Financial Services Act 1986 (repealed)

PART I — Regulation of Investment Business

CHAPTER I — Preliminary

Investments and investment business

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• (1) In this Act, unless the context otherwise requires, " investment" means any asset, right or interest falling within any paragraph in Part I of Schedule 1 to this Act

• (2) In this Act " investment business " means the business of engaging in one or more of the activities which fall within the paragraphs in Part II of that Schedule and are not excluded by Part III of that Schedule.

• (3) For the purposes of this Act a person carries on investment business in the United Kingdom if he—

• (a) carries on investment business from a permanent place of business maintained by him in the United Kingdom; or

• (b) engages in the United Kingdom in one or more of the activities which fall within the paragraphs in Part II of that Schedule and are not excluded by Part III or IV of that Schedule and his doing so constitutes the carrying on by him of a business in the United Kingdom.

• (4) Parts I to IV of that Schedule shall be construed in accordance with Part V.

Power to extend or restrict scope of Act

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• (1) The Secretary of State may by order amend Schedule 1 to this Act so as—

• (a) to extend or restrict the meaning of investment for the purposes of all or any provisions of this Act; or

• (b) to extend or restrict for the purposes of all or any of those provisions the activities that are to constitute the carrying on of investment business or the carrying on of such business in the United Kingdom.

• (2) The amendments that may be made tor the purposes of subsection (1)(b) above include amendments conferring powers on the Secretary of State, whether by extending or modifying any provision of that Schedule which confers such powers or by adding further such provisions.

• (3) An order under this section which extends the meaning of investment or extends the activities that are to constitute the carrying on of investment business or the carrying on of such business in the United Kingdom shall be laid before Parliament after being made and shall cease to have effect at the end of the period of twenty-eight days beginning with the day on which it is made (but without prejudice to anything done under the order or to the making of a new order) unless before the end of that period the order is approved by a resolution of each House of Parliament

• (4) In reckoning the period mentioned in subsection (3) above no account shall be taken of any time during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than four days.

• (5) Any order under this section to which subsection (3) above does not apply shall be subject to annulment in pursuance of a resolution of either House of Parliament.

• (6) An order under this section may contain such transitional provisions as the Secretary of State thinks necessary or expedient

CHAPTER II — Restriction on Carrying on Business

Persons entitled to carry on investment business

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No person shall Carry on, or purport to carry on. Investment business in the United Kingdom unless he is an authorised person under Chapter III or an exempted person under Chapter IV of this Part of this Act.

Offences

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• (1) Any person who carries on, or purports to carry on. investment business in contravention of section 3 above shall be guilty of an offence and liable—

• (a) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both;

• (b) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both.

• (2) In proceedings brought against any person for an offence under this section it shall be a defence for him to prove that he took all reasonable precautions and exercised all due diligence to avoid the commission of the offence.

Agreements made by or through unauthorised persons

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• (1) Subject to subsection (3) below, any agreement to which this subsection applies—

• (a) which is entered into by a person in the course of carrying on investment business in contravention of section 3 above; or

• (b) which is entered into—

• (i) by a person who is an authorised person or an exempted person in respect of the investment business in the course of which he enters into die agreement ; but

• (ii) in consequence of anything said or done by a person in the course of carrying on investment business in contravention of that section,

shall be unenforceable against the other party; and that party shall be entitled to recover any money or other property paid or transferred by him under the agreement, together with compensation for any loss sustained by him as a result of having parted with it.

• (2) The compensation recoverable under subsection (1) above shall be such as the parties may agree or as the court may, on the application of either party, determine.

• (3) A court may allow an agreement to which subsection (1) above applies to be enforced or money and property paid or transferred under it to be retained if it is satisfied—

• (a) in a case within paragraph (a) of that subsection, that the person mentioned in that paragraph reasonably believed that his entering into the agreement did not constitute a contravention of section 3 above ;

• (b) in a case within paragraph (b) of that subsection, that the person mentioned in sub-paragraph (i) of that paragraph did not know that the agreement was entered into as mentioned in sub-paragraph (ii) of that paragraph ; and

• (c) in either case, that it is just and equitable for the agreement to be enforced or, as the case may be, for the money or property paid or transferred under it to be retained.

• (4) Where a person elects not to perform an agreement which by virtue of this section is unenforceable against him or by virtue of this section recovers money paid or other property transferred by him under an agreement he shall repay any money and return any other property received by him under the agreement.

• (5) Where any property transferred under an agreement to which this section applies has passed to a third party the references to that property in subsections (1), (3) and (4) above shall be construed as references to its value at the time of its transfer under the agreement.

• (6) A contravention of section 3 above shall not make an agreement illegal or invalid to any greater extent than is provided in this section.

• (7) Subsection (1) above applies to any agreement the making or performance of which by the person seeking to enforce it or from whom money or other property is recoverable under this section constitutes an activity which falls within any paragraph of Part II of Schedule 1 to this Act and is not excluded by Part III or IV of that Schedule.

Injunctions and restitution orders

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• (1) If, on the application of the Secretary of State, the court is satisfied—

• (a) that there is a reasonable likelihood that a person will contravene section 3 above; or

• (b) that any person has contravened that section and that there is a reasonable likelihood that the contravention will continue or be repeated,

the court may grant an injunction restraining the contravention or, in Scotland, an interdict prohibiting the contravention.

• (2) If, on the application of the Secretary of State, the court is satisfied that a person has entered into any transaction in contravention of section 3 above the court may order that person and any other person who appears to the court to have been knowingly concerned in the contravention to take such steps as the court may direct for restoring the parties to the position in which they were before the transaction was entered into.

• (3) The court may, on the application of the Secretary of State, make an order under subsection (4) below or, in relation to Scotland, under subsection (5) below if satisfied that a person has been carrying on investment business in contravention of section 3 above and—

• (a) that profits have accrued to that person as a result of carrying on that business; or

• (b) that one or more investors have suffered loss or been otherwise adversely affected as a result of his contravention of section 47 or 56 below or failure to act substantially in accordance with any of the rules or regulations made under Chapter V of this Part of this Act

• (4) The court may under this subsection order the person concerned to pay into court, or appoint a receiver to recover from him, such sum as appears to the court to be just having regard—

• (a) in a case within paragraph (a) of subsection (3) above to the profits appearing to the court to have accrued;

• (b) in a case within paragraph (b) of that subsection, to the extent of the loss or other adverse effect; or

• (c) in a case within both paragraphs (a) and (b) of that subsection, to the profits and to the extent of the loss or other adverse effect.

