AUTH App 5
Guidance on Insurance Mediation Activities
AUTH App 5.1
Application and purpose
- 01/12/2004
Application
AUTH App 5.1.1
See Notes
This appendix applies principally to
any person who
needs to know whether he carries on insurance
mediation activities and is thereby subject to FSA regulation. As such
it will be of relevance among others to:
(1) insurance brokers;
(2) insurance advisers;
(3)
insurance
undertakings; and
(4) other persons involved in the sale and administration
of contracts of insurance,
even where these activities are secondary to their main business.
- 14/01/2005
Purpose of guidance
AUTH App 5.1.2
See Notes
With effect from 14 January 2005 certain
pre-contractual sales and post-contractual administration activities relating
to contracts of insurance will
become regulated by the FSA for
the first time as part of the implementation by the United Kingdom of the Insurance Mediation Directive (IMD).
- 14/01/2005
AUTH App 5.1.3
See Notes
The insurance
mediation activities apply to all contracts of insurance, but the implementation
of the IMD brings
the mediation of general
insurance contracts and pure
protection contracts within the scope of FSA regulation for the first time.
- 14/01/2005
AUTH App 5.1.4
See Notes
The FSA already
regulates certain activities carried on by intermediaries in relation to life policies (see the guidance contained in AUTH
2 (Authorisation and regulated activities)). However,
the changes to FSA regulation
in force from 14 January 2005 will also potentially affect the regulatory
position of firms already
carrying on regulated activities in
connection with life policies including insurers. These firms should therefore
consider whether or not they need to apply for a variation of their Part IV permission.
- 14/01/2005
AUTH App 5.1.5
See Notes
Insurance
mediation activities will typically be carried out by insurance
and reinsurance brokers, financial advisers, agents, consultants and outsourcers.
In addition, persons whose
principal business is not insurance
mediation may also carry on these activities and will need to
consider whether they require authorisation or
can benefit from an exclusion or exemption.
- 14/01/2005
AUTH App 5.1.6
See Notes
The purpose of this guidance is to help persons consider whether they need authorisation or a variation
of their Part IV permission.
Businesses new to regulation who act only as introducers of insurance business
are directed in particular to AUTH
App 5.6.2 G (Article
25(1): arranging (bringing about) deals in investments) to AUTH
App 5.6.9 G (Exclusion: article 72C provision of information on
an incidental basis) and AUTH
App 5.15.6 G (Flow
chart: introducers) to help consider whether they require authorisation. This guidance also explains the availability to persons carrying on insurance mediation activities of
certain exemptions from FSA regulation,
including the possibility of becoming an appointed
representative (see AUTH
App 5.13.1 G to AUTH
App 5.13.6 G (Appointed representatives)).
- 14/01/2005
Effect of guidance
AUTH App 5.1.7
See Notes
This guidance is issued under section 157 of the Act (Guidance). It is designed
to throw light on particular aspects of regulatory requirements, not to be
an exhaustive description of a person's obligations.
If a person acts
in line with the guidance and
the circumstances contemplated by it, then the FSA will proceed on the footing that the person has complied with
aspects of the requirement to which the guidance relates.
- 14/01/2005
AUTH App 5.1.8
See Notes
Rights conferred on third parties cannot
be affected by guidance given
by the FSA.
This guidance represents
the FSA's view,
and does not bind the courts, for example, in relation to the enforceability
of a contract where there has been a breach of the general prohibition on carrying on a regulated activity in
theUnited Kingdom without authorisation (see sections
26 to 29 of the Act (Enforceability
of Agreements)).
- 14/01/2005
AUTH App 5.1.9
See Notes
- 14/01/2005
AUTH App 5.1.10
See Notes
The text in AUTH
App 5.1.2 G to AUTH
App 5.1.6 G, AUTH
App 5.2.6 G, AUTH
App 5.11.2 G, AUTH
App 5.13.5 G and AUTH
App 5.13.6 G relates only to
the period prior to the implementation of the Insurance Mediation Directive, that is before
14 January 2005.
- 14/01/2005
Guidance on other activities
AUTH App 5.1.11
See Notes
A person may
wish to carry on activities related to other forms of investment in connection with contracts of insurance,
such as advising on and arranging
regulated mortgage contracts. Such a person should also consult the guidance in AUTH
2 (Authorisation and Regulated Activities), AUTH App 1 (Financial Promotion and Related Activities) and AUTH App 4 (Regulated activities connected with mortgages).
- 14/01/2005
AUTH App 5.2
Introduction
- 01/12/2004
AUTH App 5.2.1
See Notes
This guidance is based on the statutory instruments
made as part of implementing the IMD in
the United Kingdom.
This legislation includes the Financial Services and Markets Act 2000 (Regulated
Activities) (Amendment) (No.2) Order 2003 (SI 2003/1476), which amends among
others the Regulated Activities
Order, the Financial Services and Markets Act 2000 (Appointed
Representatives) Regulations 2001 (SI 2003/1217), the Non-Exempt Activities Order and the Business Order. Other
legislation that forms the basis of this guidance includes
the Financial Services and Markets Act 2000 (Exemption) (Amendment) (No.2)
Order 2003 (SI 2003/1675), the Financial Services and Markets Act 2000 (Financial
Promotion) (Amendment) Order 2003 (SI 2003/1676) and the Insurance Mediation
Directive (Miscellaneous Amendments) Regulations 2003 (SI 2003/1473). For
ease of reference, references to the Regulated
Activities Order below adopt the revised Regulated Activities Order numbering indicated
in the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment)
(No.2) Order 2003.
- 14/01/2005
Requirement for authorisation or exemption
AUTH App 5.2.2
See Notes
Any person who
carries on a regulated
activity in the United
Kingdom by way of business must either be an authorised person or exempt from the need
for authorisation.
Otherwise, the person commits
a criminal offence and certain agreements may be unenforceable. AUTH
2.2 (Authorisation and regulated activities) has further guidance on these consequences.
To be authorised,
a person must
either:
(1) hold a Part IV permission given by the FSA (see AUTH
1.3 (The Authorisation Manual) and AUTH 3 (Applications for Part
IV Permission)); or
(2) qualify for authorisation (see AUTH 5 (Qualifying for Authorisation under the Act)); for example, if
the person is an EEA firm or
a Treaty firm.
- 14/01/2005
Questions to be considered to decide if authorisation is required
AUTH App 5.2.3
See Notes
A person who
is concerned to know whether his proposed insurance mediation activities may require authorisation will need
to consider the following questions (these questions are a summary of the
issues to be considered and have been reproduced, in slightly fuller form,
in the flow chart in AUTH
App 5.15.2 G (Flow
chart: regulated activities related to insurance mediation - do you need authorisation?):
(1) will the activities relate to contracts of insurance (see AUTH
App 5.3 (Contracts of insurance)?
(2) if so, will I be carrying on any insurance mediation activities (see AUTH
App 5.5 (The regulated activities:
dealing in contracts as agent) to AUTH
App 5.11 (Other
aspects of exclusions))?
(3) if so, will I be carrying on my activities
by way of business (see AUTH
App 5.4 (The
business test))?
(4) if so, is there the necessary link with
the United Kingdom (see AUTH
App 5.12 (Link between activities
and the United Kingdom))?
(5) if so, will any or all of my activities
be excluded (see AUTH
App 5.3.7 G (Connected
contracts of insurance) to AUTH
App 5.3.8 G (Large
risks); AUTH
App 5.6.5 G (Exclusion: article
72C provision of information on an incidental basis) to AUTH
App 5.6.23 G (Other exclusions); AUTH
App 5.7.7 G (Exclusions); AUTH
App 5.8.24 G (Exclusion: periodical publications, broadcasts
and web-sites) to AUTH
App 5.8.26 G (Other
exclusions); AUTH
App 5.11 (Other
aspects of exclusions) and AUTH
App 5.12.9 G to AUTH
App 5.12.10 G (Overseas persons))?
(6) if it is not the case that all of my
activities are excluded, am I a professional
firm whose activities are exempted under Part XX of the Act (see AUTH
App 5.14.1 G to AUTH
App 5.14.4 G (Professionals))?
(7) if not, am I exempt as an appointed representative (see AUTH
App 5.13 (Appointed representatives))?
If a person gets as far as
question (8) and the answer to that question is "no", that person requires authorisation and should refer to AUTH
3 (Application for Part IV Permission). The order of
these questions considers firstly whether a person is carrying on insurance mediation activities before dealing
separately with the questions "will I be carrying on my activities by way
of business?" (3) and "if so, will any or all of my activities by excluded?"
(5).- 14/01/2005
AUTH App 5.2.4
See Notes
It is recognised pursuant to section
22 of the Act that
a person will
not be carrying on regulated
activities in the first instance, including insurance mediation activities, unless he
is carrying on these activities by way of business. Similarly, where a person's activities are
excluded he cannot, by definition, be carrying on regulated activities. To this extent, the
content of the questions above does not follow the scheme of the Act. For ease of navigation,
however, the questions are set out in an order and form designed to help persons consider more
easily, and in turn, issues relating to:
(1) the new activities;
(2) the business test; and
(3) the exclusions.
- 14/01/2005
Approach to implementation of the IMD
AUTH App 5.2.5
See Notes
The IMD imposes
requirements upon EEA States relating
to the regulation of insurance and reinsurance mediation.
The IMD defines
"insurance mediation" and "reinsurance mediation" as including the activities
of introducing, proposing or carrying out other work preparatory to the conclusion
of contracts of insurance and reinsurance, or of concluding such contracts,
or of assisting in the administration and performance of such contracts, in
particular in the event of a claim (the text of article 2.3 IMD is reproduced in full in AUTH
App 5.16.2 G (Article 2.3 of the Insurance Mediation
Directive)).
- 14/01/2005
AUTH App 5.2.6
See Notes
The United
Kingdom's approach to implementing the IMD by domestic legislation is, in part,
through secondary legislation, which will apply pre-existing regulated activities (slightly
amended) in the Regulated
Activities Order to the component elements of the insurance mediation definition
in the IMD (see AUTH
App 5.2.5 G and the text of article
2.3 IMD in AUTH
App 5.16.2 G (Article
2.3 of the Insurance Mediation Directive)).
- 14/01/2005
AUTH App 5.2.7
See Notes
The effect of the IMD and its implementation described in AUTH
App 5.2.5 G to AUTH
App 5.2.6 G is to vary the application of the existing regulated activities set
out in AUTH
App 5.2.8 G (1) to (3), (5) and
(6), principally by applying these regulated
activities to general
insurance contracts and pure
protection contracts and by making changes to the application
of the various exclusions to these regulated
activities. These regulated
activities apply prior to 14 January 2005 to qualifying contracts
of insurance (as defined by article 3 of the Regulated Activities Order and referred to
in the Handbook as life policies (which includes pension policies)). The
legislation implementing the IMD also
introduces a new regulated
activity set out in AUTH
App 5.2.8 G (4),
which potentially applies to all contracts of insurance.
- 14/01/2005
AUTH App 5.2.8
See Notes
It follows that each of the regulated activities below
potentially apply to any contract
of insurance:
(1)
dealing
in investments as agent (article 21 (Dealing in investments
as agent));
(2)
arranging
(bringing about) deals in investments (article 25(1) (Arranging
deals in investments));
(3)
making
arrangements with a view to transactions in investments (article
25(2) (Arranging deals in investments));
(4)
assisting in the administration
and performance of a contract of insurance (article 39A (Assisting
in the administration and performance of a contract of insurance));
(5)
advising
on investments (article 53 (Advising on investments));
(6)
agreeing to carry on any
of the above regulated
activities (article 64 (Agreeing to carry on specified types
of activity)).
- 14/01/2005
AUTH App 5.2.9
See Notes
It is the scope of the Regulated Activities Order rather than the IMD which will determine
whether a person requires authorisation or exemption.
However, the scope of the IMD is
relevant to the application of certain exclusions under the Regulated Activities Order (see, for example,
the commentary on article 67 in AUTH
App 5.11.9 G (Activities
carried on in the course of a profession or non-investment business)).
- 14/01/2005
Financial promotion
AUTH App 5.2.10
See Notes
An unauthorised
person who intends to carry on activities connected with contracts of insurance will
need to comply with section 21 of the Act (Restrictions
on financial promotion). This guidance does
not cover financial promotions that
relate to contracts of
insurance. Persons should
refer to the general guidance on financial promotion in AUTH App 1 (Financial promotion and related activities).
(See in particular AUTH App 1.17 (Financial promotions
concerning insurance mediation activities) for information on financial promotions that
relate to insurance mediation
activities.)
- 14/01/2005
AUTH App 5.3
Contracts of insurance
- 01/12/2004
AUTH App 5.3.1
See Notes
A person who
is concerned to know whether his proposed activities may require authorisation will wish
to consider whether those activities relate to contracts of insurance or contracts
of reinsurance, or to insurance
business or reinsurance business,
which is the business of effecting or carrying
out contracts of insurance or reinsurance as principal.
- 14/01/2005
Definition
AUTH App 5.3.2
See Notes
The Regulated
Activities Order does not attempt an exhaustive definition of
a 'contract of insurance'. Instead, article 3(1) of the order (Interpretation)
makes some specific extensions and limitations to the general common law meaning
of the concept. For example, article 3(1) expressly extends the concept to
fidelity bonds and similar contracts of guarantee, which are not contracts
of insurance at common law, and it excludes certain funeral plan contracts, which would generally
be contracts of insurance at common law.
- 14/01/2005
AUTH App 5.3.3
See Notes
One consequence of this is that common
law judicial decisions about whether particular contracts amount to 'insurance'
or their being effected or carried out amounts to 'insurance business' are
relevant in defining the scope of the FSA's authorisation and
regulatory activities.
- 14/01/2005
AUTH App 5.3.4
See Notes
As with any other contract, a contract of insurance that
is not effected by way of a deed will only be legally binding if, amongst
other things, it is entered into for valuable consideration. Determining what
amounts to sufficient consideration in any given case is a matter for the
courts. In practice, however, the legal definition of consideration is very
wide. In particular, just because a contract
of insurance is 'free' in the colloquial sense does not mean
that there is no consideration for it. In the vast majority of cases, therefore,
'free' insurance policies (such as policies that act as loss leaders for an insurance undertaking)
will be binding contracts and will amount to specified investments and therefore be subject
to FSA regulation.
