15

Article 30 exempts any solicited real time financial promotion made by an overseas communicator in the course of or for the purposes of certain controlled activities which he carries on outside the United Kingdom. This enables an overseas communicator, for example, to respond to an unprompted telephone enquiry made by a person in the United Kingdom or an enquiry which follows a financial promotion made by the overseas communicator and which was approved by an authorised person.

01/06/2002

AUTH App 1.14.16

In order to make an unsolicited real time financial promotion, an overseas communicator must rely on either article 32 or article 33. Article 32 provides an exemption for unsolicited real time financial promotions made by an overseas communicator to persons who were previously overseas and were a customer of his then. This is subject to certain conditions, including that, in broad terms, the customer would reasonably expect to be contacted about the subject matter of the financial promotion. Article 33 is similar to a sophisticated investor exemption and applies where the overseas communicator has reasonable grounds to believe that the recipient is knowledgeable enough to understand the risks associated with the controlled activity to which the financial promotion relates. It is also necessary for the recipient to have been informed that he will not gain the protections under the Act in respect of the activity or of the making of unsolicited real time financial promotions, and whether he will lose the benefit of dispute resolution and compensation schemes. The recipient must also have signified clearly that he accepts the position after having been given a proper opportunity to consider the information. There is no definition of a proper opportunity for this purpose. In the FSA's opinion it is likely to require the recipient to have a reasonable time to reflect on the matter and, if appropriate, seek other advice. What is a reasonable time, will depend upon the circumstances of the recipient, but, in the FSA's opinion, it is unlikely that a time of less than 24 hours will be enough.

01/06/2002

AUTH App 1.14.17

Article 31 exempts non-real time financial promotions made to previously overseas customers and subject to certain conditions. Again, to satisfy this exemption, the communicator must be based overseas and must be communicating with a person who was previously a customer of his while that person was overseas.

01/06/2002

Nationals of EEA States other than the United Kingdom (article 36)

AUTH App 1.14.18

This exemption allows a person in another EEA State who lawfully carries on a controlled activity in that State to promote into the United Kingdom. The terms of the exemption are that the promotion must comply with the financial promotion rules in COB 3. Care should be taken as any failure to satisfy any of the relevant requirements of COB 3 may mean that this exemption is not satisfied and that the financial promotion may breach section 21 if it has not been approved and no other exemption applies to it. The FSA recommends that anyone seeking to rely on this exemption either seeks professional advice or contacts the FSA before communicating the financial promotion. This exemption does not apply to unsolicited real time financial promotions.

01/06/2002

Joint enterprises (article 39)

AUTH App 1.14.19

Article 39 of the Financial Promotion Order exempts a financial promotion that:

(1) is communicated by one participator or potential participator in a joint enterprise to another; and

(2) is in connection with or for the purposes of that enterprise.

A joint enterprise means, in general terms, arrangements entered into by two or more persons for commercial purposes related to a business that they carry on. The business must not involve a controlled activity. The term 'participant' includes other members of a group of which a participant is a member.

01/06/2002

AUTH App 1.14.20

In the FSA's opinion;

(1) it will not matter that a person enters into arrangements for investment or other purposes provided that he also enters them into for commercial purposes; and

(2) each participant must be carrying on the business in question in their own right.

This means that the sponsors or promoters of a company who arrange for private investors to become shareholders will not be setting up a joint enterprise simply because the company may intend to carry on a relevant business which is not a controlled activity. Examples of a joint enterprise include a special purpose company owned by the participants and set up to operate a commercial project or to hold property of some kind. The participants in joint enterprises of this kind would typically be businesses which are to undertake work on the project or property development and investment companies.

01/06/2002

Certified high net worth individuals (article 48)

AUTH App 1.14.21

This exemption disapplies the restriction in section 21 of the Act from non-real time financial promotions or solicited real time financial promotions which are made to a certified high net worth individual and relate to certain investments. These investments must be either;

(1) shares in or debentures of an unlisted company; or

(2) warrants, certificates representing certain securities, options, futures or contracts for differences relating to shares in or debentures of an unlisted company; or

(3) collective investment schemes investing predominantly in shares in or debentures of an unlisted company.

There is an additional requirement that the recipient must have no contingent liability so that the maximum he may lose is the amount he invests. The term 'unlisted company' is defined in article 3 of the Financial Promotion Order. This exemption is expected to be of help to unlisted companies seeking venture capital.

01/06/2002

AUTH App 1.14.22

To be certified as a high net worth individual, the individual concerned must have earned at least £100,000 or have held net assets to the value of more than £250,000 throughout the financial year before the date of the certificate. Where the financial promotion is an outgoing electronic commerce communication, the earnings or net assets may be of an equivalent amount in another currency. To be current, the certificate must be signed and dated by the individual's accountant or employer within twelve months of the date on which the communication is made. The financial promotion must not invite the recipient to engage in investment activity with the person who has signed the certificate. There is, however, nothing to prevent an accountant signing a certificate for an individual for whom he may be providing investment services of any kind. This is provided he does not seek to use the article 48 exemption to make financial promotions to the individual. The exemption can be used by associates or group members of the person who signs the certificate.

01/10/2002

AUTH App 1.14.23

In addition, the financial promotion must contain certain information and the recipient must have previously (within the last 12 months) signed a statement in the terms in article 48(2)(b) of the Financial Promotion Order.

01/06/2002

AUTH App 1.14.24

A person seeking to make a financial promotion to another person may wish to make enquiries of that person to establish whether he is certified. Unless another exemption applies or the financial promotion is approved by an authorised person, such enquiries will not be possible if the enquiry communication is an inducement or invitation to engage in investment activity. In the FSA's view, a communication which is merely an enquiry seeking to establish that a person holds a current certificate will not itself be an inducement or invitation. Once it has been established that the person qualifies as a certified high net worth individual financial promotions about the controlled investments in AUTH App 1.14.21 G may then be sent to him under article 48. AUTH App 1.4.27 G offers further guidance on this.

01/06/2002

High net worth companies, unincorporated associations and trusts (article 49)

AUTH App 1.14.25

This exemption works on a different basis to that for high net worth individuals. There is no requirement for a certificate or statement to be signed. Instead, the person making the promotion must believe on reasonable grounds that the recipients are high net worth companies, unincorporated associations or trusts or be reasonably regarded as directing the financial promotion only at such persons. A high net worth company, unincorporated association or trust is a person who satisfies the conditions in article 49(2)(a) to (e) which, for the most part, involve the amount of assets held.

01/06/2002

AUTH App 1.14.26

Article 49(4) gives the list of conditions which, if all are met, is proof that the financial promotion is directed at relevant persons. It is not necessary for all or any of the conditions to be met for a financial promotion to be regarded as directed at relevant persons. Ultimately the matter will be one of fact to be determined by taking account of the circumstances in which the financial promotion is made. In the FSA's opinion, it is not necessary for a financial promotion, to comply with the condition in article 49(4)(a) that there be an indication of the types of person to whom it is directed, to refer in detail to the terms of article 49(2). It will be enough that it is clear that the financial promotion is directed at persons to whom article 49 applies. Persons using article 49 will need, however, to consider the extent to which recipients of the financial promotion are likely to understand the indication. An appropriate approach may often be to refer to the financial promotion being 'directed at high net worth companies, unincorporated associations etc for the purposes of article 49' or similar.

01/06/2002

Sophisticated investors (article 50)

AUTH App 1.14.27

To be a sophisticated investor, the recipient of a financial promotion must have a current certificate from an authorised person stating that he has enough knowledge to be able to understand the risks associated with the description of investment to which the financial promotion relates. Where the financial promotion is an outgoing electronic commerce communication, the certificate may be signed by a person who is entitled, under the law of an EEA State other than the United Kingdom, to carry on regulated activities in that EEA State. The FSA considers that a 'description of investment' relates to a category of investments with similar characteristics. Examples are given below.

(1) The shares in a private company are not the same 'description of investment' as shares in a plc as there will usually be certain significant distinctions. For instance, there will often be restrictions on the transfer of shares in a private company.

(2) Shares traded on a market or exchange will be a different 'description of investment' to unlisted shares.

(3) Shares which have similar characteristics will be of the same 'description of investment' irrespective of whether they are shares of companies in the same market or geographical sector.

The recipient must also have signed a statement in the terms in article 50(1)(b). The financial promotion must not invite or induce the recipient to engage in investment activity with the person who has signed the certificate. But it may invite or induce the recipient to engage in investment activity with an associate or group member of that person.

01/10/2002

AUTH App 1.14.28

The exemption also requires that certain warnings are given to the potential investor. In this respect, article 50(3)(d) provides that the financial promotion must state that there is a significant risk of losing all monies invested or of incurring additional liability. In the FSA's view, these are alternative statements and whichever is the relevant statement should be included. If there is no risk of incurring additional liability the statement may simply say that there is a risk of losing the sum invested. This is a mandatory requirement, although the exemption under article 50 may be used to promote investments for which either statement would be inappropriate or potentially confusing (for instance if it is used to offer gilts). The FSA cannot fetter its discretion to decide individual cases on their merits. However, where a person seeks to rely on the article 50 exemption for a financial promotion which would otherwise satisfy the terms of article 50 but which omits the statement required under article 50(3)(d), on the grounds that it would be misleading to include it, the FSA would, generally, take no further action.

01/06/2002

Associations of high net worth or sophisticated investors (article 51)

AUTH App 1.14.29

This exemption allows a non-real time or solicited real time financial promotion to be made to an association with a particular membership. Membership of this association must be reasonably believed to be wholly or predominantly certified high net worth individuals, high net worth companies or unincorporated associations or trusts, or sophisticated investors. The financial promotion must not relate to an investment under the terms of which a person can incur additional liability of more than his original investment. In each case, whether the membership of an association is predominantly made up of high net worth individuals, high net worth companies or unincorporated associations or trusts, or sophisticated investors will be a question of fact. The exemption may be expected to be likely to apply, for example, to financial promotions to business angel networks. In the FSA's view, the exemption allows for financial promotions to be made to the members of the association. It is not restricted to financial promotions made to the operator or secretariat of the association.

01/06/2002

Common interest group of a company (article 52)

AUTH App 1.14.30

Article 52 concerns non-real time and solicited real time financial promotions about offers of shares or debentures of a company. The offers must be made only to or be reasonably regarded as only directed at certain persons. These persons must belong to an identified group of persons who, when the financial promotion is made, might reasonably be regarded as having an existing and common interest with each other and the company.

01/06/2002

AUTH App 1.14.31

The exemption is subject to certain conditions. In broad terms, these are that the financial promotion must be accompanied by an indication:

(1) that the directors or promoters of the company have taken all reasonable care to ensure that the financial promotion is true and not misleading;

(2) that the directors or promoters have not limited their liability;

(3) that any person who is in doubt about the investment should consult an authorised person; and

(4) that:

(a) the directors or promoters of the company have taken all reasonable care to ensure that potential investors have access to relevant information about the company; or

(b) any person considering investing in the company should regard his subscription as helping the company to meet its non-financial objectives and only secondarily, if at all, as an investment.

