Guidance on passporting issues

Part

SUP Supervision manual

Chapter

Guidance on passporting issues

Printed on: 06/11/2024

Rulebook at: 14/01/2005

SUP App 3

Guidance on passporting issues

SUP App 3.1

Application

01/12/2004

SUP App 3.1.1

This appendix applies to all firms when passporting.

01/07/2003

SUP App 3.2

Purpose

01/12/2004

SUP App 3.2.1

The purpose of this appendix is to give guidance:

(1) to UK firms on some of the issues that arise when carrying on passported activities(see SUP App 3.5and SUP App 3.6);

(2) to all firms on the relationship between regulated activities and activities passported under the Single Market Directives (see SUP App 3.9and SUP App 3.10).

14/01/2005

SUP App 3.3

Background

01/12/2004

The Treaty establishing the European Community

SUP App 3.3.1

(1) The European Community Treaty (the 'Treaty'), as amended by later Treaties, established in EC law the rights of freedom of establishment and freedom to provide services in the European Community.

(2) The Treaty lays down central principles governing the legal framework for freedom of establishment and the free movement of services in the European Community. There are, however, a number of areas where the legal position is not clear. This includes, for example, identifying whether a service is provided through an establishment, where the issues involved are complex. Therefore, this Appendix is intended to provide guidance but cannot be regarded as comprehensive. Ultimately, the construction of the Treaty and relevant Directive provisions is a matter for the European Court of Justice.

14/01/2005

SUP App 3.3.2

The Treaty provides the framework for the provision of banking, insurance business, investment business, UCITS management services and insurance mediation, while the Single Market Directives clarify the rights and freedoms within that framework.

14/01/2005

EC and EEA

SUP App 3.3.3

The agreement on the European Economic Area, signed at Oporto on 2 May 1992, extends EC legislation to any EEA State that is not part of the European Community.Any references to an EC Member State in this appendix should, therefore, be read as referring to an EEA State.

01/07/2003

Interpretative communications

SUP App 3.3.4

In 1997, the European Commission published an interpretative communication (Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)) (the text of this directive and the First Banking Directive is now consolidated in the Banking Consolidation Directive). The European Commission's objective in publishing this communication was to explain and clarify the Community rules. The European Commission deemed it desirable "to restate in a Communication the principles laid down by the Court of Justice and to set out its position regarding the application of these Principles to the specific problems raised by the Second Banking Directive".

01/07/2003

SUP App 3.3.5

In 2000, the European Commission published a further interpretative communication (Freedom to provide services and the general good in the insurance sector (2000/C43/03)). This allowed the European Commission to publicise its own interpretation of the rules on the freedom to provide services.

01/07/2003

SUP App 3.3.6

(1) The European Commission has not produced an interpretative communication on the Investment Services Directive. It is arguable, however, that the principles in the communication on the Second Banking Directive can be applied to investment services. This is becausearticle 11 of the Investment Services Directive (containing provisions relating to conduct of business rules) also applies to the investment services of firms operating under the Banking Consolidation Directive.
(2) The European Commission has not produced an interpretative communication on either the Insurance Mediation Directive or on the UCITS Directive.

14/01/2005

SUP App 3.3.7

In giving its views, communications made by the European Commission have the status of guidance and are not binding on the national courts of EEA States. This is because it is the European Court of Justice that has ultimate responsibility for interpreting the Treaty and secondary legislation. Accordingly, the communications "do not prejudge the interpretation that the Court of Justice of the European Communities, which is responsible in the final instance for interpreting the Treaty and secondary legislation, might place on the matter at issue." (European Commission interpretative communication: Freedom to provide services and the general good in the insurance sector (C(99) 5046). However, the Courts may take account of European Commission communications when interpreting the Treaty and secondary legislation.

01/07/2003

SUP App 3.3.8

Firms should also note that European Commission communications do not necessarily represent the views taken by all EEA States.

01/07/2003

E-Commerce

SUP App 3.3.9

The E-Commerce Directive covers services provided at a distance by means of electronic equipment for the processing (including digital compression) and storage of data. The services would normally be provided in return for remuneration and must be provided at the individual request of a recipient (see recital 17 of the E-Commerce Directive). The Directive implements the country of origin approach to regulation. This approach makes firms subject to the conduct of business requirements of the EEA State from which the service is provided. This is subject to certain derogations (see SUP App 3.3.11 G).

