This decision shines a spotlight on the activities of unregulated introducers.

By Rob Moulton, Nicola Higgs, and Charlotte Collins

In a recent decision, the Court of Appeal upheld the FCA’s findings that unregulated introducers had been carrying on regulated activities without permission by persuading individuals to transfer their personal pensions into alternative investment products and assisting them with this process. The case turned on the interpretation of the regulated activity of making arrangements with a view to transactions in investments. The ruling is significant because a number of High Court cases appear to have taken somewhat different approaches, and the Court of Appeal’s broad interpretation of this activity shines a spotlight on the business of unregulated introducers who take steps beyond the initial introduction. Both introducers and regulated firms that rely on referrals from introducers need to understand the scope of activities that unregulated introducers can legitimately carry on.


Avacade Limited, and subsequently another business trading as Avacade Future Solutions (together, Avacade) were run by a father and son. Avacade operated a business scheme whereby individuals were persuaded to transfer their pensions into self-invested personal pensions (SIPPs), and to direct the purchase of investments within those SIPPs into alternative investments. Avacade principally made its money from the commissions on these investment products, paid to them by the promoters of the investments.

Broadly, Avacade operated by contacting individuals about their pensions, gathering information from their pension providers, and producing a report setting out various options. Avacade then followed up with a call that suggested to these individuals that transferring their pension funds to a SIPP was the best course of action. Avacade arranged the necessary transfer forms and sent these to the individual to sign. It also held an “Investment Call” with the individual to discuss the investments to be made with the funds transferred into the SIPP. During this call the Avacade agents gave advice recommending investment in the products from which Avacade would receive commission. Avacade took steps to supply paperwork relating to the investments to the individual for signature, and Avacade then coordinated with the product provider and the SIPP administrator.

Overall, more than 2,000 individuals transferred in excess of £90 million in pension funds into SIPPs as a result of Avacade’s activities. Avacade made over £11 million in commissions from this business. The largest investment product across both schemes lost all value, causing investors to lose large sums from their investments. The business came to an end following an FCA investigation.

Neither Avacade nor its directors had been authorised by the FCA to carry on regulated activities, and the FCA brought proceedings against them for arranging and promoting investments without FCA authorisation, and making false and misleading statements to investors. Specifically, the FCA alleged breaches of the general prohibition (section 19 of the Financial Services and Markets Act 2000 (FSMA)), the financial promotion restriction (section 21 of FSMA), and contraventions of section 89 of the Financial Services Act 2012 (and the preceding section 397 of FSMA) by making false or misleading statements to investors.

The High Court found breaches of all of these sections. In relation to section 19 of FSMA, the High Court found that the schemes had involved: (i) arranging deals in investments within the meaning of article 25(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO); and (ii) advising on investments within the meaning of article 53 of the RAO.

The defendants appealed against the finding that they had been arranging deals in investments pursuant to article 25(2) of the RAO, and so the case before the Court of Appeal dealt with that question.

The Judgment

The regulated activity in question under article 25(2) of the RAO relates to making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for, or underwriting certain specified investments. This is a separate regulated activity to that under article 25(1) of the RAO, which relates to making arrangements for another person to buy, sell, subscribe for, or underwrite a particular investment.

The appellants argued that:

  • Because there are criminal consequences to breaching the general prohibition under FSMA, the court should adopt a narrow construction of article 25(2), where there is ambiguity.
  • The words “making arrangements” in article 25(1) and 25(2) should be read consistently as having the same meaning.
  • Article 25(2) should be interpreted as requiring an instrumental link by way of causation between the arrangements and the potential investment activity they were to bring about.

However, the Court of Appeal rejected all of these arguments. The court held that it was not appropriate to adopt a narrow construction of article 25(2) simply because of the consequences; “What is required is simply a fair reading of the ordinary meaning of the words in the light of the overall purpose of the section in its statutory framework”.

Further, the court held that there are various relevant differences between article 25(1) and 25(2). In particular, article 26 of the RAO provides an exclusion for arrangements that do not or would not bring about the transactions to which the arrangements relate. However, this exclusion only applies in respect of article 25(1). The court held that the inference must be that there is no need to introduce any test of causation into 25(2), because “article 25(2) makes clear that it is concerned with the purpose of the arrangements. An intended purpose, an end in view, must be that a relevant transaction take place, but the arrangements do not need to bring it about by way of an actual or notional test of causation”. The court was satisfied that the arrangements made between Avacade, the individuals, the SIPP providers, and the product providers were with a view to the transfer of the individuals’ pensions into the SIPPs and their subsequent investment in the products. It held that this intention was all that needed to be established for article 25(2) to be engaged.

The appellants also argued that, because various steps in the process did not constitute regulated activities as the ultimate investments were not regulated products (which the FCA conceded), article 25(2) did not apply as the real purpose of the arrangements was to make these investments. The court held that this approach would ignore the reality of the schemes, and that because all of the steps formed part of a single set of arrangements, dividing up those steps for the purposes of applying article 25(2) was not appropriate. Therefore, article 25(2) was applicable to the overall arrangements, even though only the stage of entering into the SIPP involved a regulated investment and this was not the ultimate goal of the arrangements.

Although the issue was not properly argued because appeal on this point was not permitted, the appellants also sought to argue, as an alternative, that the High Court had erred in finding that the exemption in article 29 of the RAO was not applicable. Article 29 provides an exemption from article 25 in circumstances where the deal is arranged with or through an authorised person, and the appellants sought to rely on this exemption on the basis that the SIPP provider, and in some cases a firm of financial advisers, had been involved in the process. However, this exemption is not applicable if the person making the arrangements receives any pecuniary award or other advantage from making the arrangements for which that person does not account to the client.

The High Court had found that this exemption was not applicable because Avacade received a pecuniary award for the arrangements in the form of the commission earned. However, the appellants argued that the exemption was available as the commission did not relate to the step of the process that constituted a regulated activity (entering into the SIPPs). Again, the Court of Appeal rejected this approach, stating that the arrangements were an indivisible set of activities and must be looked at as a whole. Therefore, it was of the view that the commission should be regarded as arising from the arrangements as a whole and that article 29 was not applicable.


This case is important for unregulated introducers as it takes a very broad view of what will constitute making arrangements under article 25(2) of the RAO. The Court of Appeal took an expansive view of this provision, despite the serious consequences of breaching the general prohibition. Interestingly, this contrasts with the approach taken by the Supreme Court in Asset Land v. FCA, in which the court held that “The consequences of operating a collective investment scheme without authority are sufficiently grave to warrant a cautious approach to the construction of the extraordinarily vague concepts deployed in section 235 [of FSMA]”. This case similarly dealt with the question of whether regulated activities had been carried on without permission, and so involved the same potential criminal consequences.

Following this case, and other recent cases of a similar nature, unregulated introducers will need to think holistically about whether their activities in the round could amount to making arrangements with a view to transactions in investments, even if various elements of their activities do not involve regulated investments. While many would not argue with the outcome of this case, it is not clear to what extent a consumer protection motive has influenced the courts, and whether the courts would take the same approach in less egregious circumstances. Cases that now reach the High Court hopefully can be decided on consistent grounds.

Regulated firms that have business associations with unregulated introducers also need to be aware of the implications of this case. Under FSMA, an agreement made between a person and an authorised firm in consequence of something said or done by a third party carrying on a regulated activity in contravention of the general prohibition is unenforceable as against that person. Therefore, in effect, a regulated firm may suffer the consequences of the involvement of an unregulated introducer who is carrying on regulated activities without permission.