Where the financial promotion is an outgoing electronic commerce communication, the reference in (3) to an authorised person includes a person who is entitled, under the law of an EEA State other than the United Kingdom, to carry on regulated activities in that EEA State.

01/10/2002

AUTH App 1.14.32

In line with other exemptions, article 52 contains indicators which, if all are met, mean that the financial promotion is directed at relevant persons.

01/06/2002

AUTH App 1.14.33

Example of situations where article 52 is likely to apply include offers made by:

(1) a club or association which is considering incorporation to its members;

(2) a private school to the parents of its pupils; and

(3) a company to its existing members or creditors (where the exemption in article 43 might also be expected to apply).

01/06/2002

AUTH App 1.14.34

However, persons are not to be regarded as having a common interest with each other and a company simply because:

(1) they would have such an interest if they became its members or creditors;

(2) they all carry on a particular trade or profession; or

(3) they have an existing business relationship with the company whether by being it clients, customers, contractors, suppliers or otherwise.

01/06/2002

Sale of body corporate (article 62)

AUTH App 1.14.35

The exemption in article 62 of the Financial Promotion Order applies to any financial promotion communicated by or on behalf of a body corporate, a partnership, an individual or a group of connected individuals. The financial promotion must relate to a transaction which is one to acquire or dispose of shares in a body corporate and either:

(1) it is the case that:

(a) the shares, in addition, where appropriate, to any shares already held by the buyer, amount to 50% or more of the voting shares in the body corporate; and

(b) the party or parties who act as seller is a body corporate, a partnership, a single individual or a group of connected individuals and the party or parties who act as buyer is also one or other of these (but not necessarily the same type as the seller); or

(2) where the conditions in (1) are not met, but the object of the transaction may reasonably be regarded as being the acquisition of day to day control of the affairs of the body corporate.

01/06/2002

AUTH App 1.14.36

A group of connected individuals is defined in article 62(4) of the Financial Promotion Order as being a group of persons each of whom is (for sellers) or is to be (for buyers):

(1) a director or manager of the body corporate;

(2) a close relative of such a person; or

(3) a person acting as trustee for a person as referred to in (1) or (2)

01/06/2002

AUTH App 1.14.37

In the FSA's view, a main aim of the exemption (see AUTH App 1.14.35 G (1)) is to remove from the scope of section 21 a financial promotion concerning the sale of a corporate business by a person who, either alone or with others, controls the business to another person who, either alone or with others, proposes to control the business.

01/06/2002

AUTH App 1.14.38

In any case where the conditions referred to in AUTH App 1.14.35 G (1) are not met, it will be necessary to consider the circumstances in which the transaction is to take place in order to determine whether its objective is the acquisition of day to day control (see AUTH App 1.14.35 G (2)). In situations where the 50% holding of voting shares test is not met it is still possible that the objective of a transaction could be the acquisition of day to day control. For instance, because the remaining shareholders represent a large number of small shareholders who it is reasonable to suppose will not regularly act in concert.

01/06/2002

AUTH App 1.14.39

Where the nature of the parties test (see AUTH App 1.14.35 G (1)(b)) is not met and the purpose for which the person who is the buyer holds or proposes to hold the voting shares is considered, it may still be the case that the objective of the transaction is the acquisition of day to day control. This may typically be because there are two or more parties involved as buyer and they do not collectively represent a group of connected individuals as defined. For example, this may happen where the shares are to be held by one of the following persons who intends to acquire control either alone or with others:

(1) a person (of either sex) with whom a person who is to be a manager or director cohabits;

(2) a venture capital company which proposes to invest in the company and which is to provide a representative to act as a manager or director of the company; or

(3) a private company used as a vehicle to hold shares by a person who is to be a manager or director of the company (or his close relative).

01/06/2002

AUTH App 1.14.40

In the FSA's opinion, provided that the purpose of the transaction is for the buyer to acquire the necessary control, it is irrelevant who is the seller. The exemption specifically applies to financial promotions which are communicated on behalf of the parties or potential parties to the transaction. The FSA is aware that the Treasury has received comments about the scope of article 62. These are being considered but no decision has been taken on whether to propose any change. If the Treasury were minded to propose any change it would expect to consult publicly first.

01/06/2002

Other issues

AUTH App 1.14.41

Several exemptions, including article 43 of the Financial Promotion Order (Members and creditors of certain bodies corporate), apply only in relation to relevant investments being shares or debentures in the body corporate or a member of its group, or warrants or certificates representing certain securities relating to such shares or debentures. In the FSA's view, an exchangeable debt security which is partly a debenture and partly an option is a relevant investment for these purposes.

01/06/2002

AUTH App 1.14.42

The exemptions for bearer instruments (articles 41 and 42 of the Financial Promotion Order) relate to financial promotions made to or directed at persons entitled to bearer instruments. For clarity, the FSA takes the view that persons who hold bearer instruments through a clearing system such as Euroclear or Clearstream are persons entitled to those instruments for the purposes of articles 41 and 42.

01/06/2002

AUTH App 1.15

Financial promotions by members of the professions (articles 55 and 55A)

01/12/2004

Real time financial promotions by professional firms

AUTH App 1.15.1

Article 55 of the Financial Promotion Order contains a specific exemption for professional firms allowing them to make solicited or unsolicited real time financial promotions. or This is provided the financial promotion is made:

(1) by a person who carries on a regulated activity without needing authorisation under the Part XX exemption; and

(2) to someone who has already (that is, before the financial promotion is made) engaged the person making the financial promotion to provide professional services (that is services which are not regulated activities and whose provision is supervised and regulated by a Designated Professional Body).

01/06/2002

AUTH App 1.15.2

The article 55 exemption also requires that:

(1) the financial promotion relates to an activity to which the Part XX exemption applies or which would be a regulated activity but for the exclusion in article 67 of the Regulated Activities Order (Activities carried on in the course of a profession or non-investment business) which concerns activities which are a necessary part of professional services; and

(2) the activity to which the financial promotion relates would be undertaken for the purposes of, and be incidental to, the provision of professional services to or at the request of the recipient.

01/06/2002

AUTH App 1.15.3

The FSA considers that, to satisfy the condition in AUTH App 1.15.2 G (2) that an activity be incidental to the provision of professional services, regulated activities cannot be a major part of the practice of the professional firm. The FSA also considers that the following further factors are relevant.

(1) The scale of regulated activity in proportion to other professional services provided.

(2) Whether and to what extent services that are regulated activities are held out as separate services.

(3) The impression given of how the professional firm provides regulated activities, for example, through its advertising or other promotions of its services.

In the FSA's opinion, one consequence of this is that the professional firm cannot provide services which are regulated activities if they amount to a separate business to the provision of professional services. This does not, however, preclude the professional firm operating its professional business in a way which involves separate teams or departments one of which handles the regulated activities.

01/06/2002

AUTH App 1.15.4

One of the effects of the requirements in AUTH App 1.15.2 G concerns financial promotions which relates to an activity which is not a regulated activity as the result of an exclusion in the Regulated Activities Order. In this case, a professional firm using the Part XX exemption cannot make a real time financial promotion relying on article 55 of the Financial Promotion Order unless the exclusion is provided by article 67 of the Regulated Activities Order. Neither can a professional firm rely on article 55 to make real time financial promotions, in connection with the provision of professional services to an existing client, if the financial promotions are made to a third party. Third parties may be prospective counterparties, rather than a client. In such circumstances, another exemption would need to be available.

01/06/2002

Non-real time financial promotions by professional firms

AUTH App 1.15.5

Article 55A of the Financial Promotion Order was added by article 2(b) of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2001 (SI 2001/2633). It exempts non-real time financial promotions where the financial promotion:

(1) is made by a person who carries on a regulated activity without needing authorisation under the Part XX exemption (referred to in AUTH App 1.15.6 G and AUTH App 1.15.7 G as 'Part XX activities'); and

(2) contains a specified statement and is limited in its content to the matters referred to in AUTH App 1.15.6 G.

01/06/2002

AUTH App 1.15.6

A financial promotion made under article 55A must contain a statement in the following terms: 'The [firm/company] is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are members of [relevant designated professional body]. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide'. The financial promotion may also set out the Part XX activities which the person is able to offer to his clients, provided it is clear that these are the incidental services to which the statement relates. In the FSA's view, the requirement that a financial promotion must contain a statement in the specified terms does not prevent minor changes to the text. This is provided they do not alter or otherwise change the meaning of the statement. For example, replacing 'we' with the name of the firm or 'because' with 'as' or (where relevant) 'members of' with 'licensed by the' would be acceptable.

01/06/2002

AUTH App 1.15.7

The article 55A exemption should enable professional firms to issue brochures, websites and other non-real time financial promotions without any need for approval by an authorised person. This is provided the financial promotion does not also contain an invitation or inducement relating to regulated activities other than those covered by the Part XX exemption. In this respect, it should be noted that, unlike article 55, the article 55A exemption does not extend to activities which are excluded under article 67 of the Regulated Activities Order. The FSA takes the following views in relation to article 55A.

(1) It is not necessary for the details of the Part XX activities to be set out in one place or adjacent to the statement. A brochure or website, for example, may contain details of Part XX activities in various places so long as it is made clear that they will be incidental investment activities as referred to in the statement. So, this only needs to be set out once in the brochure or website.

(2) The inclusion of contact details would be regarded as part of the description of Part XX activities.

(3) A financial promotion made under article 55A may be likely, on occasion, to result in the carrying on by the professional firm of activities which are excluded under the Regulated Activities Order. However, this does not mean that the financial promotion will fail to satisfy the terms of article 55A. There will be occasions where a professional firm will have to offer to provide services which may or may not involve Part XX activities or excluded activities. In the area of corporate finance, for example, a professional firm may offer its services in relation to the sale of an incorporated business or a substantial shareholding in such a business. It will not be clear whether the professional firm's services will be Part XX activities or excluded activities until the details of a proposed deal are known. Similarly, a professional firm may offer services which in some instances, will fall under the 'necessary' exclusion in article 67 of the Regulated Activities Order but, in others, will be Part XX activities. In practice, it will often be impossible for a professional firm to distinguish between Part XX activities and excluded activities at the preliminary stage of a brochure or website offering its services. In the FSA's view, the article 55A exemption will apply provided the only regulated activities held out in the brochure, website or other non-real time financial promotion are Part XX activities. It will, of course, be possible for a professional firm to make an offer involving excluded activities to a person who responds to a financial promotion issued under article 55A. But this is provided another exemption (such as the one-off financial promotion exemption (see AUTH App 1.14.3 G)) is available in respect of any subsequent financial promotions.