01/07/2003

SUP App 3.3.10

The E-Commerce Directive does not affect the responsibilities of Home State under the Single Market Directives. This includes the obligation of a Home State regulator to notify the Host State regulator of a firm's intention to establish a branch in, or provide cross border services into, the other EEA State.

01/07/2003

SUP App 3.3.11

There are, however, general derogations from the internal market provisions under article 3(3) of the E-Commerce Directive. The derogations include consumer contracts, the permissibility of unsolicited e-mail and certain insurance services (both life and non-life). Where these derogations apply, the EEA States in which the recipients of the service are based may continue to be able to impose their own requirements.

01/07/2003

SUP App 3.3.12

Further details concerning the impact of the E-Commerce Directive on UK firms are available in ECO.

01/07/2003

Notification of establishing a branch or of providing cross border services

SUP App 3.3.13

The Single Market Directives require credit institutions, insurance undertakings, investment firms , UCITS management companies and insurance intermediaries to make a notification to the Home State before establishing a branch or providing cross border services.
SUP 13.5 (Notices of intention) sets out the notification requirements for a firm seeking to establish a branch or provide cross border services. As firms will note, the decision whether a passport notification needs to be made will be a matter of interpretation. The onus is on firms to comply with the requirements of the Act and, where relevant, the laws of other EEA States. So, in cases of doubt, firms should obtain their own legal advice on the specific issues involved.

14/01/2005

SUP App 3.3.14

Blanket notification is the practice of the Home State regulator notifying all Host State regulators in respect of all activities regardless of any genuine intention to carry on the activity. This practice is discouraged by the FSA . However, a firm may be carrying on activities in the United Kingdom or elsewhere in a way that necessarily gives rise to a real possibility of the provision of services in other EEA States. In such cases, the firm should consider with its advisers whether it should notify the relevant authorities and include that possibility in its business plan.

14/01/2005

SUP App 3.6

Freedom to provide services

01/12/2004

SUP App 3.6.1

Article 49 (Services) (formerly article 59) of the Treaty grants to EC nationals established in one EEA State the freedom to provide cross border services to the nationals of other EEA States.

01/07/2003

How services may be provided

SUP App 3.6.2

Under the Treaty, the freedom to provide services within the EC may be exercised in three broad ways:

(1) where the provider of a service moves temporarily to another EEA State in order to provide the service;

(2) where the service is provided without either the provider or the recipient moving (in this situation the provision, and receipt, of the service may take place by post, telephone or fax, through computer terminals or by other means of remote control);

(3) where the recipient of a service moves temporarily to another EEA State in order to receive (or, perhaps, commission the receipt of) the service within that State.

01/07/2003

SUP App 3.6.3

Under the Single Market Directives, however, EEA rights for the provision of services are concerned only with services provided in one of the ways referred to in SUP App 3.6.2 G (1) and (2) (How services may be provided).

01/07/2003

SUP App 3.6.4

The Single Market Directives require credit institutions, insurance undertakings and investment firms to make a notification to the Home State before providing cross border services into the Host State's territory for the first time under the freedom to provide services.

01/07/2003

Place of supply

SUP App 3.6.5

In the opinion of the European Commission (and in the wording of the Single Market Directives) "only activities carried on within the territory of another Member State should be the subject of prior notification" (Commission interpretative communication: Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)). In determining, for the purposes of notification, whether a service is to be provided 'within' another EEA State, it is necessary to determine the place of supply of the service.

01/07/2003

SUP App 3.6.6

An insurance undertaking that effects contracts of insurance covering risks or commitments situated in another EEA State should comply with the notification procedures for the provision of services within that EEA State. The location of risks and commitments is found by reference to the rules set out in paragraph 6 of schedule 12 to the Act, which derive from article 1 of the Consolidated Life Directive and article 2 of the Second Non-Life Directive. It may be appropriate for insurers to take legal advice as to how these rules are interpreted and applied in other EEA States. The need to passport may arise because of only one of the risks covered by an insurance policy. This includes, for example, where a policy covers a number of property risks and one of those properties is in another Member State.

01/07/2003

SUP App 3.6.7

In respect of banking services, the European Commission believes that "...to determine where the activity was carried on, the place of provision of what may be termed the 'characteristic performance' of the service i.e. the essential supply for which payment is due, must be determined" (Commission interpretative communication: Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)). In the FSA's view, this requires consideration of where the service is carried out in practice.