- 14/01/2005
AUTH App 5.3.5
See Notes
The Regulated
Activities Order does not define a reinsurance contract. The essential elements
of the common law description of a contract
of insurance are also the essential elements of a reinsurance contract.
Whilst the IMD addresses
insurance and reinsurance separately,
throughout this guidance the
term 'contract of insurance' (italicised or otherwise) also applies to contracts
of reinsurance.
- 14/01/2005
AUTH App 5.3.6
See Notes
Guidance describing
how the FSA identifies contracts of insurance is
in AUTH App 6 (Guidance on the Identification of Contracts
of Insurance).
- 14/01/2005
Connected contracts of insurance
AUTH App 5.3.7
See Notes
Article 72B of the Regulated Activities Order (Activities carried
on by a provider of relevant goods or services) excludes from FSA regulation certain regulated activities carried
on by providers of non-motor goods and services related to travel in relation
to contracts of insurance that
satisfy a number of conditions. Details about the scope of this exclusion
can be found at AUTH
App 5.11.13 G to AUTH
App 5.11.15 G (Activities carried on by a provider of relevant goods or services).
- 14/01/2005
Large risks
AUTH App 5.3.8
See Notes
Large risks situated outside the EEA are also excluded
(described in more detail at AUTH
App 5.11.16 G (Large risks)). The location of the risk or commitment may be determined
by reference to the EEA
State in which the risk is situated, defined in article 2(d)
of the Second Non-Life Directive (88/357/EEC) or the EEA State of the commitment, defined in article
1(1)(g) of the Consolidated Life Directive (2002/83/EC). Broadly put, this
is:
(1) for insurance relating to buildings and/or
their contents, the EEA
State in which the property is situated;
(2) for insurance relating to vehicles, the EEA State of registration;
(3) for policies of four months or less duration
covering travel or holiday risks, where the policy was taken out;
- 14/01/2005
Specified investments
AUTH App 5.3.9
See Notes
For an activity to be a regulated activity, it
must be carried on in relation to 'specified investments' (see section 22
of the Act Regulated
activities) and Part III of the Regulated
Activities Order (Specified investments)). For the purposes
of insurance mediation
activity, specified
investments include the following 'relevant investments' defined
in article 3(1) of the Regulated
Activities Order (Interpretation):
(1) rights under any contract of insurance (see article 75 (Contracts
of insurance)); and
(2) rights to or interests in life policies (see article
89 (Rights to or interests in investments)).
'Relevant
investments' is the term used in articles 21 (Dealing in investments
as agent), 25 (Arranging deals in investments) and 53 (Advising on investments)
of the Regulated Activities
Order to help define the types of investment to which the activities in each
of these articles relate.
- 14/01/2005
AUTH App 5.3.10
See Notes
A person will
have rights under a contract
of insurance when he is a policyholder.
The question of whether a person has
rights under a contract
of insurance may require careful consideration in the case of
group policies (with reference to the Glossary definition
of policyholder).
In the case, in particular, of general
insurance contracts and pure
protection contracts, the existence or otherwise of rights under
such policies may be relevant to whether a person is carrying on insurance mediation activities.
- 14/01/2005
AUTH App 5.3.11
See Notes
A person may
also have rights or interests in a life
policy where he is not a policyholder,
but this will again depend on the terms of the individual policy.
- 14/01/2005
AUTH App 5.4
The business test
- 01/12/2004
AUTH App 5.4.1
See Notes
A person will
only need authorisation or
exemption if he is carrying on a regulated
activity 'by way of business' (see section 22 of the Act (Regulated Activities)).
- 14/01/2005
AUTH App 5.4.2
See Notes
There is power in the Act for the Treasury to specify the circumstances
in which a person is
or is not to be regarded as carrying on regulated
activities by way of business. The Business Order has been made using this
power (partly reflecting differences in the nature of the different activities).
As such, the business test for insurance
mediation activity is distinguished from the standard test for
'investment business' in article 3 of the Business Order. Under article 3(4) of the Business Order, a person is not to be regarded
as carrying on by way of business any insurance
mediation activity unless he takes up or pursues that activity
for remuneration. Accordingly, there are two principal elements to the business
test in the case of insurance
mediation activities:
(1) does a person receive remuneration for these activities?
(2) if so, does he take up or pursue these
activities by way of business?
- 14/01/2005
AUTH App 5.4.3
See Notes
As regards AUTH
App 5.4.2 G (1), the Business Order does not provide a definition
of 'remuneration', but, in the FSA's view,
it has a broad meaning and covers both monetary and non-monetary rewards.
This is regardless of who makes them. For example, where a person pays discounted premiums for his own
insurance needs in return for bringing other business to an insurance undertaking, the discount would
amount to remuneration for the purposes of the Business Order. Remuneration can also take
the form of an economic benefit which the person expects to receive as a result of
carrying on insurance mediation
activities. In the FSA's view,
the remuneration does not have to be provided or identified separately from
remuneration for other goods or services provided. Nor is there a minimum
level of remuneration.
- 14/01/2005
AUTH App 5.4.4
See Notes
As regards AUTH
App 5.4.2 G (2), in the FSA's view, for a person to take up or pursue insurance mediation activity by
way of business, 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 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:
(1) it is not necessarily the case that services
provided free of charge will not amount to a business; for example, advice
(including advice available on a website) may be provided free of charge to
potential policyholders but
in the course of a business funded by commission payments; and
(2) the 'by way of business' test may very
occasionally be satisfied by an activity undertaken on an isolated occasion
(provided that the activity would be regarded as done 'by way of business'
in other respects, for example, because of the size of reward received or
its relevance to other business activities).
- 14/01/2005
AUTH App 5.4.5
See Notes
It follows that whether or not any particular person is acting 'by way
of business' for these purposes will depend on his individual circumstances.
However, a typical example of where the applicable business test would be
likely to be satisfied by someone whose main business is not insurance mediation activities,
is where a person recommends
or arranges specific insurance policies in
the course of carrying on that other business and receives a fee or commission
for doing so.
- 14/01/2005
AUTH App 5.4.6
See Notes
Some typical examples of where the business
test is unlikely to be satisfied, assuming that there is no direct financial
benefit to the arranger, include:
(1) arrangements which are carried out by
a person for
himself, or for members of his family;
(2) where employers provide insurance benefits
for staff;
(3) where affinity groups or clubs set up
insurance benefits for members.
- 14/01/2005
AUTH App 5.4.7
See Notes
AUTH
App 5.4.8 G contains
a table that summarises the main issues surrounding the business test as applied
to insurance mediation
activities and that may assist persons to determine whether they will need authorisation or exemption.
The approach taken in the table involves identifying factors that, in the FSA's view, are likely
to play a part in the analysis. Indicators are then given as to the significance
of each factor to the person's circumstances.
By analysing the indicators as a whole, a picture can be formed of the likely
overall position. The table provides separate indicators for the two elements
of remuneration and by way of business. As a person has to satisfy both elements, a clear
overall indication against either element being satisfied should mean that
the test is failed. This approach cannot be expected to provide a clear conclusion
for everyone. But it should enable persons to
assess the relevant aspects of their activities and to identify where changes
could, if necessary, be made so as to make their position clearer. The person to whom the indicators
are applied is referred to in the table as 'P'.
- 14/01/2005
AUTH App 5.4.8
See Notes
Table: Carrying on insurance mediation activities 'for remuneration' and 'by way of business'
| Carrying on insurance mediation activities 'for remuneration' and 'by way of business' | ||
| 'For remuneration' | ||
| Factor | Indicators that P does not carry on activities "for remuneration" | Indicators that P does carry on activities "for remuneration" |
| Direct remuneration, whether received from the customer or the insurer/broker (cash or benefits in kind such as tickets to the opera, a reduction in other insurance premiums, a remission of a debt or any other benefit capable of being measured in money's worth) | P does not receive any direct remuneration specifically identified as a reward for his carrying on insurance mediation activities. | P receives direct remuneration specifically identified as being a reward for providing insurance mediation services. |
| Indirect remuneration (such as any form of economic benefit as may be explicitly or implicitly agreed between P and the insurer/broker or P's customer - including, for example, through the acceptance of P's terms and conditions or mutual recognition of the economic benefit that is likely to accrue to P). An indirect economic benefit can include expectation of making a profit of some kind as a result of carrying on insurance mediation activities as part of other services. | P does not obtain any form of indirect remuneration through an economic benefit other than one which is not likely to have a material effect on P's ability to make a profit from his other activities. | P obtains an
economic benefit that: (a) is explicitly or implicitly agreed between P and the insurer/broker or P's customer; and (b) has the potential to go beyond mere cost recovery through fees or other benefits received for providing a package of services that includes insurance mediation activities but where no particular part of the fees is attributable to insurance mediation activities. This could include where insurance mediation activity are likely to: • play a material part in the success of P's other business activities or in P's ability to make a profit from them; or • provide P with a materially increased opportunity to provide other goods or services; or • be a major selling point for P's other business activities; or • be essential for P to provide other goods or services. P charges his customers a greater amount for other goods or services than would be the case if P were not also carrying on insurance mediation activities for those customers and this: • is explicitly or implicitly agreed between P and the insurer/broker or P's customer; and • has the potential to go beyond mere cost recovery. |
| Recovery of costs | P receives no benefits of any kind (direct or indirect) in respect of his insurance mediation activities beyond the reimbursement of his actual costs incurred in carrying on the activity (including receipt by P of a sum equal to the insurance premium that P is to pass on to the insurer or broker). | P receives benefits of any kind (direct or indirect) in respect of his insurance mediation activities which go beyond the reimbursement of his actual costs incurred in carrying on the activity. |
| 'By way of business' | ||
| Factor | Indicators that P does not carry on activities "by way of business" | Indicators that P does carry on activities "by way of business" |
| Regularity/ frequency | Involvement
is one-off or infrequent (for instance, once or twice a year) provided that
the transaction(s) is not of such size and importance that it is essential
to the success of P's other business activities. Transactions do not result from formal arrangements (for instance, occasional involvement purely as a result of an unsolicited approach). | Involvement
is frequent (for instance, once a week). Involvement is infrequent but the transactions are of such size or importance that they are essential to the success of P's other business activities. P has formal arrangements which envisage transactions taking place on a regular basis over time (whether or not such transactions turn out in practice to be regular). |
| Holding out | P does not hold himself out as providing a professional service that includes insurance mediation activities (by professional is meant not the services of a layman). | P holds himself out as providing a professional service that includes insurance mediation activities. |
| Relevance to other activities/ business |
Insurance mediation activities: • have no relevance to P's other activities; or • have some relevance but could easily be ceased without causing P any difficulty in carrying on his main activities; or • would be unlikely to result in a material reduction in income from P's main activities if ceased |
Insurance mediation activities: • are essential to P in carrying on his main activities; or • would cause a material disruption to P carrying on his main activities if ceased; or • would be likely to reduce P's income by a material amount. |
| Commercial benefit | P receives no
direct or indirect pecuniary or economic benefit. P is a layman and acting in that capacity. P would not obtain materially less income from his main activities if they did not include insurance mediation activities. | P receives a
direct or indirect pecuniary or economic benefit from carrying on insurance mediation activities -
such as a fee, a benefit in kind or the likelihood of materially enhanced
sales of other goods or services that P provides. P would obtain materially less income from his main activities if they did not include insurance mediation activities. |
- 14/01/2005
AUTH App 5.5
The regulated activities: dealing in contracts as agent
- 01/12/2004
AUTH App 5.5.1
See Notes
Article 21 of the Regulated Activities Order (Dealing in investments
as agent) makes dealing in contracts
of insurance as agent a regulated
activity. The activity is defined in terms of buying, selling,
subscribing for or underwriting contracts as agent, that is, on behalf of
another. Examples include:
(1) where an intermediary, by accepting on
the insurance undertaking's behalf
to provide the insurance, commits an insurance
undertaking to provide insurance for a prospective policyholder; or
(2) where the intermediary agrees, on behalf
of a prospective policyholder,
to buy an
insurance policy.
- 14/01/2005
AUTH App 5.5.2
See Notes
Intermediaries with delegated authority
to bind insurance undertakings are
likely to be dealing in
investments as agent. It should be noted, in particular, that
this is a regulated activity:
(1) whether or not any advice is given (see AUTH
App 5.8 (The regulated activities:
advising on contracts of insurance); and
(2) whether or not the intermediary deals
through an authorised person (for
example, where he instructs another agent who is an authorised person to enter into a contract of insurance on
his client's behalf).
- 14/01/2005
AUTH App 5.5.3
See Notes
There are also certain exclusions which
are relevant to whether a person is
carrying on the activity of dealing
in investments as agent (see AUTH
App 5.11 (Other
aspects of exclusions)).
- 14/01/2005
AUTH App 5.6
The regulated activities: arranging deals in, and making arrangements with a view to transactions in, contracts of insurance
- 01/12/2004
AUTH App 5.6.1
See Notes
Article 25 of the Regulated Activities Order (Arranging deals
in investments) describes two types of regulated
activities concerned with arranging deals in respect of contracts of insurance.
These are:
(1)
arranging
(bringing about) deals in investments (article 25(1) (Arranging
deals in investments));
(2)
making
arrangements with a view to transactions in investments (article
25(2) (Arranging deals in investments));
- 14/01/2005
Article 25(1): arranging (bringing about) deals in investments
AUTH App 5.6.2
See Notes
The activity in article 25(1) is carried
on only if the arrangements bring about, or would bring about, the transaction
to which the arrangement relates. This is because of the exclusion in article
26 of the Regulated Activities
Order (Arrangements not causing a deal) Article 26 excludes
from article 25(1) arrangements which do not bring about or would not bring
about the transaction to which the arrangements relate. In the FSA's view a person would bring about
a contract of insurance if
his involvement in the chain of events leading to the contract of insurance were important enough
that, without it, there would be no policy.
Examples of this type of activity would include negotiating the terms of the contract of insurance on
behalf of the customer with
the insurance undertaking and
vice versa, or assisting in the completion of a proposal form and sending
it to the insurance undertaking.
