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6.7 Regulatory Processes, Regulated Activities and Authorisation

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CeMAP Module 1 Financial Services, Regulation and Ethics

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1 Introduction

1.1 About the CeMAP Module 1 (FSRE) Exam 1.2 How to Use This Study Guide

2 UK Financial Services Industry and the Wider Economy

2.1 Purpose and Role of Money and Financial Markets 2.2 Structure of UK and International Financial Markets 2.3 Types of Main Markets and Market Participants 2.4 Asset Classes and Their Characteristics 2.5 The UK Government, EU Influence and International Standards 2.6 Bank of England, Financial Institutions and Financial Crime

3 Serving the Retail Consumer

3.1 Consumer Perceptions and Firm Obligations 3.2 Consumer Financial Needs and How They Are Met 3.3 Product Types and Their Functions

4 Legal Concepts for Financial Advice

4.1 Legal Entities and Powers of Attorney 4.2 Law of Contract and Agency 4.3 Property Ownership, Insolvency and Bankruptcy 4.4 Wills and Intestacy 4.5 Trusts: Structure, Purpose and Types

5 Development of UK Financial Services Regulation

5.1 History of UK Regulation 1986–2021 5.2 The UK Regulatory Framework and Other Regulators 5.3 Additional Oversight: Senior Management, Auditors, Trustees and External Compliance

6 The FCA and PRA and Their Handbook

6.1 FCA and PRA: Statutory and Operational Objectives 6.2 Principles-Based Regulation, Duties and Enforcement Powers 6.3 Purpose and Structure of the FCA Handbook 6.4 High-Level Standards and the Training and Competence (T&C) Regime 6.5 Prudential Standards, CASS and the SMCR 6.6 Conduct of Business (COBS) Rules 6.7 Regulatory Processes, Regulated Activities and Authorisation

7 Advising Clients: Skills and Process

7.1 Communication Skills for Advisers 7.2 Gathering Information and the Fact-Find 7.3 Assessment, Analysis and Identifying Appropriate Solutions 7.4 Recommendations, Conclusions and Insistent Clients

8 Principles for Businesses and Conduct Rules

8.1 Principles for Businesses and Conduct of Business Rules 8.2 Preventing Harm, the Market Conduct Code (MAR) and Conduct Risk 8.3 Corporate Culture, Leadership and Senior Management Responsibilities 8.4 Consumer Rights and Unfair Contract Terms

9 Regulatory Framework Rules and Consumer Protection

9.1 Record Keeping, Reporting and Notification Requirements 9.2 Anti-Money Laundering and Proceeds of Crime 9.3 Data Protection and Data Security 9.4 Complaint Handling and the Financial Ombudsman Service 9.5 FSCS, Treating Customers Fairly and Conduct Risk

10 The Regulatory Advice Framework

10.1 Client Relationships, Adviser Responsibilities and Types of Clients 10.2 Fiduciary Relationships and Types of Service Provision 10.3 Disclosure Requirements and Adviser Charging 10.4 Limitations to Authority, Cancellation Rights and Vulnerable Clients 10.5 Regulated Advice Standards and Due Diligence on Products 10.6 Monitoring and Reviewing Client Circumstances

11 Ethics and Professional Behaviour

11.1 Core Ethical Theories, Principles and Values 11.2 Impact of Ethical Principles and Professional Codes of Conduct 11.3 The Code of Ethics and Resolving Ethical Dilemmas 11.4 Business Ethics, Whistleblowing and Ethical Culture 11.5 Professionalism, CPD and Ethical vs Compliance-Driven Behaviour

6.7 Regulatory Processes, Regulated Activities and Authorisation

Key Takeaways Explain This Topic AI

Under FSMA s.22, an activity is a regulated activity if it is specified in the Regulated Activities Order 2001 (RAO), carried on by way of business, and relates to a specified investment in Schedule 2 to the RAO

Specified activities include dealing as agent or principal, arranging deals, managing investments, advising on investments, administering investments and safeguarding assets

Authorisation is granted under s.31 FSMA only where the applicant meets the five Threshold Conditions in COND 2: effective supervision, appropriate resources, suitability, location, and close links

Firms can vary permissions under s.42 FSMA, must notify the FCA of changes (SUP 15), and individual SMFs require FCA approval via Form A

Authorisation can be lost through voluntary cancellation (s.40), FCA withdrawal (s.4), or intervention (s.45/s.55J); the Financial Services Register is the authoritative source

Last updated: July 2026

A person cannot carry on a regulated activity in the UK by way of business unless they are authorised by the FCA (or PRA, where applicable), exempt, or otherwise outside the regulatory perimeter. The authorisation process — the gateway — is the FCA's first and most important consumer protection tool. This section sets out what counts as a regulated activity, how authorisation is obtained, and how it can be varied, suspended or cancelled.