01/07/2003

SUP App 3.6.8

The FSA is of the opinion that UK firms that are credit institutions and ISD investment firms should apply the 'characteristic performance' test (as referred to in SUP App 3.6.7 G ) when considering whether prior notification is required for services business. Firms should note that other EEA States may take a different view. Some EEA States may apply a solicitation test. This is a test as to whether it is the consumer or the provider that initiates the business relationship.

14/01/2005

SUP App 3.6.9

In the case of a UK firm conducting portfolio management, for example, this would mean looking at where the investment decisions and management are actually carried on in order to determine where the service is undertaken. Similarly, a UK stockbroker that receives orders by telephone from a customer in France for execution on a UK exchange may be deemed to be dealing or receiving and transmitting orders within the territory of the United Kingdom. In such a case, whether the firm solicited the overseas investor would be irrelevant.

01/07/2003

SUP App 3.6.10

Where, however, a credit institution or ISD investment firm:

(1) intends to send a member of staff or a temporarily authorised intermediary to the territory of another EEA State on a temporary basis to provide financial services; or

(2) provides advice, of the type that requires notification under either the Investment Services Directive or the Banking Coordination Directive, to customers in another EEA State;

the firm should make a prior notification under the freedom to provide services.

01/07/2003

Temporary activities

SUP App 3.6.11

The key distinction in relation to temporary activities is whether a firm should make its notification under the freedom of establishment in a Host State, or whether it should notify under the freedom to provide services into a Host State. It would be inappropriate to discuss such a complex issue in guidance of this nature. It is recommended that, where a firm is unclear on the distinction, it should seek appropriate advice. In either case, where a firm is carrying on activities in another Member State under a Single Market Directive, it should make a notification.

01/07/2003

SUP App 3.6.12

The European Commission has made the following statements on the subject of temporary activities:

(1) "...the fact of temporarily visiting the territory of a Member State to carry on an activity preceding (e.g. survey of property prior to granting a loan) or following (incidental activities) the essential activity does not, in the Commission's view, constitute a situation that is liable in itself to be the subject of prior notification. The same is true of any visits which a credit institution may pay to a customer if such visits do not involve the provision of the characteristic performance of the service that is the subject of the contractual relationship.";

(2) "...temporarily visiting the territory of a Member State to conclude contracts, prior to the exercise of a banking activity should not be regarded as exercising the activity itself.";

(3) "...if the service is supplied to a beneficiary who has gone in person for the purpose of receiving that service, to the Member State where the institution is established, prior notification should not take place."

01/07/2003

SUP App 3.6.13

If, however, the credit institution sends a member of staff or a temporarily authorised intermediary to the territory of another EEA State to provide the 'characteristic performance' of banking services to its non-resident customers, the European Commission believes that prior notification is necessary.

01/07/2003

SUP App 3.6.14

The European Commission is of the opinion that "a bank may have non-resident customers without necessarily pursuing the activities concerned within the territory of the Member State where the customers have their domicile" (Commission interpretative communication: Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)).

01/07/2003

Monitoring procedures

SUP App 3.6.15

The FSA considers that, in order to comply with Principle 3:Management and control (see PRIN 2.1.1 R), a firm should have appropriate procedures to monitor the nature of the services provided to its customers. Where a UK firm has non-resident customers but has not notified the EEA State in which the customers are resident that it wishes to exercise its freedom to provide services, the FSA would expect the firm's systems to include appropriate controls. Such controls would include procedures to prevent the supply of services covered by the Single Market Directives in the EEA State in which the customers are resident if a notification has not been made and it is proposed to provide services otherwise than by remote communication. In respect of insurance business, the insurer's records should identify the location of the risk at the time the policy is taken out or last renewed. That will, in most cases, remain the location of the risk thereafter, even if, for example, the policyholder changes his habitual residence after that time.

01/07/2003

SUP App 3.6.16

In respect of banking services, the European Commission stated in its interpretative communication: Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04) that:
"The provision of distance banking services, for example via the Internet, should not, in the European Commission's view, require prior notification, since the supplier cannot be deemed to be pursuing its activities in the customer's territory". This is because, as stated in SUP App 3.5.7 G (Use of an intermediary or independent person), the European Commission believes that banking services are deemed to be provided where the 'characteristic performance' of the service is carried out, that is, where the service is carried out in practice. The European Commission notes, however, that "as long as the Court has not ruled on this issue, any credit institution is at liberty to choose, for reasons of legal certainty, to make use of the notification procedures provided for in the Second Banking Directive even if, according to the criteria proposed above, notification may not be necessary".