Other examples include where an insurance
undertaking enters into a contract
of insurance as principal or an intermediary enters into a contract of insurance as
agent.
- 14/01/2005
Article 25(2): making arrangements with a view to transactions in investments
AUTH App 5.6.3
See Notes
The activity within article 25(2) contrasts
with article 25(1) in that it is not limited by the requirement that the arrangements
would bring about the transaction to which they relate.
- 14/01/2005
AUTH App 5.6.4
See Notes
Article 25(2) may, for instance, include
activities of persons who
help potential policyholders fill
in or check application forms in the context of ongoing arrangements between
these persons and insurance undertakings.
A further example of this activity would be a person introducing customers to an intermediary either for advice
or to help arrange an insurance policy.
The introduction might be oral or written. By contrast, the FSA considers that a mere passive display
of literature advertising insurance (for example, leaving leaflets advertising
insurance in a dentist's or vet's waiting room and doing no more) would not amount
to the article 25(2) activity.
- 14/01/2005
Exclusion: article 72C (Provision of information on an incidental basis)
AUTH App 5.6.5
See Notes
The Regulated
Activities Order provides an important potential exclusion,
however, for persons whose
principal business is other than insurance
mediation activities.
- 14/01/2005
AUTH App 5.6.6
See Notes
In broad terms, article 72C of the Regulated Activities Order excludes
from the activities of arranging and assisting in the administration and
performance of a contract of insurance:
(1) activities that consist of the provision
of information to the policyholder or
potential policyholder;
(2) by a person carrying on any profession or business
which does not otherwise consist of regulated
activities;
(3) if the provision of information may reasonably
be regarded as being incidental to that profession or business.
- 14/01/2005
AUTH App 5.6.7
See Notes
In the FSA's view, 'incidental' in this context
means that the activity must arise out of, be complementary to or otherwise
be sufficiently closely connected with the profession or business. In other
words, there must be an inherent link between the activity and the firm's main business. For example, introducing dental
insurance may be incidental to a dentist's activities; introducing pet insurance
would not be incidental to his activities. In addition, to be considered 'incidental',
in the FSA's view,
the activity must not amount to the carrying on of a business in its own right.
- 14/01/2005
AUTH App 5.6.8
See Notes
This exclusion applies to a person whose profession
or business does not otherwise consist of regulated activities. In the FSA's view, the fact that
a person may
carry on regulated activities in
the course of the carrying on of a profession or business does not, of itself,
mean that the profession or business consists of regulated activities. This is provided that
the main focus of the profession or business does not involve regulated activities and
that the regulated activities that
are carried on arise in a way that is incidental and complementary to the
carrying on of the profession or business. So, the exclusion may be of relevance
to exempt professional
firms. It might also, for example, be relied on by doctors,
vets and dentists as well as many businesses in the non-financial sector,
even if they have permission to
carry on regulated activities or
are appointed representatives.
This is assuming that their activities for which they are seeking to use the
exclusion in article 72C are limited to providing information in a way which
is incidental to their main profession or business. The exclusion only extends
to information given to the policyholder or potential policyholder and not
to the insurance undertaking An
intermediary who forwards a proposal form to an insurance undertaking would not be able to
take the benefit of the exclusion. Similarly, where a person does more than provide information
(for example, by helping a potential policyholder fill in an application form),
he cannot take the benefit of this exclusion. Nor does it cover the activity
of advising a customer under article 53 of the Regulated Activities Order (Advising on investments).
- 14/01/2005
AUTH App 5.6.9
See Notes
The exclusion will be of assistance to
introducers who would otherwise be carrying on the regulated activity of making arrangements with a view to transactions in investments (assuming,
as mentioned in AUTH
App 5.6.8 G,
that they provide information only to policyholders or
potential policyholders,
and not to the intermediary or insurance
undertaking to whom they introduce these policyholders or potential policyholders). In order to assist such introducers determine
whether or not they are likely to require authorisation, a simplified flowchart is included
in AUTH
App 5.15.6 G (Flow chart: introducers).
Introducers may also find the guidance at AUTH
App 5.9.2 G (The regulated activities:
agreeing to carry on a regulated activity) helpful. AUTH
App 5.6.17 G (Exclusion from article 25(2) for introducing)
has guidance to
assist persons determine
whether their introducing activities amount to making arrangements with a view to transactions in investments.
- 14/01/2005
Exclusion from article 25(2): arrangements enabling parties to communicate
AUTH App 5.6.10
See Notes
Article 27 of the Regulated Activities Order (Enabling parties
to communicate) contains an exclusion that applies to arrangements which might
otherwise bring within article 25(2) those who merely provide the means by
which one party to a transaction (or potential transaction) is able to communicate
with other parties. Simply providing the means by which parties to a transaction
(or potential transaction) are able to communicate with each other is excluded
from article 25(2) only. This will ensure that persons such as internet service providers
or telecommunications networks are excluded if all they do is provide communication
facilities (and these would otherwise be considered to fall within article
25(2)).
- 14/01/2005
AUTH App 5.6.11
See Notes
In the FSA's view, the crucial element of the exclusion
in article 27 is the inclusion of the word 'merely'. When 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).
Further detailed guidance relating
to the scope of the exclusion in article 27 is contained in AUTH
2.8.6 G(2) (Arranging deals in investments) and AUTH App 1.32.6 G to AUTH App 1.32.11 G (Arranging deals in investments).
- 14/01/2005
Exclusion from article 25(2): transactions to which the arranger is a party
AUTH App 5.6.12
See Notes
Article 28 of the Regulated Activities Order (Arranging transactions
to which the arranger is a party) excludes from the regulated activities in article 25(1) and
25(2) arrangements made for or with a view to contracts of insurance when:
(2) P, as a result of the transaction, would
become the only policyholder.
- 14/01/2005
AUTH App 5.6.13
See Notes
Market makers in traded endowment policies
may be able to rely on this exclusion to avoid the need to be authorised. They must ensure,
however, that where they are carrying on the regulated activity of dealing in investments as principal (article
14) they are also able to rely on the exclusions in articles 15 or 16 (see
the guidance in AUTH
2.8.4 G (Dealing in investments as principal)).
- 14/01/2005
AUTH App 5.6.14
See Notes
Insurance
undertakings do not fall within the terms of this exclusion
and so will be arranging contracts of insurance,
in addition to effecting and carrying out contract of insurance.
- 14/01/2005
AUTH App 5.6.15
See Notes
In some cases, a person may make arrangements to enter into
a contract of insurance as policyholder on its own
behalf and also arrange that another person become
a policyholder under
the same contract of insurance.
If so, the person should
be aware that the effect of the narrower exclusion in article 28 as part of
implementation of the IMD is
that he may be arranging on
behalf of the other policyholder.
This may be relevant, for example, to a company which
arranges insurance for itself (not arranging)
as well as other companies in
a group or
loan syndicate (potentially arranging).
- 14/01/2005
AUTH App 5.6.16
See Notes
The restriction in the scope of article
28 raises an issue where there is a trust with co-trustees, where each trustee
will be a policyholder with
equal rights and obligations. If the activities of one of the trustees include arranging in respect of contracts of insurance,
that trustee could be viewed as arranging on
behalf of his co-trustees who will also be policyholders. Similar issues also arise
in respect of trustees assisting
in the administration and performance of a contract of insurance.
The FSA is
of the view, however, that trustees should not be regarded as carrying on regulated activities where
they are acting as joint policyholders in arranging or assisting in the administration and
performance of a contract of insurance. In this respect, trustees
differ from policyholders under
a group policy, where each person covered
under the group policy may make claims on the policy in relation to his own
risks. In that situation, a policyholder who
is providing services to other policyholders of arranging or assisting in the administration and
performance of a contract of insurance will be carrying on a regulated activity.
- 14/01/2005
Exclusion from article 25(2) for introducing
AUTH App 5.6.17
See Notes
Article 33 of the Regulated Activities Order (Introducing)
excludes arrangements which would otherwise fall under article 25(2) where:
(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;
(4) the arrangements do not relate to transactions
relating to contracts of
insurance.
- 14/01/2005
AUTH App 5.6.18
See Notes
The effect of AUTH
App 5.6.17 G (4) is that some persons who, in making introductions, are making arrangements with a view to transactions
in investments under article 25(2) of the Regulated Activities Order, cannot use the
introducing exclusion. This is if, in general terms, the arrangements for
making introductions relate to contracts
of insurance (AUTH
App 5.6.19 G has
further guidance on
when arrangements for introductions may be regarded as relating to contracts of insurance).
However, this does not mean that all introducers whose introductions relate
directly or indirectly to contracts
of insurance will necessarily require authorisation if they cannot use the exclusion
in article 72C of the Regulated
Activities Order for merely passing information. For this to
be the case, a person must
first be carrying on the business of making
arrangements with a view to transactions in investments. In
the FSA's
view, the following points will be relevant in determining whether this is
the case.
(1) Article 25(2) applies to ongoing arrangements
made with a view to transactions taking place from time to time as a result
of persons having
taken part in the arrangements. So, they will not apply to one-off introductions
or introductions that are not part of an ongoing pre-existing arrangement
between introducer and introducee. An introducer who merely suggests to a person that he seeks advice
or assistance from an authorised
person or an exempt
person with whom the introducer has no pre-existing agreement
that anticipates introductions will be made, will not be making arrangements
at all. He will simply be offering general advice or information.
(2) The purpose of the arrangements must
be for the person who
is introduced to, in general terms, enter into a transaction to buy or sell
securities or relevant
investments. So, arrangements for introducing persons for advice only will not be caught
(for example, introductions to a financial planner or to the publisher of
an investment newsletter). In other cases, it may be likely that transactions
will be entered into following the provision of advice. Provided the introducer
is completely indifferent as to whether or not a contract of insurance may ultimately be bought
(or sold) as a result of the advice given to the person he has introduced, the introducer
will not be making arrangements
with a view to transactions in investments. This is likely to
be the case where the introducer does not receive any pecuniary reward that
is linked to the volume of business done as a result of his introductions.
- 14/01/2005
AUTH App 5.6.19
See Notes
Where a person is making arrangements with a view to transactions in investments by
way of making introductions, and he is not completely indifferent to whether
or not transactions may result, it may still be the case that the exclusion
in article 33 will apply. In the FSA's view,
this is where:
(1) the introduction is for independent advice
on investments generally;
and
(2) the introducer is indifferent as to whether
or not a contract of insurance may
ultimately be bought (or sold) rather than any other type of investment.
This is because
the arrangements for making introductions do not specifically relate to a contract of insurance or
to any other type of investment but
to investments generally.
Whether or not a person is
making arrangements for introductions for the purpose of the provision of
independent advice on investments generally
will depend on the facts in any particular case. But, in the FSA's
view, it is very unlikely that article 33 could apply where introductions
are made to a person for
the purposes of that person giving
advice on and then arranging general insurance.
- 14/01/2005
AUTH App 5.6.20
See Notes
The table in AUTH
App 5.6.21 G has examples of the application of article
33 to arrangements for making introductions.
- 14/01/2005
AUTH App 5.6.21
See Notes
Application of article 33 to arrangements for making introductions. This table belongs to AUTH App 5.6.20 G.
| Type of introduction | Applicability of exclusion | |
| 1 | Introductions are purely for the purpose of the provision of independent advice - Introducer is completely indifferent to whether or not transactions take place after advice has been given. | Exclusion not relevant as introducer is not arranging under article 25(2). |
| 2 | Introduction is one-off or otherwise not part of pre-existing ongoing arrangements that envisage such introduction being made. | Exclusion not relevant as introducer is not arranging under article 25(2). |
| 3 | Introducer is not indifferent to whether or not transactions take place after advice has been given, but is indifferent to whether or not the transactions may involve a contract of insurance. | Exclusion will be available provided the introduction was made with a view to the provision of independent advice on investments generally. |
| 4 | Introducer is not indifferent to whether or not transactions take place after advice has been given (for example, because he expects to receive a percentage of the commission), and introductions specifically relate to contracts of insurance. | Exclusion is not available. If introducer is an unauthorised person, he will need authorisation or exemption as an designated investment business. If introducer is an authorised person (such as an IFA introducing to a general insurance broker), he will need to vary his Part IV permission accordingly. If introducer is an appointed representative, he will need to ensure that his agreement covers making such arrangements. |
- 14/01/2005
Exclusion from article 25(2): arrangements for the provision of finance
AUTH App 5.6.22
See Notes
An unauthorised
person who makes arrangements with a view to a person who participates
in the arrangements buying or selling
contracts of insurance may be excluded from article 25(2)
by article 32 of the Regulated
Activities Order (Provision of finance). This is provided the
sole purpose of the arrangements is the provision of finance to enable the person to buy the contract of insurance. Premium finance companies
may be able to rely on this exclusion provided the arrangements they put in
place, taken as a whole, have as their sole purpose the provision of finance
to fund premiums.
- 14/01/2005
Other exclusions
AUTH App 5.6.23
See Notes
The Regulated
Activities Order contains some other exclusions which have the
effect of narrowing or limiting the application of regulated activities within article 25 by
preventing certain activities from amounting to regulated activities. These are referred
to in AUTH
App 5.11.8 G (Exclusions applying
to more than one regulated activity).
- 14/01/2005
AUTH App 5.7
The regulated activities: assisting in the administration and performance of a contract of insurance
- 01/12/2004
AUTH App 5.7.1
See Notes
The regulated
activity of assisting
in the administration and performance of a contract of insurance (article
39A) relates, in broad terms, to activities carried on by intermediaries after
the conclusion of a contract
of insurance and for or on behalf of policyholders, in particular in the event
of a claim. Loss assessors acting on behalf of policyholders in the event of a claim are,
therefore, likely in many cases to be carrying on this regulated activity. By contrast, claims management
on behalf of certain insurers is not a regulated
activity (see AUTH
App 5.7.7 G (Exclusions)).
- 14/01/2005
AUTH App 5.7.2
See Notes
Neither assisting in the administration
nor assisting in the performance of a contract alone will fall within this
activity. Generally, an activity will either amount to assisting in the administration
or assisting in the performance but not both. Occasionally, however, an activity
may amount to both assisting
in the administration and performance of a contract of insurance.
