Can an exclusion take my activity outside the FCA perimeter?

What does an exclusion do?

The Regulated Activities Order (RAO) defines each specified activity and then, in many cases, carves certain situations out of it. Those carve-outs are exclusions. If an exclusion applies, the activity is not a regulated activity, so the general prohibition in section 19 of FSMA does not bite on it.

An exclusion works on one activity at a time. If you carry on several activities, an exclusion for one of them does nothing for the others. It also only covers the activity as the exclusion describes it, so a business that drifts beyond those limits loses the exclusion for everything it does beyond them.

Exclusions tied to a particular activity

Most exclusions sit next to the activity they relate to. Arranging deals in investments under article 25 is a good example, because it is a wide activity with several exclusions attached. One of the most relied on is the introducing exclusion in article 33.

Article 33 only covers introductions made to certain persons, mainly authorised persons and exempt persons, and only where the introduction is made with a view to the provision of independent advice or the independent exercise of discretion in relation to investments. Its use where insurance is involved is limited. An introducer whose role goes further, for example by helping to complete applications or by discussing the merits of a particular product, may be doing more than introducing.

Other exclusions attached to arranging deal with situations such as arrangements that do not themselves bring about a transaction, and transactions to which the arranger is itself a party. Other activities have their own exclusions, and consumer credit has a separate set of exempt agreements in article 60C onwards, including the business purpose exemption for credit over £25,000. Those exempt agreements work by taking the agreement outside the definition of a regulated credit agreement, and they have their own conditions.

Exclusions that apply across several activities

A group of exclusions near the end of Part II of the RAO can apply to several kinds of activity. Each one lists the activities it covers, so none of them applies across the board. They include:

• trustees, nominees and personal representatives acting in that capacity (article 66)
• activities carried on in the course of a profession or a non-investment business, where the activity is a necessary part of other services and is not remunerated separately (article 67)
• activities carried on in connection with the sale of goods or the supply of services, for a supplier whose main business is not regulated activity (article 68)
• activities carried on between members of the same group or participants in a joint enterprise (article 69)
• activities in connection with the sale of a body corporate, where conditions about the size of the stake and the parties are met (article 70)
• some activities of overseas persons without a permanent place of business in the UK, mainly where they deal with or through authorised persons or the business results from what the article calls a legitimate approach (article 72)

Each of these has detailed conditions that the summaries above do not capture.

Why exclusions are read narrowly

Exclusions are exceptions to a regime that exists to protect customers and markets, and the FCA and the courts generally read them strictly. The FCA’s Perimeter Guidance manual sets out its view of many of them. That view is not law, but it usually shapes how banks, partners and the FCA itself approach the question.

In practice, relying on an exclusion usually means being able to show how each condition is met. That tends to come from your contracts, your fee arrangements, your customer journey, your marketing and the records you keep. If the facts on the ground do not match the exclusion, the wording of your terms will not usually save it.

Exclusions can also be lost when a business changes. A new revenue stream, a different type of customer or a change in who pays you can move an activity outside an exclusion that previously fitted.

Exclusions are not the same as exemptions

An exclusion means the activity is not regulated. An exemption means a particular person does not need authorisation for something that is still a regulated activity. Appointed representatives under section 39 of FSMA are the best known exempt persons, and there are others under the Exemption Order and for some professional firms. The consumer credit exempt agreements are a third idea again. Exclusions and exemptions compared

Your marketing is a separate test

An RAO exclusion does not apply to the financial promotion restriction in section 21. That regime has its own exemptions in the Financial Promotion Order, with different conditions. A business that relies on an exclusion for what it does still needs its promotions to be made or approved by an authorised firm or to fall within an exemption. How the marketing test works and why the two tests are separate.

Common misunderstandings

When a written opinion helps

If your business depends on an exclusion, a written legal opinion is often the clearest way to set out why it applies. It tests each condition against your actual contracts, fees and processes, and it is the kind of document banks, payment providers and investors ask for. It can also help you spot where a planned change would take you outside the exclusion. How written opinions work