01/07/2003

SUP App 3.6.17

In respect of insurance business, the European Commission, in its interpretative communication: Freedom to provide services and the general good in the insurance sector (200 0/C 43/03), stated that:

(1) "The use of remote means of communication (telephone, fax the press etc) and in particular electronic commerce (e.g. via the Internet) to conclude insurance policies covering a risk (or commitment) situated in a Member State other than the Member State of establishment of an insurer should be regarded as insurance business carried on under the freedom to provide services with no movement on the part of the contracting parties.";

(2) "...the place where the technological means used for providing the service are located (e.g. where the Internet server is installed)" may not be relevant in determining the Member State of establishment of the insurance undertaking concluding a policy by remote means which will be its head office or branch; and

(3) "...an insurance undertaking operating from one EC State which is prepared to conclude via the Internet contracts of insurance covering risks or commitments situated in other EC States will probably be required to comply with the notification procedures for the provision of services."

01/07/2003

SUP App 3.6.18

However, the European Commission has also stated in its interpretative communication: Freedom to provide services and the general good in the insurance sector (2000/C 43/03) that:

(1) "...the use of electronic commerce methods for the sole purposes of advertising, providing commercial information or enhancing awareness of the insurance undertaking cannot be regarded as an insurance activity;" and

(2) "... it is out of the question to make such advertising and information activities subject to the notification procedures laid down by the Third Directives (Article 34 and following) which was designed for actual insurance activities carried on under the freedom to provide services."

01/07/2003

SUP App 3.6.19

The FSA, therefore, believes that a notification is required only where there is an intention to provide the services themselves within the territory of the other EEA State.

01/07/2003

SUP App 3.6.20

However, the E-Commerce Directive (see SUP App 3.3.10 G (E-Commerce)), which came into force in January 2002, has an effect on this matter. This Directive provides that, subject to certain limited derogations, the country of origin regulates E-Commerce services.

01/07/2003

SUP App 3.6.21

If a fixed automatic telling machine, capable of performing banking or insurance activities, is the only presence of a credit institution or insurance undertaking in an EEA State, the European Commission believes that "...it may be possible to treat it as a provision of services in the territory of that Member State." This right exists, according to theEuropean Commission, regardless of the presence of a person or company in the EEA State responsible for equipping it or dealing with technical problems.

01/07/2003

SUP App 3.6.22

The European Commission's view is that, if a bank uses an intermediary to provide temporary or occasional banking services within the territory of an EEA State, it must first give notification under the freedom to provide services.

01/07/2003

SUP App 3.6.23

Where the duties of an intermediary consist only of seeking customers for a credit institution, however, the European Commission believes that the credit institution cannot be considered to be necessarily intending to carry on its activities in the territory of the EEA State. So, notification may not be required. However, UK firms should note that some EEA States do not take this view. Therefore, UK credit institutions should confirm the position with the relevant Host State regulator before engaging an intermediary in that EEA State to seek customers.

01/07/2003

SUP App 3.6.24

In respect of insurance undertakings, examples of the use of independent persons which, in the European Commission's view, may fall under the freedom to provide services, include situations where:

(1) the independent person works for an insurance undertaking which has not given him an exclusive brief (even if another insurance undertaking has given the independent person an exclusive brief in respect of certain other classes of insurance); or

(2) the independent person negotiates contacts with customers if those contracts can be rejected by the insurance undertaking.

01/07/2003

Membership of regulated markets

SUP App 3.6.25

The FSA is of the opinion that where a UK firm becomes a member of a regulated market that has its registered office or, if it has no registered office, its head office, in another EEA State, the same principles as in the 'characteristic performance' test should apply. Under this test, the fact that a UK firm has a screen displaying the exchange's prices in its UK office does not mean that it is dealing within the territory of the Home State of the regulated market.

01/07/2003

SUP App 3.6.26

Firms are reminded of their rights, under article 15(1)of the Investment Services Directive, to become members of, or have access to, the regulated markets in other Member States.

01/07/2003

SUP App 3.6.27

Firms should note that, in circumstances where the FSA takes the view that a notification would not be required, other EEA States may take a different view.