For example, where a person assists
a claimant in filling in a claims form, in the FSA's view
this amounts to assisting in the administration of a contract of insurance. In some instances,
however, this may also amount to assisting in the performance of a contract of insurance.
In the FSA's view,
an example of when a person may
be assisting in the performance of a contract is where a person fills in the whole or a significant
part of a claims form on behalf of a claimant. This is because, by helping
complete a claims form, a person may
be assisting the policyholder to
perform his contractual obligation to notify the insurance undertaking in the event of a claim
and provide details of the claim in the manner and form required by the contract.
- 14/01/2005
AUTH App 5.7.3
See Notes
Put another way, where an intermediary's
assistance in filling in a claims form is material to whether performance
takes place of the contractual obligation to notify claims, it is more likely
to amount to assisting
in the administration and performance of a contract of insurance.
Conversely, in the FSA's
view, a person who
merely gives pointers about how to fill in the claims form or merely supplies
information in support of a claim will not be assisting in the performance
of a contract of insurance.
Instead, the person will
only be facilitating rather than assisting in the performance of a contract of insurance.
- 14/01/2005
AUTH App 5.7.4
See Notes
More generally, an example of an activity
that, in the FSA's view,
is likely to amount to assisting a policyholder in
both the administration and the performance of a contract of insurance is notifying a claim
under a policy and
then providing evidence in support of the claim, or helping negotiate its
settlement on the policyholder's behalf.
Notifying an insurance
undertaking of a claim assists the policyholder in discharging his contractual
obligation to do so (assisting in the performance); providing evidence in
support of the claim or negotiating its settlement assists management of the
claim (assisting in the administration).
- 14/01/2005
AUTH App 5.7.5
See Notes
On the other hand, where a person does no more than
advise a policyholder generally
about making a claim or provide evidence in support of a claim, this is unlikely
to amount to both assisting in the administration and performance. Similarly,
the mere collection of premiums from policyholders is
unlikely, without more, to amount to assisting
in the administration and performance of a contract of insurance.
The collection of premiums from customers or clients at the pre-contract stage,
however, may amount to arranging (see
example in AUTH
App 5.15.4 G (Types
of activity - are they regulated activities and, if so, why?)).
- 14/01/2005
AUTH App 5.7.6
See Notes
Where a person receives funds on behalf of a policyholder in settlement
of a claim, in the FSA's view,
the act of receipt is likely to amount to assisting in the performance of
a contract. By giving valid receipt, the person assists
the insurance undertaking to
discharge its contractual obligation to provide compensation to the policyholder. He may also
be assisting the policyholder to
discharge any obligations he may have under the contract to provide valid
receipt of funds, upon settlement of a claim. Where a person provides valid receipt for funds received
on behalf of the policyholder,
he is also likely to be assisting in the administration of a contract of insurance (for
example, making prior arrangements relating to transmission and receipt of
payment).
- 14/01/2005
Exclusions
AUTH App 5.7.7
See Notes
By article 39B of the Regulated Activities Order (Claims management
on behalf of an insurer etc):
(1) loss adjusting on behalf of a relevant
insurer (see AUTH
App 5.7.8 G);
(2) expert appraisal; and
(3) managing claims for a relevant insurer;
are also excluded
from the regulated activity of assisting in the administration and
performance of a contract of insurance. This is where the activity
is carried on in the course of carrying on any profession or business (see
also AUTH
App 5.14 (Exemptions)). In determining
whether they are carrying on the regulated
activity of assisting
in the administration and performance of a contract of insurance,
therefore, persons should
consider whether they are acting on behalf of the relevant insurer and not
the policyholder.
- 14/01/2005
AUTH App 5.7.8
See Notes
A 'relevant insurer' for the purposes
of article 39B means:
(1) an authorised
person who has permission for effecting
and carrying out contracts
of insurance; or
(2) a member of the Society of Lloyd's or
the members of the Society of Lloyd's taken together; or
(4) a reinsurer, being a person whose main business consists of accepting
risks ceded by a person falling
under (1), (2) or (3) or a person who
is established outside the United
Kingdom and who carries on the activity of effecting
and carrying out contracts of insurance.
So, a person whose activities
are excluded under article 12 of the Regulated
Activities Order (Breakdown insurance) will not be a relevant
insurer for these purposes and any person who
performs loss adjusting or claims management on behalf of such a person will not be able
to use the exclusion in article 39B.
- 14/01/2005
AUTH App 5.8
The regulated activities: advising on contracts of insurance
- 01/12/2004
AUTH App 5.8.1
See Notes
Article 53 of the Regulated Activities Order (Advising on Investments)
makes advising on contracts
of insurance a regulated activity. This covers advice which
is both:
(1) given to a person in his capacity as an insured or potential
insured, or as agent for an insured or a potential insured; and
(2) advice on the merits of the insured or
his agent:
(b) exercising any right conferred by a contract
of insurance to buy, sell, subscribe for or underwrite a contract of insurance.
- 14/01/2005
AUTH App 5.8.2
See Notes
For advice to fall within article 53,
it must:
(2) be given to a person in his capacity as an investor or
potential investor;
(3) be advice (that is, not just information);
and
(4) relate to the merits of a person
buying, selling, subscribing for or underwriting (or exercising
any right to do so) a contract
of insurance or rights to or interests in life policies.
- 14/01/2005
AUTH App 5.8.3
See Notes
Each of these aspects is considered in
greater detail in the table in AUTH
App 5.8.5 G.
Where an activity is identified as not amounting to advising on investments it could still form
part of another regulated
activity. This will depend upon whether a person's activities, viewed as a whole, amount
to arranging.
Additionally, it should be borne in mind that the provision of advice or information
may involve the communication of a financial
promotion (see AUTH App 1 (Financial promotion
and related activities)).
- 14/01/2005
Advice must relate to a particular contract of insurance
AUTH App 5.8.4
See Notes
Advice about contracts of insurance will come within the regulated activity in
article 53 of the Regulated
Activities Order only if it relates to a particular contract of insurance.
So, generic or general advice will not fall under article 53. In particular:
(1) advice would come within article 53 if
it took the form of a recommendation that a person should buy the ABC Insurers motor insurance;
(2) advice would not relate to a particular
contract if it consists of a recommendation only that a person should take out insurance of a particular
class without identifying any particular insurance
undertaking, or with ABC Insurers provided that the kind of
insurance is not specified (either expressly or by implication): a recommendation
only that a person should buy insurance from ABC
Insurers could amount to advice if a specific insurance policy would be implied from the context;
(3) the table in AUTH
App 5.8.5 G identifies several typical recommendations
and indicates whether they will be regarded as advice under article 53.
- 14/01/2005
AUTH App 5.8.5
See Notes
Typical recommendations and whether they will be regulated as advice on contracts of insurance under article 53 of the Regulated Activities Order. This table belongs to AUTH App 5.8.4 G
| Recommendation | Regulated under article 53 or not? |
| I recommend you take the ABC Insurers motor insurance policy | Yes |
| I recommend that you take out the GHI Insurers life insurance policy | Yes |
| I recommend that you do not take out the ABC Insurers motor insurance policy | Yes |
| I recommend that you do not take out the GHI Insurers life insurance policy | Yes |
| I recommend that you take out either the ABC Insurers motor insurance policy or the DEF Insurers motor insurance policy | Yes |
| I recommend that you take out either the GHI Insurers life insurance policy or the JKL Insurers life insurance policy | Yes |
| I recommend that you take out (or do not take out) insurance with ABC Insurers | Possibly (depending on whether or not the circumstances relating to the recommendation, including the range of possible products, is such that this amounts to an implied recommendation of a particular policy) |
| I recommend that you take out (or do not take out) contents insurance | No, unless a specific insurance policy is implied by the context |
| I recommend that you take out (or do not take out) life insurance | No, unless a specific insurance policy is implied by the context |
- 14/01/2005
Advice given to a person in his capacity as an investor or potential investor
AUTH App 5.8.6
See Notes
For the purposes of article 53, advice
must be given to a person in
his capacity as an investor or potential investor (which, in the context of contracts of insurance,
will mean as policyholder or
potential policyholder).
So, article 53 will not apply where advice is given to persons who receive it as:
(1) an adviser who will use it only to inform
advice given by him to others; or
(2) a journalist or broadcaster who will
use it only for journalistic purposes.
- 14/01/2005
AUTH App 5.8.7
See Notes
Advice will still be covered by article
53 even though it may not be given to any particular policyholder (for example, advice given in
a periodical publication or on a website).
- 14/01/2005
Advice or information
AUTH App 5.8.8
See Notes
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 facts or figures.
- 14/01/2005
AUTH App 5.8.9
See Notes
In general terms, simply giving information,
without making any comment or value judgement on its relevance to decisions
which a person may
make, is not advice. In this respect, it is irrelevant that a person may be providing
information on a single contract
of insurance or on two or more. This means that a person may provide information
on a single contract of
insurance without necessarily being regarded as giving advice
on it. AUTH
App 5.8.11 G has guidance on the circumstances
in which information can assume the form of advice.
- 14/01/2005
AUTH App 5.8.10
See Notes
In the case of article 53, information
relating to buying or selling
contracts of insurance may often involve one or more of the
following:
(1) an explanation of the terms and conditions
of a contract of insurance whether
given orally or in writing or by providing leaflets and brochures;
(2) a comparison of the features and benefits
of one contract of insurance compared
to another;
(3) the production of pre-purchase questions
for a person to
use in order to exclude options that would fail to meet his requirements;
such questions may often go on to identify a range of contracts of insurance with characteristics
that appear to meet the person's requirements
and to which he might wish to give detailed consideration (pre-purchase questioning
is considered in more detail in AUTH
App 5.8.15 G to AUTH
App 5.8.19 G (Pre-purchase questioning
(including decision trees));
(4) tables that compare the costs and other
features of different contracts
of insurance;
(5) leaflets or illustrations that help persons to decide which
type of contract of insurance to
take out;
(6) the provision, in response to a request
from a person who
has identified the main features of the type of contract of insurance he seeks, of several
leaflets together with an indication that all the contracts of insurance described in them
have those features.
- 14/01/2005
AUTH App 5.8.11
See Notes
In the FSA's opinion,
however, such information is likely to take on the nature of advice if the
circumstances in which it is provided give it the force of a recommendation.
Examples of situations where information provided by a person (P) might take the form of advice
are given below.
(1) P may provide information on a selected,
rather than balanced and neutral, basis that would tend to influence the decision
of a person.
This may arise where P offers to provide information about contracts of insurance that contain features
specified by the person,
but then exercises discretion as to which complying contract of insurance to offer to that person.
(2) P may, as a result of going through the
sales process, discuss the merits of one contract
of insurance over another, resulting in advice to enter into
a particular one. In contrast, advice on how to complete an application form,
without an explicit or implicit recommendation on the merits of buying or selling
the contract of insurance whilst 'advice' in the general sense
of the word, is not, in the view of the FSA,
advice within the meaning of article 53. Such advice may, however, amount
to arranging (for
which see AUTH
App 5.6.1 G to AUTH
App 5.6.4 G (The regulated activities:
arranging deals in, and making arrangements with a view to transactions in,
contracts of insurance)).
- 14/01/2005
Advice must relate to the merits (of buying or selling a contract of insurance)
AUTH App 5.8.12
See Notes
Advice under article 53 relates to the
advantages and disadvantages of buying, selling,
subscribing for or underwriting a particular contract of insurance. It is worth noting
that, in this context, 'buying' and 'selling' are
defined widely under article 3 of the Regulated
Activities Order (Interpretation). 'Buying' includes acquiring
for valuable consideration, and 'selling' includes
surrendering, assigning or converting rights under a contract of insurance.
- 14/01/2005
AUTH App 5.8.13
See Notes
The requirements imposed by the IMD (see AUTH
App 5.2.5 G (Approach to implementation of the IMD)
and the text of article 2.3 IMD in AUTH
App 5.16.1 G (Article 2.3 of
the Insurance Mediation Directive) are narrower than the scope of the Regulated Activities Order (see AUTH
App 5.2.7 G (Approach to implementation
of the IMD)). This is that, unlike the Regulated
Activities Order, they do not relate to the assignment of contracts of insurance.
This is of relevance to, amongst others, persons involved
in the 'second-hand' market for contracts
of insurance such as traded endowment policies and certain viatical
instruments (that is, arrangements by which a terminally ill person can obtain
value from his life policy)
(see also AUTH
App 5.6.12 G (Exclusion
from article 25(2): transactions to which the arranger is a party). Persons advising on or
arranging assignments of these contracts
of insurance are therefore potentially carrying on regulated activities although
they may be able to take the benefit of article 67 of the Regulated Activities Order (Activities carried
on in the course of a profession or non-investment business) in certain circumstances
(see AUTH
App 5.11.9 G to AUTH
App 5.11.12 G (Activities carried on in the course of
a profession or non-investment business)).
- 14/01/2005
AUTH App 5.8.14
See Notes
Generally speaking, advice on the merits
of using a particular insurance
undertaking, broker or adviser in their capacity as such, does
not amount to advice for the purpose of article 53. It is not advice on the
merits of buying or selling a
particular contract of
insurance (unless, in the circumstances, the advice amounts
to an implied recommendation of a particular policy).
- 14/01/2005
Pre-purchase questioning (including decision trees)
AUTH App 5.8.15
See Notes
Pre-purchase questioning involves putting
a sequence of questions in order to extract information from a person with a view to
facilitating the selection by that person of
a contract of insurance or
other product that meets his needs. A decision tree is an example of pre-purchase
questioning. The process of going through the questions will usually narrow
down the range of options that are available.
- 14/01/2005
AUTH App 5.8.16
See Notes
A key issue for those firms proposing to use pre-purchase questioning
is whether the specific questioning used may amount to advice. There are two
main aspects:
(1) advice must relate to a particular contract of insurance (see AUTH
App 5.8.4 G (Advice must relate
to a particular contract of insurance)); and
(2) the distinction between information and
advice (see AUTH
App 5.8.8 G to AUTH
App 5.8.11 G (Advice or information)).
