UK

FCA Financial Promotions: FPO Definitions and Controlled Activities

Financial Promotion Order 2005: Definitions and Scope [Articles 1-4]

Rule: The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 defines what constitutes a “controlled activity” and “controlled investment” for purposes of the Section 21 restriction on financial promotions. These definitions determine when communications fall under FCA regulation.

Overview

The FPO 2005 is the key statutory instrument that:

  • Defines which activities are “controlled” for Section 21 purposes
  • Specifies which investments trigger financial promotion rules
  • Sets the boundaries of FCA’s promotional regulation
  • Provides exemptions from Section 21 (covered in exemptions.md)

Critical importance: If an activity or investment is NOT controlled under FPO 2005, Section 21 does NOT apply.

Article 1: Citation and Commencement

Full title: The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005

Commencement: July 1, 2005

Legal basis: Made under section 21(5) and (6) of FSMA 2000

Effect: This Order specifies controlled activities and investments for Section 21 restriction on financial promotions.

Article 2: General Interpretation

Key Definitions

TermDefinitionSignificance
”the Act”Financial Services and Markets Act 2000Primary legislation
”controlled activity”Activity specified in Article 4Determines if Section 21 applies
”controlled investment”Investment specified in Article 5-27Determines if Section 21 applies
”deposit”As in section 22 of the ActIncludes bank deposits, not just investments
”relevant insurance activity”Activity of effecting/carrying out insurance contractsInsurance-specific activities
”structured deposit”Deposit fully repayable with return linked to index/other valueHybrid product between deposit and investment

Article 2(2): Engaging in Activity

A person engages in a controlled activity if:

  • They engage in the activity in the United Kingdom, OR
  • They engage in the activity elsewhere but as a result of approach made in UK or approach made to person in UK

Territorial scope: Covers UK activities and overseas activities targeting UK persons.

Article 2(3): Controlled Investments

“Controlled investments” specified by reference to:

  • Specified Investments Order - SI 2001/544 Articles 3-89
  • Includes: shares, debentures, government securities, units in collective investment schemes, deposits, contracts of insurance, rights under pension schemes, etc.

Effect: Comprehensive list covering virtually all financial products.

Article 2(4): Invitations and Inducements

Communications include:

  • Invitations to engage in investment activity
  • Inducements to engage in investment activity
  • Both explicit and implicit invitations/inducements

“Invitation or inducement” is broadly construed - includes any communication encouraging person to take steps toward engaging in activity.

Article 3: Controlled Activities

Article 3(1): General Definition

Controlled activities are activities specified in Schedule 1 to the Order.

These activities, when communicated about, trigger Section 21 requirements.

Schedule 1: Specified Controlled Activities

Part I: Controlled Activities Relating to Investments

ActivityDescriptionExamples
Accepting depositsTaking deposits in course of deposit-taking businessBank accounts, savings accounts
Effecting/carrying out contracts of insuranceLife insurance and general insurance contractsLife policies, car insurance
Dealing in investmentsBuying, selling, subscribing for investments as principal or agentStock trading, bond dealing
Arranging deals in investmentsMaking arrangements for another person to dealBrokerage services
Managing investmentsManaging assets belonging to another personDiscretionary investment management
Safeguarding and administering investmentsCustody and administration of investmentsCustodian services
Advising on investmentsGiving advice on buying, selling, or holding investmentsFinancial advisers
Advising on syndicate participationLloyd’s syndicate adviceLloyd’s of London specific
Providing basic advice on stakeholder productsSimplified advice on stakeholder pensionsStakeholder pensions
Establishing collective investment schemesSetting up investment fundsUnit trusts, OEICs
Operating collective investment schemesManaging collective investment schemesFund operators
Acting as trustee/depositary of CISTrustee/depositary for investment fundsFund trustees
Sending dematerialised instructionsCREST settlement instructionsSecurities settlement
Establishing pension schemesSetting up occupational/personal pension schemesPension establishment
Providing credit information servicesCredit reference servicesCredit bureaus
Operating electronic system for lendingPeer-to-peer lending platformsP2P platforms
Debt adjustingNegotiating terms of debtDebt management plans
Debt counsellingGiving advice about liquidation of debtsDebt advice
Debt collectingTaking steps to procure payment of debtsDebt collection agencies
Debt administrationTaking steps to perform duties under debt agreementLoan servicing
Entering into regulated credit agreementsConsumer credit lendingPersonal loans, credit cards
Exercising/having right to exercise lender’s rightsDebt purchase and enforcementDebt buyers
Operating electronic system for business angelsCrowdfunding platforms for investmentEquity crowdfunding
Advising on conversion/transfer of pension benefitsPension transfer adviceDB to DC transfers
Providing funeral plan contractsPre-paid funeral plansFuneral plan providers

Part II: Controlled Claims Management Activities

ActivityDescription
Seeking out persons with claimsClaims farming
Advising on or investigating claimsClaims handling advice
Representing claimantsClaims representation services

Important: Claims management is now regulated by FCA (as of 2019).