01/07/2003

SUP App 3.6.28

In relation to the need for a credit institution to notify where its advertising is available to persons in a particular Member State, the European Commission, in its interpretative communication (Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)), stated that:

(1) "the prior existence of advertising or an offer cannot be linked with the need to comply with the notification procedure"; However the existence of an advertisement may indicate that there is an intention to provide services which would trigger the need for notification;

(2) "canvassing customers from a distance does not necessarily mean that an institution plans to provide services within the territory of another Member State."

01/07/2003

SUP App 3.6.29

The European Commission's rationale for the views referred to in SUP App 3.6.28 G (1) and (2) is that "...for the sake of simplicity and in keeping with the Second Directive, all forms of advertising, targeted or otherwise, and all offers of service made at a distance by any means whatsoever (e.g. post, fax, electronic mail) should be exempt from the requirements of prior notification. Only if a credit institution plans to carry on its activities within the territory of the customer's country under the freedom to provide services...will it be obliged to notify" (Commission interpretative communication: Freedom to provide services and the general good in the insurance sector' (2000/C 43/03).

01/07/2003

SUP App 3.6.30

In relation to insurance undertakings, the European Commission has expressed the view that "...in accordance with the Third Directives, all forms of advertising by whatever means (mail, fax, electronic mail etc) should not be subject to the notification procedures referred to in Article 34 et seq. of the Third Directives. It is only if the insurance undertaking plans to carry on insurance activities under the freedom to provide services and only if it offers insurance products to potential clients established in another Member State that it must comply with the notification procedure." (Commission interpretative communication: Freedom to provide services and the general good in the insurance sector (2000/C 43/03 ).

01/07/2003

SUP App 3.6.31

The European Commission has not expressed a view about the circumstances where notification may be needed where investment firms advertise in other Member States. In the FSA's opinion, the European Commission's views on the need for credit institutions and insurance undertakings to notify their intention to provide services in another Member State can be applied, in general terms, to investment firms. However, given the broad range of activities covered by the Investment Services Directive, due account may need to be taken of the particular circumstances in which the investment firm's advertisements are made available to persons in the United Kingdom. In this respect, it is notable that there is no concept under the Regulated Activities Order of offering to carry on a regulated activity being a regulated activity in its own right. This is a change to the earlier position under the Financial Services Act 1986. This change seems consistent with the fact that overseas investment firms may be able to make their advertisements available to persons in the United Kingdom without needing to notify under the Investment Services Directive.

01/07/2003

SUP App 3.9

Mapping of the Investment Services Directive , Banking Consolidation Directive, UCITS Directive and Insurance Mediation Directive to the Regulated Activities Order

14/01/2005

SUP App 3.9.1

The following Tables 1, 2, 2A and 2B provide an outline of the regulated activities and specified investments that may be of relevance to firms considering undertaking passported activities under the Banking Consolidation Directive, the Investment Services Directive, the UCITS Directive and the Insurance Mediation Directive. The tables may be of assistance to UK firms that are thinking of offering financial services in another EEA State and to EEA firms that may offer those services in the United Kingdom.

14/01/2005

SUP App 3.9.2

The tables provide a general indication of the investments and activities specified in the Regulated Activities Order that may correspond to categories provided for in the Banking Consolidation Directive, the Investment Services Directive, the UCITS Directive or the Insurance Mediation Directive. The tables do not provide definitive guidance as to whether a firm is carrying on an activity that is capable of being passported, nor do the tables take account of exceptions that remove the effect of articles. Whether a firm is carrying on a passported activity will depend on the particular circumstances of the firm. If a firm's activities give rise to potential passporting issues, it should obtain specialist advice on the relevant issues.

14/01/2005

SUP App 3.9.3

In considering the issues raised in the tables, firms should note that:

(1) article 64 of the Regulated Activities Order (Agreeing to carry on specific kinds of activity) applies in respect of agreeing to undertake the specified activity; and

(2) article 89 of the Regulated Activities Order (Rights to or interests in investments) applies in respect of rights to and interests in the types of investments to which the category applies.