• (5) The court may under this subsection order the person concerned to pay to the applicant such sum as appears to the court to be just having regard to the considerations mentioned in paragraphs (a) to (c) of subsection (4) above.

• (6) Any amount paid into court by or recovered from a person in pursuance of an order under subsection (4) or (5) above shall be paid out to such person or distributed among such persons as the court may direct, being a person or persons appearing to the court to have entered into transactions with that person as a result of which the profits mentioned in paragraph (a) of subsection (3) above have accrued to him or the loss or other adverse effect mentioned in paragraph (b) of that subsection has been suffered.

• (7) On an application under subsection (3) above the court may require the person concerned to furnish it with such accounts or other information as it may require for establishing whether any and, if so, what profits have accrued to him as mentioned in paragraph (a) of that subsection and for determining how any amounts are to be paid or distributed under subsection (6) above; and the court may require any such accounts or other information to be verified in such manner as it may direct

• (8) The jurisdiction conferred by this section shall be exercisable by the High Court and the Court of Session.

• (9) Nothing in this section affects the right of any person other than the Secretary of State to bring proceedings in respect of any of the matters to which this section applies.

CHAPTER III — Authorised Persons

Members of recognised self-regulating organisations

Authorisation by membership of recognised self-regulating organisations

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• (1) Subject to subsection (2) below, a member of a recognised self-regulating organisation is an authorised person by virtue of his membership of that organisation.

• (2) This section does not apply to a member who is an authorised person by virtue of section 22 or 23 below or an insurance company which is an authorised person by virtue of section 31 below.

Self-regulating organisations

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• (1) In this Act a " self-regulating organisation " means a body (whether a body corporate or an unincorporated association) which regulates the carrying on of investment business of any kind by enforcing rules which are binding on persons carrying on business of that kind either because they are members of that body or because they are otherwise subject to its control.

• (2) In this Act references to the members of a self-regulating organisation are references to the persons who, whether or not members of the organisation, are subject to its rules in carrying on the business in question.

• (3) In this Act references to the rules of a self-regulating organisation are references to the rules (whether or not laid down by the organisation itself) which the organisation has power to enforce in relation to the carrying on of the business in question or which relate to the admission and expulsion of members of the organisation or otherwise to its constitution.

• (4) In this Act references to guidance issued by a self-regulating organisation are references to guidance issued or any recommendation made by it to all or any class of its members or persons seeking to become members which would, if it were a rule, fall within subsection (3) above.

Applications for recognition

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• (1) A self-regulating organisation may apply to the Secretary of State for an order declaring it to be a recognised self-regulating organisation for the purposes of this Act.

• (2) Any such application—

• (a) shall be made in such manner as the Secretary of State may direct; and

• (b) shall be accompanied by such information as the Secretary of State may reasonably require for the purpose of determining the application.

• (3) At any time after receiving an application and before determining it the Secretary of State may require the applicant to furnish additional information.

• (4) The directions and requirements given or imposed under subsections (2) and (3) above may differ as between different applications.

• (5) Any information to be furnished to the Secretary of State under this section shall, if he so requires, be in such form or verified in such manner as he may specify.

• (6) Every application shall be accompanied by a copy of the applicant's rules and of any guidance issued by the applicant which is intended to have continuing effect and is issued in writing or other legible form.

Grant and refusal of recognition

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• (1) The Secretary of State may, on an application duly made in accordance with section 9 above and after being furnished with all such information as he may require under that section, make or refuse to make an order (" a recognition order ") declaring the applicant to be a recognised self-regulating organisation.

• (2) Subject to subsection (4) below and to Chapter XIV of this Part of this Act, the Secretary of State shall make a recognition order if it appears to him from the information furnished by the organisation making the application and having regard to any other information in his possession that the requirements of subsection (3) below and of Schedule 2 to this Act are satisfied as respects that organisation.

• (3) Where there is a kind of investment business with which the organisation is not concerned, its rules must preclude a member from carrying on investment business of that kind unless he is an authorised person otherwise than by virtue of his membership of the organisation or an exempted person in respect of that business.

• (4) The Secretary of State may refuse to make a recognition order in respect of an organisation if he considers that its recognition is unnecessary having regard to the existence of one or more other organisations which are concerned with investment business of a kind with which the applicant is concerned and which have been or are likely to be recognised under this section.

• (5) Where the Secretary of State refuses an application for a recognition order he shall give the applicant a written notice to that effect specifying a requirement which in the opinion of the Secretary of State is not satisfied, stating that the application is refused on the ground mentioned in subsection (4) above or stating that it is refused by virtue of Chapter XIV.

• (6) A recognition order shall state the date on which it takes effect.

Revocation of recognition

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• (1) A recognition order may be revoked by a further order made by the Secretary of State if at any time it appears to him—

• (a) that section 10(3) above or any requirement of Schedule 2 to this Act is not satisfied in the case of the organisation to which the recognition order relates (" the recognised organisation ");

• (b) that the recognised organisation has failed to comply with any obligation to which it is subject by virtue of this Act; or

• (c) that the continued recognition of the organisation is undesirable having regard to the existence of one or more other organisations which have been or are to be recognised under section 10 above.

• (2) An order revoking a recognition order shall state the date on which it takes effect and that date shall not be earlier than three months after the day on which the revocation order is made.

• (3) Before revoking a recognition order the Secretary of State shall give written notice of his intention to do so to the recognised organisation, take such steps as he considers reasonably practicable for bringing the notice to the attention of members of the organisation and publish it in such manner as he thinks appropriate for bringing it to the attention of any other persons who are in his opinion likely to be affected.

• (4) A notice under subsection (3) above shall state the reasons for which the Secretary of State proposes to act and give particulars of the rights conferred by subsection (5) below.

• (5) An organisation on which a notice is served under subsection (3) above, any member of the organisation and any other person who appears to the Secretary of State to be affected may within three months after the date of service or publication, or within such longer time as the Secretary of State may allow, make written representations to the Secretary of State and, if desired, oral representations to a person appointed for that purpose by the Secretary of State; and the Secretary of State shall have regard to any representations made in accordance with this subsection in determining whether to revoke the recognition order.

