The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2025

Amendments to Part 2: excluded activities and exceptions

9.—(1) In article 6 (excluded activities: general exceptions)—

(a) in paragraph (1), after sub-paragraph (bb), insert—

“(bc) any undertaking in which the ring-fenced body has a participating interest,”;

(b) in paragraph (2), after sub-paragraph (e), insert—

“(f) longevity risk;

(g) mortality risk.”;

(c) in paragraph (4), after sub-paragraph (a), insert—

“(aa) acquiring shares, debentures or instruments giving an entitlement to shares or debentures from an issuer where—

(i) the shares, debentures or instruments concerned are issued by the issuer,

(ii) the acquisition of the shares, debentures or instruments concerned is undertaken as part of a restructuring of debt owed by the issuer or another undertaking (“the debtor”) to the ring-fenced body or a subsidiary undertaking of the ring-fenced body,

(iii) the restructuring is undertaken when the debtor has encountered, or is likely to encounter, financial difficulties which may affect their ability to carry on business as a going concern, and

(iv) the purpose of the restructuring is to prevent or mitigate the effect of those financial difficulties;

(ab) acquiring shares or debentures from an issuer through the exercise of rights granted in an instrument giving an entitlement to such shares or debentures where the acquisition of that instrument is permitted under sub-paragraph (a) or (aa);

(ac) acquiring further shares issued by an issuer whose shares they have acquired pursuant to sub-paragraph (a), (aa) or (ab) provided that the ring-fenced body does not acquire more shares in the new issue than are required to maintain the percentage of its shareholding in the issuer;”;

(d) in paragraph (5)—

(i) renumber the words from “selling shares” to the end as sub-paragraph (a);

(ii) in sub-paragraph (a), as so renumbered, after “(4)(a)” insert “, (aa), (ab), (ac),”;

(iii) after sub-paragraph (a), as so renumbered, insert—

“(b) selling debentures acquired or held by the ring-fenced body in accordance with paragraph (4)(c), provided that the debenture is sold together with the loan, credit, guarantee or other similar financial accommodation referred to in paragraph (4)(c)(ii) to which the debenture relates.”;

(e) in paragraph (7), after “trustee” insert “or in Scotland, as a nominee,”;

(f) after paragraph (7), insert—

“(8) A ring-fenced body does not carry on an excluded activity by dealing in investments as principal—

(a) to remedy or prevent the failure of a transaction which it has or would have entered into as agent for a customer where the failure is or would have been due to a systems or operating error, provided that the investment concerned can be allocated to the customer and is so allocated as soon as practicable after the transaction, or

(b) to remedy a trade made by the ring-fenced body—

(i) as agent for a customer, and

(ii) as a result of an error of the ring-fenced body.

(9) A ring-fenced body does not carry on an excluded activity by dealing in investments as principal where—

(a) the ring-fenced body proposes to—

(i) launch a new product or service, or

(ii) make changes to an existing product or service,

(b) the ring-fenced body enters into a transaction to buy or sell a relevant security as principal,

(c) the only purpose of the transaction is to test the new or changed product or service, and

(d) the transaction concerns—

(i) a single relevant security, or

(ii) if it is not possible to buy or sell a single unit of the relevant security in question, the minimum amount of the relevant security which it is possible to buy or sell.

(10) In paragraph (9), “relevant security” means a security or contractually based investment, other than investments specified by article 87 or 89 of the Regulated Activities Order 2001(1), and for these purposes, “contractually based investment” has the meaning given in article 3(1) of the Regulated Activities Order 2001.”.

(2) In article 7(2) (excluded activities: securitisation and covered bonds), at the end, insert “or its conduit vehicles”.