Whether or not
pre-purchase questioning in any particular case is advising on contracts of insurance will
depend on all the circumstances. The process may involve identifying one or
more particular contracts
of insurance. If so, to avoid advising on contracts of insurance, the critical factor
is likely to be whether the process is limited to, and likely to be perceived
by the person as,
assisting the person to
make his own choice of product which has particular features which the person regards as important.
The questioner will need to avoid providing any judgement on the suitability
of one or more products for that person and
in this respect should have regard to the factors set out in AUTH
App 5.8.2 G to AUTH
App 5.8.4 G (Advice
must relate to a particular contract of insurance) and the table in AUTH
App 5.8.5 G. See also AUTH
App 5.8.12 G to AUTH
App 5.8.14 G (Advice must relate to the merits (of buying or selling a
contract of insurance)) for other matters that may be relevant.
- 14/01/2005
AUTH App 5.8.17
See Notes
The potential for variation in the form,
content and manner of prepurchase questioning is considerable, but there are
two broad types. The first type involves providing questions and answers which
are confined to factual matters (for example, the amount of the cover). In
the FSA's view,
this does not itself amount to advising on contracts of insurance, if it involves the
provision of information rather than advice. There are various possible scenarios,
including the following:
(1) the questioner may go on to identify
one or more particular contracts
of insurance which match features identified by the pre-purchase
questioning; provided these are selected in a balanced and neutral way (for
example, they identify all the matching contracts
of insurance available without making a recommendation as to
a particular one) this need not involve advising on contracts of insurance;
(2) the questioner may go on to advise a person on the merits of
one particular contract
of insurance over another; this would be advising on contracts of insurance.
- 14/01/2005
AUTH App 5.8.18
See Notes
The second type of pre-purchase questioning
involves providing questions and answers incorporating opinion, judgement
or recommendation. There are various possible scenarios, including the following:
(1) the pre-purchase questioning may not
lead to the identification of any particular contract of insurance; in this case, the
questioner has provided advice, but it is generic advice and does not amount
to advising on contracts
of insurance;
(2) the pre-purchase questioning may lead
to the identification of one or more particular contracts of insurance; the key issue then
is whether the advice can be said to relate to a particular contract of insurance (see further AUTH
App 5.8.4 G (Advice must relate
to a particular contract of insurance)).
- 14/01/2005
AUTH App 5.8.19
See Notes
In the case of AUTH
App 5.8.18 G(2) and similar scenarios, the FSA considers that it
is necessary to look at the process and outcome of prepurchase questioning
as a whole. It may be that the element of advice incorporated in the questioning
can properly be viewed as generic advice if it were considered in isolation.
But although the actual advice may be generic, the process has ended in identifying
one or more particular contracts
of insurance. The combination of the generic advice and the
identification of a particular or several particular contracts of insurance to which it leads
may well, in the FSA's view,
cause the questioner to be advising on contracts
of insurance. Factors that may be relevant in deciding whether
the process involves advising on contracts
of insurance may include:
(1) any representations made by the questioner
at the start of the questioning relating to the service he is to provide;
(2) the context in which the questioning
takes place;
(3) the stage in the questioning at which
the opinion is offered and is significant;
(4) the role played by the questioner who
guides a person through
the pre-purchase questions;
(5) the outcome of the questioning (whether
particular contracts of
insurance are highlighted, how many of them, who provides them,
their relationship to the questioner and so on);
(6) whether the pre-purchase questions and
answers have been provided by, and are clearly the responsibility of, an unconnected
third party, and all that the questioner has done is help the person understand what
the questions or options are and how to determine which option applies to
his particular circumstances.
- 14/01/2005
Medium used to give advice
AUTH App 5.8.20
See Notes
With the exception of:
(1) periodicals, broadcasts and other news
or information services (see AUTH
App 5.8.24 G to AUTH
App 5.8.25 G (Exclusion: periodical publications, broadcasts and
web-sites)); and
(2) situations involving an overseas element
(see, generally, AUTH
App 5.12 (Link
between activities and the United Kingdom) and, in particular, AUTH
App 5.12.8 G (Where is insurance mediation carried on?));
The use of the
medium itself to give advice should make no material difference to whether
or not the advice is caught by article 53.
- 14/01/2005
AUTH App 5.8.21
See Notes
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 web-site;
and
(6) through the provision of an interactive
software system.
- 14/01/2005
AUTH App 5.8.22
See Notes
Taking electronic commerce as an example,
the use of electronic decision trees does not present any novel problem. The
same principles apply as with a paper version (see AUTH
App 5.8.15 G to AUTH
App 5.8.19 G (Prepurchase questioning (including decision trees))).
- 14/01/2005
AUTH App 5.8.23
See Notes
Advice in publications, broadcasts and
web-sites is subject to a special regime (see AUTH
App 5.8.24 G (Exclusion: periodical publications, broadcasts
and web-sites) and AUTH 7 (Periodical publications,
news services and broadcasts: applications for certification).
- 14/01/2005
Exclusion: periodical publications, broadcasts and web-sites
AUTH App 5.8.24
See Notes
An important exclusion from advising
on contracts of insurance relates
to advice given in periodical publications, regularly updated news and information
services and broadcasts (article 54 of the Regulated Activities Order (Advice given
in newspapers etc)). The exclusion applies if the principal purpose of the
publication or service taken as a whole (including any advertising content)
is neither to give advice of a kind mentioned in article 53 (Advising on investments)
or article 53A (Advising on regulated mortgage activities) nor to lead or
enable persons to buy,
sell, subscribe for or underwrite relevant investments or, as borrower, to
enter into or vary the terms of a regulated
mortgage contract.
- 14/01/2005
AUTH App 5.8.25
See Notes
This is explained in greater detail,
together with the provisions on the granting of certificates by the FSA on the application
of the proprietor of a periodical publication or news or information service
or broadcast, in AUTH 7 (Periodical publications,
news services and broadcasts: applications for certification).
- 14/01/2005
Other exclusions
AUTH App 5.8.26
See Notes
The Regulated
Activities Order contains other limited exclusions which have
the effect of preventing certain activities from amounting to advice on contracts of insurance.
These are referred to in AUTH
App 5.11.8 G (Exclusions applying to more than one regulated activity)
to AUTH
App 5.11.16 G (Large risks).
- 14/01/2005
AUTH App 5.9
The Regulated Activities: agreeing to carry on a regulated activity
- 01/12/2004
AUTH App 5.9.1
See Notes
Under article 64 of the Regulated Activities Order (Agreeing
to carry on specified kinds of activity), in addition to the regulated activities of:agreeing to
do any of these things is itself a regulated
activity. In the FSA's opinion,
this activity concerns the entering into of a legally binding agreement to
provide the services to which the agreement relates. So, a person is not carrying on a regulated activity under
article 64 merely because he makes an offer to do so.
- 14/01/2005
AUTH App 5.9.2
See Notes
To the extent that an exclusion applies
in relation to a regulated
activity, 'agreeing' to carry on an activity within the exclusion
will not be a regulated
activity. This is the effect of article 4(3) of the Regulated Activities Order (Specified
activities: general). So, for example, a vet can, without carrying on a regulated activity, enter
into an agreement with an insurance
undertaking to distribute marketing literature provided that
the vet can rely on the exclusion in article 72C (Provision of information
on an incidental basis) in relation to the activity of distributing the literature
(see also AUTH
App 5.6.6 G and AUTH
App 5.6.9 G (Exclusion: article
72C (Provision of information on an incidental basis))). However, to be able
to rely on the exclusion in article 72C, the vet must not be viewed as providing
information to the insurance
undertaking. More specifically, an unauthorised introducer can enter into
standing arrangements with insurance
undertakings or brokers to make introductions, provided that
these arrangements do not envisage subsequent provision of information to
these insurance undertakings or
brokers with a view to arranging
(bringing about) deals in investments or making arrangements with a view to transactions in investments.
- 14/01/2005
AUTH App 5.10
Renewals
- 01/12/2004
AUTH App 5.10.1
See Notes
It must be emphasised that activities
which concern invitations to renew policies and
the subsequent effecting of renewal of policies are
likely to fall within insurance
mediation activity. Those considering the need for authorisation or variation
of their permissions will
wish to consider whether a process of tacit renewal operates: that is, where
a policyholder need
take no action if he wishes to maintain his insurance cover by having his policy 'renewed'. This
process will typically result in the issue of a new contract of insurance, not an extension of
the period of the existing one. It may involve the activities of advising
on investments, arranging and dealing in investments as agent. More specifically,
preparing a 'tacit renewal' letter on behalf of an insurance undertaking is likely to amount
to arranging.
Where it contains a recommendation to renew existing cover this is likely
to constitute advising on
investments (under article 53 of the Regulated Activities Order). If the contract
takes effect on the date stipulated in the renewal letter, a contract is concluded
with the effect that the letter writer may be dealing in investments as agent. The process
may also involve a regulated
activity under article 64 (Agreeing
to carry on a regulated activity).
- 14/01/2005
AUTH App 5.11
Other aspects of exclusions
- 01/12/2004
AUTH App 5.11.1
See Notes
This part of the guidance deals with:
(3) the following exclusions applying to
more than one regulated
activity:
(a) activities carried on in the course of
a profession or non-investment business (article 67 (Activities carried on
in the course of a profession or non-investment business));
(b) activities carried on by a provider of
relevant goods or services (article 72B (Activities carried on by a provider
of relevant goods or services)); and
(c)
large risks (article
72D (Large risks contracts where risk situated outside the EEA)).
- 14/01/2005
AUTH App 5.11.2
See Notes
There are a number of 'pre-IMD' exclusions that
have the effect of restricting the scope of the regulated activities referred to in this guidance. Several of these
are disapplied or modified as part of implementation of the IMD.
- 14/01/2005
Exclusions disapplied where activities relate to contracts of insurance
AUTH App 5.11.3
See Notes
The exclusions outlined in (1) to (7)
have been available to intermediaries (and in some cases insurance undertakings) acting in connection
with life policies.
In essence, however, from 14 January 2005 the following exclusions do not
apply if they concern transactions relating to contracts of insurance:
(1)
dealing in investments as
agent with or through authorised
persons (article 22 of the Regulated
Activities Order (Deals with or through authorised persons));
(2)
arranging transactions
to which the arranger is
to be a party, where the arranger enters
into or is to enter into the transaction:
(a) as agent for another person; or
(b) as principal,
unless the arranger is
the only policyholder or
will, as a result of the transaction, become the only policyholder (article 28 (Arranging transactions
to which the arranger is a party));
(3) arranging deals with or through authorised persons (article
29 (Arranging deals with or through authorised persons));
(4) introducing (article 33 (Introducing));
(5) activities carried on in connection with
the sale of goods and supply of services (article 68 (Activities carried on
in connection with the sale of goods and supply of services));
(6)
groups and joint enterprises (article
69 (Groups and joint enterprises)) (see AUTH
App 5.11.6 G); and
(7) activities carried on in connection with
the sale of a body corporate (article
70 (Activities carried on in connection with the sale of a body corporate)).
- 14/01/2005
AUTH App 5.11.4
See Notes
It follows from the restrictions placed
on the exclusions listed in AUTH
App 5.11.3 G that, as of 14 January 2005:
(1)
unauthorised
persons who:
(a) introduce clients or customers to an
independent financial adviser with a view to a transaction;
(b) deal as agent on behalf of their clients
or customers with or though an authorised
person; or
(c) arrange for their clients or customers
to enter into a transaction with or though an authorised person,
will not be
able to rely on articles 29 or 33 to avoid the need for authorisation where the transaction relates
to a contract of insurance;(2)
unauthorised
persons may, however, be able to rely on the exclusion for the
provision of information on an incidental basis in article 72C to continue
to avoid the need for authorisation (see AUTH
App 5.6.5 G to AUTH
App 5.6.9 G (Exclusion: article 72C (Provision of information
on an incidental basis)));
(3)
authorised
persons who themselves introduce clients or customers to others
for the purposes of buying or selling any
kind of contract of insurance are
likely to require a variation of their Part
IV permission, as neither article 33 nor generally, article
72C (see AUTH
App 5.6.5 G to AUTH
App 5.6.9 G (Exclusion: article 72C (Provision of information
on an incidental basis))) will apply where this activity amounts to arranging.
- 14/01/2005
AUTH App 5.11.5
See Notes
Insurance
undertakings are referred to PRU 9.4 (Insurance
undertakings and mortgage lenders using insurance or mortgage mediation services)
as regards their obligations relating to the use of intermediaries generally.
- 14/01/2005
AUTH App 5.11.6
See Notes
(1) The removal of the exclusion for group and joint enterprises in article 69 of the Regulated Activities Order (Groups
and joint enterprises) may have implications for a company providing services for:
(a) other members of its group;
or
(b) other participants in a joint
enterprise of which it is a participant.
(2) Such companies might typically provide risk or
treasury management or administration services which may include regulated activities relating
to a contract of insurance.
If so, such companies will
need authorisation or
exemption if they conduct the activities by way of business (see AUTH
App 5.4 (The business test) generally
and (3) and (4)). This is unless another exclusion applies.
(3) In
the FSA's view,
particular issues arise in applying the by way of business test to group companies. Recital 11
of the Insurance Mediation
Directive states that the Directive should apply to persons whose activity
consists in providing insurance mediation services to third parties for remuneration.
This suggests that the Directive is intended to apply only where the service
is provided to a third party. The expression 'third party' is not defined
in the Directive. The FSA considers
that a group company that
is providing services solely for the benefit of other group companies would not normally be regarded
as providing services to a third party. The FSA also considers that, as a result, a group company providing services
solely for the benefit of other group companies should
not normally be regarded as satisfying the requirement that it be remunerated
for providing insurance mediation services to third parties. Were a group company to be remunerated
other than by another group company,
however, the situation may be different. For example, if the group company receives commission
from an insurer or broker, that fact would tend to suggest that the company has been rewarded
for providing a service to the insurer or broker. In the FSA's view, it is appropriate to apply this
principle to a group as
defined in section 421 (Group) of the Act.