01/06/2002

AUTH App 1.16

Financial promotions concerning funeral plans

01/12/2004

AUTH App 1.16.1

Section 21 of the Act came into force for financial promotions about funeral plans on 1 January 2002. A financial promotion about funeral plans is subject to the restriction in section 21 of the Act if it relates to a pre-paid funeral plan of any kind where the provider of the plan carries on the regulated activity of entering into funeral plan contracts under article 59 of the Regulated Activities Order (see AUTH 2.8.14 G). This is the case even if the actual plan being promoted is excluded under article 60 of the Regulated Activities Order. However, providers may choose only to enter into funeral plan contracts which are excluded under article 60 of the Regulated Activities Order. If this is the case, any financial promotion relating to those plans will not be subject to the restriction in section 21 of the Act.

01/06/2002

AUTH App 1.17

Introduction

01/12/2004

AUTH App 1.17.1A

Section 21 applies to financial promotions concerning agreements for qualifying credit. In this respect, it not only covers financial promotions about regulated mortgage contracts but also financial promotions about certain other types of credit agreement. This is explained in more detail in AUTH App 1.17.2 G to AUTH App 1.17.3 G.

14/01/2005

Controlled investment: agreement for qualifying credit

AUTH App 1.17.2

Rights under an agreement for qualifying credit are a controlled investment. Qualifying credit is defined in paragraph 10 of Schedule 1 to the Financial Promotion Order (Controlled activities) as credit provided pursuant to an agreement under which:

(1) the lender is a person who carries on the regulated activity of entering into a regulated mortgage contract (whether or not he is an authorised or exempt person under the Act); and

(2) the obligation of the borrower to repay is secured (in whole or in part) on land.

14/01/2005

AUTH App 1.17.3

An agreement for qualifying credit includes the following types of loan in addition to those that would be a regulated mortgage contract, but in each case only if the lender carries on the regulated activity of entering into regulated mortgage contracts:

(1) loans secured by a second or subsequent charge;

(2) secured loans for buy-to-let or other purely investment purposes;

(3) loans secured on land situated outside the United Kingdom;

(4) loans that include some unsecured credit such as a flexible mortgage that includes an unsecured credit card; and

(5) commercial mortgages.

14/01/2005

Controlled activities

AUTH App 1.17.4

There are four controlled activities involving qualifying credit:

(1) providing qualifying credit;

(2) arranging qualifying credit;

(3) advising on qualifying credit; and

(4) agreeing to carry on any of (1) to (3).

14/01/2005

AUTH App 1.17.5

Providing qualifying credit is a controlled activity under paragraph 10 of Schedule 1 to the Financial Promotion Order. In the FSA's view, 'providing' means, in this context, providing as lender; an intermediary does not 'provide'qualifying credit.

14/01/2005

AUTH App 1.17.6

Arranging qualifying credit is a controlled activity under paragraph 10A of Schedule 1 to the Financial Promotion Order; that is, making arrangements:

(1) for another person to enter as borrower into an agreement for qualifying credit; or

(2) for a borrower under a regulated mortgage contract entered into on or after 31 October 2004 to vary the terms of that contract in such a way as to vary his obligations under that contract.

This means that invitations and inducements relating to the services of mortgage arrangers will potentially be within the scope of Section 21 of the Act.

14/01/2005

AUTH App 1.17.7

Advising on qualifying credit will be a controlled activity under paragraph 10B of Schedule 1 to the Financial Promotion Order; that is, advising a person if the advice is:

(1) given to the person in his capacity as a borrower or potential borrower; and

(2) advice on the merits of his doing any of the following :

(a) entering into an agreement for qualifying credit; or

(b) varying the terms of a regulated mortgage contract entered into by him on or after 31 October 2004 in such a way as to vary his obligations under that contract.

This means that invitations and inducements relating to the services of mortgage advisers will potentially be within the scope of Section 21 of the Act.

14/01/2005

AUTH App 1.17.8

Agreeing to carry on each of these three controlled activities will also be a controlled activity under paragraph 11 of Schedule 1 to the Financial Promotion Order.

14/01/2005

Application of exemptions to financial promotions about agreements for qualifying credit

AUTH App 1.17.9

The exemptions in Part IV of the Financial Promotion Order (Exempt communications: all controlled activities) will apply to financial promotions about qualifying credit. Some of the exemptions in Part VI of the Financial Promotion Order (Exempt communications: certain controlled activities) will also apply. Those of particular note are referred to in AUTH App 1.17.10 G to AUTH App 1.17.12 G.

14/01/2005

AUTH App 1.17.10

Article 46 (Qualifying credit to bodies corporate) exempts any financial promotion about providing qualifying credit if it is:

(1) made to or directed at bodies corporate only; or

(2) accompanied by an indication that the qualifying credit to which it relates is only available to bodies corporate.

14/01/2005

AUTH App 1.17.11

Article 28(4) (One off non-real time communications and solicited real time communications) sets aside the general rule that exemptions in Parts V and VI of the Financial Promotion Order cannot be combined by permitting the combination of Article 28 and Article 23 (Deposits: real time communications) where the financial promotion:

(1) is a one-off solicited real time financial promotion; and

(2) is about providing qualifying credit.

14/01/2005

AUTH App 1.17.12

Article 28B (Real time communications: introductions in connection with qualifying credit) exempts a real time financial promotion that relates to one or more of the controlled activities about regulated mortgage contracts. The exemption is subject to the following conditions being satisfied:

(1) the financial promotion must be made for the purpose of, or with a view to, introducing the recipient to a person ('N') who is:

(a) an authorised person who carries on the controlled activity to which the communication relates; or

(b) an appointed representative, where the controlled activity is also a regulated activity in respect of which the appointed representative is exempt; or

(c) an overseas person who carries on the controlled activity to which the communication relates; for this purpose, an 'overseas person' is a person who carries on any of the controlled activities about qualifying credit but does not do so, or offer to do so, from a permanent place of business maintained by him in the United Kingdom; and

(2) the person ('M') communicating the financial promotion:

(a) must not receive any money paid by the recipient in connection with any transaction that the recipient enters into with or through N as a result of the introduction, other than money payable to M on M's own account; and

(b) before making the introduction, must disclose to the borrower the following information where it applies to M:

(i) whether M is a member of the same group as N;

(ii) details of any payment which M will receive from N, by way of fee or commission, for introducing the recipient to N; and

(iii) an indication of any other reward or advantage arising out of M's introducing to N.

14/01/2005

AUTH App 1.17.13

Introducers can check whether a person is an authorised person or an appointed representative by visiting the FSA's register at www.fsa.gov.uk. If an authorised person has permission to carry on a regulated activity (which can be checked on the FSA's register) it is reasonable, in the FSA's view, to conclude that the authorised person carries on that activity (but not a controlled activity which is not a regulated activity). The FSA would normally expect introducers to request and receive confirmation of other facts necessary to satisfy the condition in AUTH App 1.17.12 G (1), prior to proceeding with an introduction.

14/01/2005

AUTH App 1.17.14

In the FSA's view, money payable to an introducer on his own account includes money legitimately due to him for services rendered to the borrower, whether in connection with the introduction or otherwise. It also includes sums payable in connection with transfer of property to an introducer (for example, a housebuilder) by a borrower. For example, Article 28B allows a housebuilder to receive the purchase price on a property that he sells to a borrower, whom he previously introduced to an authorised person or appointed representative to help him finance the purchase in return for a fee payable by the borrower, and still take the benefit of the exclusion. This is because the sums that the housebuilder receives in connection with the introduction and the sale of his property to the borrower are both 'payable to him on his own account'. The housebuilder could also receive a commission from the person introduced to.

14/01/2005

AUTH App 1.17.15

In the FSA's view, the provision of details of fees or commission referred to in AUTH App 1.17.12 G (2)(b)(ii) does not require an introducer to provide an actual sum to the borrower, where it is not possible to calculate the full amount due prior to the introduction. This may arise in cases where the fee or commission is a percentage of the eventual loan taken out and the amount of the required loan is not known at the time of the introduction. In these cases, it would be sufficient for the introducer to disclose the method of calculation of the fee or commission, for example the percentage of the eventual loan to be made by N.

14/01/2005

AUTH App 1.17.16

In the FSA's view, the information condition in AUTH App 1.17.12 G (2)(b)(iii) requires the introducer to indicate to the borrower any other advantages accruing to him as a result of ongoing arrangements with N relating to the introduction of borrowers. This may include, for example, indirect benefits such as office space, travel expenses, subscription fees. This and other relevant information may, where appropriate, be provided on a standard form basis to the borrower. The FSA would normally expect an introducer to keep a written record of disclosures made to the borrower under Article 33A of the Regulated Activities Order including those cases where disclosure is made on an oral basis only.

14/01/2005

Interaction with the Consumer Credit Act

AUTH App 1.17.17

Most credit advertisements are, with various exceptions, regulated under the Consumer Credit Act 1974. However, Article 90(3) (Consequential amendments of the Consumer Credit Act 1974) and Article 91(1) (Consequential amendments to subordinate legislation under the Consumer Credit Act 1974) of the Regulated Activities Order disapply the provisions of the Consumer Credit Act 1974 to any financial promotion other than an exempt generic communication. An exempt generic communication is a financial promotion that is exempt under Article 17 of the Financial Promotion Order (Generic promotions) (see AUTH App 1.12.14 G (Generic promotions (Article 17))). Hence, an advertisement about credit of any kind will either be regulated under Section 21 of the Act or under the Consumer Credit Act 1974. Such an advertisement will only be subject to regulation under both statutes if it is about secured and unsecured lending. Typical examples showing which statute regulates particular types of credit advertisements are given in the table in AUTH App 1.17.18 G (Table - Guide to the application of the Act and the Consumer Credit Act 1974 to credit advertisements).

14/01/2005

AUTH App 1.17.18

Guide to application of the Act and the Consumer Credit Act 1974 to credit advertisements. This table belongs to AUTH App 1.17.17 G

Subject of advertising or promotion

FSMA
regulated

CCA
regulated

(1)

regulated mortgage contracts

Yes

(2)

other loans secured on land where the lender also enters into regulated mortgage contracts as lender

Yes

(3)

loans not secured on land whether or not the lender also enters into regulated mortgage contracts as lender

Yes

(4)

loans not secured on land but which form part of a loan product that is otherwise secured on land and where the lender enters into regulated mortgage contracts as lender

Yes

(5)

loans as in (1), (2) or (4) but where the advertisement is subject to exemptions under the Financial Promotion Order other than Article 17 (Generic promotions)

Yes

(6)

loans as in (1), (2) or (4) but where the advertisement is exempt under Article 17 of the Financial Promotion Order (Generic Promotions)

Yes

(7)

loans with features as in (1), (2), (4) or (5) promoted in combination with other loans

Yes

14/01/2005

AUTH App 1.17A

Financial promotions concerning insurance mediation activities

14/01/2005

AUTH App 1.17A.1

The application of section 21 of the Act and of exemptions in the Financial Promotion Order to invitations or inducements about insurance mediation activities will vary depending on the type of activity. The implementation of the Insurance Mediation Directive has not led to any changes in the definitions of a controlled investment or a controlled activity under the Financial Promotion Order. So:

(1) rights under any contract of insurance are a controlled investment;

(2) rights to or interests in rights under life policies are controlled investments but rights to or interests in rights under other contracts of insurance are not;

(3) the activities of:

(a) dealing in investments as agent;

(b) arranging (bringing about) deals in investments;

(d) advising on investments,

where they relate to contracts of insurance, are controlled activities only where the contract of insurance is a life policy;

(4) the activity of assisting in the administration and performance of a contract of insurance is not a controlled activity.

