The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017

In accordance with sections 137E(1)(a) and 429(1), (3) and (4) of, and paragraph 26(2) of Schedule 2 to, the Financial Services and Markets Act 2000, a draft of this Order was laid before Parliament and approved by a resolution of each House of Parliament.

Citation, commencement and interpretation

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• (1) This Order may be cited as the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017.

• (2) This Order comes into force—

• (a) on 1st April 2017 for the purposes of—

• (i) enabling applications to be made for a Part 4A permission, for a variation of a Part 4A permission or for an approval under section 59 of the Act[^f00002], or

• (ii) enabling such applications to be determined,

in relation to any specified activity or any specified investment amended or inserted by this Order;

• (b) on 1st April 2017 for the purposes of article 16; and

• (c) on 3rd January 2018 for all other purposes.

• (3) In this Order—

• “the Act” means the Financial Services and Markets Act 2000;

• “the Order” means the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001[^f00003].

Amendments to article 3 of the Order: interpretation

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• (1) Article 3(1) of the Order[^f00004] (interpretation) is amended as follows.

• (2) In the definition of “the Commission Regulation” for “1287/2006 of 10 August 2006” substitute “Commission Delegated Regulation of 25.4.2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive”[^f00005].

• (3) In the definition of “credit institution”—

• (a) in paragraph (a), for “(the text of which is set out in Schedule 3)” substitute “(the text of which is set out in Part 1 of Schedule 3) read with any directly applicable EU regulation made under Article 2.3 or 2.4 of the markets in financial instruments directive (and the text of Article 4 of the Commission Regulation is set out in Part 2 of Schedule 3)”;

• (b) in paragraph (b), after “markets in financial instruments directive” insert “read with any directly applicable EU regulation made under Article 2.3 or 2.4 of that directive”.

• (4) In the definition of “financial instrument” for “Chapter VI” substitute “Articles 5 to 8, 10 and 11”.

• (5) In the definition of “home Member State” for “Article 4.1.20” substitute “Article 4.1.55(a)”.

• (6) In the definition of “investment firm”—

• (a) in paragraph (a), for “(the text of which is set out in Schedule 3)” substitute “(the text of which is set out in Part 1 of Schedule 3) read with any directly applicable EU regulation made under Article 2.3 or 2.4 of the markets in financial instruments directive (and the text of Article 4 of the Commission Regulation is set out in Part 2 of Schedule 3)”;

• (b) in paragraph (c), after “that directive” insert “read with any directly applicable EU regulation made under Article 2.3 or 2.4 of the markets in financial instruments directive”.

• (7) In the definition of “investment services and activities”, in paragraph (a) for “Article 52 of Commission Directive 2006/73/EC of 10 August 2006” substitute “Article 9 of the Commission Regulation”.

• (8) In the definition of “market operator”—

• (a) for “Article 4.1.13” substitute “Article 4.1.18”;

• (b) in paragraph (a), for “(the text of which is set out in Schedule 3)” substitute “(the text of which is set out in Part 1 of Schedule 3) read with any directly applicable EU regulation made under Article 2.3 or 2.4 of the markets in financial instruments directive (and the text of Article 4 of the Commission Regulation is set out in Part 2 of Schedule 3)”;

• (c) in paragraph (b), after “that directive” insert “read with any directly applicable EU regulation made under Article 2.3 or 2.4 of the markets in financial instruments directive”.

• (9) In the definition of “multilateral trading facility” for “Article 4.1.15” in both places substitute “Article 4.1.22”.

• (10) In the definition of “overseas person” after “25D,” insert “25DA,”.

• (11) In the definition of “security” after “82” insert “or by article 82B”.

• (12) At the appropriate places insert—

• “alternative investment fund managers directive” means Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers[^f00006];
• “markets in financial instruments directive” means Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (recast)[^f00007];
• “markets in financial instruments regulation” means Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments[^f00008];
• “organised trading facility” means—an organised trading facility (within the meaning of Article 4.1.23 of the markets in financial instruments directive) operated by an investment firm, a credit institution or a market operator; ora facility which—is operated by an investment firm, a credit institution or a market operator which does not have a home Member State; andif its operator had a home Member State, would be an organised trading facility within the meaning of Article 4.1.23 of the markets in financial instruments directive;
• “structured deposit” means a deposit which is fully repayable at maturity on terms under which interest or a premium will be paid or is at risk, according to a formula involving factors such as—an index or combination of indices, excluding variable rate deposits whose return is directly linked to an interest rate index such as Euribor or Libor;a financial instrument or combination of financial instruments;a commodity or combination of commodities or other physical or non-physical non-fungible assets; ora foreign exchange rate or combination of foreign exchange rates;

Organised trading facility

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After article 25D of the Order[^f00009] (operating a multilateral trading facility), insert—

(25DA) (1) The operation of an organised trading facility on which non-equity MiFID instruments are traded is a specified kind of activity. (2) In paragraph (1) a “non-equity MiFID instrument” means any investment— (a) of the kind specified by article 77, 77A, 78, 79, 80, 81, 82B, 83, 84 or 85; or (b) of the kind specified by article 89 so far as relevant to an investment falling within sub-paragraph (a), that is a bond, a structured finance product (within the meaning of Article 2.1.28 of the markets in financial instruments regulation[^f00010]), an emission allowance, or a derivative (within the meaning of Article 2.1.29 of the markets in financial instruments regulation).

