When previously a regulated entity may have turned a blind eye on the activities of the Third Party, a prudent regulated entity will now actively need to monitor the activities of the Third Party to ensure the general prohibition is not breached.
It is worth looking at the decision at the specifics of how the Third Party came to have breached the general prohibition in this case in order to avoid the same difficulties.
The two regulated activities the court considered were:
- Advising on investments (defined in Article 53 of the FSMA Regulated Activities Order 2001(“RAO”));
- Arranging investments (defined in Article 25 RAO.
The main point from the judgment is that the court took an expansive view on what was designated investment business.
By way of example, if the regulated activity involves the transfer out of regulated investments and movement of these as part of chain of activities leading to the ultimate investment then the court will look at the chain of events as a whole.
This means that attempts to try and exclude liability for various steps made within the chain of events may fail. In particular where advice on the unregulated investment justifies advice relating to the regulated investment then this will tend to form the conclusion of regulated advice being given.
Article 53 RAO
It is of note that the court held that the “simple giving of information without any comment will not normally amount to advice” but the “provision of information which is itself the product of selection involving a value judgment so that the information will tend to influence the decision of the recipient was capable of constituting advice.”
This is quite a wide definition and it is clear to see how a Third Party could quite easily step over the line into offering regulated advice. Casual conversations or emails by the Third Party could easily constitute regulated advice and open up liability for the regulated entity.
In summary, when viewed as a whole, the court held the Third Party had steered Mr Adams to move his monies to the Sipp in order to invest in the unregulated investment and this advice to move into the SIPP brought the activity into advising on a designated investment.
Article 25 RAO
The court considered if the Third Party arranged the Sipp and also if the Third Party did anything to “bring about” the transaction.