01/07/2003

SUP App 3.9.4

Activities set out in Annex I of the BCD

Table 1: BCD activities

Part II RAO Activities

Part III RAO Investments

Acceptance of deposits and other repayable funds from the public

Article 5

Article 74

Lending

Article 61, 64

Article 88

Financial leasing

Money transmission services

Issuing and administering means of payment (eg credit cards, travellers' cheques and bankers' drafts)

Guarantees and commitments

Trading for own account or for account of customers in:
(a) money market instruments
(b) foreign exchange
(c) financial futures and options
(d) exchange and interest rate instruments
(e) transferable securities

Article 14, 21, 25 (see Note 1), 64
Article 14, 21, 25, 64
Article 14, 21, 25, 64
Article 14, 21, 25, 64
Article 14, 21, 25, 64

Article 77, 78, 80, 83-85, 89
Article 83-85, 89
Article 83-85, 89
Article 83-85, 89
Article 76-81, 89

Participation in share issues and the provision of services relating to such issues

Article 14, 21, 25, 53, 64

Article 76-81, 89

Advice to undertakings on capital structure, industrial strategy and related questions and advice and services relating to mergers and the purchase of undertakings

Article 14, 21, 25, 53, 64

Article 76-80, 83-85, 89

10.

Money broking

Article 25, 64

Article 77, 78, 89

11.

Portfolio management and advice

Article 14, 21, 25, 37, 53, 64

Article 76-81, 83-85, 89

12.

Safekeeping and administration of securities

Article 40, 45, 64

Article 76-81, 83-85, 89

13.

Credit reference services

14.

Safe custody services

Note 1. The BCD activity of trading for account of customers does not extend to the regulated activity of making arrangements with a view to transactions in investments under article 25(2) of the Regulated Activities Order unless the arrangements bring about or would bring about particular transactions.

14/01/2005

SUP App 3.9.5

Services set out in Annex to the ISD

Table 2: ISD activities

Part II RAO Activities

Part III RAO Investments

1. Core services

(a) Reception and transmission, on behalf of investors, of orders in relation to one or more of the relevant instruments
(b) Execution of such orders other than for own account

Article 25 (see Note 1), 64
Article 21, 64

Article 76-81, 83-85, 89
Article 76-81, 83-85, 89

Dealing in any of the relevant instruments for own account

Article 14, 64

Article 76-81, 83-85, 89

Managing portfolios of investments in accordance with mandates given by investors on a discretionary, client-by-client basis where such portfolios include one or more of the relevant instruments

Article 14, 21, 25, 37, 53, 64

Article 76-81, 83-85, 89

Underwriting in respect of issues of any of the relevant instruments and/or the placing of such issues

Article 14, 21, 25, 64

Article 76-81, 83-85, 89

2. Non-core services

Safekeeping and administration services

Article 40, 45, 64

Article 76-81, 89

Safe custody services

Granting credits or loans to an investor to allow him to carry out a transaction in one or more of the relevant instruments where the firm granting the credit or loan is involved

Advice to undertakings on capital structure, industrial matters and advice and services relating to mergers and the purchase of undertakings

Article 14, 21, 25, 53, 64

Article 76-80, 83-85, 89

Services related to underwriting

Article 25, 53, 64

Article 76-81, 83-85, 89

Investment advice concerning one or more of the relevant instruments

Article 53, 64

Article 76-81, 83-85, 89

Foreign exchange services where these are connected with the provision of investment services

Article 14, 21, 25, 53, 64

Article 83-85, 89

Note 1. The ISD activity of receiving and transmitting orders does not extend to the regulated activity of making arrangements with a view to transactions in investments under article 25(2) of the Regulated Activities Order unless the arrangements bring about or would bring about particular transactions. This is the case, whether or not the bringing about arises or would arise as a result of the person who makes the arrangements receiving and transmitting orders in relation to particular transactions or in any other way.

14/01/2005

SUP App 3.9.6

Activities set out in Article 5(2) and (3) of the UCITS Directive

Table 2A: UCITS Directive activities

Part II RAO Activities

Part III RAO Investments

The management of UCITS in the form of unit trusts / common funds or of investment companies; this includes the function mentioned in Annex II of the UCITS Directive (see Note 2).

Articles 14, 21, 25, 37, 51, 53, 64

Articles 76-81, 83-85, 89

Managing portfolios of investments, including those owned by pension funds, in accordance with mandates given by investors on a discretionary, client-by-client basis, where such portfolios include one or more of the instruments listed in Section Bof theAnnex to the ISD.

Articles 14, 21, 25, 37, 53, 64

Articles 76-81, 83-85, 89

Investment advice concerning one or more of the instruments listed in Section Bof theAnnex to the ISD.

Articles 53, 64

Articles 76-81, 83-85, 89

Safekeeping and administration services in relation to units of collective investment undertakings.

Articles 40, 45, 64

Articles 76-81, 83-85, 89

Note 1. A UCITS management company can only exercise passport rights under the UCITS Directive (article 2(2)(h) of the ISD). A UCITS management company can only be authorised to carry on the non-core services set out in rows (3) and (4) of Table 2A if it is also authorised to carry on the activity set out in row (2) of the table.