• (6) If in any case the Secretary of State considers it essential to do so in the interests of investors he may revoke a recognition order without regard to the restriction imposed by subsection (2) above and notwithstanding that no notice has been given or published under subsection (3) above or that the time for making representations in pursuance of such a notice has not expired.

• (7) An order revoking a recognition order may contain such transitional provisions as the Secretary of State thinks necessary or expedient.

• (8) A recognition order may be revoked at the request or with the consent of the recognised organisation and any such revocation shall not be subject to the restrictions imposed by subsections (1) and (2) or the requirements of subsections (3) to (5) above.

• (9) On making an order revoking a recognition order the Secretary of State shall give the organisation written notice of the making of the order, take such steps as he considers reasonably practicable for bringing the making of the order to the attention of members of the organisation and publish a notice of the making of the order in such manner as he thinks appropriate for bringing it to the attention of any other persons who are in his opinion likely to be affected.

Compliance orders

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• (1) If at any time it appears to the Secretary of State—

• (a) that subsection (3) of section 10 above or any requirement of Schedule 2 to this Act is not satisfied in the case of a recognised organisation; or

• (b) that a recognised organisation has failed to comply with any obligation to which it is subject by virtue of this Act,

he may, instead of revoking the recognition order under section 11 above, make an application to the court under this section.

• (2) If on any such application the court decides that subsection (3) of section 10 or the requirement in question is not satisfied or, as the case may be, that the organisation has failed to comply with the obligation in question it may order the organisation to take such steps as the court directs for securing that that subsection or requirement is satisfied or that that obligation is complied with.

• (3) The jurisdiction conferred by this section shall be exercisable by the High Court and the Court of Session.

Alteration of rules for protection of investors

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• (1) If at any time it appears to the Secretary of State that the rules of a recognised organisation do not satisfy the requirements of paragraph 3(1) of Schedule 2 to this Act he may, instead of revoking the recognition order or making an application under section i2 above, direct the organisation to alter, or himself alter, its rules in such manner as he considers necessary for securing that the rules satisfy those requirements.

• (2) If at any time it appears to the Secretary of State that the rules or practices of a recognised organisation which is concerned with two or more kinds of investment business do not satisfy any requirement of Schedule 2 to this Act in respect of investment business of any of those kinds he may, instead of revoking the recognition order or making an application under section 12 above, direct the organisation to alter, or himself alter, its rules so that they preclude a member from carrying on investment business of that kind unless he is an authorised person otherwise than by virtue of membership of the organisation or an exempted person in respect of that business.

• (3) Any direction given under this section shall, on the application of the Secretary of State, be enforceable by mandamus or, in Scotland, by an order for specific performance under section 91 of the Court of Session Act 1868.

• (4) Before giving a direction or making any alteration under subsection (1) above the Secretary of State shall consult the organisation concerned.

• (5) A recognised organisation whose rules have been altered by or pursuant to a direction given by the Secretary of State under subsection (1) above may apply to the court and if the court is satisfied—

• (a) that the rules without the alteration satisfied the requirements mentioned in that subsection; or

• (b) that other alterations proposed by the organisation would result in the rules satisfying those requirements,

the court may set aside the alteration made by or pursuant to the direction given by the Secretary of State and, in a case within paragraph (b) above, order the organisation to make the alterations proposed by it; but the setting aside of an alteration under this subsection shall not affect its previous operation.

• (6) The jurisdiction conferred by subsection (5) above shall be exercisable by the High Court and the Court of Session.

• (7) Section 11(2) to (7) and (9) above shall, with the necessary modifications, have effect in relation to any direction given or alteration made by the Secretary of State under subsection (2) above as they have effect in relation to an order revoking a recognition order.

• (8) The fact that the rules of a recognised organisation have been altered by or pursuant to a direction given by the Secretary of State or pursuant to an order made by the court under this section shall not preclude their subsequent alteration or revocation by that organisation.

Notification requirements

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• (1) The Secretary of State may make regulations requiring a recognised organisation to give him forthwith notice of the occurrence of such events relating to the organisation or its members as are specified in the regulations and such information in respect of those events as is so specified.

• (2) The Secretary of State may make regulations requiring a recognised organisation to furnish him at such times or in respect of such periods as are specified in the regulations with such information relating to the organisation or its members as is so specified.

• (3) The notices and information required to be given or furnished under the foregoing provisions of this section shall be such as the Secretary of State may reasonably require for the exercise of his functions under this Act

• (4) Regulations under the foregoing provisions of this section may require information to be given in a specified form and to be verified in a specified manner.

• (5) Any notice or information required to be given or furnished under the foregoing provisions of this section shall be given in writing or in such other manner as the Secretary of State may approve.

• (6) Where a recognised organisation amends, revokes or adds to its rules or guidance it shall within seven days give the Secretary of State written notice of the amendment, revocation or addition; but notice need not be given of the revocation of guidance other than such as is mentioned in section 9(6) above or of any amendment of or addition to guidance which does not result in or consist of such guidance as is there mentioned.

• (7) Contravention of, or of regulations under, this section shall not be an offence.

Persons authorised by recognised professional bodies

Authorisation by certification by recognised professional body

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• (1) A person holding a certificate issued for the purposes of this Part of this Act by a recognised professional body is an authorised person.

• (2) Such a certificate may be issued by a recognised professional body to an individual, a body corporate, a partnership or an unincorporated association.

• (3) A certificate issued to a partnership—

• (a) shall be issued in the partnership name; and

• (b) shall authorise the carrying on of investment business in that name by the partnership to which the certificate is issued, by any partnership which succeeds to that business or by any person who succeeds to that business having previously carried it on in partnership;

and, in relation to a certificate issued to a partnership constituted under the law of England and Wales or Northern Ireland or the law of any other country or territory under which a partnership is not a legal person, references in this Act to the person who holds the certificate or is certified shall be construed as references to the persons or person for the time being authorised by the certificate to carry on investment business as mentioned in paragraph (b) above.

Professional bodies

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• (1) In this Act a "professional body" means a body which regulates the practice of a profession and references to the practice of a profession do not include references to carrying on a business consisting wholly or mainly of investment business.

• (2) In this Act references to the members of a professional body are references to individuals who, whether or not members of the body, are entitled to practise the profession in question and, in practising it, are subject to the rules of that body.