Structured deposits

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• (1) In article 21(1) of the Order[^f00011] (dealing in investments as agent), after “securities” insert “, structured deposits”.

• (2) In article 25 of the Order (arranging deals in investments)—

• (a) in paragraph (1)—

• (i) omit “or” at the end of sub-paragraph (b);

• (ii) after sub-paragraph (c) insert—

, or (d) a structured deposit,

• (b) in paragraph (2), for “or (c)” substitute “, (c) or (d)”.

• (3) In article 37(a) of the Order (managing investments), after “security” insert “, structured deposit”.

• (4) In article 53(1)(b)(i) of the Order (advising on investments) after “security” insert “, structured deposit”.

Amendments to article 72 of the Order: overseas persons

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• (1) Article 72[^f00012] of the Order (overseas persons) is amended as follows.

• (2) In paragraphs (1), (2), (3) and (4) for “or 25D” substitute “, 25D or 25DA”.

• (3) After paragraph (10) insert—

(11) This Article does not apply where the overseas person is— (a) a third-country firm, as defined by Article 4.1.57 (“definitions”) of the markets in financial instruments directive (“third country firm”); (b) established in a country subject to an equivalence decision; and (c) carrying on an activity a third country firm established in that third country may carry on by virtue of the equivalence decision under— (i) Article 46.1 of the markets in financial instruments regulation (general provisions) if it is registered by ESMA in the register of third country firms established in accordance with Article 48 of that Regulation (register); (ii) Article 47.3 of the markets in financial instruments regulation (equivalence decision) if it has a branch in an EEA State other than the United Kingdom and is authorised in that State in accordance with Article 39 of the markets in financial instruments directive (establishment of a branch); or (iii) Article 46.5 of the markets in financial instruments regulation. (12) For the purposes of paragraph (11)— (a) “equivalence decision” means a decision adopted by the Commission in relation to a country under Article 47.1 of the markets in financial instruments regulation which has not been withdrawn by a subsequent decision adopted by the Commission under that Article; and (b) a country is subject to an equivalence decision if a period of more than three years has elapsed since the adoption of the decision by the Commission, beginning on the day after the date of the adoption of the decision.

Emission allowances

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After article 82A of the Order[^f00013] (greenhouse gas emissions allowances), insert—

(82B) (1) Subject to paragraph (2), emission allowances consisting of any units recognised for compliance with the requirements of the emission allowance trading directive. (2) Paragraph (1) only applies to emission allowances in relation to which— (a) an investment firm or credit institution is providing or performing investment services and activities on a professional basis; (b) a management company is providing, in accordance with Article 6.3 of the UCITS directive, the investment services specified in paragraph 4 or 5 of Section A, or the ancillary service specified in paragraph 1 of Section B, of Annex 1 to the markets in financial instruments directive; (c) a market operator is providing the investment service specified in paragraph 8 or 9 of Section A of Annex 1 to the markets in financial instruments directive; or (d) an AIFM is providing, in accordance with Article 6.4 of the alternative investment fund managers directive the investment service specified in paragraph 1, 4 or 5 of Section A, or the ancillary service specified in paragraph 1 of Section B, of Annex I to the markets in financial instruments directive.

Amendments to article 83 of the Order: options

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• (1) Article 83 of the Order[^f00014] (options) is amended as follows.

• (2) In paragraph (1)(e)—

• (a) after “directive” insert “read with Articles 5, 6, 7 and 8 of the Commission Regulation”;

• (b) for “the text of which is set out in Part I” substitute “the texts of which are set out in Parts 1 and 2”.

• (3) In paragraph (2)(d)—

• (a) in paragraph (i), after “Schedule 2” insert “(read with Articles 5 and 6 of the Commission Regulation)”;

• (b) in paragraph (ii), for “38” substitute “7”.

• (4) In paragraph (3)(c), after “with” insert “Articles 7 and 8 of”.

• (5) In paragraph (4)—

• (a) omit “or” at the end of sub-paragraph (b);

• (b) in sub-paragraph (c), for “paragraph 8” substitute “paragraph 8 or 9”;

• (c) after sub-paragraph (c) insert—

, or (d) an AIFM is providing, in accordance with Article 6.4 of the alternative investment fund managers directive the investment service specified in paragraph 1, 4 or 5 of Section A, or the ancillary service specified in paragraph 1 of Section B, of Annex I to the markets in financial instruments directive.