Note 2. The functions set out in Annex 2 to the UCITS Directive are:

Investment management.

Administration:

legal and fund management accounting services;

customer inquiries;

valuation and pricing (including tax returns);

regulatory compliance monitoring;

maintenance of unit-holder register;

distribution of income;

unit issues and redemptions;

contract settlements (including certificate dispatch);

record keeping.

Marketing.

14/01/2005

SUP App 3.9.7

Activities set out in Article 2(3) of the IMD

Table 2B: IMD Activities

Part II RAO Activities

Part III RAO Investments

Introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance.

Articles 25, 53 and 64

Articles 75, 89 (see Note 1)

Concluding contracts of insurance

Articles 21, 25, 53 and 64

Articles 75, 89

Assisting in the administration and performance of contracts of insurance, in particular in the event of a claim.

Articles 39A, 64

Articles 75, 89

Note 1. Rights to or interests in life policies are specified investments under Article 89 of the Regulated Activities Order, but rights to or interests in general insurance contracts are not.

14/01/2005

SUP App 3.10

Mapping of Insurance Directives to the Regulated Activities Order

01/12/2004

Introduction

SUP App 3.10.1

The guidance in AUTH 3.10 and Table 3 describes in broad outline the relationship between:

(1) the insurance-related regulated activities specified in the Regulated Activities Order; and

(2) the activities within the scope of the Insurance Directives

01/07/2003

SUP App 3.10.2

This is a guide only and should not be used as a substitute for legal advice

in individual cases.

Table 3: Insurance Directive activities

Part II RAO Activities

Part III RAO Investments

1. Non-life insurance activities

Taking up and carrying on direct non-life insurance business

Article 10

Article 75

Classes 1 to 18 of directnon-life insurance business in Point A of the Annex to the First Directive

Corresponding paragraphs 1 to 18 of Schedule 1, Part I

2. Consolidated Life Directive activities

Taking up and carrying on direct life insurance business

Article 10

Article 75

Classes I to IX of direct life insurance business in the Annex 1 to the Consolidated Life Directive

Corresponding paragraphs I to IX of Schedule 1, Part II

01/07/2003

Meaning of contract of insurance

SUP App 3.10.3

The meaning of contract of insurance is set out in article 3(1) of the Regulated Activities Order (Interpretation). It does not include benefit-in-kind funeral plans, which are specified in article 60 of the Regulated Activities Order (plans covered by insurance or trust arrangements). Such funeral plans (to the extent that they are insurance) are also excluded from the Insurance Directives. It covers some contracts which might not otherwise be viewed as insurance in the United Kingdom (for example, contracts of guarantee). These contracts are also governed by the Insurance Directives. For the purpose of the Regulated Activities Order, a contract of insurance includes a contract of reinsurance as well as a contract of direct insurance.

01/07/2003

The Insurance Directives

SUP App 3.10.4

Article 1 of the First Non-Life Directive and article 2 of the Consolidated Life Directive provides that the Directives "concern the taking up and pursuit of the self-employed activity of direct insurance". By contrast, article 10 of the Regulated Activities Order (Effecting and carrying out contracts of insurance) also covers reinsurance.

01/07/2003

SUP App 3.10.5

Articles 2, 3 and 4 of the First Non-Life Directive and article 3 of the Consolidated Life Directive set out certain exclusions by reference to:

(1) types of insurance;

(2) types of insurer;

(3) particular conditions under which insurance activities are carried out.

(4) annual income; and

(5) particular identified institutions.

01/07/2003

SUP App 3.10.6

Some of the exclusions referred to mirror exclusions in the Regulated Activities Order. So, the exclusion for breakdown insurance in article 2(3) of the First Non-Life Directive is matched by a slightly narrower exclusion in article 12 of the Regulated Activities Order (Breakdown insurance). The separate treatment of benefit-in-kind funeral plans under the Regulated Activities Order (see SUP App 3.10.4 G) is matched by their exclusion on a slightly wider basis in article 3(5) of the Consolidated Life Directive. Other requirements from these Directives are also excluded from regulation by the Exemption Order.