• (3) In this Act references to the rules of a professional body are references to the rules (whether or not laid down by the body itself) which the body has power to enforce in relation to the practice of the profession in question and the carrying on of investment business by persons practising that profession or which relate to the grant, suspension or withdrawal of certificates under section 15 above, the admission and expulsion of members or otherwise to the constitution of the body.

• (4) In this Act references to guidance issued by a professional body are references to guidance issued or any recommendation made by it to all or any class of its members or persons seeking to become members, or to persons or any class of persons who are or are seeking to be certified by the body, and which would, if it were a rule, fall within subsection (3) above.

Applications for recognition

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• (1) A professional body may apply to the Secretary of State for an order declaring it to be a recognised professional body for the purposes of this Act.

• (2) Subsections (2) to (6) of section 9 above shall have effect in relation to an application under subsection (1) above as they have effect in relation to an application under subsection (1) of that section.

Grant and refusal of recognition

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• (1) The Secretary of State may, on an application duly made in accordance with section 17 above and after being furnished with all such information as he may require under that section, make or refuse to make an order ("a recognition order") declaring the applicant to be a recognised professional body.

• (2) The Secretary of State may make a recognition order if it appears to him from the information furnished by the body making the application and having regard to any other information in his possession that the requirements of subsection (3) below and of Schedule 3 to this Act are satisfied as respects that body.

• (3) The body must have rules which impose acceptable limits on the kinds of investment business which may be carried on by persons certified by it and the circumstances in which they may carry on such business and which preclude a person certified by that body from carrying on any investment business outside those limits unless he is an authorised person otherwise than by virtue of the certification or an exempted person in respect of that business.

• (4) Where the Secretary of State refuses an application for a recognition order he shall give the applicant a written notice to that effect, stating the reasons for the refusal.

• (5) A recognition order shall state the date on which it takes effect.

Revocation of recognition

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• (1) A recognition order under section 18 above may be revoked by a further order made by the Secretary of State if at any time it appears to him—

• (a) that section 18(3) above or any requirement of Schedule 3 to this Act is not satisfied in the case of the body to which the recognition order relates; or

• (b) that the body has failed to comply with any obligation to which it is subject by virtue of this Act.

• (2) Subsections (2) to (9) of section 11 above shall have effect in relation to the revocation of a recognition order under this section as they have effect in relation to the revocation of a recognition order under subsection (1) of that section.

Compliance orders

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• (1) If at any time it appears to the Secretary of State—

• (a) that subsection (3) of section 18 above or any requirement of Schedule 3 to this Act is not satisfied in the case of a recognised professional body; or

• (b) that such a body has failed to comply with any obligation to which it is subject by virtue of this Act,

he may, instead of revoking the recognition order under section 19 above, make an application to the court under this section.

• (2) If on any such application the court decides that subsection (3) of section 18 above or the requirement in question is not satisfied or, as the case may be, that the body has failed to comply with the obligation in question it may order the body to take such steps as the court directs for securing that that subsection or requirement is satisfied or that that obligation is complied with.

• (3) The jurisdiction conferred by this section shall be exercisable by the High Court and the Court of Session.

Notification requirements

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• (1) The Secretary of State may make regulations requiring a recognised professional body to give him forthwith notice of the occurrence of such events relating to the body, its members or persons certified by it as are specified in the regulations and such information in respect of those events as is so specified.

• (2) The Secretary of State may make regulations requiring a recognised professional body to furnish him at such times or in respect of such periods as are specified in the regulations with such information relating to the body, its members and persons certified by it as is so specified.

• (3) The notices and information required to be given or furnished under the foregoing provisions of this section shall be such as the Secretary of State may reasonably require for the exercise of his functions under this Act.

• (4) Regulations under the foregoing provisions of this section may require information to be given in a specified form and to be verified in a specified manner.

• (5) Any notice or information required to be given or furnished under the foregoing provisions of this section shall be given in writing or in such other manner as the Secretary of State may approve.

• (6) Where a recognised professional body amends, revokes or adds to its rules or guidance it shall within seven days give the Secretary of State written notice of the amendment, revocation or addition; but—

• (a) notice need not be given of the revocation of guidance other than such as is mentioned in section 9(6) above or of any amendment of or addition to guidance which does not result in or consist of such guidance as is there mentioned; and

• (b) notice need not be given in respect of any rule or guidance, or rules or guidance of any description, in the case of which the Secretary of State has waived compliance with this subsection by notice in writing to the body concerned;

and any such waiver may be varied or revoked by a further notice in writing.

• (7) Contravention of, or of regulations under, this section shall not be an offence.

Insurance companies

Authorised insurers

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A body which is authorised under section 3 or 4 of the Insurance Companies Act 1982 to carry on insurance business which is investment business and carries on such insurance business in the United Kingdom is an authorised person as respects—

• (a) any insurance business which is investment business; and

• (b) any other investment business which that body may carry on without contravening section 16 of that Act

Friendly societies

Registered friendly societies

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• (1) A society which—

• (a) is a friendly society within the meaning of section 7(l)(a) of the Friendly Societies Act 1974 ;

• (b) is registered within the meaning of that Act as a society but not as a branch of a society ;

• (c) under its rules has its registered office at a place situated in Great Britain ; and

• (d) carries on investment business in the United Kingdom,

is an authorised person as respects any investment business which it carries on for or in connection with any of the purposes mentioned in Schedule 1 to that Act.

• (2) A society which—

• (a) is a friendly society within the meaning of section 1(l)(a) of the Friendly Societies Act (Northern Ireland) 1970;

• (b) is registered or deemed to be registered as a society but not as a branch of a society under that Act;

• (c) under its rules has its registered office at a place situated in Northern Ireland ; and

• (d) carries on investment business in the United Kingdom,

is an authorised person as respects any investment business which it carries on for or in connection with any of the purposes mentioned in Schedule 1 to that Act.

Collective investment schemes

Operators and trustees of recognised schemes

24

The operator or trustee of a scheme recognised under section 86 below is an authorised person as respects—

• (a) investment business which consists in operating or acting as trustee in relation to that scheme; and

• (b) any investment business which is carried on by him in connection with or for the purposes of that scheme.

Persons authorised by the Secretary of State

Authorisation by Secretary of State

25

A person holding an authorisation granted by the Secretary of State under the following provisions of this Chapter is an authorised person.