Amendments to article 84 of the Order: futures

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• (1) Article 84 of the Order[^f00015] (futures) is amended as follows.

• (2) In paragraph (1A)(d), after “directive” insert (read with Articles 5 and 6 of the Commission Regulation)”.

• (3) In paragraph (1B)(d), for “38” substitute “7”.

• (4) In paragraph (1C)(c), after “with” insert “Articles 7 and 8 of”.

• (5) After paragraph (1C), insert—

(1CA) Subject to paragraph (1D), any other derivative contract, relating to currencies to which paragraph 4 of Section C of Annex 1 to the markets in financial instruments directive read with Article 10 of the Commission Regulation (the texts of which are set out in Parts 1 and 2 of Schedule 2) applies.

• (6) In paragraph (1D)—

• (a) for “and (1C)” substitute “, (1C) and (1CA)”;

• (b) for “or forwards” substitute “, forwards or derivative contracts”;

• (c) omit “or” at the end of sub-paragraph (b);

• (d) in sub-paragraph (c), for “paragraph 8” substitute “paragraph 8 or 9”;

• (e) after sub-paragraph (c) insert—

, or (d) an AIFM is providing, in accordance with Article 6.4 of the alternative investment fund managers directive the investment service specified in paragraph 1, 4 or 5 of Section A, or the ancillary service specified in paragraph 1 of Section B, of Annex I to the markets in financial instruments directive.

• (7) In paragraph (1E), for “(IC)” substitute “(1CA)”.

Amendments to article 85 of the Order: contracts for differences

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• (1) Article 85 of the Order[^f00016] (contracts for differences etc.) is amended as follows.

• (2) In paragraph (4)—

• (a) omit “or” at the end of sub-paragraph (b);

• (b) in sub-paragraph (c), for “paragraph 8” substitute “paragraph 8 or 9”;

• (c) after sub-paragraph (c) insert—

, or (d) an AIFM is providing, in accordance with Article 6.4 of the alternative investment fund managers directive the investment service specified in paragraph 1, 4 or 5 of Section A, or the ancillary service specified in paragraph 1 of Section B, of Annex I to the markets in financial instruments directive.

• (3) After paragraph (4) insert—

(4A) Subject to paragraph (4B), a derivative contract of a binary or other fixed outcomes nature— (a) to which paragraph (1) does not apply; (b) which is settled in cash; and (c) which is a financial instrument to which paragraph 4, 5, 6, 7 or 10 of Section C of Annex I to the markets in financial instruments directive read with Articles 5 to 8 and 10 of the Commission Regulation (the texts of which are set out in Parts 1 and 2 of Schedule 2) applies. (4B) Paragraph (4A) only applies to derivatives in relation to which— (a) an investment firm or credit institution is providing or performing investment services and activities on a professional basis, (b) a management company is providing, in accordance with Article 6.3 of the UCITS directive, the investment service specified in paragraph 4 or 5 of Section A, or the ancillary service specified in paragraph 1 of Section B, of Annex I to the markets in financial instruments directive, (c) a market operator is providing the investment service specified in paragraph 8 or 9 of Section A of Annex I to the markets in financial instruments directive, (d) an AIFM is providing, in accordance with Article 6.4 of the alternative investment fund managers directive the investment service specified in paragraph 1, 4 or 5 of Section A, or the ancillary service specified in paragraph 1 of Section B, of Annex I to the markets in financial instruments directive, or (e) a person is carrying on the activity specified by article 25(2).

Amendments to Schedule 2 to the Order

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• (1) Schedule 2 to the Order[^f00017] (Sections A and C of Annex I to the markets in financial instruments directive and related Community subordinate legislation) is amended as follows.

• (2) In the heading, for “Community” substitute “EU”.

• (3) In Part 1 of Schedule 2 (Section C of Annex I to the markets in financial instruments directive)—

• (a) in paragraph 4, after “or yields,” insert “emission allowances”;

• (b) in paragraph 5—

• (i) for “forward rate agreements” substitute “forwards”;

• (ii) for “otherwise” substitute “other”;

• (c) in paragraph 6—

• (i) for “contracts” substitute “contract”;

• (ii) for “and/or an MTF” substitute “, an MTF, or an OTF, except for wholesale energy products traded on an OTF that must be physically settled”;

• (d) for paragraph 7 substitute—

(7) Option, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 of this Section and not being for commercial purposes, which have the characteristics of other derivative financial instruments;

• (e) for paragraph 10 substitute—

(10) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event, as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market, OTF, or an MTF;

• (f) after paragraph 10 insert—