Explanatory note

The Order extends the activities that constitute the carrying on of investment business for the purposes of the Financial Services Act 1986 (c. 60)(“FSA”) to include first, certain specified activities carried out in relation to investment companies with variable capital and secondly, the custody of assets which include or could include investments.

With regard to the former, the Open-Ended Investment Companies (Investment Companies with Variable Capital) Regulations 1996 (S.I. 1996/2827) (“the ECA Regulations”) provide for the establishment for the first time in Great Britain of collective investment schemes which take the form of open-ended investment companies. The ECA Regulations were made under section 2(2) of the European Communities Act 1972 (c. 68) in order to give effect to Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (known as “the UCITS Directive”). The companies established in accordance with the ECA Regulations are referred to in the Regulations as “investment companies with variable capital”. The ECA Regulations (paragraph 22 of Schedule 8) amend section 207 of the Financial Services Act (interpretation) so as to give the terms “investment companies with variable capital” and “depositary”, when used in relation to such companies, the same meaning in the Act as they have in the Regulations.

So far as custody is concerned, the Order brings within the scope of the FSA the safeguarding and administration of assets where those assets include or could include investments. The activities of nominees and sub-custodians are excluded where a primary custodian takes responsibility for that activity. In addition certain other activities are excluded from the definition of administration and the making of arrangements. The Order amends the provisions in Parts III and IV of Schedule 1 to the FSA by providing exceptions relating to services provided to other members of the same group, to fellow participators in a joint enterprise, to custody provided in connection with a sale of goods or supply of services or an employees’ share scheme, to services provided by persons when acting as trustees or personal representatives, to services provided in the course of a profession or non-investment business where the services are a necessary adjunct to the provision of professional or other non-investment business services, to services provided for a group pension fund by certain insurance companies, and to services provided by a person who does not have a permanent place of business in the United Kingdom who has either not solicited persons for the purposes of providing the service or who has legitimately solicited them.