Applications for authorisation

26

• (1) An application for authorisation by the Secretary of State may be made by—

• (a) an individual;

• (b) a body corporate;

• (c) a partnership; or

• (d) an unincorporated association.

• (2) Any such application—

• (a) shall be made in such manner as the Secretary of State may direct;

• (b) shall contain or be accompanied by—

• (i) information as to the investment business which the applicant proposes to carry on and the services which he will hold himself out as able to provide in the carrying on of that business ; and

• (ii) such other information as the Secretary of State may reasonably require for the purpose of determining the application; and

• (c) shall contain the address of a place in the United Kingdom for the service on the applicant of any notice or other document required or authorised to be served on him under this Act.

• (3) At any time after receiving an application and before determining it the Secretary of State may require the applicant to furnish additional information.

• (4) The directions and requirements given or imposed under subsections (2) and (3) above may differ as between different applications.

• (5) Any information to be furnished to the Secretary of State under this section shall, if he so requires, be in such form or verified in such manner as he may specify.

Grant and refusal of authorisation

27

• (1) The Secretary of State may, on an application duly made in accordance with section 26 above and after being furnished with all such information as he may require under that section, grant or refuse the application.

• (2) The Secretary of State shall grant the application if it appears to him from the information furnished by the applicant and having regard to any other information in his possession that the applicant is a fit and proper person to carry on the investment business and provide the services described in the application.

• (3) In determining whether to grant or refuse an application the Secretary of State may take into account any matter relating to any person who is or will be employed by or associated with the applicant for the purposes of the business in question, to any person who is or will be acting as an appointed representative in relation to that business and—

• (a) if the applicant is a body corporate, to any director or controller of the body, to any other body corporate in the same group or to any director or controller of any such other body corporate ;

• (b) if the applicant is a partnership, to any of the partners ;

• (c) if the applicant is an unincorporated association, to any member of the governing body of the association or any officer or controller of the association.

• (4) In determining whether to grant or refuse an application the Secretary of State may also have regard to any business which the applicant proposes to carry on in connection with his investment business.

• (5) In the case of an applicant who is authorised to carry on investment business in a member State other than the United Kingdom the Secretary of State shall have regard to that authorisation.

• (6) An authorisation granted to a partnership—

• (a) shall be granted in the partnership name ; and

• (b) shall authorise the carrying on of investment business in that name (or with the Secretary of State's consent in any other name) by the partnership to which the authorisation is granted, by any partnership which succeeds to that business or by any person who succeeds to that business having previously carried it on in partnership;

and, in relation to an authorisation granted to a partnership constituted under the law of England and Wales or Northern Ireland or the law of any other country or territory under which a partnership is not a legal person, references in this Act to the holder of the authorisation or the authorised person shall be construed as references to the persons or person for the time being authorised by the authorisation to carry on investment business as mentioned in paragraph (b) above.

• (7) An authorisation granted to an unincorporated association shall apply to the carrying on of investment business in the name of the association and in such manner as may be specified in the authorisation.

• (8) The Secretary of State shall give an applicant for authorisation written notice of the grant of authorisation specifying the date on which it takes effect

Withdrawal and suspension of authorisation

28

• (1) The Secretary of State may at any time withdraw or suspend any authorisation granted by him if it appears to him—

• (a) that the holder of the authorisation is not a fit and proper person to carry on the investment business which he is carrying on or proposing to carry on; or

• (b) without prejudice to paragraph (a) above, that the holder of the authorisation has contravened any provision of this Act or any rules or regulations made under it or, in purported compliance with any such provision, has furnished the Secretary of State with false, inaccurate or misleading information or has contravened any prohibition or requirement imposed under this Act.

• (2) For the purposes of subsection (l)(a) above the Secretary of State may take into account any such matters as are mentioned in section 27 (3) and (4) above.

• (3) Where the holder of the authorisation is a member of a recognised self-regulating organisation the rules, prohibitions and requirements referred to in paragraph (b) of subsection (1) above include the rules of that organisation and any prohibition or requirement imposed by virtue of those rules; and where he is a person certified by a recognised professional body the rules, prohibitions and requirements referred to in that paragraph include the rules of that body which regulate the carrying on by him of investment business and any prohibition or requirement imposed by virtue of those rules.

• (4) The suspension of an authorisation shall be for a specified period or until the occurrence of a specified event or until specified conditions are complied with; and while an authorisation is suspended the holder shall not be an authorised person.

• (5) Any period, event or conditions specified under subsection (4) above in the case of an authorisation may be varied by the Secretary of State on the application of the holder.

Notice of proposed refusal, withdrawal or suspension

29

• (1) Where the Secretary of State proposes—

• (a) to refuse an application under section 26 or 28(5) above ; or

• (b) to withdraw or suspend an authorisation,

he shall give the applicant or the authorised person written notice of his intention to do so, stating the reasons for which he proposes to act.

• (2) In the case of a proposed withdrawal or suspension the notice shall state the date on which it is proposed that the withdrawal or suspension should take effect and, in the case of a proposed suspension, its proposed duration.

• (3) Where the reasons stated in a notice under this section relate specifically to matters which—

• (a) refer to a person identified in the notice other than the applicant or the holder of the authorisation; and

• (b) are in the opinion of the Secretary of State prejudicial to that person in any office or employment,

the Secretary of State shall, unless he considers it impracticable to do so, serve a copy of the notice on that person.

• (4) A notice under this section shall give particulars of the right to require the case to be referred to the Tribunal under Chapter IX of this Part of this Act.

• (5) Where a case is not required to be referred to the Tribunal by a person on whom a notice is served under this section the Secretary of State shall, at the expiration of the period within which such a requirement can be made—

• (a) give that person written notice of the refusal, withdrawal or suspension; or

• (b) give that person written notice of the grant of the application or, as the case may be, written notice that the authorisation is not to be withdrawn or suspended;

and the Secretary of State may give public notice of any decision notified by him under paragraph (a) or (b) above and the reasons for the decision except that he shall not do so in the case of a decision notified under paragraph (b) unless the person concerned consents to his doing so.

Withdrawal of applications and authorisations by consent

30

• (1) An application under section 26 above may be withdrawn before it is granted or refused ; and, subject to subsections (2) and (3) below, an authorisation granted under section 27 above may be withdrawn by the Secretary of State at the request or with the consent of the authorised person.