14/01/2005

AUTH App 1.17A.2

This means that an insurance intermediary will not be communicating a financial promotion:

(1) where the only activity to which the promotion relates is assisting in the administration and performance of a contract of insurance; or

(2) purely by reason of his inviting or inducing persons to make use of his advisory or arranging services where they relate only to general insurance contracts or pure protection contracts or both.

But as regards (2), an intermediary will be communicating a financial promotion if he is also inviting or inducing persons to enter into a contract of insurance. This is because the making and performance of the contract by the insurer will be a controlled activity (of effecting and carrying out a contract of insurance). Insurance intermediaries will, however, be able to use the exemptions in Part V of the Financial Promotion Order (see AUTH App 1.13 (Exemptions applying to financial promotions concerning deposits and certain contracts of insurance) where they promote a general insurance contract or a pure protection contract. Where an insurance intermediary is promoting life policies, he will be able to use any exemptions in Part VI of the Financial Promotion Order that apply to a contractually based investment.

14/01/2005

AUTH App 1.18

Financial promotions concerning the Lloyd's market

01/12/2004

AUTH App 1.18.1

A person involved in insurance business written at Lloyd's may be making financial promotions when attracting another person:

(1) to effect or carry out contracts of insurance written at Lloyd's (where the controlled activity which is the subject of the financial promotion is effecting and carrying out contracts of insurance);

(2) to have assets held under funds at Lloyd's (where the controlled activity may involve dealing in securities and contractually based investments, arranging deals in investments,managing investments or safeguarding and administering investments);

(3) to participate in particular syndicates at Lloyd's (where the controlled activity is advising on syndicate participation or arranging deals in syndicate participations or underwriting capacity);

(4) to participate indirectly in the Lloyd's market as a shareholder of a corporate underwriting member or a limited partner in a limited liability partnership which is an underwriting member (where the controlled activity is dealing in, arranging deals in or advising on shares or units); or

(5) to take out insurance which is written at Lloyd's (where the controlled activity is effecting a contract of insurance).

01/06/2002

AUTH App 1.18.2

Any persons making financial promotions as referred to in AUTH App 1.18.1 G (3) and AUTH App 1.18.1 G (4) are likely to be authorised persons. As such they will be subject to COB 3. Any persons making financial promotions as referred to in AUTH App 1.18.1 G (1), AUTH App 1.18.1 G (2) and AUTH App 1.18.1 G (5) may not be authorised persons and, if so, will need to ensure that their financial promotions are approved by an authorised person or that a specific exemption applies (see AUTH App 1.13).

01/06/2002

AUTH App 1.19

Additional restriction on the promotion of life policies

01/12/2004

AUTH App 1.19.1

Article 10 of the Financial Promotion Order (Application to qualifying contracts of insurance) precludes any of the exemptions from applying to a financial promotion which invites or induces a person to enter into a life policy with a person who is not:

(1) an authorised person;

(2) an exempt person who is exempt in relation to effecting or carrying out contracts of insurance of the class to which the promotion relates;

(3) a company with its head office or a branch or agency in another EEA State and which is entitled to carry on in that country the class of insurance business being promoted;

(4) a company authorised in one of the following countries or states to carry on the class of insurance business being promoted :

(a) Guernsey;

(b) the Isle of Man;

(d) Iowa; or

(e) Jersey.

COB 3.13.1 R imposes a similar restriction on authorised persons concerning their communicating or approving financial promotions in the precluded circumstances.

01/06/2002

AUTH App 1.20

Additional restriction on the promotion of collective investment schemes

01/12/2004

AUTH App 1.20.1

Where collective investment schemes are concerned additional restrictions are placed on their promotion to ensure that only those which are regulated are promoted to the general public. This is achieved by a combination of sections 21 and 238 (Restrictions on promotion) of the Act as explained in AUTH App 1.20.2 G. A regulated collective investment scheme is:

(1) an authorised unit trust scheme;

(2) an investment company with variable capital;

(3) a scheme recognised under section 264 of the Act (Schemes constituted in other EEA States).

(4) a scheme recognised under section 270 of the Act (Schemes authorised in designated countries or territories); or

(5) a scheme recognised under section 272 of the Act (Individually recognised overseas schemes).

01/06/2002

AUTH App 1.20.2

Section 21 precludes the promotion by unauthorised persons of unregulated collective investment schemes unless the financial promotion is approved by an authorised person or is exempt. Section 238 then precludes the promotion of an unregulated collective investment scheme by authorised persons except where:

(1) there is an exemption in an order made by the Treasury under section 238(6);

(2) the financial promotion is permitted under rules made by the FSA under section 238(5) to exempt the promotion, otherwise than to the general public, of schemes of certain descriptions; or

(3) the scheme is a single property scheme and its promotion is exempt under regulations made by the Treasury under section 239 of the Act (Single property schemes).

In addition, section 240 of the Act (Restriction on approval of promotion) precludes an authorised person from approving a financial promotion for the purpose of section 21 if he would not be able to communicate it himself under section 238.

01/06/2002

AUTH App 1.20.3

The Treasury has made an order under section 238(6). This is the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (as amended by article 3 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2001, SI 2001/2633) and by articles 7 to 10 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (Electronic Commerce Directive) Order 2002, SI 2002/2157) ('the CIS Financial Promotion Order'). The overall effect of the CIS Financial Promotion Order is to ensure that authorised persons are able to promote an unregulated collective investment scheme at least as widely as an unauthorised person is allowed to do under section 21 without needing the approval of an authorised person. In general terms, the order contains exemptions equivalent to those in the Financial Promotion Order which are relevant to units in an unregulated collective investment scheme. Guidance in AUTH App 1 relating to exemptions in the Financial Promotion Order will apply equally to those exemptions where they appear in the CIS Financial Promotion Order. The main exception to this relates to the exemption for one-off financial promotions in article 15 of the CIS Financial Promotion Order. That article provides conditions which, if met, are conclusive proof that a financial promotion is one-off. However, these do not include the condition that the identity of the product or service must be determined having regard to the recipient's circumstances (see AUTH App 1.14.3 G (2) and AUTH App 1.14.4 G (2)).

01/10/2002

AUTH App 1.20.4

The FSA has made rules under section 238(5) which allow authorised firms to communicate or approve a financial promotion for an unregulated collective investment scheme in certain specified circumstances. These circumstances are set out in COB 3 Annex 5 and referred to in COB 3.11. To date, the Treasury has not made an order exempting single property schemes under section 239.

01/06/2002

AUTH App 1.21

Company statements, announcements and briefings

01/12/2004

AUTH App 1.21.1

There is a general concern that the practice of companies issuing statements and giving briefings may involve a financial promotion. These arise sometimes as a result of requirements imposed by a listing authority or an exchange or market, AUTH App 1.4.14 G offers guidance on when such statements or briefings may amount to or involve an inducement to engage in investment activity. It indicates that whilst statements of fact alone will not be inducements, there may be circumstances where there is a promotional element which may amount to an inducement (typically to buy the company's shares). In the FSA's experience, it is rare for company statements or briefings to involve an invitation.

01/06/2002

AUTH App 1.21.2

It is common practice for listed companies to brief analysts, usually at the time of the company's preliminary, interim and, if applicable, quarterly results and after the information has been issued to the market as a whole. Briefings may be made personally to a small or large number of analysts in a meeting or through a conference call. It is increasingly becoming the practice for listed companies to make their briefings available live to journalists and the general public on the basis that they may listen to or view, but not take part in, the briefing and any question and answer session. This is usually done through a conference call or a live broadcast (usually termed a webcast) through the company's website or the website of a specialist provider. Where such briefings include a financial promotion they must be approved by an authorised person (if they are non-real time financial promotions) or exempt.

01/06/2002

AUTH App 1.21.3

AUTH App 1.21.4 G to set out the FSA's views on the potential relevance of certain exemptions to company statements and briefings. The exemptions are referred to in the same order as the Financial Promotion Order. In the FSA's view, these exemptions (whether alone or, where applicable, in combination) should enable most statements and briefings which involve financial promotions to be made by the company concerned without the need for approval. In particular, the FSA considers that article 69 (see ) should ensure that financial promotions made during the course of analyst briefings by listed and AIM companies are exempt and do not require approval. Some but not all of these exemptions apply equally to financial promotions which are communicated by a third party (for instance, a public relations adviser) on behalf of its corporate client. Those exemptions which are not available to a third party in such circumstances are those contained in article 20A (see ), 59 (see ), and 69 (see ).

01/06/2002

Article 17: Generic promotions

AUTH App 1.21.4

Any statement or briefing which did not identify the company as an issuer of securities (for example, by referring to its securities) and which does not identify any other particular investment or provider of investments or investment services will be exempt as a generic promotion (see AUTH App 1.12.14 G). In practice, it will be unlikely that such a statement or briefing would involve a financial promotion but the article 17 exemption may be useful where any doubt arises.

01/06/2002

Article 19: Investment professionals

AUTH App 1.21.5

Where statements or briefings are only available to analysts who are, or who work for, authorised persons (including overseas persons who would need to be authorised if they were conducting their business in the United Kingdom), article 19 will exempt any financial promotion that may be made (see AUTH App 1.12.21 G). Furthermore, where a financial promotion is made in the course of an interactive dialogue with an analyst and is addressed to him, the financial promotion will be regarded as having been made to that analyst irrespective of who else may hear or view it (article 6(b) of the Financial Promotion Order (see AUTH App 1.6.9 G). For example, where a representative of the company is responding to a particular question article 19 would then apply. This is not to say that every time a company representative answers a question his response, if it involves a financial promotion, will be addressed to the questioner for the purpose of article 6(b). This will depend upon the particular circumstances.

01/06/2002

Article 20A: Promotion broadcast by company director etc

AUTH App 1.21.6

AUTH App 1.12.32 G contains detailed guidance on the exemption in article 20A. The exemption is capable of applying to financial promotions in a company statement or briefing where they are communicated through a webcast if the website is a regularly updated news or information service. For this to be the case, the website must be a service provided to persons who use it (so it must not, for example, simply be an advertising vehicle) and that service must be one of providing news or information which will be updated regularly. This is capable of applying to some corporate websites. For example, the website of a company may amount to a service of information about the company's activities, services and products which is regularly updated and the webcast may be seen as part of that service. Not all corporate websites will qualify, however, and each website must be considered on its merits. Company representatives seeking to use this exemption will need to bear in mind any restrictions on the making available of certain information to which they may be subject (for example, under listing rules).