Article 3(2): Exclusions

Certain activities are excluded from being controlled activities even if they would otherwise fall within Schedule 1:

  • Activities carried on in course of profession (solicitors, accountants - with limitations)
  • Activities carried on by appointed representatives
  • Certain overseas persons
  • Activities within group companies (limited exemption)

Effect: Not all apparent investment activities are “controlled” - exclusions matter.

Article 4: Controlled Investments

Article 4(1): General Definition

Controlled investments are investments specified in Schedule 1, Part II to the Specified Investments Order (SI 2001/544).

Specified Controlled Investments

Investment TypeArticle ReferenceExamples
DepositsArticle 5Bank deposits, building society deposits
Rights under a contract of insuranceArticles 10, 11, 12Life policies, general insurance
SharesArticle 14Company shares, stock
DebenturesArticle 15Corporate bonds, loan notes
Government and public securitiesArticle 16Gilts, treasury bonds
WarrantsArticle 17Share warrants, covered warrants
Certificates representing securitiesArticle 18Depositary receipts
Units in collective investment schemesArticle 21Unit trusts, OEICs, mutual funds
OptionsArticle 23Call/put options on securities, commodities
FuturesArticle 24Futures contracts
Contracts for differencesArticle 25CFDs, spread betting
Rights under pension schemesArticle 26Personal pensions, stakeholder pensions
Rights under funeral plan contractsArticle 27Pre-paid funeral plans
CryptoassetsArticle 28 (as amended 2023)Bitcoin, Ethereum, security tokens, utility tokens
Structured depositsArticle 5ADeposits with returns linked to indices

Article 4(2): Investment Tokens

As of October 8, 2023: “Cryptoassets” added as controlled investments.

Includes:

  • Security tokens (tokenized securities)
  • E-money tokens (stablecoins backed by fiat)
  • Utility tokens (if they provide rights or access)

Excludes:

  • Non-fungible tokens (NFTs) representing unique items (art, collectibles)
  • Central bank digital currencies (CBDCs)

Effect: Promotions of cryptoassets now subject to Section 21 and COBS 4 rules.

Article 4(3): Qualifying Contracts of Insurance

Insurance contracts are controlled investments when they are:

  • Long-term insurance contracts (life insurance, pensions)
  • General insurance contracts (property, liability, etc.)

Both UK and non-UK insurance contracts covered.

Practical Application

Does Section 21 Apply?

Three-part test:

  1. ✅ Is it a communication?

    • Written, oral, electronic, broadcast
    • Invitation or inducement (broadly construed)

  2. ✅ Does it relate to a controlled activity?

    • Check Article 3 and Schedule 1
    • Is the activity in the list of controlled activities?
    • Are any exclusions applicable?

  3. ✅ Does it relate to a controlled investment?

    • Check Article 4 and Specified Investments Order
    • Is the investment in the list of controlled investments?
    • Includes deposits, securities, insurance, pensions, crypto

If YES to all three → Section 21 applies → Must be authorized person OR exemption applies

Decision Tree

Communication about financial product/service
              ↓
    Is it a controlled activity? (Article 3)
              ↓
         YES        NO → Section 21 does NOT apply
              ↓
    Is it a controlled investment? (Article 4)
              ↓
         YES        NO → Section 21 does NOT apply
              ↓
    Section 21 APPLIES
              ↓
    Are you authorized? OR Does exemption apply?
              ↓
    NO → CANNOT make promotion (criminal offense)
              ↓
    YES → Must comply with COBS 4 rules

Common Scenarios

Example 1: Blog Post About Savings Accounts

Communication: “Open a savings account with 5% interest!”

Analysis:

  • Controlled activity? YES - accepting deposits (Article 3, Schedule 1)
  • Controlled investment? YES - deposits (Article 4, Article 5)
  • Section 21 applies? YES

Result: Must be made/approved by authorized person unless exemption applies.

Example 2: Social Media Post About Investing in Gold Bars

Communication: “Buy physical gold bars from our website”

Analysis:

  • Controlled activity? NO - physical gold is not a specified investment
  • Controlled investment? NO - physical commodities are not controlled investments
  • Section 21 applies? NO

Result: Section 21 does NOT apply (but general consumer protection law still applies).

Example 3: Promotion of Bitcoin Trading Platform

Communication: “Trade Bitcoin on our platform - sign up now!”

Analysis:

  • Controlled activity? YES - arranging deals in investments (Article 3)
  • Controlled investment? YES - cryptoassets (Article 4(2), since Oct 2023)
  • Section 21 applies? YES

Result: Must be made/approved by authorized person. Must comply with COBS 4 crypto rules.

