M&A Weekly Update: reminder — FCA guidance is not binding on the regulator

Financial Conduct Authority (FCA) guidance (formal or informal) is generally known to be non-binding on the regulator. A recent High Court case highlights the risk in deriving comfort from FCA guidance and the importance of reviewing the underlying legislation.

In Financial Conduct Authority v Capital Alternatives Ltd and others, the FCA brought a claim against the promoters of four investment schemes, which it argued were collective investment schemes within the meaning of section 235 of the Financial Services and Markets Act 2000 (CIS). The FCA’s case was that the schemes were regulated activities, which could not be carried out lawfully by unauthorised persons and that they had been mis-sold.

The defendants argued that the FCA’s formal guidance in its Perimeter Guidance Manual (PERG) and informal guidance received in some individual instances evidenced that the schemes were not CIS. The FCA responded that while there were ‘presumptions that PERG, containing a longstanding interpretation by the body with the greatest practical experience, is correct… there are limits to that presumption since the FCA is not in a better position than the court in construing the law’…

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