01/06/2002

Article 28 and 28A: One off promotions

AUTH App 1.21.7

Article 28 applies to one-off non-real time and solicited real time financial promotions. Article 28A applies to one-off unsolicited real time financial promotions. It is possible that articles 28 or 28A could apply to financial promotions in company statements or briefings if they were to be made other than to an analyst or journalist. In this respect, the comments made in AUTH App 1.14.3 G about one-off financial promotions are relevant.

01/06/2002

Article 43: Members and creditors of certain bodies corporate

AUTH App 1.21.8

Article 43 applies to non-real time and solicited real time financial promotions made by a company ('C') to persons who, in broad terms, are:

(1) members or creditors of C or a group member of C ('G');

(2) entitled to a relevant investment issued by C or G;

(3) entitled to become a member of C or G; or

(4) entitled to have transferred to them title to a relevant investment issued by C or G.

The financial promotion must relate only to relevant investments issued or to be issued by C or G or, in certain circumstances, another person (see AUTH App 1.21.9 G (2). C and G must not be open-ended investment companies.

01/06/2002

AUTH App 1.21.9

A 'relevant investment' in article 43 means:

(1) shares or debentures; and

(2) warrants and certificates representing certain securities relating to (1) and issued by G or a person acting on behalf of or under arrangements made with C.

Article 43 allows a company to communicate a financial promotion to its shareholders about rights issues or a cash offer by a third party for their shares. It also allows a company to communicate with its creditors about restructuring debt obligations. It does not, however, exempt persons who may make financial promotions on behalf of a company.

01/06/2002

Article 47: Persons in the business of disseminating information

AUTH App 1.21.10

Article 47 will exempt financial promotions in company statements or briefings where they are made to members of the press and may be combined with article 19 (Investment professionals). This means that companies will only need to look for other exemptions where the recipients of their financial promotions are persons other than analysts or journalists or both.

01/06/2002

Article 59: Annual accounts and directors' report

AUTH App 1.21.11

Article 59 is capable of applying to financial promotions in company statements and briefings where they are accompanied by:

(1) the whole or any part of the annual accounts of the company (provided it is not an open-ended investment company); or

(2) any report prepared and approved by the directors of such a company under section 234 and 234A of the Companies Act 1985 or corresponding legislation in Northern Ireland or in another EEA State.

In this respect, the FSA considers that the annual accounts (or part of them) or directors' report accompanies a financial promotion where it is made available to the recipients of the financial promotion at the same time. The financial promotion should refer to the accompanying material. For example, the accounts or report may be available on a company's website and referred to in a financial promotion on that website. Or they may be contained in or enclosed with a written communication (including an e-mail) or handed over during a meeting or discussion.

01/06/2002

AUTH App 1.21.12

Article 59 imposes certain conditions.

(1) The financial promotion must be an inducement and not be an invitation or amount to advice to acquire or dispose of an investment.

(2) The inducement must not relate to any investment other than shares or debentures of the company making the financial promotion (or a member of its group) or warrants relating to or certificates representing such shares or debentures.

(3) If the financial promotion contains any reference to past prices of or yields on the company's securities as referred to in (2), it must be accompanied by a statement that past performance cannot be relied on as guide to future performance.

01/06/2002

Article 67: Promotions required or permitted by market rules

AUTH App 1.21.13

Article 67 exempts any financial promotion other than an unsolicited real time financial promotion which relates to shares, debentures, government and public securities, warrants or certificates representing certain securities which are permitted to be traded or dealt in on a relevant market. A relevant market for the purposes of article 67 is one which meets the criteria in Part I of, or is specified in or established under the rules of an exchange specified in Parts II or III of, schedule 3 to the Financial Promotion Order. This includes recognised investment exchanges and EEA regulated markets that are exempt persons under article 36 of the Exemption Order, together with various other overseas markets (including OFEX (UK)). The financial promotion must, however, be required or permitted to be communicated by the rules of the market or by a body which either regulates the market or regulates offers or issues of investments to be traded on the market.

01/10/2002

AUTH App 1.21.14

The reference to financial promotions which are permitted to be communicated relates, in the FSA's opinion, to something which is expressly permitted rather than simply not expressly prohibited. Article 67 itself does not specify any particular medium for communicating required or permitted material. So, it will be enough for the financial promotion to be part of a document which is itself required or permitted to be communicated (such as reports or financial statements). Market rules or usual market practice may require the financial promotion to be communicated in a particular form or by a particular medium. However. the exemption will still apply if the financial promotion is communicated in a different form or by a different medium provided that its substance is unchanged. But article 67 will not apply to a financial promotion simply because it is included in another document which is required or permitted where the financial promotion amounts to additional information to that which is required or permitted. Neither does article 67 specify what form permission can take. In the FSA's view, however, permission would need to be given either in rules or guidance applicable to the market in question.

01/06/2002

AUTH App 1.21.15

Article 67 refers to an investment which is permitted to be traded or dealt in on a relevant market. In the FSA's opinion, this includes a situation where a class of securities is traded on a relevant market but the financial promotion relates to new securities of that class which have not yet themselves been issued or started trading. Where securities of that class have not yet been admitted to trading on a relevant market, article 68 may apply: see AUTH App 1.21.16 G.

01/06/2002

Article 68: Promotions in connection with admission to certain EEA markets

AUTH App 1.21.16

Article 68 applies where the financial promotion relates to securities which have not yet been admitted to trading but for which application has been or is to be made. It exempts a non-real time financial promotion or a solicited real time financial promotion which a relevant EEA market requires to be communicated before admission to trading can be granted. A relevant EEA market for this purpose is a market with its head office in an EEA State and which meets the conditions in Part I of, or is specified in or established under the rules of an exchange specified in Part II of, Schedule 3 to the Financial Promotion Order. Article 68 also requires that the financial promotion be one:

(1) which, if it were included in a prospectus issued in line with Part II of the Public Offers of Securities Regulations 1995 (or, where it is an outgoing electronic commerce communication, provisions corresponding to that Part under the law of another EEA State), would be required to be communicated by those Regulations (or other provisions); and

(2) which is not accompanied by any information other than that information which is required or permitted to be published by the rules of the relevant EEA market.

01/10/2002

Article 69: Promotion of securities already admitted in certain markets

AUTH App 1.21.17

Article 69 is similar to article 59 in the conditions it imposes (see AUTH App 1.21.12 G). These are two main differences between article 69 and article 59.

(1) Article 69 does not apply to unsolicited real time financial promotions.

(2) The requirement in article 59 that the financial promotion be accompanied by accounts or a report is replaced in article 69. It is replaced by a requirement that shares or debentures of the company or its parent undertaking (or warrants relating to or certificates representing such investments) are permitted to be traded or dealt in on a relevant market (relevant market having the same meaning as in article 67 - see AUTH App 1.21.13 G).

01/06/2002

AUTH App 1.21.18

Article 69 exempts financial promotions about 'investments issued by' a company or a member of its group. An issue arises about whether the term 'investments issued by' a company includes investments which are 'to be issued by' a company. In the FSA's view, there is a case for arguing that this is the effect although the matter is not beyond doubt. Article 69 replaces an earlier exemption made under section 58(3) of the Financial Services Act 1986 and which applied to investments which were to be issued. The FSA understands that article 69 was not intended to be narrower in scope that it predecessor. The FSA considers that the better view is that article 69 applies where investments are 'to be issued'.

01/06/2002

AUTH App 1.21.19

In the FSA's opinion, companies whose securities are permitted to be traded or dealt in on a relevant market should be able to make good use of the article 69 exemption. But such companies will need to ensure that they meet the specific requirements in article 69(3) to (6). In very general terms, a financial promotion will comply with these requirements if:

(1) the only reason it is a financial promotion is that it contains an inducement about certain investments issued by the company or a group member and which does not amount to advice to any person to acquire or dispose of such investments; and

(2) should it contain any reference to past prices of or yields on the company's investments, it is accompanied by a statement that past performance cannot be relied on as a guide to future performance.

01/06/2002

Article 71: Promotions included in listing particulars, etc

AUTH App 1.21.20

Article 71 applies to a non-real time financial promotion included in:

(1) listing particulars;

(2) supplementary listing particulars;

(3) a prospectus approved under listing rules under section 84 or 87 of the Act;

(4) a supplementary prospectus approved under listing rules made under section 81 of the Act (as applied by section 86 or 87); and

(5) any other document required or permitted to be published by listing rules under part VI of the Act.

The comments in AUTH App 1.21.14 G about when something is required or permitted to be published apply also to (5).

01/06/2002

General issues

AUTH App1.21.21

A requirement common to the exemptions in articles 59, 67 and 69 is that the financial promotions must not relate to investments other than those issued by the company or a member of its group. The FSA is aware that there is concern about comments made in company statements or briefings. This is that they may be held to be inducements to acquire or dispose of, or exercise rights conferred by, an investment issued by a third party. For example, traded options on or certificates representing the company's shares. AUTH App 1.4 sets out the FSA's general views on when a communication is an inducement. It appears to the FSA that, for a company statement or briefing to involve an inducement to persons to, for example, exercise rights under a traded option written on or acquire certificates representing the securities, it must seek to persuade or induce persons specifically to do that. The mere fact that a person reading, hearing or viewing a company statement or briefing containing an inducement to acquire the company's securities may be influenced to exercise traded options which he holds is not enough to make it an inducement to exercise those rights.

01/06/2002

AUTH App 1.22

The internet

01/12/2004

AUTH App 1.22.1

The Internet is a unique medium for communicating financial promotions as it provides easy access to a very wide audience. At the same time, it provides very little control over who is able to access the financial promotion.

01/06/2002

AUTH App 1.22.2

The test for whether the contents of a particular website may or may not involve a financial promotion is no different to any other medium. If a website or part of a website, operated or maintained in the course of business, invites or induces a person to engage in investment activity, it will be a financial promotion. The FSA takes the view that the person who caused the website to be created will be a communicator. So, any software engineers that may or may not have been involved in establishing the website, provided they have no interest in it other than being paid for its design, will not be communicating financial promotions contained in it. Similarly, an Internet services provider who merely manages a website for another person and who has no control over or responsibility for its contents will not be communicating any financial promotion in the site. An Internet service provider whose circumstances are such that he is communicating financial promotions for other persons may be able to use the exemption for mere conduits (see AUTH App 1.12.18 G).

01/06/2002

AUTH App 1.22.3

The Internet also allows hypertext links, where two different sites in the Internet can be connected almost instantaneously by simply clicking on the link. The FSA's views on the position of hypertext links (which should be read with the remainder of AUTH App 1, especially AUTH App 1.4 (Invitation or inducement)) are as follows.

(1) A hypertext link may or may not be a financial promotion in itself. This will depend on the nature of the hypertext link and the context in which it is placed. However, taken in isolation, a hypertext link which is purely the name or logo of the destination will not be a financial promotion in its own right. More sophisticated links, such as banners or changeable text, may be financial promotions. This will depend upon the facts in each case.

(2) The material on a host website which contains the hypertext link may in itself be a financial promotion. For example, it may contain text which seeks to encourage or incite persons to activate the link with a view to engaging in investment activity.