(4) The FSA considers that similar
principles to those applied to a group company in
(2) may be applied to the participants in a joint enterprise. This would be where one
participant in the joint
enterprise is providing services solely for the benefit of another
participant and for the purposes of the joint enterprise. This extends to
any person in
the same group as a participant in a joint
enterprise and who provides insurance mediation services to one or more
participants for the purposes of or in connection with the joint enterprise.
- 14/01/2005
Exclusions disapplied in connection with insurance mediation
AUTH App 5.11.7
See Notes
Article 4(4A) of the Regulated Activities Order (Specified activities:
general) disapplies certain exclusions where a person, for remuneration, takes up or pursues insurance mediation (as
defined in article 2.3 of the IMD (see AUTH
App 5.2.5 G (Approach to implementation
of the IMD)
and AUTH
App 5.16.2 G (Article 2.3 of
the Insurance Mediation Directive)) in relation to a risk or commitment located
in an EEA state.
The relevant exclusions which are disapplied are:
(1) arrangements in connection with lending
on the security of insurance policies (article 30 of the Regulated Activities Order (Arranging transactions
in connection with lending on the security of insurance policies));
(2) activities carried on by trustees, nominees
and personal representatives (article 66 (Trustees, nominees and personal
representatives)); and
(3) activities carried on in the course of
a profession or non-investment business (article 67 (Activities carried on
in the course of a profession or non-investment business)) (This exclusion
is considered in further detail in AUTH
App 5.11.9 G to AUTH
App 5.11.12 G (Activities carried on in the course of a profession
or non-investment business)).
- 14/01/2005
Exclusions applying to more than one regulated activity
AUTH App 5.11.8
See Notes
Chapter XVII of the Regulated Activities Order (Exclusions applying
to several specified kinds of activity) contains various exclusions applying
to several kinds of activity. Three exclusions of relevance in relation to contracts of insurance are
dealt with in this section and a fourth, overseas
persons, in AUTH
App 5.12 (Link between activities and the United Kingdom).
- 14/01/2005
Activities carried on in the course of a profession or non-investment business
AUTH App 5.11.9
See Notes
Article 67 excludes from the activities
of dealing as agent, arranging (bringing about) deals in investments, making arrangements with a view to transactions
in investments
assisting
in the administration and performance of a contract of insurance
and advising on investments, any activity which:
(1) is carried on in the course of carrying
on any profession or business which does not otherwise consist of the carrying
on of regulated activities in the United Kingdom;
and
(2) may reasonably be regarded as a necessary
part of other services provided in the course of that profession or business.
In the FSA's view, the fact that
a person may
carry on regulated activities in
the course of the carrying on of a profession or business does not, of itself,
mean that the profession or business consists of regulated activities. This is provided that
the main focus of the profession or business does not involve regulated activities and
that the regulated activities that
are carried on arise in a way that is incidental and complementary to the
carrying on of the profession or business.
- 14/01/2005
AUTH App 5.11.10
See Notes
Although the article 67 exclusion is
disapplied (by article 4(4A) of the Regulated
Activities Order (Specified investments: general)) when a person takes up or pursues insurance mediation or reinsurance mediation as
defined by articles 2.3 and 2.5 of the IMD,
there may be cases where a person is
not carrying on activities that amount to insurance mediation. For example, where
a person's activities
amount simply to the provision of information on an incidental basis in the
context of another professional activity, these may fall outside the scope
of article 2.3 IMD (see AUTH
App 5.16.2 G (Article 2.3 of
the Insurance Mediation Directive)) and the exclusion in article 67 may then
operate to exclude these activities. Also, it is possible that a professional person's activities may
not amount to a regulated
activity at all. For example, a doctor who provides a medical
report to an insurer may
be regarded as making arrangements with a view to providing an expert medical
opinion rather than with a view to transactions in contracts of insurance. In such cases, article
67 will not be needed.
- 14/01/2005
AUTH App 5.11.11
See Notes
Article 67 may also apply to activities
relating to assignments of insurance policies, as, in the FSA's view,
article 2.3 of the IMD applies
essentially to the creation of new contracts
of insurance and not the assignment of rights under existing
policies. As such, where a solicitor or licensed conveyancer arranges an assignment
of a contract of insurance,
the exclusion in article 67 remains of potential application. For similar
reasons, trustees advising on or arranging assignments of contracts of insurance may, in certain circumstances,
be able to rely on the exclusions in article 66 of the Regulated Activities Order.
- 14/01/2005
AUTH App 5.11.12
See Notes
For article 67 to apply in these cases,
in addition to AUTH
App 5.11.9 G(1)
and (2), the activity in question must not be remunerated separately from
other services (article 67(2) of the Regulated
Activities Order).
- 14/01/2005
Activities carried on by a provider of relevant goods or services
AUTH App 5.11.13
See Notes
Article 72B (see also AUTH
App 5.3.7 G (Connected contracts of insurance)) may
be of relevance to persons who
supply non-motor goods or provide services related to travel in the course
of carrying on a profession or business which does not otherwise consist of
carrying on regulated activities.
In the FSA's view,
the fact that a person may
carry on regulated activities in
the course of the carrying on of a profession or business does not, of itself,
mean that the profession or business consists of regulated activities. This is provided that
the main focus of the profession or business does not involve regulated activities and
that the regulated activities that
are carried on arise in a way that is incidental and complementary to the
carrying on of the profession or business. For example, a travel agent might
carry on insurance mediation
activities in relation to some contracts of insurance that satisfy the conditions
of the article 72B and some that do not. The former contracts will be excluded
from regulation even though the travel agent must seek authorisation or become an appointed representative to be permitted
to sell the
latter contracts. The exclusion applies to insurance mediation activities when carried
on in relation to 'connected contracts of insurance'. In broad terms, a 'connected
contract of insurance' is a contract
of insurance which:
(1) is not a contract of long-term insurance
(as defined by article 3 of the Regulated
Activities Order (Interpretation));
(2) has a total duration (including rights
to renewal) of five years or less;
(3) has an annual premium (or the equivalent
of annual premium) of £500 or less;
(4) covers the risk of:
(a) breakdown, loss
of, or damage to, non-motor goods supplied by the provider; or
(b) damage to, or
loss of, baggage and other risks linked to travel booked with the provider
('travel risks');
(5) does not cover any liability risks (except,
in the case of a contract which covers travel risks, where the cover is ancillary
to the main cover provided by the contract);
(6) is complementary to the non-motor goods
being supplied or service being provided by the provider; and
(7) is of such a nature that the only information
that a person requires
in order to carry on one of the insurance
mediation activities is the cover provided by the contract.
- 14/01/2005
AUTH App 5.11.14
See Notes
In the FSA's view,
the liability risks referred to in AUTH
App 5.11.13 G(5) cover risks in relation to liabilities that the policyholder might have
to others (that is, third party claims). Many policies will provide this sort of cover
and so fall outside the scope of the exclusion. For example, a policy that covers the
cost of unauthorised calls made when a mobile telephone is stolen includes
'liability risks' and would not be a 'connected contract of insurance'. By
contrast, travel policies which
provide cover in respect of the policyholder's personal
liability while travelling may fall within the exclusion by virtue of AUTH
App 5.11.13 G(5), where sold
as part of a package by travel agents and other providers of services related
to travel.
- 14/01/2005
AUTH App 5.11.15
See Notes
In the FSA's view,
the condition in AUTH
App 5.11.13 G(7) is likely to be satisfied where the insurance mediation activities relate to
a standard form contract
of insurance, the terms of which (other than the cost of the
premium) are not subject to negotiation.
- 14/01/2005
Large risks
AUTH App 5.11.16
See Notes
Article 72D (Large risks contracts where
risk situated outside the EEA) provides an exclusion for large risks situated
outside the EEA.
Broadly speaking, these are risks relating to:
(1) railway rolling stock, aircraft, ships,
goods in transit, aircraft liability and shipping liability;
(2) credit and suretyship where relating
to the policyholder's commercial
or professional liability;
(3) land vehicles, fire and natural forces,
property damage, motor vehicle liability where the policyholder is
a business of a certain size.
For a fuller
definition of contracts
of large risks see the definition in the Glossary.
- 14/01/2005
AUTH App 5.12
Link between activities and the United Kingdom
- 01/12/2004
Introduction
AUTH App 5.12.1
See Notes
Section 19 of the Act (The general prohibition) provides that
the requirement to be authorised under
the Act only
applies in relation to regulated
activities which are carried on 'in the United
Kingdom'. In many cases, it will be quite straightforward to
identify where an activity is carried on. But, when there is a cross-border
element, for example because a customer is
outside the United Kingdom or
because some other element of the activity happens outside the United Kingdom, the question
may need careful consideration. AUTH
App 5.15.8 G (Flow chart: am I carrying on regulated activities
in the United Kingdom?) has a flow chart setting out the questions a person needs to consider
in determining whether or not his regulated
activities are carried on 'in the United
Kingdom '.
- 14/01/2005
AUTH App 5.12.2
See Notes
Even if a person concludes that he is not carrying
on a regulated activity in
the United Kingdom,
he will need to ensure that he does not contravene other provisions of the Act that apply to unauthorised persons.
These include the controls on financial
promotion (section 21 (Financial promotion) of the Act) (see AUTH App 1 (Financial promotion and related activities)), and on giving the
impression that a person is authorised (section 24
(False claims to be authorised or exempt)).
- 14/01/2005
AUTH App 5.12.3
See Notes
The table in AUTH
App 5.12.4 G is a very simplified summary of territorial
issues relating to overseas insurance intermediaries carrying on the business
of insurance mediation
activities in or into the United
Kingdom for remuneration.
- 14/01/2005
AUTH App 5.12.4
See Notes
Territorial issues relating to overseas insurance intermediaries carrying on insurance mediation activities in or into the United Kingdom
| Needs Part IV permission | Schedule 3 EEA passport rights available | Overseas persons exclusion available | |
| Registered EEA-based intermediary with UK branch (registered office or head office in another EEA State) | No | Yes | No |
| Registered EEA-based intermediary with no UK branch providing cross-border services | No | Yes | Potentially available [see Note 1] |
| Third country intermediary operating from branch in UK | Yes | No | No |
| Third country intermediary providing services in (or into) UK | Yes unless overseas persons exclusion applies | No | Potentially available |
| Note 1. This does not, however, affect the firm's authorisation under Schedule 3 to the Act (see AUTH App 5.12.13 G to AUTH App 5.12.14 G (Passporting)). | |||
- 14/01/2005
Where are insurance mediation activities carried on?
AUTH App 5.12.5
See Notes
Persons carrying
on insurance mediation
activities from a registered office or head office in the United Kingdom will clearly
be carrying on regulated
activities in the United
Kingdom. However, a person may
be considered to be carrying on regulated
activities in the United
Kingdom even where not carrying on the activity from a registered
office or head office in the United
Kingdom. This is explained further in AUTH
App 5.12.5 G to AUTH
App 5.12.7 G.
- 14/01/2005
AUTH App 5.12.6
See Notes
In determining the location of an activity,
and hence whether it is carried on in the United Kingdom, various factors need to
be taken into account in turn, notably:
(1) section 418 of the Act (Carrying on regulated activities in the
United Kingdom);
(2) the nature of the activity; and
(3) the overseas
persons exclusion (see AUTH
App 5.12.9 G to AUTH
App 5.12.10 G (Overseas persons)).
- 14/01/2005
AUTH App 5.12.7
See Notes
Section 418 of the Act extends the meaning that 'carry on regulated
activity in the United Kingdom' would normally have by setting out additional
cases in which a person who
would not otherwise be regarded as carrying on the activity in the United Kingdom is to
be regarded as doing so. Each of the following cases thus amounts to carrying
on a regulated activity in
the United Kingdom:
(1) where a UK based person carries on a regulated activity in
another EEA State in
the exercise of rights under a Single Market Directive;
(2) where a UK-based person carries on a regulated activity and the day-to-day management
of the activity is the responsibility of an establishment in the United Kingdom;
(3) where a regulated activity is carried on by a person who is not based
in the United Kingdom but
is carried on from an establishment maintained by him in the United Kingdom;
(4) where an electronic commerce activity is carried on
with or for a person in
an EEA State from
an establishment in the United
Kingdom.
In each of these
cases it is irrelevant where the person with
whom the activity is carried on is situated.
- 14/01/2005
AUTH App 5.12.8
See Notes
Otherwise, where the cases in AUTH
App 5.12.7 G (1) to (4) do not
apply, it is necessary to consider further the nature of the activity in order
to determine where insurance
mediation is carried on. Persons that
arrange contracts of insurance will
usually be considered as carrying on the activity of arranging in the location where these activities
take place. As for dealing activities, the location of the activities will
depend on factors such as where the acceptance takes place, which in turn
will depend on the method of communication used. In the case of advising,
this is generally considered to take place where the advice is received.
- 14/01/2005
Overseas persons
AUTH App 5.12.9
See Notes
Article 72 of the Regulated Activities Order (Overseas persons)
provides a potential exclusion for persons with
no permanent place of business in the United
Kingdom from which regulated
activities are conducted or offers to conduct regulated activities are made. Where these persons carry on insurance mediation activities in
the United Kingdom,
they may be able to take advantage of the exclusions in article 72 of the Regulated Activities Order.
In general terms, these apply where the overseas
person either:
(2) enters into deals with (or on behalf
of) a person in
the United Kingdom or
gives advice on investments in the United
Kingdom, in each case as a result of a 'legitimate approach'.
A 'legitimate
approach', for the purposes of (2), is one that results from an unsolicited
approach by a person (for
example, a customer)
or otherwise is a result of an approach by, or on behalf of, an overseas person which
complies with the restriction on financial
promotion under section 21 of the Act (see AUTH App 1.3.1 G (Financial promotion)).
- 14/01/2005
AUTH App 5.12.10
See Notes
The overseas
person exclusion is available to persons who do not have a permanent place
of business in the United
Kingdom and so is of relevance to third country intermediaries
(that is, non EEA-based
intermediaries) who carry on insurance
mediation activities in, or into, the United Kingdom (for example with or through authorised insurance brokers
and insurance undertakings operating
in the Lloyd's market).
- 14/01/2005
How should persons be authorised?
