FCA Part 4A permission for managing investments under FSMA 2000
The regulated activity of managing investments (including AIFs and UCITS) under the Financial Services and Markets Act 2000 (c.8), the requirement for FCA Part 4A permission, threshold conditions, the UK AIFM regime and depositary appointment, and the general prohibition in section 19 — operating without permission is an offence under section 23 and agreements may be unenforceable under sections 26 to 28.
Managing investments is a regulated activity under the Financial Services and Markets Act 2000 (FSMA) and the Regulated Activities Order. A firm that manages investments belonging to another person, in circumstances involving the exercise of discretion, must hold a Part 4A permission granted by the Financial Conduct Authority (FCA), unless it is exempt. This includes managing portfolios and, under the related regimes, managing alternative investment funds (AIFs) and UCITS schemes.
- Primary statutory source
- Financial Services and Markets Act 2000 (c.8), with the Regulated Activities Order 2001
- Regulator and permission
- FCA Part 4A permission (PRA also involved for dual-regulated firms)
- Regulated activity
- Managing investments (discretionary management of another person's investments); related activities for managing AIFs and UCITS
- General prohibition
- FSMA s.19 — no person may carry on a regulated activity in the UK by way of business unless authorised or exempt
- Threshold conditions
- An applicant for Part 4A permission must satisfy, and continue to satisfy, the threshold conditions (for example adequate resources, suitability and effective supervision)
- UK AIFM regime
- Managers of alternative investment funds are subject to the UK AIFM regime. Depending on assets under management a manager is either fully authorised or operates under the small AIFM registration regime
- Depositary appointment
- An authorised AIF generally requires a depositary to be appointed for safekeeping of assets and oversight duties
- Offence
- Carrying on the regulated activity without permission is a criminal offence under FSMA s.23
- Civil consequence
- Agreements made in breach of the general prohibition may be unenforceable against the customer (FSMA ss.26 to 28)
Permission and threshold conditions: To obtain a Part 4A permission to manage investments, a firm must apply to the FCA and demonstrate that it meets the threshold conditions and the FCA's rules. Permission is granted for specified regulated activities in relation to specified investments. A firm must operate within the scope of its permission (FSMA s.20).
AIFM regime and depositaries: A manager of one or more alternative investment funds is an alternative investment fund manager (AIFM) and is subject to the UK AIFM regime. Larger managers are fully authorised AIFMs. Smaller managers below the regime's thresholds may use the small AIFM regime. A depositary must generally be appointed for an authorised fund to provide independent safekeeping of the fund's assets and oversight of the manager.
General prohibition and consequences: Under section 19 of FSMA, managing investments by way of business without authorisation or exemption breaches the general prohibition. This is a criminal offence under section 23. In addition, under sections 26 to 28 an agreement made by a person carrying on the regulated activity in contravention of the general prohibition is unenforceable against the other party, who may recover money or property and compensation, although the court has a discretion to allow enforcement where it is just and equitable.