(3) Website material which represents a directory of website addresses or e-mail addresses will not be a financial promotion in its own right. That is unless the material also contains an inducement to contact a named addressee with a view to engaging in investment activity.

(4) The destination website (that is, the one that is reached through the hypertext link) may or may not be a financial promotion. This will depend upon the content of that website. Website operators are responsible for the contents of their website if it hosts or creates links to the websites of unauthorised persons. In most cases they will not be causing the communication of any financial promotion in those other websites and so will not be responsible for those websites complying with section 21. In some cases, however, the operator ('O') of a website which hosts a link to another website, may be causing the communication of a financial promotion on that other website. This will only arise when O has made arrangements with the operator of the other website under which O is to procure users of his site to access the link provided with a view to their engaging in investment activity.

(5) An exemption may require certain indications to be made in a financial promotion on a website. In theses cases, the requirement may be satisfied by putting information on separate pages which can be accessed through a link on the page, or one of the pages, which contains the financial promotion.

01/06/2002

AUTH App 1.23

Regulated activities

01/12/2004

AUTH App 1.23.1

Under section 19 of the Act (The general prohibition) no person may, by way of business, carry on a regulated activity in the United Kingdom unless he is authorised or exempt. The meaning of regulated activity is set out in Part II of the Financial Services and Markets Act 2000 (RegulatedActivities) Order 2001 (the Regulated Activities Order) (as amended). Any person who breaches section 19 of the Act commits a criminal offence for which the maximum penalty is two years? imprisonment and an unlimited fine.

01/06/2002

AUTH App 1.23.2

Anyone who is carrying on a regulated activity is likely to make financial promotions in the course of or for the purposes of carrying on that activity. It is beyond the scope of this guidance to cover regulated activities as such (for a general guide see AUTH 2). There are circumstances, however, where persons whose main aim is either :

(1) to make financial promotions for their own purposes or on behalf of others; or

(2) to help other persons to make financial promotions,

may find themselves conducting regulated activities. Such persons may typically include publishers or broadcasters, financial commentators, Internet service providers and website operators and telephone marketing companies.

01/06/2002

AUTH App 1.23.3

The regulated activities which are likely to be conducted in the circumstances referred to in AUTH App 1.23.2 G are:

(1) giving advice on certain investments (articles 53 (Advising on investments), 53A (Advising on regulated mortgage contracts) and 56 (Advice on syndicate participation at Lloyd's) of the Regulated Activities Order) - for example, where the financial promotion is the advice;

(2) making arrangements with a view to transactions in investments (article 25(1) of the Regulated Activities Order (Arranging deals in investments)) or making arrangements with a view to regulated mortgage contracts (Article 25A(2) of the Regulated Activities Order (Arranging regulated mortgage contracts) - for example, where the person concerned makes arrangements that are intended to lead to a transaction by a third party; and

(3) agreeing to carry on either (1) or (2) (article 64 of the Regulated Activities Order (Agreeing to carry on specified kinds of activity)).

01/06/2002

AUTH App 1.23.4

The guidance that follows is concerned with the regulated activities of making arrangements with a view to transactions in and advising on investments. Guidance on the regulated activities of making arrangements with a view to and advising on regulated mortgage contracts is in AUTH App 4 (Guidance on regulated activities connected with mortgages).

14/01/2005

AUTH App 1.24

Advising on investments

01/12/2004

AUTH App 1.24.1

Under article 53 of the Regulated Activities Order, advising on investments covers advice which:

(1) is given to a person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor; and

(2) is advice on the merits of his (whether as principal or agent) buying, selling, subscribing for or underwriting a particular investment which is a security or a relevant investment or exercising any right conferred by such an investment to buy, sell, subscribe for or underwrite such an investment.

01/06/2002

AUTH App 1.24.2

The effect of advice being given in the circumstances referred to in AUTH App 1.24.1 G is that:

(1) it must relate to an investment which is a security or a relevant investment;

(2) that investment must be a particular investment;

(3) it must be given to persons in their capacity as investors or potential investors;

(4) it must be advice (that is, not just information); and

(5) it must relate to the merits of investors or potential investors (or their agents) buying, selling, subscribing for or underwriting (or exercising rights to acquire, dispose of or underwrite) the investment.

01/06/2002

AUTH App 1.24.3

Each of the aspects referred to in AUTH App 1.24.2 G is considered in greater detail in AUTH App 1.25 to AUTH App 1.29. In addition, under article 56 of the Regulated Activities Order, advising a person to become, or continue or cease to be a member of a particular Lloyd's syndicate is a regulated activity.

01/06/2002

AUTH App 1.25

Advice must relate to an investment which is a security or contractually based investment

01/12/2004

AUTH App 1.25.1

For the purposes of section 53 of the Regulated Activities Order, a security or relevant investment is any one of the following:

(1) shares;

(2) debentures;

(3) government and public securities;

(4) warrants;

(5) certificates representing certain securities;

(6) units in collective investment schemes;

(7) stakeholder pension schemes;

(8) options;

(9) futures;

(10) contracts for differences;

(11) contracts of insurance;

(12) funeral plan contracts (with effect from 1 January 2002);

(13) rights to or interests in such investments.

01/06/2002

AUTH App 1.25.2

Article 53 does not apply to advice given on any of the following:

(1) deposit or other bank or building society accounts;

(2) interests under the trusts of an occupational pension scheme (but rights under an occupational pension scheme that is a stakeholder pension scheme will be securities).

(3) mortgages or other loans; (but note that advising on regulated mortgage contracts is a separate regulated activity under Article 53A of the Regulated Activities Order - see the guidance in AUTH App 4 (Regulated activities connected with mortgages));

(4) National Savings products;

(5) foreign exchange (or cash);

(6) commodities (for example, gold);

(7) real estate;

(8) any other physical property capable of having investment potential (for example, works of art, racehorses) unless investment is made through a collective investment scheme;

(9) [deleted]

01/06/2002

AUTH App 1.26

The investment must be a particular investment

01/12/2004

AUTH App 1.26.1

For the purposes of article 53 advice must relate to a particular investment - generic or general advice is not covered. Generic or general advice may, however, be a financial promotion (see AUTH App 1.4).

01/06/2002

AUTH App 1.26.2

Generic advice will not be caught by article 53. Examples of generic advice may include:

(1) financial planning;

(2) advice on the merits of investing in Japan rather than Europe;

(3) advice on the merits of investing in investment trusts as opposed to unit trusts or unit-linked insurance; and

(4) advice on the merits of investing offshore, or in fixed income rather than floating rate bonds.

01/06/2002

AUTH App 1.26.3

In the FSA's view, guiding a person through a decision tree should not, of itself, involve advice within the meaning of article 53 (it should be generic advice). For example, helping a person to understand what the questions or options are and how to determine which option applies to his particular circumstances. But a recommendation that the person concerned should, if the results of using the decision tree so indicate, buy a stakeholder personal pension from a particular provider (or any other particular investment) would be advice for the purpose of article 53. An unauthorised person guiding another through a decision tree needs to make it clear that the decision tree aids generic decisions and that the person doing the guiding is not recommending any particular investment.

01/06/2002

AUTH App 1.26.4

Examples of a particular investment include:

(1) securities, shares in ABC plc, Treasury 10% 2001 stock, XYZ plc warrants;

(2) units in collective investment schemes - ABC smaller companies fund, XYZ Growth Trust;

(3) exchange-traded derivatives - LME Copper Grade A 3 months, LIFFE Japanese Government bond, ABC plc traded options;

(4) contractual investments, for example, futures and other contracts having specified terms and conditions such as duration, volume, interest rate or price and which are to be entered into with a particular person;

(5) contracts of insurance which are both products and contractual investments; so a particular investment would include:

(a) the ABC Life Personal Pension or the XYZ Life Guaranteed Bond; or

(b) a contract having essential terms and provider specified - for instance, a 25-year with-profits low cost endowment contract covering husband and wife and to be issued by XYZ Life Plc.

01/06/2002

AUTH App 1.27

Advice to be given to persons in their capacity as investors (on the merits of their investing as principal or agent)

01/12/2004

AUTH App 1.27.1

For the purposes of article 53, advice must be given to or directed at someone who either holds investments or is a prospective investor (or their agent). Where the investment is a risk only contract of insurance such as house contents insurance, the policyholder or prospective policyholder is regarded as an investor.

01/06/2002

AUTH App 1.27.2

Article 53 does not apply where the advice is given to persons who receive it as:

(1) an adviser who may use it to inform advice given by him to persons for whom he does not act as agent;

(2) a journalist or broadcaster; or

(3) an employer (for example, on setting up a pension scheme).

01/06/2002

AUTH App 1.27.3

Article 53 does not apply to advice given to a person (such as an independent financial adviser) who is acting as an agent for an investor if it does not relate to a transaction into which the person is to enter as agent for the investor.

01/06/2002

AUTH App 1.27.4

Article 53 does apply where the recipient is someone who invests on behalf of other persons (whether as a principal or agent), such as:

(1) a trustee or nominee; or

(2) a discretionary fund manager; or

(3) an attorney or anyone else who enters into investment transactions as agent for investors,

where he receives the advice in that capacity.

01/06/2002

AUTH App 1.27.5

Advice will still be covered by article 53 even though it may not be given to or directed at a particular investor (for example, advice given in a periodical publication or on a website). The expression 'investor' has a broad meaning and will include institutional or professional investors.

01/06/2002

AUTH App 1.28

Advice or information

01/12/2004

AUTH App 1.28.1

In the FSA's view, advice requires an element of opinion on the part of the adviser. In effect, it is a recommendation as to a course of action. Information, on the other hand, involves statements of fact or figures.

01/06/2002

AUTH App 1.28.2

In general terms, simply giving information without making any comment or value judgement on its relevance to decisions which an investor may make is not advice.

01/06/2002

AUTH App 1.28.3

Information may often involve:

(1) listings of share and unit prices;

(2) company news or announcements;

(3) an explanation of the terms and conditions of an investment;

(4) a comparison of the benefits and risks of one investment as compared to another;

(5) league tables showing the performance of investments of a particular kind against set published criteria;

(6) details of directors' dealings in the shares of their own companies;

(7) alerting persons to the happening of certain events (for example, XYZ shares reaching a certain price).

01/06/2002

AUTH App 1.28.4

In the FSA's opinion, however, such information may take on the nature of advice if the circumstances in which it is provided give it the force of a recommendation. For example:

(1) a person may offer to provide information on directors' dealings on the basis that, in his opinion, were directors to buy or sell investors would do well to follow suit;

(2) a person may offer to tell a client when certain shares reach a certain value (which would be advice if the person providing the information has offered to do so on the basis that the price of the shares means that it is a good time to buy or sell them); and

(3) a person may provide information on a selected, rather than balanced, basis which would tend to influence the decision of the recipient.

01/06/2002

AUTH App 1.29

Advice must relate to the merits (of buying or selling a particular investment)

01/12/2004

AUTH App 1.29.1

Advice must relate to the buying or selling of an investment ? in other words, the pros or cons of doing so.