Example 4: Pension Transfer Advice Advertisement

Communication: “Considering transferring your defined benefit pension? We can help.”

Analysis:

  • Controlled activity? YES - advising on conversion/transfer of pension benefits (Article 3)
  • Controlled investment? YES - rights under pension schemes (Article 4, Article 26)
  • Section 21 applies? YES

Result: Must be authorized to advise on pension transfers. High-risk activity with strict rules.

Example 5: Peer-to-Peer Lending Platform

Communication: “Earn 6% returns by lending to small businesses”

Analysis:

  • Controlled activity? YES - operating electronic system for lending (Article 3)
  • Controlled investment? YES - rights under consumer credit agreement (Article 4)
  • Section 21 applies? YES

Result: P2P platform must be authorized. Must comply with COBS 4 high-risk investment rules.

Why Definitions Matter

Legal certainty: Definitions establish bright-line rules for when Section 21 applies.

Scope determination: If activity/investment NOT controlled, Section 21 does NOT apply.

Criminal offense: Breaching Section 21 is a criminal offense with up to 2 years imprisonment.

Foundation for exemptions: All exemptions in Part VI of FPO 2005 assume you start with a controlled activity/investment.

Regulatory evolution: FCA can update definitions via amendments (e.g., crypto added in 2023).

Recent Changes

October 8, 2023: Cryptoassets Added

Amendment: SI 2023/1010 added cryptoassets as controlled investments.

Effect:

  • All crypto promotions now within Section 21 scope
  • Must be made/approved by authorized firm
  • COBS 4 rules apply (risk warnings, fair/clear/not misleading)
  • Restrictions on promotion to retail consumers

Rationale: Address surge in crypto promotions with inadequate risk disclosure.

February 1, 2024: Marketing Restriction on Mass-Market Cryptoassets

New rules: COBS 4.12A restricts promotion of “higher-risk” cryptoassets to retail.

Includes:

  • Non-security tokens (e.g., Bitcoin, Ethereum)
  • Utility tokens
  • Meme coins, DeFi tokens

Restrictions:

  • 24-hour cooling-off period
  • Risk acknowledgement required
  • Cannot use bonuses/incentives
  • Prohibited to mass-market retail (unless personalized and risk-appropriate)

Relationship with Other Regulations

Section 21 FSMA 2000: Primary legislation establishing the restriction.

COBS 4: FCA Handbook rules on content of financial promotions (once Section 21 satisfied).

Specified Investments Order: Defines the universe of regulated investments.

Exemptions Order (Part VI): Specifies when Section 21 does NOT apply despite controlled activity/investment.

PERG (Perimeter Guidance): FCA guidance manual explaining definitions and scope.

Common Mistakes

Mistake 1: Assuming physical commodities are controlled

  • Physical gold, silver, art, collectibles are NOT controlled investments
  • Section 21 does NOT apply to physical commodity sales
  • Exception: commodity derivatives (futures, options) ARE controlled

Mistake 2: Not recognizing deposits as controlled

  • “Just a bank account” - still a controlled investment
  • Promotions of deposit accounts must comply with Section 21
  • Many fintech apps make this mistake

Mistake 3: Thinking all insurance is controlled

  • Extended warranties are NOT insurance contracts (usually)
  • Section 21 only applies to actual insurance contracts
  • Distinction matters for consumer electronics warranties

Mistake 4: Missing cryptoasset scope (post-Oct 2023)

  • NFTs representing unique items (art) are NOT controlled
  • But NFTs representing fractional ownership of securities ARE controlled
  • Utility tokens ARE controlled if they provide economic rights

Mistake 5: Assuming B2B exempts from definitions

  • Definitions apply to ALL communications
  • B2B exemptions come from Part VI (exemptions), not definitions
  • Activity/investment must still be “controlled” for exemption to apply

Compliance Checklist

Step 1: Identify Controlled Activity

  • Review Article 3 and Schedule 1
  • Does communication relate to specified activity?
  • Check for exclusions (professionals, appointed reps)
  • Document reasoning

Step 2: Identify Controlled Investment

  • Review Article 4 and Specified Investments Order
  • Does communication relate to specified investment?
  • For crypto: is it a security token, e-money token, or utility token?
  • For deposits: includes structured deposits?
  • Document reasoning

Step 3: Apply Section 21 Framework

  • If BOTH controlled activity AND investment → Section 21 applies
  • If EITHER is not controlled → Section 21 does NOT apply
  • If Section 21 applies → check authorization or exemptions
  • If exempt → still comply with COBS 4 rules

Step 4: Document Analysis

  • Record activity classification
  • Record investment classification
  • Record Section 21 applicability conclusion
  • Record exemption analysis (if applicable)
  • Retain for regulatory review

Citation

Sources

Contains public sector information licensed under the Open Government Licence v3.0 where applicable. This is not legal advice. Always refer to official sources for authoritative text.

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