What is PERG and can you rely on it?

What is PERG?

PERG stands for the Perimeter Guidance manual. It sits in the FCA Handbook among the regulatory guides, and it sets out how the FCA reads the legislation that draws the perimeter. That includes the Financial Services and Markets Act 2000 (FSMA), the Regulated Activities Order (RAO), the Financial Promotion Order (FPO) and the separate regimes for payment services and e-money.

PERG is divided into chapters, each on a topic. Some are written as narrative guidance. Several use a question and answer format, with examples of business models and how the FCA sees them. Taken together it is the most detailed public statement of where the FCA thinks the perimeter falls.

Is PERG law?

No. PERG is guidance. The law is in FSMA and the orders and regulations made under it. Provisions in PERG are marked as guidance rather than rules, and guidance cannot change what the legislation says.

That does not make PERG unimportant. It tells you how the regulator is likely to approach your activity. The FCA has also said that where a person acts in line with its guidance, in the circumstances the guidance contemplates, it will generally proceed on the basis that the person has complied with the requirement the guidance relates to. That is a statement about how the FCA will act. It does not bind a court, and questions such as whether an agreement is unenforceable under sections 26 and 27 of FSMA are decided by the courts on the legislation.

Which chapters are most useful?

The chapter that matters depends on your business. Some of the most used are:

• PERG 2, on authorisation and regulated activities. This is the general starting point. It explains the general prohibition, the regulated activities in the RAO and how the exclusions work.
• PERG 4, on regulated mortgage activities, such as entering into, arranging and advising on regulated mortgage contracts.
• PERG 8, on financial promotion and related activities. It explains what counts as a financial promotion and how the FPO exemptions work.
• PERG 15, on the scope of the Payment Services Regulations 2017, including what counts as a payment service and the main exclusions.

Other chapters cover topics including insurance distribution, e-money and pension schemes. The Handbook lists them all, and it is worth checking whether there is a chapter written for your sector before relying on the general one.

How should you read PERG?

PERG is most useful when it is read with care.

• Read it with the legislation open. PERG explains articles of the RAO and FPO. It does not replace them, and their exact wording often matters.
• Read the whole section, not one answer. Answers are often qualified by the text around them, and a later answer can narrow an earlier one.
• Treat examples as illustrations. A worked example describes particular facts. If your facts differ, the answer may differ too.
• Check the date. The Handbook is updated regularly and the law it explains changes. Guidance written before a change, such as the new rules on buy now pay later or cryptoassets, may not reflect it.

Where PERG says the answer depends on the facts, or that an arrangement has to be looked at case by case, that is a sign that general guidance will not settle the point for you.

What are the limits of relying on guidance?

PERG is written for general cases. New business models, especially in fintech and cryptoassets, often combine activities in ways the guidance does not address directly. Guidance can also lag behind the law, because legislation can change before the guidance catches up. It reflects the FCA’s reading, which a court might not share.

Most importantly, PERG does not say anything about your business. If a bank, investor or partner asks how you know you are outside the perimeter, a quotation from PERG shows what the FCA says in general. It does not show that anyone has applied it to your agreements, your flows of money and your marketing.

Operations and marketing

PERG covers both tests, in different chapters. PERG 2 and the sector chapters deal with whether what you do is a regulated activity under section 19 of FSMA. PERG 8 deals with whether your marketing is a financial promotion under section 21. The detailed rules for authorised firms that communicate or approve promotions are elsewhere in the Handbook, in COBS 4. Reading the operations chapters and concluding you are outside the perimeter does not answer the marketing question. See the operations test and the marketing test.

Common misunderstandings

When a written opinion helps

A written legal opinion is the step after reading PERG. A solicitor reads the legislation and the guidance against your documents and processes and sets out the reasoning in writing, including where the guidance does not fit your facts neatly. That is most useful where your model is new, where PERG says the answer depends on the facts or where someone else needs a documented view. How written opinions work