• (2) The Secretary of State may refuse to withdraw any such authorisation if he considers that the public interest requires any matter affecting the authorised person to be investigated as a preliminary to a decision on the question whether the Secretary of State should in respect of that person exercise his powers under section 28 above or under any other provision of this Part of this Act.

• (3) The Secretary of State may also refuse to withdraw an authorisation where in his opinion it is desirable that a prohibition or restriction should be imposed on the authorised person under Chapter VI of this Part of this Act or that a prohibition or restriction imposed on that person under that Chapter should continue in force.

• (4) The Secretary of State may give public notice of any withdrawal of authorisation under subsection (1) above.

Persons authorised in other member States

Authorisation in other member State

31

• (1) A person carrying on investment business in the United Kingdom is an authorised person if—

• (a) he is established in a member State other than the United Kingdom;

• (b) the law of that State recognises him as a national of that or another member State; and

• (c) he is for the time being authorised under that law to carry on investment business or investment business of any particular kind.

• (2) For the purposes of this Act a person is established in a member State other than the United Kingdom if his head office is situated in that State and he does not transact investment business from a permanent place of business maintained by him in the United Kingdom.

• (3) This section applies to a person only if the provisions of the law under which he is authorised to carry on the investment business in question—

• (a) afford to investors in the United Kingdom protection, in relation to his carrying on of that business, which is at least equivalent to that provided for them by the provisions of this Chapter relating to members of recognised self-regulating organisations or to persons authorised by the Secretary of State ; or

• (b) satisfy the conditions laid down by a Community instrument for the co-ordination or approximation of the laws, regulations or administrative provisions of member States relating to the carrying on of investment business or investment business of the relevant kind.

• (4) A certificate issued by the Secretary of State and for the time being in force to the effect that the provisions of the law of a member State comply with the requirements of subsection (3)(a) above, either as respects all investment business or as respects investment business of a particular kind, shall be conclusive evidence of that matter but the absence or revocation of such a certificate shall not be regarded as indicating that those requirements are not complied with.

• (5) This section shall not apply to a person by virtue of paragraph (b) of subsection (3) above unless the authority by which he is authorised to carry on the investment business in question certifies that he is authorised to do so under a law which complies with the requirements of that paragraph.

Notice of commencement of business

32

• (1) A person who is an authorised person by virtue of section 31 above shall be guilty of an offence unless, not less than seven days before beginning to carry on investment business in the United Kingdom, he has given notice of his intention to do so to the Secretary of State either in writing or in such other manner as the Secretary of State may approve.

• (2) The notice shall contain—

• (a) information as to the investment business which that person proposes to carry on in the United Kingdom and the services which he will hold himself out as able to provide in the carrying on of that business ;

• (b) information as to the authorisation of that person in the member State in question ;

• (c) the address of a place (whether in the United Kingdom or elsewhere) for the service on that person of any notice or other document required or authorised to be served on him under this Act;

• (d) such other information as may be prescribed ;

and the notice shall comply with such requirements as to the form in which any information is to be given and as to its verification as may be prescribed.

• (3) A notice by a person claiming to be authorised by virtue of subsection 0)(b) of section 31 above shall be accompanied by a copy of the certificate required by subsection (5) of that section.

• (4) A person guilty of an offence under subsection (1) above shall be liable—

• (a) on conviction on indictment, to a fine ;

• (b) on summary conviction, to a fine not exceeding the statutory maximum.

• (5) In proceedings brought against any person for an offence under subsection (1) above it shall be a defence for him to prove that he took all reasonable precautions and exercised all due diligence to avoid the commission of the offence.

Termination and suspension of authorisation

33

• (1) If it appears to the Secretary of State that a person who is an authorised person by virtue of section 31 above has contravened any provision of this Act or of any rules or regulations made under it or, in purported compliance with any such provision, has furnished the Secretary of State with false, inaccurate or misleading information or has contravened any prohibition or requirement imposed under this Act the Secretary of State may direct—

• (a) that he shall cease to be an authorised person by virtue of that section; or

• (b) that he shall not be an authorised person by virtue of that section for a specified period or until the occurrence of a specified event or until specified conditions are complied with.

• (2) In the case of a person who is a member of a recognised self-regulating organisation the rules, prohibitions and requirements referred to in subsection (1) above include the rules of that organisation and any prohibition or requirement imposed by virtue of those rules; and in the case of a person who is certified by a recognised professional body the rules, prohibitions and requirements referred to in that subsection include the rules of that body which regulate the carrying on by him of investment business and any prohibition or requirement imposed by virtue of those rules.

• (3) Any period, event or condition specified in a direction under subsection (1)(b) above may be varied by the Secretary of State on the application of the person to whom the direction relates.

• (4) The Secretary of State shall consult the relevant supervisory authority before giving a direction under this section unless he considers it essential in the interests of investors that the direction should be given forthwith but in that case he shall consult the authority immediately after giving the direction and may then revoke or vary it if he considers it appropriate to do so.

• (5) The Secretary of State shall revoke a direction under this section if he is satisfied, after consulting the relevant supervisory authority, that it will secure that the person concerned will comply with the provisions mentioned in subsection (1) above.

• (6) In this section " the relevant supervisory authority " means the authority of the member State where the person concerned is established which is responsible for supervising the carrying on of investment business of the kind which that person is or was carrying on.

Notice of proposed termination or suspension

34

• (1) Where the Secretary of State proposes—

• (a) to give a direction under section 33 above ; or

• (b) to refuse an application under subsection (3) of that section,

he shall give the authorised person written notice of his intention to do so, stating the reasons for which he proposes to act.

• (2) In the case of a proposed direction under section 33 above the notice shall state the date on which it is proposed that the direction should take effect and, in the case of a proposed direction under subsection (1)(b) of that section, its proposed duration.

• (3) Where the reasons stated in a notice under this section relate specifically to matters which—

• (a) refer to a person identified in the notice other than the authorised person; and

• (b) are in the opinion of the Secretary of State prejudicial to that person in any office or employment,

the Secretary of State shall, unless he considers it impracticable to do so, serve a copy of the notice on that other person.

• (4) A notice under this section shall give particulars of the right to require the case to be referred to the Tribunal under Chapter IX of this Part of this Act.