AUTH App 5.12.11
See Notes
UK-based persons must obtain Part IV permission in
relation to their insurance
mediation activities in the United Kingdom as one of the following:
(2) a partnership or
unincorporated association whose head office is situated in the United Kingdom;
(3) an individual (that is, a sole trader)
whose residence is situated in the United
Kingdom.
The United Kingdom will,
in each case, be the Home
State for the purposes of the IMD for insurance or reinsurance intermediaries
(see further in connection with the E-Commerce
Directive in AUTH
App 5.12.15 G to AUTH
App 5.12.17 G (E-Commerce Directive)).
- 14/01/2005
AUTH App 5.12.12
See Notes
Non-UK-based
persons wishing to carry on insurance
mediation activities in the United Kingdom must:
(1) qualify for authorisation by exercising passport rights
(see section 31 (Authorised persons) and schedule 3 (EEA passport rights)
to the Act and AUTH
App 5.12.13 G to AUTH
App 5.12.14 G (Passporting)); or
(2) make use of the overseas persons exclusion (which then has
the effect that activities are deemed not to be regulated activities carried on in the United Kingdom); or
(3) seek Part IV permission.
- 14/01/2005
Passporting
AUTH App 5.12.13
See Notes
The effect of the IMD is that any EEA-based insurance intermediaries must first
be registered in their home EEA
State before carrying on insurance
mediation in that EEA
State or other EEA
States. For these purposes, an EEA-based insurance intermediary is either:
(1) a legal person with its registered office or head
office in an EEA State other
than the United Kingdom;
or
Registered EEA-based insurance intermediaries
wishing to establish branches in the United
Kingdom or provide services on a cross-border basis into the United Kingdom can do
so by notifying their Home
State regulator which in turn notifies the FSA. This enables the intermediary to acquire
passporting rights under Schedule 3 to the Act (EEA passporting rights) (see Schedule
3(13) and (14) of the Act as
amended by the Insurance Mediation Directive (Miscellaneous Amendments) Regulations
2003). AUTH 5 (Qualifying for authorisation under the Act) has
general guidance on
the exercise of passporting rights by EEA
firms.
- 14/01/2005
AUTH App 5.12.14
See Notes
On the other hand, non-EEA-based insurance intermediaries wishing
to establish a branch in the UK for
the purpose of carrying on insurance
mediation activities may only do so with Part IV permission.
- 14/01/2005
E-Commerce Directive
AUTH App 5.12.15
See Notes
The E-Commerce
Directive removes restrictions on the cross-border provision
of services by electronic means, introducing a country of origin approach to regulation.
This requires EEA States to
impose certain requirements on the outward provision of such services and
to lift them from inward providers. The E-Commerce
Directive defines an e-commerce service (termed an information society service)
as any service, normally provided for remuneration, at a distance, by electronic
means, and at the individual request of the recipient of the service. So,
for example, it includes services provided over the internet, by solicited
e-mail, and interactive digital television. Further guidance is contained in ECO.
- 14/01/2005
AUTH App 5.12.16
See Notes
The E-Commerce
Directive does not remove the IMD requirement for persons taking up or pursuing insurance mediation for
remuneration to be registered in their Home
State. Nor does it remove the requirement for EEA-based intermediaries to acquire passporting
rights in order to establish branches in the United Kingdom (see AUTH
App 5.12.7 G (Where is insurance mediation carried on?)
in relation to electronic
commerce activity carried on from an establishment in the United Kingdom) or provide
services on a cross-border basis into the United Kingdom where the relevant activity
is carried on in the United
Kingdom. An example of electronic
commerce activity provided on a cross-border basis into the United Kingdom could
be a recommendation in a (solicited) e-mail from an EEA-based intermediary to a UK-based customer to buy a particular contract of insurance.
- 14/01/2005
AUTH App 5.12.17
See Notes
Put shortly, the E-Commerce Directive relates to services
provided into the United
Kingdom from other EEA
States and from the United
Kingdom into other Member States. In broad terms, such cross-border
insurance mediation services provided by an EEA firm into the United Kingdom (via electronic commerce activity or distance
means) will generally be subject to IMD registration
in, and conduct of business regulation of, the intermediary's EEA State of origin. By
contrast, insurance mediation services provided in the United Kingdom will be subject to UK conduct of business
regulation, although the requirement for registration will again depend upon
the intermediary's EEA
State of origin.
- 14/01/2005
AUTH App 5.13
Appointed representatives
- 01/12/2004
What is an appointed representative?
AUTH App 5.13.1
See Notes
Section 39 of the Act (Exemption of appointed representatives) exempts appointed representatives from
the need to obtain authorisation.
An appointed representative is
a person who
is party to a contract with an authorised
person which permits or requires him to carry on certain regulated activities (see Glossary for full definition). SUP
12 (Appointed representatives) contains rules and guidance relating to appointed representatives.
- 14/01/2005
AUTH App 5.13.2
See Notes
A person who
is an authorised person cannot
be an appointed representative (see
section 39(1) of the Act (Exemption
of appointed representatives)).
- 14/01/2005
Business for which an appointed representative is exempt
AUTH App 5.13.3
See Notes
An appointed
representative can carry on only those regulated activities which are specified
in the Appointed Representatives
Regulations. With effect from 14 January 2005, the regulated activities set
out in the table in AUTH
App 5.13.4 G will be included in those regulations. As set out
in the table, the insurance
mediation activities that can be carried on by an appointed representative differ
depending on the type of contracts
of insurance in relation to which the activities are carried
on.
- 14/01/2005
AUTH App 5.13.4
See Notes
Insurance mediation activities able to be carried on by an appointed representative. This table belongs to AUTH App 5.13.3 G
| Type of contract of insurance | Regulated activities an appointed representative can carry on |
| General insurance contract | •Dealing in investments as agent; •Arranging; •Assisting in the administration and performance of a contract of insurance; •Advising on investments; and • Agreeing to carry on these regulated activities. |
| Pure protection contract | •Dealing in investments as agent (but only where the contract is not a long-term care insurance contract); •Arranging; •Assisting in the administration and performance of a contract of insurance; •Advising on investments; and • Agreeing to carry on these regulated activities. |
| Life policy (note that this already has effect prior to 14 January 2005) | •Arranging; •Assisting in the administration and performance of a contract of insurance; •Advising on investments; and • Agreeing to carry on these regulated activities |
- 14/01/2005
Persons who are not already appointed representatives
AUTH App 5.13.5
See Notes
A person who
is not already an appointed
representative may wish to become one in relation to the regulated activities specified
in the Appointed Representatives
Regulations (see table in AUTH
App 5.13.4 G). If so, he must be appointed under a written contract
by an authorised person,
who has permission to
carry on those regulated
activities and who accepts responsibility for the appointed representative's actions
when acting for him. SUP 12.4 (What
must a firm do when it appoints an appointed representative?) and SUP
12.5 (Contracts: required terms) set out the detailed
requirements that must be met for an appointment to be made. In particular,
an appointed representative will
not be able to commence an insurance
mediation activity until he is included on the FSA Register for such
activities.
- 14/01/2005
Persons who are already appointed representatives
AUTH App 5.13.6
See Notes
Where a person is already an appointed representative and he proposes
to carry on, with effect from 14 January 2005, any insurance mediation activities, he will need
to consider the following matters.
(1) He must become authorised if his proposed insurance mediation activities include activities
that do not fall within the table in AUTH
App 5.13.4 G (for example, dealing
as agent in pure
protection contracts) and he wishes to carry on these activities.
The Act does
not permit any person to
be exempt for some activities and authorised for
others. He will, therefore, need to apply for permission to cover all the regulated activities that
he proposes to carry on from 14 January 2005.
(2) If he proposes to carry on other regulated activities specified
in the Appointed Representatives
Regulations in relation to contracts
of insurance (see the table in AUTH
App 5.13.4 G), he may be able to do so as an appointed representative bearing in mind
the following.
(a) He will need to be appointed by an authorised person prepared
to accept responsibility for his insurance
mediation activities when acting for him. The authorised person must have permission to carry on these regulated activities.
(b) If these insurance mediation activities are to be
carried on for the same authorised
person who has already appointed him for his other regulated activities,
the contract between them will need to be amended to reflect the additional
activities. Other amendments to the contract will be required (see SUP
12.5.6A R).
(c) The effect of amendments to the Appointed Representatives Regulations is
that an appointed representative cannot
commence an insurance mediation
activity until he is included on the FSA Register as carrying on such activities.
(d) An appointed
representative would be entitled to have more than one principal
subject to certain restrictions. In relation to non-investment insurance contracts (general insurance contracts and pure protection contracts),
an appointed representative may
have an unlimited number of principals.
In relation to regulated
mortgage contracts and designated
investment business, an appointed
representative is limited in the number of principals he may have. In any case where
an appointed representative has
multiple principals,
those principals are
required to enter into a multiple- principal agreement (see SUP 12.4.5D G to SUP 12.4.5G G (Appointment
of an appointed representative (other than an introducer appointed representative)).
(e) If the activities of the appointed representative are
limited to introducing, he should consider the specific Handbook provisions relating to introducer appointed representatives (see SUP
12 (What must a firm do when it appoints an appointed
representative?)).
- 14/01/2005
AUTH App 5.14
Exemptions
- 01/12/2004
Professionals
AUTH App 5.14.1
See Notes
Professional firms (broadly
firms of solicitors, accountants and actuaries) may carry on insurance mediation activities in
the course of their professional activities. Exempt professional firms carrying on insurance mediation activities may
continue to be able to use the Part
XX exemption to avoid any need for authorisation. PROF 2 (Status of exempt professional firm) contains guidance on the Part XX exemption. They will, however, need
to be shown on the FSA
Register as carrying on insurance
mediation activities, in order to benefit from this exemption.
The task of registration is the responsibility of the designated professional bodies who will need
to inform the FSA both of member firms carrying on insurance mediation activities and individuals
within firms' management responsible for these activities.
- 14/01/2005
AUTH App 5.14.2
See Notes
Professional firms with
practices that involve acting for claimants in litigation against insurance undertakings are
likely to be carrying on the regulated activity of assisting in the administration and performance of a contract
of insurance. Exempt
professional firms whose practices contain a material element
of such activity should consider whether they can continue to take advantage
of the Part XX exemption to
avoid any need for authorisation,
having regard to the relevant provisions of the Act, in particular section 327 (Exemption
from the general prohibition) and the guidance in PROF
2.1.14 G (Exempt regulated activities).
- 14/01/2005
AUTH App 5.14.3
See Notes
Professional firms should
be aware of the disapplication of the exclusions for trustees (article 66)
and activities carried on in the course of a profession or non-investment
business (article 67) outlined in AUTH
App 5.11.7 G (Exclusions disapplied in connection with insurance
mediation) where their activities would amount to insurance mediation. Where they do not,
they will still be able to rely upon article 67. Otherwise, the Nonexempt
Activities Order imposes limitations on the extent to which professional
firms can give advice to individuals. In particular, a professional firm cannot
recommend to a private client that he buy a life policy, unless he is endorsing a corresponding
recommendation given to the client.
The recommendation he endorses must be one given by an authorised person permitted to advise on life policies, or an exempt person for these
purposes. No such restrictions apply, however, in relation to contracts of insurance other
than life policies.
- 14/01/2005
AUTH App 5.14.4
See Notes
Professional firms relying
(prior to 14 January 2005) on the exclusions in articles 29 (Arranging deals
with or through authorised persons) and 33 (Introducing) when introducing
clients to authorised persons in
connection with the purchase of life
policies are directed to AUTH
App 5.11.3 G (Exclusions disapplied where activities relate to
contracts of insurance). More generally, as indicated in AUTH
App 5.6.8 G, the article 72C exclusion (Provision of
information on an incidental basis) is potentially available to unauthorised professional
firms including exempt
professional firms. This may be relevant to professional
firms arranging contracts
of insurance for clients on an individual basis.
- 14/01/2005
Other exemptions
AUTH App 5.14.5
See Notes
In addition to certain named persons exempted by the Exemption Order from the
need to obtain authorisation,
the following bodies are exempt in relation to insurance mediation activities that do not
relate to life policies:
(1) local authorities but not their subsidiaries;
(2) registered social landlords in England
and Wales within the meaning of Part I of the Housing Act 1996 but not their
subsidiaries;
(3) registered social landlords in Scotland
within the meaning of the Housing (Scotland) Act 2001 but not their subsidiaries;
(4) the Housing Corporation;
(5) Scottish Homes;
(6) The Northern Ireland Housing Executive.
- 14/01/2005
AUTH App 5.15
Illustrative tables
- 01/12/2004
AUTH App 5.15.1
See Notes
This flow chart sets out the matters
a person will
need to consider to see if he will need authorisation for
carrying on insurance mediation
activities. It is referred to in AUTH
App 5.2.3 G (Questions to be considered to decide if
authorisation is required).
- 14/01/2005
AUTH App 5.15.2
See Notes
Flow chart: regulated activities related
to insurance mediation activities - do you need authorisation?
- 14/01/2005
AUTH App 5.15.3
See Notes
The table in AUTH
App 5.15.4 G is designed as a short, user-friendly guide
but should be read in conjunction with the relevant sections of the text of
this guidance.
It is not a substitute for consulting the text of this guidance or seeking professional advice as
appropriate (see AUTH
App 5.1.4 G to AUTH
App 5.1.6 G on the effect of
this guidance).
References in this Annex to articles are to articles of the Regulated Activities Order In this table,
it is assumed that each of the activities described is carried on by way of
business (see AUTH
App 5.4).
Save where otherwise indicated, it is assumed that the intermediary is carrying
on activities in respect of policies where
he is not the policyholder.
Note also that this table does not provide an exhaustive list of all of the
exclusions or exemptions that are of relevance to each type of activity. For
a full explanation of the exclusions and exemptions under the
Regulated Activities Order and their applicability see generally AUTH
App 5.3.7 G to AUTH
App 5.3.8 G, AUTH
App 5.6.5 G to AUTH
App 5.6.23 G, AUTH
App 5.7.7 G, AUTH
App 5.8.24 G to AUTH
App 5.8.26 G, AUTH
App 5.11, AUTH
App 5.12.9 G to AUTH
App 5.12.10 G, AUTH
App 5.13 and AUTH
App 5.14. This Table is referred to in AUTH
App 5.7.5 G (The regulated activities: assisting in the administration
and performance of a contract of insurance).
