SUP 12.4 What must a firm do when it appoints an appointed representative or an EEA tied agent8?

1The effect of sections 20 (Authorised persons acting without permission) and 39(4) (Exemption of appointed representatives) of the Act is that the regulated activities covered by an appointed representative's appointment need to:

1. (1)

   fall within the scope of the principal's permission; or

2. (2)

   be excluded from being regulated activities when carried on by the principal, for example because they fall within article 28 of the Regulated Activities Order (Arranging transactions to which the arranger is a party).

In assessing, under SUP 12.4.2 R(2)1(a) and (b), whether an appointed representative or prospective appointed representative is solvent and otherwise 1suitable, a firm should determine, among other matters, whether the person is likely to be adversely influenced by its financial position in the conduct of the business for which the firm is responsible. This might arise, for example, if the person has cashflow problems and is not able to service its debts. Guidance for firms on assessing the financial position of an appointed representative or prospective appointed representative is given in SUP 12 Annex 1.

In assessing, under SUP 12.4.2 R (2)(b), whether an appointed representative or prospective appointed representative is otherwise 1suitable to act for the firm in that capacity, a firm should consider:

1. (1)

   whether the person is fit and proper; guidance on the information that firms should take reasonable steps to obtain and verify is given in SUP 12 Annex 2; and

2. (2)

   the fitness and propriety (including good character and competence) and financial standing of the controllers, directors, partners, proprietors and managers of the person; firms seeking guidance on the information which they should take reasonable steps to obtain and verify should refer to FIT and the questions in the relevant 6Form A (Application to perform controlled functions under the approved person regime) in SUP 10 Annex 4.

In determining, under SUP 12.4.2 R (2)(c), whether an appointed representative or prospective appointed representative has any close links which would be likely to prevent the firm's effective supervision, a firm should consider the guidance to threshold condition 3 (Close links) in COND 2.3.

1If a firm proposes to appoint an appointed representative, but not to prohibit its appointment by any other principals (see SUP 12.5.2 G (3)), the firm should, in particular:

1. (1)

   require, in the contract, that the appointed representative notifies the firm about other principals (see SUP 12.5.5 R (3)) and

2. (2)

   unless the appointed representative is an introducer appointed representative:

   1. (a)

      take reasonable steps to check whether the appointed representative is already appointed by one or more other principals and, if it is, contact those other principals; such steps should include asking the appointed representative and checking the Register;

   2. (b)

      if there are any other principals, agree arrangements with the other principals (see SUP 12.4.5B R) ; and

   3. (c)

      establish effective systems and controls for ensuring that the appointed representative complies with all contractual restrictions imposed, including those relating to multiple principals under the Appointed Representatives Regulations and under SUP 12.5.6A R (see SUP 12.6.11A R).

1One effect of the multiple principal agreement is to introduce a 'lead-principal' concept in relation to complaints handling for the benefit of the client. For example, where the client has been given advice by an appointed representative who has two principals, and the advice could have led to a transaction being arranged with either principal, the client will know that he may pursue his complaint with (but not necessarily against) one of the principals. Whether he later decides to refer his complaint to the Financial Ombudsman Service, and if so, against which principal, will depend on the circumstances.

1. (1)

   1Under the relevant provisions in COBS, ICOBS7 and MCOB, the customer will receive details of how to complain to the appointed representative and, when a product is purchased, details of the complaints procedure for the product provider, insurer or home finance provider.2

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2. (2)

   Under DISP 1.2.1 R4, a firm must among other things, supply summary details of its internal process for dealing promptly and fairly with complaints4 to the customer when it receives a complaint4. In complying with DISP 1.2.1 R4, a firm should ensure that the "lead-principal" is clearly identified in the procedures.

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3. (3)

   The complaints procedure should also explain that the customer has a choice of whether to contact the appointed representative, the "lead-principal" or the product provider, insurer or home finance provider2 and that the "lead-principal" will be the appropriate point of contact where the customer does not wish to complain about a specific product or is unsure who to contact.