(3) After article 7, insert—

“Excluded activities: SME exception

7A.— (1) A ring-fenced body does not carry on an excluded activity by entering into a transaction to—

(a) acquire or dispose of shares in a UK SME, provided that the ring-fenced body only has a minority interest in the UK SME concerned,

(b) invest in an SME investment undertaking by acquiring an interest in the SME investment undertaking, or disposing of that interest, provided that—

(i) the interest is not a debt instrument issued by the SME investment undertaking, and

(ii) where the SME investment undertaking is an investment company, the ring-fenced body only has a minority interest in the SME investment undertaking concerned, or

(c) acquire, dispose of or exercise rights under instruments giving an entitlement to shares issued by a UK SME in consideration or part consideration for a loan made by the ring-fenced body to the UK SME.

(2) Paragraph (1) does not apply unless the sum of the value of relevant investments held by the ring-fenced body does not exceed ten per cent of the value of the tier 1 capital of the ring-fenced body on a sub-consolidated basis where this is required under the prudential requirements regulation, and otherwise on an individual basis, for a continuous period of twelve months, and for these purposes—

(a) “relevant investments” means—

(i) shares, instruments giving an entitlement to shares or other interests acquired by the ring-fenced body under paragraph (1), and

(ii) shares in a UK SME acquired by the ring-fenced body under article 6(4)(d),

but does not include any shares in a UK SME during any time in which the UK SME is a subsidiary undertaking of the ring-fenced body, or in which the ring-fenced body has a participating interest in the UK SME;

(b) the value of relevant investments is their fair value, assessed in accordance with International Financial Reporting Standard 13 (fair value measurement) issued by the International Accounting Standards Board in May 2011, as amended from time to time;

(c) tier 1 capital has the meaning given in Article 25 of the prudential requirements regulation, and the value of the tier 1 capital of the ring-fenced body on an individual basis or a sub-consolidated basis, as applicable, is to be calculated in accordance with the prudential requirements regulation;

(d) references to holding capital on a sub-consolidated basis are to be interpreted in accordance with Article 4(1)(49) of the prudential requirements regulation.

(3) For the purposes of paragraph (1)(b), investing in an SME investment undertaking includes—

(a) the acquisition of shares or other interests issued by a parent undertaking of an SME investment undertaking, provided that the ring-fenced body only has a minority interest in that parent undertaking;

(b) the acquisition of an interest in a feeder scheme of an SME investment undertaking, provided that any master scheme in which the feeder scheme invests complies with all the conditions set out in paragraph (4).

(4) For the purposes of paragraph (3)(b), a “feeder scheme” means a collective investment scheme, which—

(a) invests at least 85% of the total property which is subject to the collective investment scheme in units or shares of—

(i) a single collective investment scheme (a “master scheme”), or

(ii) two or more master schemes which each have identical investment strategies, or

(b) has an exposure of at least 85% of its assets to such a master scheme.

(5) In this article, an “SME investment undertaking” means an eligible undertaking which satisfies all the following conditions—

(a) it has an investment strategy of investing at least 50% of its investment capital in UK SMEs;

(b) it does not at any time invest more than 50% of its investment capital in enterprises which are not UK SMEs;

(c) it does not have an investment strategy of investing in other eligible undertakings.

(6) For the purposes of this article—

(a) the “investment capital” of an eligible undertaking which is a collective investment scheme, or the sub-fund of a collective investment scheme, is the sum of—

(i) the capital which investors have provided for investment by the collective investment scheme, and

(ii) the capital which investors may be required to provide for such investment under the terms of their investment in the collective investment scheme,

after the deduction of all fees, charges and expenses which are directly or indirectly borne by investors and which are agreed between the manager of the collective investment scheme and the investors;

(b) the “investment capital” of an eligible undertaking which is an investment company is the sum of the assets of the investment company after the deduction of all fees, charges and expenses which are directly or indirectly borne by investors and which are agreed between the manager of the investment company and the investors;

(c) a ring-fenced body has a “minority interest” in an undertaking if—

(i) it does not hold a majority of the voting rights in that undertaking,

(ii) it is a member of the undertaking, but does not control alone, pursuant to an agreement with other members of the undertaking, a majority of the voting rights in that undertaking,

(iii) it is a member of the undertaking, but does not have the right to appoint or remove a majority of the board of directors, or equivalent management body, of that undertaking, and

(iv) it does not have the right to exercise, nor actually exercises, dominant influence or control over that undertaking.