• (5) Where a case is not required to be referred to the Tribunal by a person on whom a notice is served under this section the Secretary of State shall, at the expiration of the period within which such a requirement can be made—

• (a) give that person written notice of the direction or refusal ; or

• (b) give that person written notice that the direction is not to be given or, as the case may be, of the grant of the application;

and the Secretary of State may give public notice of any decision notified by him under paragraph (a) or (b) above and the reasons for the decision except that he shall not do so in the case of a decision within paragraph (b) unless the person concerned consents to his doing so.

CHAPTER IV — Exempted Persons

The Bank of England

The Bank of England

35

The Bank of England is an exempted person.

Recognised investment exchanges and clearing houses

Investment exchanges

36

• (1) A recognised investment exchange is an exempted person as respects anything done in its capacity as such which constitutes investment business.

• (2) In this Act references to the rules of an investment exchange are references to the rules made or conditions imposed by it with respect to the matters dealt with in Schedule 4 to this Act, with respect to the admission of persons to or their exclusion from the use of its facilities or otherwise relating to its constitution.

• (3) In this Act references to guidance issued by an investment exchange are references to guidance issued or any recommendation made by it to all or any class of its members or users or persons seeking to become members of the exchange or to use its facilities and which would, if it were a rule, fall within subsection (2) above.

Grant and revocation of recognition

37

• (1) Any body corporate or unincorporated association may apply to the Secretary of State for an order declaring it to be a recognised investment exchange for the purposes of this Act.

• (2) Subsections (2) to (5) of section 9 above shall have effect in relation to an application under subsection (1) above as they have effect in relation to an application under subsection (1) of that section; and every application under subsection (1) above shall be accompanied by—

• (a) a copy of the applicant's rules;

• (b) a copy of any guidance issued by the applicant which is intended to have continuing effect and is issued in writing or other legible form ; and

• (c) particulars of any arrangements which the applicant has made or proposes to make for the provision of clearing services.

• (3) The Secretary of State may, on an application duly made in accordance with subsection (1) above and after being furnished with all such information as he may require in connection with the application, make or refuse to make an order (" a recognition order ") declaring the applicant to be a recognised investment exchange for the purposes of this Act.

• (4) Subject to Chapter XIV of this Part of this Act, the Secretary of State may make a recognition order if it appears to him from the information furnished by the exchange making the application and having regard to any other information in his possession that the requirements of Schedule 4 to this Act are satisfied as respects that exchange.

• (5) Where the Secretary of State refuses an application for a recognition order he shall give the applicant a written notice to that effect stating the reasons for the refusal.

• (6) A recognition order shall state the date on which it takes effect

• (7) A recognition order may be revoked by a further order made by the Secretary of State if at any time it appears to him—

• (a) that any requirement of Schedule 4 to this Act is not satisfied in the case of the exchange to which the recognition order relates ; or

• (b) that the exchange has failed to comply with any obligation to which it is subject by virtue of this Act;

and subsections (2) to (9) of section 11 above shall have effect in relation to the revocation of a recognition order under this subsection as they have effect in relation to the revocation of such an order under subsection (1) of that section.

• (8) Section 12 above shall have effect in relation to a recognised investment exchange and the requirements and obligations referred to in subsection (7) above as it has effect in relation to the requirements and obligations there mentioned.

Clearing houses

38

• (1) A recognised clearing house is an exempted person as respects anything done by it in its capacity as a person providing clearing services for the transaction of investment business.

• (2) In this Act references to the rules of a clearing house are references to the rules made or conditions imposed by it with respect to the provision by it or its members of clearing services under clearing arrangements, that is to say, arrangements with a recognised investment exchange for the provision of clearing services in respect of transactions effected on the exchange.

• (3) In this Act references to guidance issued by a clearing house are references to guidance issued or any recommendation made by it to all or any class of its members or persons using or seeking to use its services and which would, if it were a rule, fall within subsection (2) above.

Grant and revocation of recognition

39

• (1) Any body corporate or unincorporated association may apply to the Secretary of State for an order declaring it to be a recognised clearing house for the purposes of this Act.

• (2) Subsections (2) to (5) of section 9 above shall have effect in relation to an application under subsection (1) above as they have effect in relation to an application under subsection (1) of that section ; and any application under subsection (1) above shall be accompanied by—

• (a) a copy of the applicant's rules;

• (b) a copy of any guidance issued by the applicant which is intended to have continuing effect and is issued in writing or other legible form; and

• (c) particulars of any recognised investment exchange with which the applicant proposes to make clearing arrangements and of any other person (whether or not such an exchange) for whom the applicant provides clearing services.

• (3) The Secretary of State may, on an application duly made in accordance with subsection (1) above and after being furnished with all such information as he may require in connection with the application, make or refuse to make an order (" a recognition order ") declaring the applicant to be a recognised clearing house for the purposes of this Act.

• (4) Subject to Chapter XIV of this Part of this Act, the Secretary of State may make a recognition order if it appears to him from the information furnished by the clearing house making the application and having regard to any other information in his possession that the clearing house—

• (a) has financial resources sufficient for the proper performance of its functions;

• (b) has adequate arrangements and resources for the effective monitoring and enforcement of compliance with its rules or, as respects monitoring, arrangements providing for that function to be performed on behalf of the clearing house (and without affecting its responsibility) by another body or person who is able and willing to perform it;

• (c) provides or is able to provide clearing services which would enable a recognised investment exchange to make arrangements with it that satisfy the requirements of Schedule 4 to this Act; and

• (d) is able and willing to comply with duties corresponding to those imposed in the case of a recognised investment exchange by paragraph 5 of that Schedule.

• (5) Where the Secretary of State refuses an application for a recognition order he shall give the applicant a written notice to that effect stating the reasons for the refusal.

• (6) A recognition order shall state the date on which it takes effect

• (7) A recognition order may be revoked by a further order made by the Secretary of State if at any time it appears to him—

• (a) that any requirement of subsection (4) above is not satisfied in the case of the clearing house ; or

• (b) that the clearing house has failed to comply with any obligation to which it is subject by virtue of this Act;

and subsections (2) to (9) of section 11 above shall have effect in relation to the revocation of a recognition order under this subsection as they have effect in relation to the revocation of such an order under subsection (1) of that section.

• (8) Section 12 above shall have effect in relation to a recognised clearing house and the requirements and obligations referred to in subsection (7) above as it has effect in relation to the requirements and obligations there mentioned.

