On January 10, the Law Society of England & Wales (Law Society) published its response to HM Treasury’s September 2016 consultation (Consultation) on amending the definition of “financial advice” for the purposes of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) (the UK legislation that defines which activities are regulated and with regard to which types of instruments, known in UK regulatory terminology as “the regulatory perimeter”). The Consultation’s aim was to bring the definition in the RAO in line with the definition set out in the Revised Markets in Financial Instruments Directive (MiFID II).

In its response, the Law Society calls for reconsideration of the regulatory perimeter under the Financial Services and Markets Act 2000 (FSMA) in light of the legislative changes needed to implement Brexit. The Law Society suggests that Brexit (in “whatever shape it takes”) provides an opportunity to review those parts of the RAO where there is overlap between activities that are regulated under EU law and UK legislation.

The Law Society acknowledges that the RAO is a very complicated piece of legislation, but suggests that there may be scope to simplify the following areas:

  • The “by way of business” test and, in particular, whether the test in article 3 of the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 provides any meaningful additional investor protection;
  • The regulated activities of dealing as principal, dealing as agent and arranging deals in investments, as specified in the RAO. The Law Society comments that it is difficult to see the extent to which they provide meaningful additional investor protection;
  • The definition of “collective investment scheme” and whether this definition, and the restriction on their promotion/ marketing, is necessary given the EU concepts of UCITS and alternative investment funds;
  • The territorial scope of the regulatory perimeter, particularly in relation to the activities of deposit-taking and insurance; and
  • The financial promotion regime. The Law Society’s comments may be read as criticism of these complex rules: “an entire chapter of [the FCA’s guidance manual on the regulatory perimeter] is required to make the financial promotion regime . . . comprehensible and, to the extent it is, workable”. The Law Society comments that there is no clear exemption for reverse solicitation or to allow the solicitation of expatriates by regulated businesses from their home jurisdictions—which appears to be at odds with the principles in the AIFM Directive and UCITS Directives.

The Consultation and the Law Society’s responses are available here and here.