Border patrol: a short incursion into the FCA’s Perimeter Report (2020/21)

Border patrol: a short incursion into the FCA’s Perimeter Report (2020/21)

I’ve seen this happen in other people’s lives…and now it’s happening in mine

That Joke Isn’t Funny Anymore, The Smiths (1985)

The Financial Conduct Authority (“FCA”) published its Perimeter Report for 2020/21 on 21st October 2021. Could regulation that currently happens in other people’s lives start happening in yours?

What is the “perimeter” and why is the Perimeter Report important?

The “perimeter” is effectively a border between what the FCA regulates and what it does not.

If an activity is described as “within the perimeter” this means the FCA regulates it. Accordingly, a person will usually require authorisation (basically, a licence) from the FCA to engage in the activity.

Conversely, activities that are not regulated by the FCA are described as being “out of the perimeter”. Such activities do not usually require authorisation.  However, this does not mean that persons involved in the provision of unregulated activities can afford to ignore developments at the FCA.

First, in certain circumstances, the FCA can intervene in the provision of unregulated activities. For example, members of the London Metal Exchange (“LME”) are often involved in related physical activities, such as dealing in warrants or bullion. Consequently, if, for instance, a certified person was suspected of impropriety in the conduct of such physical activities, the FCA could investigate pursuant to the Senior Managers and Certification Regime (“SMCR”).

Second, the FCA is constantly monitoring the scope of its perimeter. The Perimeter Report documents the outcomes of this monitoring:

  • priorities for the forthcoming year’s monitoring are set; and
  •  recommendations for legislative change are made.

As a result, activities that were previously unregulated could soon be brought within the perimeter.

Why does the FCA monitor its perimeter?

Things change. Regulation must keep pace with technological and product developments. Otherwise, gaps could develop or widen that pose a serious risk of harm to investors, particularly consumers.

Monitoring the perimeter is a delicate balancing act for the regulator. This because the FCA seeks to allocate its finite resources to where it believes it will have the most impact in reducing harm.

What happens next?

Where the FCA has proposed legislative and/or regulatory changes in the Perimeter Report, these will be taken up with the UK Government in the coming months. Where appropriate, findings from the Perimeter Report will also be fed into other consultations such as the Wholesale Markets Review. Watch this space!

Summary of key findings from the Perimeter Report for selected market participants

Use of appointed representatives (“ARs”)

  • FCA to carry out “targeted and proactive supervision” of ARs in their dealings with consumers.
  • Enhanced oversight of principals in their monitoring of their ARs’ activities.
  • Increased scrutiny of applications to appoint ARs.

Some operational questions to consider (if engaged in activity, non-exhaustive)

  • Have you conducted a risk assessment to ascertain and mitigate the risks your ARs pose to you and your customers?
  •  When was the last time you visited your ARs and observed what they are doing on your behalf (and how they are doing it)?
  •  When was the last time you reviewed your agreements with your ARs?
  • How do you ensure your ARs stay up to date with relevant regulatory developments?
  • How do you gain assurance with regards to the financial resilience of your ARs?

Outsourcing and use of third-party service providers

  • The FCA’s indirect supervision of unregulated third-party service providers, especially technology vendors to be improved by utilisation of the new operational resilience regime.  Investment firms’ mapping and testing of their unregulated service provider arrangements will be examined.
  • The new operational resilience requirements become effective on 31st March 2022.

Some operational questions to consider (if engaged in activity, non-exhaustive)

  • Have you determined if any of your vendors are providing you with services which, if interrupted, could seriously hurt your clients and disrupt the wider market?
  • What is the maximum level of interruption to said services that could be tolerated? Has this been documented and stress tested? Have the results of any stress tests been used to make improvements to your control environment?

Crypto-asset business

  • Strengthen registration standards under the Money Laundering Regulations to bring into line with those in Financial Services and Markets Act (“FSMA”). The FCA is particularly keen to intensify its examination of the fitness and probity of crypto-assets, particularly around governance and financial resilience.
  • Working with HM Treasury, progress initiative to increase the scope of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”) to a capture selected unregulated cryptoassets , e.g. stablecoins.

Some operational questions to consider (if engaged in activity, non-exhaustive)

  • Have you received any independent assurance about the quality of your firm’s governance arrangements?
  • Have you started to explore what would be required if some of your marketing activities were to be caught by an expanded FPO? Approval and training processes would need to be put in place.

Retail broking

  • Firms encouraging clients to trade with third country entities to engage in regulatory arbitrage, rather than paper with UK business where higher standards apply, e.g. leverage and margin restrictions.
  • Continued focus on promotional activities that could pose a high risk of harm to consumers. Particular attention to be paid to the activities of introducers and affiliates, such as unregulated ‘educators’ and ‘influencers’, who seek to draw in younger consumers through the evocation of a celebrity lifestyle and deployment of luxury goods in advertising.

Some operational questions to consider (if engaged in activity, non-exhaustive)

  • Have any UK domiciled clients been papered with overseas entities in your group? Where UK clients have been papered to overseas entities, was this at their own initiative? If so, is there an audit trail to demonstrate this? Does this explain why the UK client would opt to be papered with an overseas as opposed to a domestic entity?
  • Have you taken up-to-date legal advice on whether the activities of your unregulated introducers are safely outside the perimeter? The recent case of FCA vs Avacade Ltd illustrates why this is essential.
  • How far have you probed the credentials of any introducers and affiliates acting on your behalf? Have they been trained on what they can and can’t do?
  • Recommended viewing: Instatraders, BBC Three, 3rd August 2021 available on iPlayer. This is the type of promotional activity that the regulator is referring to in its Perimeter Report.

Provision of payment services and e-money

  • Extension of the Senior Managers and Certification Regime (“SMCR”) to cover these firms to “enhance individual accountability and governance”.

Some operational questions to consider (if engaged in activity, non-exhaustive)

  • Has someone in your firm been tasked with tracking the potential extension of the SMCR regime?
  • Have any of your employees previously worked for firms subject to SMCR? How big could the cultural impact be if your firm were brought into scope of SMCR at a future date?

If you would like help with planning for the operational impact of potential regulatory change, A.C.Culley & Co. can assist. Please contact us today at for a free one-hour consultation.


2021. Perimeter Report 2020/21, Financial Conduct Authority. Available at: [Accessed 25th October 2021].

Financial Conduct Authority (a company limited by guarantee) v Avacade Ltd (in liquidation) (trading as Avacade Investment Options) and others [2021] EWCA Civ 1206. Available at: [Accessed 25th October 2021].




Receive our latest insights straight to your inbox