Regulated Activities and Specified Investments

Section 22 FSMA provides that an activity is a regulated activity if:

  • It is specified in an order made by the Treasury (the Regulated Activities Order 2001 , or RAO )
  • It is carried on by way of business
  • It relates to a specified investment (also defined in the RAO)

The RAO has two key parts:

Part 1 — Specified Investments

The list of specified investments in Schedule 2 to the RAO includes:

  • Deposits (bank accounts)
  • Rights under a contract of insurance (life, general, long-term)
  • Shares (equity)
  • Bonds and other debt instruments
  • Units in a collective investment scheme (e.g. OEICs, unit trusts)
  • Options (including traded options)
  • Futures
  • Rights under a pension scheme
  • Certificated securities and dematerialised securities
  • Contracts for differences (CFDs)
  • Cryptoassets (extended 2024 onwards)
  • Part 2 — Specified Activities

The activities that are regulated when carried on in relation to a specified investment include:

  • Activity RAO Paragraph
  • Dealing in investments as agent para 3
  • Dealing in investments as principal para 4
  • Arranging deals in investments para 14
  • Managing investments para 9
  • Advising on investments para 8
  • Administering investments para 18
  • Safeguarding and administering investments para 17
  • Operating a multilateral trading facility para 25
  • Establishing, operating or winding up a collective investment scheme para 11
  • Sending dematerialised instructions para 26

For mortgage advisers, the regulated activity most often engaged in is advising on regulated mortgage contracts and arranging or bringing about regulated mortgage contracts. The definition of regulated mortgage contract is in the RAO at paragraph 12A and Article 61.

The Authorisation Process

A firm must be authorised before it carries on a regulated activity. The application is made under s.31 FSMA . The FCA will grant permission only where it is satisfied the applicant meets the Threshold Conditions in COND 2 .

The Five Threshold Conditions

  • Condition Summary
  • Effective supervision (COND 2.4) The firm must be capable of being effectively supervised by the FCA
  • Appropriate resources (COND 2.5) Adequate financial and non-financial resources
  • Suitability (COND 2.6) The firm and its managers must be suitable (fitness and propriety)
  • Location (COND 2.7) The firm must be in the UK (or have a UK place of business)
  • Close links (COND 2.8) Any close links with other persons must not prevent effective supervision
  • Application Process

The standard application path is:

Pre-application — the firm engages with the FCA's authorisations team, often via the Innovate or Startup Support route

Application submission via the Connect system, including business plan, financial projections, governance, and details of SMF candidates

  • Case officer assessment — the FCA reviews and asks questions
  • Decision within 6 months for standard cases, 12 months for complex cases (s.41 FSMA)
  • Determination — permission is granted, granted with conditions, or refused

The FCA operates a ready, willing and organised test — a firm that is not yet ready to start business may be refused or have its application held.

Variation of Permission

Once authorised, a firm can apply to vary its permission under s.42 FSMA — to add a regulated activity, change the investments it can hold, or remove a limitation. Variations are assessed against the same Threshold Conditions and can take 6-12 months for significant changes. A variation of permission application is a serious undertaking — the FCA may reject it and the firm may need to cease existing business if its permissions are removed.

Notifications

Authorised firms must notify the FCA of certain changes under SUP 15 :

Change of control (s.178 FSMA) — change in ownership of more than 10%, 20%, 30% or 50% must be approved in advance

Change of SMF holders — approval must be obtained before the individual starts (with the 12-week rule allowing performance pending approval)

  • Notifiable changes in circumstances (SUP 15.3) — significant events affecting the firm
  • Annual reports and accounts under SUP 16
  • Form C (changes to approved persons), Form D (directories), and others under SUP 10
  • Breaches of rules or regulatory concerns under SUP 15.3.10R
  • Approved Persons and SMFs

Under the SMCR, individuals performing Senior Management Functions must be approved by the FCA before performing them. Approval is sought via Form A (or the new digital equivalent from 2026). For certified staff, the firm itself certifies annually — no FCA approval is required, but the FCA expects robust certification processes and may take enforcement action against the certifying firm if certification is inadequate.

Permissions

A firm's permissions are recorded in the Financial Services Register . They specify:

  • The regulated activities the firm may carry on
  • The specified investments to which those activities relate
  • Any limitations or requirements attached to the permission
  • The date from which permission takes effect

The Financial Services Register is publicly searchable and is the authoritative source for confirming whether a firm or individual is authorised. Mortgage advisers, debt advisers and investment advisers should always be checked on the Register before transacting with clients.

Cancellations and Cessation of Authorisation

Authorisation can be lost in three ways:

Voluntary cancellation — under s.40 FSMA, the firm applies to the FCA to cancel its permission, typically when it has stopped carrying on the activities and has no outstanding client money or assets

Withdrawal by the FCA — under s.4 FSMA, the FCA can withdraw authorisation where a firm no longer meets the Threshold Conditions, has failed to use its permission for 12 months, or has breached rules seriously

Intervention — the FCA can vary or suspend permissions under s.45 and s.55J FSMA as an interim measure while it investigates

When a firm ceases to be authorised, its clients are notified, and client money and assets are returned. If the firm is insolvent, the FSCS may step in to compensate eligible clients (e.g. up to £85,000 per firm for investments).

Why This Matters for Mortgage Advisers

For mortgage advisers, the relevant regulated activities are advising on, arranging, and bringing about regulated mortgage contracts (RAO paragraph 39, 25A). These activities can only be carried on by an authorised firm, and the individuals performing them must be approved (SMF) or certified by the firm under the SMCR. Holding a CeMAP qualification is a necessary but not sufficient condition — the individual must also be working for an authorised firm and must follow the rules in MCOB, COBS and the wider Handbook.

Key Takeaways

A regulated activity under s.22 FSMA must be specified in the RAO, carried on by way of business, and relate to a specified investment

  • Specified activities include advising, dealing, arranging, managing and administering investments
  • Authorisation under s.31 FSMA requires the five Threshold Conditions in COND 2
  • Firms can vary permission (s.42), must notify changes (SUP 15), and need SMF approval via Form A
  • Authorisation can be lost by voluntary cancellation (s.40), FCA withdrawal (s.4) or intervention (s.45/s.55J)