Court of Appeal Adopts Broad Interpretation of ‘Regulated Activity’

In an important decision for the financial services and insurance industries, the Court of Appeal has given a wide interpretation to the term ‘regulated activity’ and ruled that it encompasses preliminary, fact-finding, inquiries made of potential clients.

The case concerned an agency agreement whereby company A appointed company B to be its authorised representative in the sale of private medical insurance policies. It was agreed that company B – which was to earn commission on sales – would only use sales personnel that had been authorised by company A. The latter was regulated by the then Financial Services Authority and it was a term of the contract that all of the regulator’s rules would be complied with by company B.

Company A terminated the agreement after discovering that company B had been using unauthorised staff to go through the early part of fact-finding questionnaires with potential clients. In those circumstances, company B launched proceedings, claiming that there had been no breach and that the termination was unjustified.

A judge found that the fact-finding role of unauthorised personnel had breached the general prohibition on unqualified persons carrying out regulated activities contained within the Financial Services and Markets Act 2000. However, he went on to rule that that did not amount to a repudiatory breach of the agreement.

In allowing company A’s appeal against that ruling, the Court found that preliminary questioning of potential clients was a regulated activity and that the requirement to use only authorised personnel for that task was a condition of the agreement. In those circumstances, company A had been justified in terminating the agreement and company B was entitled neither to damages nor to commission on policy renewals which post-dated the termination.