01/06/2002

AUTH App 1.29.2

An explanation of the implications of, for example, exercising certain rights or the happening of certain events (such as death) need not involve advice on the merits of exercising those rights or on what to do following the event.

01/06/2002

AUTH App 1.29.3

Neither does advice on the merits of using a particular stockbroker or investment manager in his capacity as such amount to advice for the purpose of article 53. This is because it is not advice on the merits of buying or selling an investment.

01/10/2002

AUTH App 1.29.4

Advice in the form of rating issuers of debt securities as to the likelihood that they will be able to meet their repayment obligations need not, of itself, involve any advice on the merits of buying, selling or holding on to that issuer's stock.

01/06/2002

AUTH App 1.29.5

Without an explicit or implicit recommendation on the merits of buying or selling an investment, advice will not be covered by article 53 if it is advice on:

(1) the likely meaning of uncertain provisions in an investment agreement;

(2) how to complete an application form;

(3) the value of investments for which there is no ready market;

(4) the effect of contractual terms and their commercial consequences;

(5) how to structure a transaction to comply with regulatory, competition and taxation requirements; or

(6) terms which are commonly accepted in the market.

01/06/2002

AUTH App 1.29.6

Advice as to what might happen to the price or value of an investment if certain events were to take place, however, may be covered by article 53 in some circumstances.

01/06/2002

AUTH App 1.30

Medium used to give advice or information

01/12/2004

AUTH App 1.30.1

With the exception of periodicals, broadcasts and other news or information services (see AUTH App 1.31.2 G), the medium used to give advice should make no difference to whether or not it is caught by article 53.

01/06/2002

AUTH App 1.30.2

Advice can be provided in many ways including:

(1) face to face;

(2) orally to a group;

(3) by telephone;

(4) by correspondence (including e-mail);

(5) in a publication, broadcast or website; and

(6) through the provision of an interactive software system.

01/06/2002

AUTH App 1.30.3

Taking electronic commerce as an example, the use of electronic decision trees does not present any novel problems. The provider of the service will be giving advice for the purpose of article 53 only if the service results in something more than a generic recommendation, as with a paper version.

01/06/2002

AUTH App 1.30.4

Advice in publications, broadcasts and websites is subject to a special regime - see AUTH App 1.31.2 G and AUTH 7.

01/06/2002

AUTH App 1.30.5

Some software services involve the generation of specific buy, sell or hold signals relating to particular investments. These signals are liable, as a general rule, to be advice for the purposes of article 53 (as well as financial promotions) given by the person responsible for the provision of the software. The exception to this is where the user of the software is required to use enough control over the setting of parameters and inputting of information for the signals to be regarded as having been generated by him rather than by the software itself.

01/06/2002

AUTH App 1.31

Exclusions for advising on investments

01/12/2004

AUTH App 1.31.1

The Regulated Activities Order contains a number of exclusions which prevent certain activities from being a regulated activity.

01/06/2002

AUTH App 1.31.2

As respects article 53, the main exclusion relates to advice given in periodical publications, regularly updated news and information services and broadcasts (article 54: Advice given in newspapers etc). The exclusion applies if the principal purpose of any of these is not to give advice covered in article 53 or to lead or enable persons to acquire or dispose of securities or contractually based investments. This is explained in greater detail, together with the provisions on the granting of certificates, in AUTH 7.

01/06/2002

AUTH App 1.31.3

It is also possible for advice to be excluded if it is given by a person in the course of carrying on a profession or business (other than a regulated activity). This is if it is reasonably to be regarded as necessary for him to give the advice to provide his professional or other services and he is not separately paid for giving the advice (article 67: Activities carried on in the course of a profession or non-investment business). This could arise in the context of advice given by persons such as :

(1) a solicitor, accountant or tax adviser; or

(2) a debt counsellor; or

(3) an employment agency.

01/06/2002

AUTH App 1.31.4

For example, it may be necessary for a person referred to in AUTH App 1.31.3 G (1) or AUTH App 1.31.3 G (2) to advise a client to sell all his assets for tax, legal or debt reduction reasons. However, it may not be necessary for him to recommend selling some investments and not others. Whether or not this is the case will depend on the circumstances in which the advice is given.

01/06/2002

AUTH App 1.31.5

Certain of the exclusions in the Regulated Activities Order that apply to the regulated activity of advising on investments are not available where the advice either relates to a contract of insurance or amounts to insurance mediation or reinsurance mediation. This results from the requirements of the Insurance Mediation Directive and is explained in more detail in AUTH App 5 (Insurance mediation activities).

14/01/2005

AUTH App 1.32

Arranging deals in investments

01/12/2004

AUTH App 1.32.1

Under article 25 of the Regulated Activities Order, arranging deals in investments covers:

(1) making arrangements for another person (whether as principal or agent) to buy, sell, subscribe for or underwrite a particular investment which is:

(a) a security; or

(b) a relevant investment; or

(c) an investment of the kind specified by article 86, or article 89 so far as relevant to that article (Lloyd's syndicate membership and capacity and rights to or interests in such investments); or

(2) making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments falling within AUTH App 1.32.1 G (1) (a) to (c) (whether as principal or agent).

01/06/2002

AUTH App 1.32.2

Article 25(1) applies only where the arrangements bring about or would bring about the particular transaction in question. This is because of the exclusion in article 26. In the FSA's view, a person brings about or would bring about a transaction only if his involvement in the chain of events leading to the transaction is of enough importance that without that involvement it would not take place. The second limb (article 25(2)) is potentially much wider as it does not require that the arrangements would bring about particular transactions. It is this limb which is of potential relevance within the scope of this guidance.

01/06/2002

AUTH App 1.32.3

In the course of their business, people such as publishers or broadcasters, Internet service providers, website operators or telephone marketing companies may provide services for authorised or exempt persons or other persons (such as overseas persons) who carry on regulated activities. This does not necessarily mean that any arrangements they make with such persons will fall within the scope of article 25(2). For that to be the case, the arrangements must be made with a view to the authorised or exempt (or overseas) person or that person's customers or counter-parties or any or all of them buying or selling investments This means that a person making arrangements must take account of the purpose for which he makes them.

01/06/2002

AUTH App 1.32.4

The ordinary business of a publisher or broadcaster can involve him in publishing or broadcasting financial promotions (for example, advertisements) on behalf of authorised or exempt persons. Journalists who write about investments or financial services may promote the services of an authorised or exempt person. In the FSA's opinion, such persons would not normally be regarded as making arrangements under article 25(2). This is the case even if any arrangements they may have made may lead their readers or viewers to buy or sell ing investments in response to the promotions. In the FSA's view, the publisher or broadcaster may normally be seen to be making arrangements with a view to publishing or broadcasting promotions which may include financial promotions. The same may apply to arrangements made by Internet website operators who may allow the promotion on their site of services including financial promotions through the setting up of hypertext links or the placing of banner advertisements.

01/06/2002

AUTH App 1.32.5

The Regulated Activities Order contains an exclusion (article 27: Enabling parties to communicate) to bring a degree of certainty to this area. This applies to arrangements which might otherwise fall within article 25(2) merely because they provide the means by which one party to a transaction (or potential transaction) is able to communicate with other parties. In the FSA's view, the crucial element of the exclusion is the inclusion of the word 'merely'. So that, where a publisher, broadcaster or Internet website operator goes beyond what is necessary for him to provide his service of publishing, broadcasting or otherwise facilitating the issue of promotions, he may well bring himself within the scope of article 25(2).

01/06/2002

AUTH App 1.32.6

For example, in the FSA's view a publisher or broadcaster would be likely to be making arrangements within the meaning of article 25(2) and be unable to make use of the exclusion in article 27 if :

(1) he enters into an agreement with a provider of investment services such as a broker or product provider for the purpose of carrying their financial promotion; and

(2) as part of the arrangements, the publisher or broadcaster does one or more of the following:

(a) brands the investment service or product in his name or joint name with the broker or product provider;

(b) endorses the service, or otherwise encourages readers or viewers to respond to the promotion;

(d) holds out the service as something he has arranged for the benefit of his readers or viewers.

01/06/2002

AUTH App 1.32.7

It would also be an indicator that a publisher or broadcaster might be making arrangements falling within article 25(2) if he receives a commission or other form of reward based on the amount of regulated business done as a result of his carrying the promotion. This would be on the basis that the existence of the financial interest will inevitably have a bearing on the purpose for which the arrangements are viewed as having been made by him. However, the article 27 exclusion will apply in cases where there is such a reward provided the arrangements are made merely to allow the communication to be made.

01/06/2002

AUTH App 1.32.8

So, the same considerations are liable to apply to a website operator or an operator of a similar service (such as an intranet or closed user electronic service) who is carrying banner advertising from, or otherwise setting up links to the sites of, authorised or exempt persons.

01/06/2002

AUTH App 1.32.9

Other persons who may benefit from the exclusion in article 27 include persons who provide the means for someone to route an order to another person. A person providing such order routing services would not, in the FSA's view, be merely facilitating communication (of the orders) if he provides added value. This added value could be in the form, for example, of such things as formatted screens, audit trails, checking completeness of orders or matching orders or reconciling trades.

01/06/2002

AUTH App 1.32.10

Companies providing telephone marketing and related services to investment firms will face similar issues. If their services are entirely passive ? for example, answering telephone calls, sending out literature upon request or referring enquirers to representatives of their client ? they may simply be regarded as making arrangements with a view to their providing telephone answering services. On the other hand, where a telephone marketing company:

(1) makes proactive calls to prospective customers of its clients; or

(2) is expected proactively to raise the possibility, during a call made by the prospective customer, of a meeting with or visit by a representative of their client or of the caller being sent promotional literature,

the arrangements are liable to be made with a view to the company's client and its prospective customers buying or sellinginvestments. So such arrangements will be likely to fall within article 25(2) unless another exclusion applies (such as that for introductions - see AUTH App 1.33).

01/06/2002

AUTH App 1.32.11

The mere provision by a website operator of a bulletin board or chat room ought not to amount to making arrangements under article 25(2) unless making such arrangements is the specific purpose of the facility. However, operators of websites with such facilities will clearly need to be aware of potential implications (such as the service being used by unauthorised persons to give advice or make financial promotions or to make misleading statements with a view to manipulating market prices). They may wish to consider drawing such matters to the attention of persons who use the facility.

01/06/2002

AUTH App 1.32.12

Where persons are making arrangements concerning contracts of insurance or are carrying on insurance mediation or reinsurance mediation, certain exclusions to Article 25 are not available. This results from the requirements of the Insurance Mediation Directive and is explained in more detail in AUTH App 5.6 (Insurance mediation activities The regulated activities: arranging deals in, and making arrangements with a view to transactions in, contracts of insurance).

14/01/2005

AUTH App 1.33

Introducing

01/12/2004

AUTH App 1.33.1

As with advice, there are various exclusions in the Regulated Activities Order which take certain arrangements out of the scope of article 25. Two of these are likely to be particularly relevant to persons who are mainly concerned with making or helping others to make communications.