- 14/01/2005
AUTH App 5.15.4
See Notes
Types of activity -are they regulated activities and, if so, why?
| Type of activity | Is it a regulated activity? | Rationale |
| MARKETING AND EFFECTING INTRODUCTIONS | ||
| Passive display of information-for example, medical insurance brochures in doctor's surgery (whether or not remuneration is received for this activity) | No. | Merely displaying information does not constitute making arrangements under article 25(2) (see AUTH App 5.6.4 G). |
| Recommending a broker/insurance undertaking and providing customer with contact details (whether by phone, fax, e-mail, face-to-face or any other means of communication) | Yes, but article 72C may be available. | This will constitute making arrangements under article 25(2). But, the exclusion in article 72C will apply if all the intermediary does is supply information to the customer and the conditions of article 72C are otherwise met (see AUTH App 5.6.5 G to AUTH App 5.6.9 G). Generally, this will not amount to advice under article 53 unless there is an implied recommendation of a particular policy (see AUTH App 5.8.4 G), in which case article 72C would not be available. |
| Providing an insurance undertaking/broker with contact details of customer | Yes. | This will constitute making arrangements under article 25(2) when undertaken in the context of regular or ongoing arrangements for introducing customers. Article 72C will not apply because the information is supplied to someone other than the policyholder or potential policyholder. |
| Marketing on behalf of insurance undertaking to intermediaries only (for example, broker consultants) | Yes. | This amounts to work preparatory to the conclusion of contracts of insurance and so constitutes making arrangements under article 25(2). Article 72C is not available because this activity does not involve provision of information to the policyholder or potential policyholder only. |
| Telemarketing services (that is, companies specialising in marketing an insurance undertaking's products/services to prospective customers) | Yes. | This amounts to introducing and/or other work preparatory to the conclusion of contracts of insurance and so constitutes making arrangements under article 25(2). This could also involve article 25(1) arranging where the telemarketing company actually sells a particular policy and could involve advising on investments. Article 72C will not be available where the provision of information is more than incidental to the telemarketing company's main business or where the telemarketing company is advising on investments. |
| PRE-PURCHASE DISCUSSIONS WITH CUSTOMERS AND ADVICE | ||
| Discussion with client about need for insurance generally/need to take out a particular type of insurance | Generally, no. Article 72C available if needed. | Not enough, of itself, to constitute making arrangements under article 25(2), but you should consider whether, viewed as a whole, your activities might amount to arranging. If so, article 72C might be of application (see AUTH App 5.6.5 G to AUTH App 5.6.9 G). |
| Advising on the level of cover needed | Generally, no. Article 72C available if needed. | Not enough, of itself, to constitute making arrangements under article 25(2), but you should consider whether, viewed as a whole, your activities might amount to making arrangements under article 25(2) (see AUTH App 5.8.3 G). If so, article 72C might be of application (see AUTH App 5.6.5 G to AUTH App 5.6.9 G). |
| Pre-purchase questioning in the context of filtered sales (intermediary asks a series of questions and then suggests several policies which suit the answers given) | Yes. Subject to Article 72 C exclusion where available. | This will constitute arranging although article 72C may be of application (see AUTH App 5.6.5 G to AUTH App 5.6.9 G). If there is no express or implied recommendation of a particular policy, this activity will not amount to advice under article 53 (see AUTH App 5.8.15 G to AUTH App 5.8.19 G). |
| Explanation of the terms of a particular policy or comparison of the terms of different policies | Possibly. Article 72C available. | This is likely to amount to making arrangements under article 25(2). In certain circumstances, it could involve advising on investments (see AUTH App 5.8.8 G (Advice or information)). Where the explanation is provided to the potential policyholder, and does not involve advising on investments, article 72C may be of application (see AUTH App 5.6.5 G to AUTH App 5.6.9 G), and where information is provided by a professional in the course of a profession, article 67 may apply (see AUTH App 5.11.9 G to AUTH App 5.11.12 G). |
| Advising that a customer take out a particular policy | Yes. | This amounts to advice on the merits of a particular policy under article 53 (see AUTH App 5.8.4 G to AUTH App 5.8.5 G). |
| Advising that a customer does not take out a particular policy | Yes. | This amounts to advice on the merits of a particular policy under article 53 (see AUTH App 5.8.4 G to AUTH App 5.8.5 G). |
| Advice by journalists in newspapers, broadcasts etc. | Generally, no because of the article 54 exclusion. | Article 54 provides an exclusion for advice given in newspapers etc (see AUTH App 5.8.24 G to AUTH App 5.8.25 G). |
| Giving advice to a customer in relation to his buying a consumer product, where insurance is a compulsory secondary purchase and/or a benefit that comes with buying the product | Not necessarily but depends on the circumstances | Where the advice relates specifically to the merits of the consumer product, it is possible that references to the accompanying insurance may be seen to be information and not advice. If, however, the advice relates, in part, to the merits of the insurance element, then it will be regulated activity. |
| ASSISTING CUSTOMERS WITH COMPLETING/SENDING APPLICATION FORMS | ||
| Providing information to customer who fills in application form | Possibly. Subject to article 67 or 72C exclusions where available. | This activity may amount to arranging although the exclusions in article 67 (see AUTH App 5.11.9 G to AUTH App 5.11.12 G) and article 72C (see AUTH App 5.6.5 G to AUTH App 5.6.9 G) may be of application. |
| Helping a potential policyholder fill in an application form | Yes. | This activity amounts to arranging. Article 72C will not apply because this activity goes beyond the mere provision of information to a policyholder or potential policyholder (see AUTH App 5.6.5 G to AUTH App 5.6.9 G). |
| Receiving completed proposal forms for checking and forwarding to an insurance undertaking (for example, an administration outsourcing service provider that receives and processes proposal forms) | Yes. | This amounts to arranging. Article 72C does not apply because this activity goes beyond the mere provision of information to a policyholder or potential policyholder (see AUTH App 5.6.5 G to AUTH App 5.6.9 G). |
| Assisting in completion of proposal form and sending to insurance undertaking | Yes. | This activity amounts to arranging. Article 72C does not apply because this activity goes beyond the mere provision of information (see AUTH App 5.6.5 G to AUTH App 5.6.9 G). |
| NEGOTIATING AND CONCLUDING CONTRACTS OF INSURANCE | ||
| Negotiating terms of policy on behalf of customer with the insurance undertaking | Yes. | This activity amounts to arranging (see AUTH App 5.6.2 G). |
| Negotiating terms of policy on behalf of insurance undertaking with the customer and signing proposal form on his behalf | Yes. | These activities amount to both arranging and dealing in investments as agent. |
| Concluding a contract of insurance on insurance company's behalf, for example, motor dealer who has authority to conclude insurance contract on behalf of insurance undertaking when selling a car | Yes. | A person carrying on this activity will be dealing in investments as agent. He will also be arranging (as the article 28 exclusion only applies in the limited circumstances envisaged under article 28(3)) (see AUTH App 5.6.12 G). |
| Agreeing, on behalf of a prospective policy holder, to buy a policy. | Yes. | A person who, with authority, enters into a contract of insurance on behalf of another is dealing in investments as agent under article 21, and will also be arranging. |
| Providing compulsory insurance as a secondary purchase | Yes. It will amount to dealing in investments as agent or arranging. | The fact that the insurance is secondary to the primary product does not alter the fact that arranging the package involves arranging the insurance. |
| COLLECTION OF PREMIUMS | ||
| Collection of cheque for premium from the customer at the pre-contract stage. | Yes (as part of arranging). | This activity is likely to form part of arranging. But the mere collection/receipt of premiums from the customer is unlikely, without more, to amount to arranging. |
| Collection of premiums at post-contract stage | No. | The mere collection of premiums from policyholders is unlikely, without more, to amount to assisting in the administration and performance of a contract of insurance. |
| MID-TERM ADJUSTMENTS AND ASSIGNMENTS | ||
| Solicitors or licensed conveyancers discharging client instructions to assign contracts of insurance. | Not where article 67 applies. | As the assignment of rights under a contract of insurance (as opposed to the creation of new contracts of insurance) does not fall within the IMD, article 67 is of potential application (see AUTH App 5.11.9 G to AUTH App 5.11.12 G). |
| Making mid-term adjustments to a policy, for example, property manager notifies changes to the names of the leaseholders registered as "interested parties" in the policy in respect of the property. | Yes. | Assuming the freeholder (as policyholder) is obliged under the terms of the policy to notify the insurance undertaking of changes to the identity of the leaseholders, the property manager is likely to be assisting in the administration and the performance of the contract of insurance. |
| TRADED ENDOWMENT POLICIES ("TEPs") | ||
| Making introductions for the purposes of selling TEPs | Yes, unless article 72C applies. | Making introductions for these purposes is arranging unless article 72C applies (see AUTH App 5.6.5 G to AUTH App 5.6.9 G). The exclusions in article 29 (Arranging deals with or through authorised persons) and 33 (Introducing) no longer apply to arranging contracts of insurance. |
| Market makers in TEPs | Yes, although the exclusion in article 28 may apply. | Unauthorised market makers can continue to make use of the exclusions in articles 15 (Absence of holding out etc.) and 16 (Dealing in contractually based investments), where appropriate. In order to avoid the need for authorisation in respect of arranging they may be able to rely upon article 28 (see AUTH App 5.6.12 G). |
| ASSISTING POLICYHOLDER WITH MAKING A CLAIM | ||
| Merely providing information to the insured to help him complete a claim form | No. | Of itself, this is likely to amount to assisting in the administration but not the performance of a contract of insurance. In the FSA's view, the provision of information in these circumstances is more akin to facilitating performance of a contract of insurance rather than assisting in the performance (see AUTH App 5.7.3 G to AUTH App 5.7.5 G) |
| Completion of claim form on behalf of insured | Potentially. | This activity amounts to assisting in the administration of a contract of insurance. Whether this activity amounts to assisting in the administration and performance of a contract of insurance will depend upon whether a person's assistance in filling in a claims form is material to whether performance of the contractual obligation to notify a claim takes place (see AUTH App 5.7.2 G to AUTH App 5.7.3 G). |
| Notification of claim to insurance undertaking and helping negotiate its settlement on the policyholder's behalf | Yes. | This activity amounts to assisting in the administration and performance of a contract of insurance (see AUTH App 5.7.4 G). |
| ASSISTING INSURANCE UNDERTAKING WITH CLAIMS BY POLICYHOLDERS | ||
| Negotiation of settlement of claims on behalf of an insurance undertaking | No. | Claims management on behalf of an insurance undertaking does not amount to assisting in the administration and performance of a contract of insurance by virtue of the exclusion in article 39B (see AUTH App 5.7.7 G). |
| Providing information to an insurance undertaking in connection with its investigation or assessment of a claim | No. | This activity does not amount to assisting in the administration and performance of a contract of insurance. |
| Loss adjusters and claims management services (for example, by administration outsourcing providers) | Potentially. | These activities may amount to assisting in the administration and performance of a contract of insurance. Article 39B excludes these activities, however, when undertaken on behalf of an insurance undertaking only (see AUTH App 5.7.7 G). |
| Providing an expert appraisal of a claim | No. | This activity does not amount to assisting in the administration and performance of a contract of insurance whether carried out on behalf of an insurance undertaking or otherwise. |
| Jeweller repairs customer's jewellery pursuant to a policy which permits the jeweller to carry out repairs | No. | This activity does not amount to assisting in the administration and performance of a contract of insurance. It amounts to managing claims on behalf of an insurance undertaking and so falls within the exclusion in article 39B (see AUTH App 5.7.7 G). |
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AUTH App 5.15.5
See Notes
The flow chart in AUTH
App 5.15.6 G sets out the matters a person whose introducing activities potentially
amount to making arrangements
with a view to transactions in investments will need to consider
to see if he can use the exclusion in article 72C (Provision of information
on an incidental basis). It is referred to in AUTH
App 5.1.6 G (Purpose of guidance) and AUTH
App 5.6.9 G (Exclusion: article 72C (Provision of information
on an incidental basis)).
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AUTH App 5.15.6
See Notes
Flow Chart: Introducers.
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AUTH App 5.15.7
See Notes
The flow chart in AUTH
App 5.15.8 G sets out the questions a person needs to consider in determining whether
or not his regulated activities are
carried on 'in the United Kingdom'.
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AUTH App 5.15.8
See Notes
Flow chart: am I carrying on regulated
activities in the United Kingdom?
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AUTH App 5.16
Meaning of insurance mediation
- 01/12/2004
AUTH App 5.16.1
See Notes
AUTH
App 5.16.2 G sets out the text of article 2.3 of the Insurance Mediation Directive.
It is referred to in AUTH
App 5.2.5 G and AUTH
App 5.2.5 G (Approach to implementation
of the IMD), AUTH
App 5.11.7 G (Exclusions
disapplied in connection with insurance mediation) and AUTH
App 5.11.10 G (Activities carried on in the course of
a profession or non-investment business).
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AUTH App 5.16.2
See Notes
Text of article 2.3 of the Insurance
Mediation Directive "'Insurance mediation' means the activities of introducing,
proposing or carrying out other work preparatory to the conclusion of contracts
of insurance, or of concluding such contracts, or of assisting in the administration
and performance of such contracts, in particular in the event of a claim.
These activities when undertaken by an insurance undertaking or an employee of an insurance undertaking who is acting under the responsibility of the insurance undertaking shall not be considered as insurance mediation.
The provision of information on an incidental basis in the context of another professional activity provided that the purpose of that activity is not to assist the customer in concluding or performing an insurance contract, the management of claims of an insurance undertaking on a professional basis, and loss adjusting and expert appraisal of claims shall also not be considered as insurance mediation."
These activities when undertaken by an insurance undertaking or an employee of an insurance undertaking who is acting under the responsibility of the insurance undertaking shall not be considered as insurance mediation.
The provision of information on an incidental basis in the context of another professional activity provided that the purpose of that activity is not to assist the customer in concluding or performing an insurance contract, the management of claims of an insurance undertaking on a professional basis, and loss adjusting and expert appraisal of claims shall also not be considered as insurance mediation."
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