Today, the Court of Appeal has handed down judgment in Personal Touch Financial Services Limited v Simplysure Limited & Another  EWCA Civ 461. The case concentrated on an important issue for financial services lawyers: the meaning and effect of Article 25 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO).
This is the first time that the Court of Appeal considered Article 25 of the RAO. In this article, we summarise the decision and explain why this is a welcome and sensible judgment from the Court of Appeal.
Personal Touch Financial Services Limited (PTFS) was (at all relevant times) authorised by the Financial Services Authority (now the Financial Conduct Authority (FCA)) under the Financial Services and Markets Act 2000 (FSMA). In 2006, PTFS entered into an agreement with SimplySure Limited (SimplySure). Under this agreement, SimplySure was appointed as a representative of PTFS "for the purpose of soliciting applications for the products detailed on the authorisation schedule". SimplySure was not authorised under FSMA (but later became authorised on 3 February 2009). It only sold private medical insurance.
SimplySure used employees or agents who were not authorised by PTFS to ask certain fact find questions. After a compliance visit, PTFS took the view that this was a breach of the appointed representative agreement because it breached Article 25 of the RAO.
Article 25 of the RAO states that:
(1) Making arrangements for another person (whether as principal or agent) to buy, sell, subscribe for or underwrite a particular investment which is -
(a) a security,
(b) a contractually based investment, or
(c) an investment of the kind specified by article 86, or article 89 so far as relevant to that article,
is a specified kind of activity.
(2) Making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments falling within clause (1)(a), (b) or (c) (whether as principal or agent) is also a specified kind of activity.
The Court of Appeal decided that the completion of the first part of the fact find by employees or agents of SimplySure not authorised by PTFS was a breach of the general prohibition in Section 19 of FSMA. The completion of the first part of the fact find, and arranging for an unauthorised person to visit or interview the person looking to buy private medical insurance fell into the regulated activity in Article 25(1), and Article 25(2), of the RAO. This is consistent with PERG 5.6.2 and PERG 5.6.4 in the FCA’s Perimeter Guidance Manual (called 'PERG').
The Court stated that the wording and scope of Article 25 "is deliberately wide" and, because some of the questions being put to the prospective customer required "a degree of specialist knowledge", the completion of these questions on the fact find was therefore a regulated activity.
This is a welcome and sensible decision from the Court of Appeal. Whilst firms accept that the FCA’s PERG provides the FCA’s non-binding views, it is often considered to have a similar (but not the same) weight as a decision from the Court. The fact that the Court of Appeal endorsed the analysis of PERG is therefore welcome for all firms which have relied on it as the proper interpretation of Article 25 of the RAO.
But, it is disappointing that the Court of Appeal did not consider, or express views on, the earlier High Court decisions in Re Inertia Partnership LLP  EWHC 502 (Ch) or Watersheds Limited v Da Costa  EWHC 1299 (QB). In Re Inertia, the Court decided that “arrangements” in Article 25 of the RAO was “capable of having an extremely wide meaning”. In Watersheds, the Court decided that corporate finance providers were not carrying out activities within Article 25, even though they were making more than a bare introduction.
The point at which an activity crosses the line (and into regulation) therefore remains uncertain.
For consumer finance providers, this decision is likely to mean the word "arrangements" remains broadly interpreted by the Court. This will be important if the proposed transfer of provisions from the Consumer Credit Act 1974 (CCA), and into the FCA Handbook, takes place towards the end of this decade.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.