The place to check who can do what

For those who want to check who must be authorised or which activities are regulated the Perimeter Guidance Manual in the Handbook contains useful information, says Bill Warren

The word perimeter means measuring around and we normally associate it with the line that determines the boundaries of a piece of land,or encloses a geometrical shape.

The section of the Financial Services Authority’s Handbook entitled Perimeter Guidance Manual is not so much a defining boundary as guidance that surrounds the rest of the Handbook, aiming to clarify issues set out elsewhere in the sections that make up the regulatory framework.

Reading through the introduction to PERG, as it is known, there is a heavy emphasis on two aspects of the manual. First, it is evident it applies mainly to people who want to check whether they should be authorised or whether the communication they are seeking to make is a financial promotion subject to regulation. Second, it only represents the views of the FSA and would not bind the courts in an action for damages brought by a private person or in relation to the enforceability of a contract.

At first glance these topics may seem obsolete now that we have all made our regulatory choices and concerned ourselves with matters that would be handled by our solicitor. However, within PERG there is a wealth of information that could prove to be a useful reference point for anybody who wants to remind themselves or check on regulatory issues.

Currently there are eight PERG topics covering investments, insurance, financial promotions and mortgages. As stated earlier, much of the wording in PERG centres on the topics of what a regulated activity is and who needs to be authorised, but these are by no means obsolete questions now that we are more than one year into regulation.

Firms may change their business activity or their regulatory status and they need relevant information to help them continue to trade compliantly. New firms are constantly coming to the market and need to use this guidance often.

In addition, points are set out concisely, including lists and tables which are easily accessible for quick reference.

As an illustration of what PERG offers us professionals I intend to look at some of the topics included in the chapter on mortgages – PERG 4 – in a bit more detail.

In the introduction we find a useful list of the factors that determine whether a person needs to be authorised. Questions that need to be asked include – are their activities by way of business? Do they relate to a regulated mortgage contract? Are regulated mortgage activities being carried out?

The next section goes on to list the six regulated mortgage activities including arranging, advising, lending and administering, and where their full definitions can be found in law. It also summarises what is meant by the phrase, ‘by way of business’.

In the following section, we find laid out clearly what constitutes a regulated mortgage contract. In short, this is where the borrower is an individual or trustees rather than a business, where the mortgage is a first legal charge on land in the UK and where at least 40% of the land is used or is intended to be used by the borrower or a related person. This last condition is now, of course, familiar to us as regulated mortgage contract rules including defining which buy-to-let loans are regulated and which are not.

We are also reminded in this section that loans made for business purposes to sole traders or partnerships that are secured on borrowers’ homes are regulated mortgage contracts and that the purpose of the loan does not affect the regulated status of a loan. Debt consolidation and the purchase of other goods and services get a mention here. This section also includes the notable exceptions to the definition of a regulated mortgage contract: second charge loans, loans secured on commercial premises and home reversion schemes, though the last of these will be regulated soon.

PERG 4 goes on to cover arranging and advising on mortgage contracts and many more topics. Included among these, and of special interest to mortgage brokers, are PERG 4.12 on appointed representatives and PERG 4.15 which sets out the role of packagers and mortgage clubs and which of their activities are regulated.

This has been just a short dip into the perimeter guidance section of the Handbook but I believe it shows how PERG could provide some useful bedtime reading.