Overseas investment exchanges and clearing houses

40

• (1) Any application under section 37(1) or 39(1) above by a body or association whose head office is situated in a country outside the United Kingdom shall contain the address of a place in the United Kingdom for the service on that body or association of notices or other documents required or authorised to be served on it under this Act.

• (2) In relation to any such body or association sections 37(4) and 39(4) above shall have effect with the substitution for the requirements there mentioned of the following requirements, that is to say—

• (a) that the body or association is, in the country in which its head office is situated, subject to supervision which, together with the rules and practices of that body or association, is such that investors in the United Kingdom are afforded protection in relation to that body or association at least equivalent to that provided by the provisions of this Act in relation to investment exchanges and clearing houses in respect of which recognition orders are made otherwise than by virtue of this subsection ; and

• (b) that the body or association is able and willing to cooperate, by the sharing of information and otherwise, with the authorities, bodies and persons responsible in the United Kingdom for the supervision and regulation of investment business or other financial services; and

• (c) that adequate arrangements exist for such co-operation between those responsible for the supervision of the body or association in the country mentioned in paragraph (a) above and the authorities, bodies and persons mentioned in paragraph (b) above.

• (3) In determining whether to make a recognition order by virtue of subsection (2) above the Secretary of State may have regard to the extent to which persons in the United Kingdom and persons in the country mentioned in that subsection have access to the financial markets in each others' countries.

• (4) In relation to a body or association declared to be a recognised investment exchange or recognised clearing house by a recognition order made by virtue of subsection (2) above—

• (a) the reference in section 36(2) above to the matters dealt with in Schedule 4 to this Act shall be construed as a reference to corresponding matters ;

• (b) sections 37(7) and (8) and 39(7) and (8) above shall have effect as if the requirements mentioned in section 37(7)(fl) and in section 39(7)(a) were those of subsection (2)(a) and (b) above ; and

• (c) the grounds on which the order may be revoked under section 37(7) or 39(7) above shall include the ground that it appears to the Secretary of State that revocation is desirable in the interests of investors and potential investors in the United Kingdom.

• (5) In this section " country " includes any territory or any part of a country or territory.

• (6) A body or association declared to be a recognised investment exchange or recognised clearing house by a recognition order made by virtue of subsection (2) above is in this Act referred to as an " overseas investment exchange " or an " overseas clearing house ".

Notification requirements

41

• (1) The Secretary of State may make regulations requiring a recognised investment exchange or recognised clearing house to give him forthwith notice of the occurrence of such events relating to the exchange or clearing house as are specified in the regulations and such information in respect of those events as is so specified.

• (2) The Secretary of State may make regulations requiring a recognised investment exchange or recognised clearing house to furnish him at such times or in respect of such periods as are specified in the regulations with such information relating to the exchange or clearing house as is so specified.

• (3) The notices and information required to be given or furnished under the foregoing provisions of this section shall be such as the Secretary of State may reasonably require for the exercise of his functions under this Act.

• (4) Regulations under the foregoing provisions of this section may require information to be given in a specified form and to be verified in a specified manner.

• (5) Where a recognised investment exchange—

• (a) amends, revokes or adds to its rules or guidance; or

• (b) makes, terminates or varies any clearing arrangements,

it shall within seven days give written notice to the Secretary of State of the amendment, revocation or addition or, as the case may be, of the matters mentioned in paragraph (b) above.

• (6) Where a recognised clearing house—

• (a) amends, revokes or adds to its rules or guidance ; or

• (b) makes a change in the persons for whom it provides clearing services,

it shall within seven days give written notice to the Secretary of State of the amendment, revocation or addition or, as the case may be, of the change.

• (7) Notice need not be given under subsection (5) or (6) above of the revocation of guidance other than such as is mentioned in section 37(2)(b) or 39(2)(b) above or of any amendment of or addition to guidance which does not result in or consist of such guidance as is there mentioned.

Other exemptions

Lloyd's

42

The Society of Lloyd's and persons permitted by the Council of Lloyd's to act as underwriting agents at Lloyd's are exempted persons as respects investment business carried on in connection with or for the purpose of insurance business at Lloyd's.

Listed money market institutions

43

• (1) A person for the time being included in a list maintained by the Bank of England for the purposes of this section (" a listed institution ") is an exempted person in respect of, and of anything done for the purposes of, any transaction to which Part I or Part II of Schedule 5 to this Act applies and in respect of any arrangements made by him with a view to other persons entering into a transaction to which Part III of that Schedule applies.

• (2) The conditions imposed by the Bank of England for admission to the list referred to in this section and the arrangements made by it for a person's admission to and removal from the list shall require the approval of the Treasury; and this section shall cease to have effect if that approval is withdrawn but without prejudice to its again having effect if approval is given for fresh conditions or arrangements.

• (3) The Bank of England shall publish the list as for the time being in force and provide a certified copy of it at the request of any person wishing to refer to it in legal proceedings.

• (4) Such a certified copy shall be evidence or, in Scotland, sufficient evidence of the contents of the list; and a copy purporting to be certified by or on behalf of the Bank shall be deemed to have been duly certified unless the contrary is shown.

Appointed representatives

44

• (1) An appointed representative is an exempted person as respects investment business carried on by him as such a representative.

• (2) For the purposes of this Act an appointed representative is a person—

• (a) who is employed by an authorised person (his " principal ") under a contract for services which—

• (i) requires or permits him to carry on investment business to which this section applies; and

• (ii) complies with subsections (4) and (5) below; and

• (b) for whose activities in carrying on the whole or part of that investment business his principal has accepted responsibility in writing; and the investment business carried on by an appointed representative as such is the investment business for which his principal has accepted responsibility.

• (3) This section applies to investment business carried on by an appointed representative which consists of—

• (a) procuring or endeavouring to procure the persons with whom he deals to enter into investment agreements With his principal or (if not prohibited by his contract) with other persons;

• (b) giving advice to the persons with whom he deals about entering into investment agreements with his principal or (if not prohibited by his contract) with other persons; or

• (c) giving advice as to the sale of investments issued by his principal or as to the exercise of rights conferred by an investment whether or not issued as aforesaid.

• (4) If the contract between an appointed representative and his principal does not prohibit the representative from procuring or endeavouring to procure persons to enter into investment agreements with persons other than his principal it must make provision for enabling the principal either to impose such a prohibition or to restrict the kinds of investment to which those agreements may relate or the other persons with whom they may be entered into.