01/07/2003

SUP App 3.10.7

Most of the exclusions under the Directives, however, are not excluded from being regulated activities. For example, article 3 of the Consolidated Life Directive and article 3 of the Non-Life Directive exclude certain mutual associations whose annual contribution income falls below a defined threshold. In the United Kingdom, these include certain smaller friendly societies commonly referred to as "non-directive friendly societies". The activities of such societies are regulated under the Act, on a "lighter basis" than the activities of other insurers.

01/07/2003

Territorial scope of the Regulated Activities Order and the Directives

SUP App 3.10.8

Under the Act and the Regulated Activities Order, the activities of effecting and carrying out contracts of insurance are treated as being carried on in the United Kingdom on the basis of legal tests under which the location of the risk is only one factor. If the risk is located in the United Kingdom, then (other relevant factors being taken into account) the activity will, in the vast majority of cases, also be viewed as carried on in the United Kingdom. There are exceptions, however, and overseas insurers may insure risks in the United Kingdom without carrying on business here and so without requiring to be regulated (although the financial promotion regime may apply). By contrast, under the Directives, the responsibility, as between EEA States, for regulating the conduct of passported insurance services is determined by reference to the location of the risk or commitment, as defined in article 1 of the Consolidated Life Directive and article 2 of the Second Non-Life Directive.

01/07/2003

SUP App 3.10.9

So, the effect of App 3.12.1 is that an insurer may be carrying on insurance business in the United Kingdom which is to be treated as a regulated activity under article 10 to the Regulated Activities Order (Effecting and carrying out contracts of insurance) in circumstances where the risks covered are treated as located in another EEA State. In that event, the insurer is required by Schedule 3 to the Act to passport into the State concerned and may be subject to conduct of business requirements in that State (see SUP 13.10 (Applicable provisions)).

01/07/2003

SUP App 3.10.10

An insurer authorised in another EEA State who is insuring UK risks and so passports on a services basis under the Insurance Directives into the United Kingdom(see ),may not be carrying on a regulated activity in the United Kingdom. But, if it passports into the United Kingdom, it will qualify for authorisation under paragraph 12 of Schedule 3 to the Act (Firms qualifying for authorisation). Where this is the case, the insurer will be subject to conduct of business requirements in the United Kingdom (see AUTH 5.6 (Which rules will an incoming EEA firm be subject to?)).

01/07/2003

Activities carried on by incoming EEA firms in connection with insurance business.

SUP App 3.10.11

Although the Insurance Directives are concerned with the regulated activities of effecting and carrying out contracts of insurance, an incoming EEA firm passported under the Insurance Directives will be entitled to carry on certain other regulated activities without the need for top-up permission. This is where the regulated activities are carried on for the purposes of or in connection with the incoming EEA Firm's insurance business. These regulated activities may include:

(1) dealing in investments as principal;

(2) dealing in investments as agent;

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

(4) making arrangements with a view to transactions in investments;

(5) managing investments;

(6) safeguarding and administering investments;

(7) advising on investments;

(8) agreeing to carry on a regulated activity of the above kind.

14/01/2005

Financial promotion

SUP App 3.10.12

The financial promotion regime under section 21 of the Act (Restrictions on financial promotion) may also apply to EEA insurance undertakings regardless of whether they carry on a regulated activity in the United Kingdom or passport into the United Kingdom.

01/07/2003

Position of EEA reinsurers

SUP App 3.10.13

The Insurance Directives do not apply to reinsurance. But, the Insurance Directives do not prevent insurance undertakings authorised under those Directives from carrying out reinsurance as well as direct insurance business. Article 13(2) of the First Non-Life Directive and article 10(2) of the Consolidated Life Directive state that financial supervision of insurance undertakings "shall include verification, with respect to the insurance undertaking's entire business, of its state of solvency, of the establishment of technical provisions and of the assets covering them". On that basis, an insurance undertaking authorised in another EEA State which carries on a mixed direct insurance and reinsurance business, and is, therefore, subject to the requirements of the Directives, will generally be treated as being subject to 'equivalent protection' . This is for the purpose of paragraph 3 of Schedule 4 to the Act (Exercise of treaty rights). The insurance undertaking will, therefore, generally be able to qualify for 'permission'as a Treaty Firm for its reinsurance business if it follows the procedure provided for by Schedule 4 (see AUTH 5.3.4 G to AUTH 5.3.13 G (Treaty Firms) and also AUTH 3.21 (Treaty firms applying for Part IV Permission)). This will be in addition to the insurance undertaking being an EEA firm under Schedule 3 of the Act for its direct insurance business.

01/07/2003