(7) Schedule 7 to the Companies Act 2006 (parent and subsidiary undertakings: supplementary provisions(2)) applies for the interpretation of paragraph (6)(c).

(8) In this article—

“debt instrument” is—

(a)

a bond,

(b)

any other instrument creating or acknowledging a debt, or

(c)

an instrument giving rights to acquire a debt instrument;

“eligible undertaking” means—

(a)

a collective investment scheme(3),

(b)

the sub-fund of a collective investment scheme which is structured with a number of separate sub-funds, provided that the property subject to that sub-fund cannot be used to discharge any liabilities of, or meet any claims against, any person other than the participants in that sub-fund, and for the purposes of this sub-paragraph, “sub-fund” has the meaning given in section 90ZA(2) of the Act(4), or

(c)

an investment company, as defined by section 833(1) of the Companies Act 2006(5);

“UK SME” is an undertaking which—

(a)

is an SME at the time the ring-fenced body or SME investment undertaking first enters into a transaction to acquire shares, or instruments giving an entitlement to shares, in the undertaking, and

(b)

is registered in, and has its principal place of business in, the United Kingdom.”.

(4) In article 9(a) (excluded activities: derivatives), for “(2), or (3)” substitute “(2), (3) or (4)”.

(5) In article 10 (derivatives: forward contracts and swaps)—

(a) in paragraph (1)—

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

(ii) at the end of sub-paragraph (c), insert—

“or

(d) an inflation swap.”;

(b) in paragraph (2), after sub-paragraph (b), insert—

“(ba) “inflation swap” means a transaction under which one person (“A”) agrees with another person (“B”) that A is liable to pay B an amount calculated by reference to a fixed or variable rate on a specified notional sum over a specified period which does not exceed thirty years, and B is liable to pay A an amount calculated by reference to a variable rate, linked to a specified price index on that notional sum and over the same specified period, and for these purposes, “price index” means an index of prices which is used for the purposes of measuring inflation;”.

(6) In article 11 (derivatives: options and swaptions), after paragraph (3), insert—

“(4) The requirements listed in this paragraph are that—

(a) the transaction consists of a cap and a floor, related to two specified currencies under which—

(i) if, on the specified exercise date, the prevailing rate of exchange (“the spot FX rate”) between the two specified currencies is above the cap rate, the customer and the ring-fenced body will exchange the specified currencies at the cap rate,

(ii) if, on the specified exercise date, the spot FX rate between the two specified currencies is below the floor rate, the customer and the ring-fenced body will exchange the specified currencies at the floor rate, and

(iii) if, on the specified exercise date, the spot FX rate between the two specified currencies is neither above the cap rate nor below the floor rate, the customer and the ring-fenced body will not exchange the specified currencies;

(b) the agreement relating to the cap specifies—

(i) the two currencies to which the cap relates;

(ii) the applicable cap rate;

(iii) the exercise date;

(iv) the identity of the party purchasing the cap, which must be the ring-fenced body or a customer of the ring-fenced body;

(c) the agreement relating to the floor specifies—

(i) the two currencies to which the floor relates;

(ii) the applicable floor rate;

(iii) the exercise date;

(iv) the identity of the party purchasing the floor, which must be the ring-fenced body or a customer of the ring-fenced body.

(5) The requirements in paragraph (4)(b) and (c) may be satisfied by a single agreement specifying the provisions required for both the cap and the floor.”.

(1)

S.I. 2001/544, amended by S.I. 2010/86, 2011/133, 2687, 2014/1815, 2019/632. There are other amendments to S.I. 2001/544 not relevant to this Order.

(2)

2006 c. 46.

(3)

“Collective investment scheme” is defined in section 235 of the Financial Services and Markets Act 2000.

(4)

Section 90ZA was inserted by S.I. 2011/1613.

(5)

2006 c. 46. Section 833 has been amended by S.I. 2012/952.