01/06/2002

AUTH App 1.33.2

Article 29 of the Regulated Activities Order states that certain arrangements are not covered by article 25. These are arrangements made by an unauthorised person ('A'). The arrangements must be made for or with a view to a transaction which is or is to be entered into by another person (the client) with or through an authorised person. It must also be the case that:

(1) the transaction is or will be entered into on advice given to the client by an authorised person; or

(2) it is clear, in all the circumstances, that the client, in his capacity as an investor, is not seeking and has not sought advice from A on the merits of his entering into the transaction (or, if the client has sought such advice, A has declined to give it but has recommended that the client seek such advice from an authorised person).

For article 29 to apply, it is also necessary that, in return for making the arrangements, A does not receive from any person other than the client financial reward or other advantage, for which he does not account to the client, arising out of his making the arrangements (AUTH App 1.12.11 G gives guidance on when a person will be regarded as having received reward from someone other than his client).

01/06/2002

AUTH App 1.33.3

This exclusion may apply, for example, where a website operator, without offering any advice, sets up links to the sites of investment firms but does not receive any form of payment from any of the firms for doing so.

01/06/2002

AUTH App 1.33.4

Of potentially greater significance is the exclusion in article 33 of the Regulated Activities Order which excludes arrangements where :

(1) they are arrangements under which persons will be introduced to another person;

(2) the person to whom introductions are to be made is:

(a) an authorised person; or

(b) an exempt person acting in the course of business comprising a regulated activity in relation to which he is exempt; or

(c) a person who is not unlawfully carrying on regulated activities in the United Kingdom and whose ordinary business involves him in engaging in certain activities; and

(3) the introduction is made with a view to the provision of independent advice or the independent exercise of discretion in relation to investments generally or in relation to any class of investments to which the arrangements relate.

01/06/2002

AUTH App 1.33.5

In the FSA's view, article 33 will apply, for example, where persons are finding potential customers for independent financialadvisers, advisory stockbrokers or independent investment managers. In this case, the introducer is allowed to receive a payment for making introductions. However, it will not apply where the introductions are made either to a person whose advice or management services would not be independent (for example, a productprovider such as a life office or a manager of unit trust schemes) or for the purposes of execution-only dealing.

01/06/2002

AUTH App 1.33.6

The exclusions in Articles 29 and 33 of the Regulated Activities Order are not available where the investment is a contract of insurance. However, certain other exclusions do apply. This results from implementation of the requirements of the Insurance Mediation Directive and is explained in more detail in AUTH App 5.6 (Insurance mediation activities. The regulated activities: arranging deals in, and making arrangements with a view to transactions in, contracts of insurance).

14/01/2005

AUTH App 1.34

The business test

01/12/2004

AUTH App 1.34.1

Persons who may be carrying on theactivity of advising on investments or making arrangements with a view to transactions in investments will only require authorisation or exemption if they are carrying on those activities by way of business. This is the effect of section 22(1) of the Act. Under section 419 of the Act, the Treasury has the power, by order, to require activities which would otherwise be treated as carried on by way of business to be treated as not carried on by way of business and vice versa. The Treasury has used this power to restrict the business test when applied to regulated activities such as advising on investments or making arrangements with a view to transactions in investments to situations where a person is carrying on the business of engaging in those activities. This is the effect of article 3 of the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001.

01/06/2002

AUTH App 1.34.2

In the FSA's view, for a person to be carrying on the business of advising on investments or making arrangements with a view to transactions in investments, he will usually need to be carrying on those activities with a degree of regularity. The person will also usually need to be carrying on the activities for commercial purposes. That is to say, he will normally be expecting to gain a direct or indirect financial benefit of some kind. Activities carried on out of friendship or for altruistic purposes will not normally amount to a business. However, in the FSA's view, it is :

(1) not necessary that a person be seeking to profit from carrying on activities; for example a company set up by a number of other companies operating in a particular area to provide research may simply charge to recover its costs but may still be regarded as carrying on its activities as a business; and

(2) not necessarily the case that services provided free of charge will not amount to a business; for example, much investment advice is provided free of charge to investors but in the course of a business funded by commission payments; services (particularly advice, information or links) available on a website may also be free of charge to users of the site but be part of a business funded by advertising fees or sponsorship; and free newspapers may well represent a business for similar reasons.

01/06/2002

AUTH App 1.35

Authorisation and exemption

01/12/2004

AUTH App 1.35.1

Any person who is contemplating carrying on the regulated activities of advising on investments or making arrangements with a view to transactions in investments by way of business will need authorisation or exemption. AUTH explains about the authorisation process and the procedures for obtaining Part IV permission and for the approval of individuals. Exemption would usually be obtained by a person entering into an agreement with an authorised person under section 39 of the Act and the Financial Services and Markets Act 2000 (Appointed Representative) Regulations 2001.

01/06/2002

AUTH App 1.36

Illustrative tables

01/12/2004

Financial Promotions: flowchart

AUTH App 1.36.1

This flowchart sets out the matters which a person will need to consider to see if the restriction in section 21 of the Act applies to his communications. It is referred to in AUTH App 1.2.5 G.

01/06/2002

Controlled activities and controlled investments

AUTH App 1.36.2

This table lists the activities that are controlled activities and the investments that are controlled investments under the Financial Promotion Order. It is referred to in AUTH App 1.7.2 G

01/06/2002

AUTH App 1.36.3

Controlled activities

Accepting deposits.

Effecting and carrying out contracts of insurance.

Dealing in securities and contractually based investments.

Arranging deals in investments.

Managing investments.

Safeguarding and administering investments.

Advising on investments.

Advising on syndicate participation at Lloyd's.

Providing funeral plan contracts.

10.

Providing qualifying credit.

10A.

Arranging qualifying credit etc.

10B.

Advising on qualifying credit etc.

11.

Agreeing to do anything in 3 to 10B above.

01/10/2002

AUTH App 1.36.4

Controlled investments

12.

A deposit.

13.

Rights under a contract of insurance.

14.

Shares etc.

15.

Instruments creating or acknowledging indebtedness (referred to in the Glossary as debentures).

16.

Government and public securities.

17.

Instruments giving entitlement to investments (referred to in the Glossary as warrants).

18.

Certificates representing certain securities.

19.

Units in a collective investment scheme.

20.

Rights under a stakeholder pension scheme.

21.

Options.

22.

Futures.

23.

Contracts for differences etc.

24.

Lloyd's syndicate capacity and syndicate membership.

25.

Funeral plan contracts (with effect from a date to be announced).

26.

Agreements for qualifying credit (with effect from a date to be announced).

27.

Rights to or interests in anything falling under 12 to 25 above.

01/06/2002

Application of exemptions to forms of financial promotion

AUTH App 1.36.5

This table identifies the types of financial promotion to which each exemption in the Financial Promotions Order applies. It is referred to in AUTH App 1.11.2 G and AUTH App 1.14.1 G.

01/06/2002

AUTH App 1.36.6

Application of Exemptions to Forms of Promotions

Financial Promotion Order

Applies to

Article No.

Title and AUTH App 1 reference (where applicable)

Unsolicited real time

Solicited real time

Non-real time (solicited or unsolicited)

Communications to overseas recipients (1.12.2G)

*¹

Communications from customers and potential customers (1.12.9G)

Follow up non-real time communications and solicited real time communications (1.12.10G)

Introductions (1.12.11G)

Exempt persons (1.12.12G)

*²

*³

Generic promotions (1.12.14G and 1.21.4G)

Mere conduits (1.12.18G)

18A

Outgoing electronic commerce communications: mere conduits, caching and hosting

Investment professionals (1.12.21G and 1.21.5G)

Communications by journalists (1.12.23G)

20A

Promotion broadcast by company director etc (1.12.23G and 1.21.6G)

20B

Incoming electronic commerce communications (1.12.38G)

Deposits : non-real time communications (1.13)

Deposits : real time communications (1.13)

Relevant insurance activity : non-real time communications (1.13)

Relevant insurance activity : non-real time communications : reinsurance and large risks (1.13)

Relevant insurance activity : real time communications (1.13)

One-off non-real time communications and solicited real time communications (1.14.3G)

28A

One-off unsolicited real time communications (1.14.11G)

Communications required or authorised by enactments

Overseas communicators: solicited real time communications (1.14.15G)

Overseas communicators: non-real time communications to previously overseas customers (1.14.17G)

Overseas communicators: unsolicited real time communications to previously overseas customers (1.14.16G)

Overseas communicators: unsolicited real time communications to knowledgeable customers (1.14.16G)

Governments, central banks etc

Industrial and provident societies

Nationals of the EEA States other than United Kingdom (1.14.18G)

Financial markets

Persons in the business of placing promotional material

Joint enterprises (1.14.19G)

Participants in certain recognised collective investment schemes

Bearer instruments: promotions required or permitted by market rules (1.14.42G)

Bearer instruments: promotions to existing holders (1.14.42G)

Members and creditors of certain bodies corporate (1.14.41G and 1.21.8G)

Members and creditors of open-ended investment companies

Group companies

Qualifying credit to bodies corporate

Persons in the business of disseminating information (1.21.10G)

Certified high net worth individuals (1.14.21G)

High net worth companies, unincorporated associations etc (1.14.25G)

Sophisticated investors (1.14.27G)

Associations of high net worth or sophisticated investors (1.14.29G)

Common interest group of a company (1.14.30G)

Settlors, trustees and personal representatives

Beneficiaries of trust, will or intestacy

Communications by members of professions (1.15.1G)

55A

Non-real time communication by members of the professions. (1.15.5G)

Remedy following report by Parliamentary Commissioner for Administration

Persons placing promotional material in particular publications

Acquisition of interest in premises run by management companies

Annual accounts and directors' report (1.21.11G)

Participation in employee shares schemes

Sale of goods and supply of services

Sale of body corporate (1.14.35G)

Takeovers of relevant unlisted companies

Takeovers of relevant unlisted companies: warrants etc

Takeovers of relevant unlisted companies: application forms

Promotions required or permitted by market rules (1.21.13G)

Promotions in connection with admission to certain EEA markets (1.21.16G)

Promotions of securities already admitted to certain markets (1.21.17G)

Promotions in connection with listing applications

Promotions included in listing particulars etc

Promotions included in prospectus for public offer of unlisted securities (1.21.20G)

Material relating to prospectus for public offer of unlisted securities

Approval of communication prior to Order coming into force

*⁴

in limited circumstances only - see article 12(2) of the Financial Promotion Order

1 for the purpose of article 16 (2) only

2 for the purpose of article 16 (1) only

3 for the purpose of article 16 (1) only

4 although article 74 applies to real time communications it may be unlikely to do so in practice. This is because it relates to advertisements which are approved under section 57 of the Financial Services Act 1986 or communications approved in accordance with COB 3. Such advertisements and communications are likely to be non-real time communications.

01/06/2002