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4. (4)

   In other words, where the customer, has a doubt who to complain to the "lead-principal" is to be the point of contact for all complaints arising out of the activities of the appointed representative.

1When considering the provisions for complaints handling (see SUP 12.4.5C(2)) firms should consider the use of a mediation clause. If a complaint is made by a client, principals which are unable to resolve a dispute about liability to the client should consider all quick and effective ways of resolving the dispute, including referring the matter to the Financial Ombudsman Service and mediation.

1It is for the principals to consider in each case whether it would be appropriate to show the multiple principal agreement to their appointed representative, or in some circumstances make their appointed representative a party to it.

In assessing, under SUP 12.4.6 R(1)1, whether an introducer appointed representative or prospective introducer appointed representative is otherwise suitable to act for the firm in that capacity, the firm should determine whether the introducer appointed representative and those persons who will be, or who are, directly responsible for its activities are of sufficiently good reputation and otherwise fit and proper for that appointment. The firm should, as a minimum, verify the identity of a prospective introducer appointed representative and relevant persons but need not carry out the more extensive due diligence required for the appointment of an appointed representative under SUP 12.4.2 R.1

If a firm has doubts that a prospective introducer appointed representative or other person is of sufficiently good reputation and otherwise fit and proper, the FSA will expect it to resolve those doubts before appointing the prospective introducer appointed representative. For example, if a firm is aware that a person's previous appointment as an introducer appointed representative or representative was terminated, it should take reasonable steps to find out the reasons for the termination and the extent to which those reasons reflect on the person concerned.1

1In assessing, under SUP 12.4.8A R, whether an appointed representative, or prospective appointed representative, has established the knowledge and ability requirements for persons within its management structure and for those directly involved in its insurance mediation activity, a firm should refer to TC.

1. (1)

   1An appointed representative must not commence an insurance mediation activity until he is included on the Register as carrying on such activities (see SUP 12.5.2 G (3)).

2. (2)

   If an appointed representative's scope of appointment is to include an insurance mediation activity, the principal must notify the FSA of the appointment before the appointed representative commences that activity (see SUP 12.7.1 R (1)).

3. (3)

   As an exception, pre-notification is not required if the appointed representative is already included on the Register as carrying on insurance mediation activities in another capacity (for example, as the appointed representative of another principal).

1. (1)

   1The FSA has the power to decide not to include on the Register (or to remove from the Register) an appointed representative whose scope of appointment includes an insurance mediation activity, if it appears to the FSA that he is not a fit and proper person to carry on those activities (article 95 of the Regulated Activities Order).

2. (2)

   If the FSA proposes to use the power in (1), it must give the appointed representative a warning notice. If the FSA decides to proceed with its proposal, it must give the appointed representative a decision notice. The procedures followed by the FSA in relation to the giving of warning notices and decision notices are set out in DEPP 2.5

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3. (3)

   An appointed representative may apply to the FSA for a determination of the kind referred to in (1) to be revoked. If the FSA proposes to refuse the application, it must give the appointed representative a warning notice, and if the FSA decides to proceed with the refusal, it must give the appointed representative a decision notice.

1. (1)

   8A tied agent that is an appointed representative may not start to act as a tied agent until it is included on the applicable register (section 39(1A) of the Act). If the tied agent is established in the UK, the register maintained by the FSA is the applicable register for these purposes. If the tied agent is established in another EEA State, it should consult section 39(1B) of the Act to determine the applicable register.

2. (2)

   A UK MiFID investment firm that appoints an FSA registered tied agent who is not registered with the FSA will, subject to certain conditions, be taken to have contravened a requirement imposed on it by or under the Act (see section 39A(6)(c) and (d) of the Act).

3. (3)

   A UK MiFID investment firm that appoints an EEA registered tied agent will be required to register that agent with the competent authority of the EEA State in which it is established. This requirement will be imposed by the rules of that EEA State.

4. (4)

   If the tied agent is not established in the UK and is appointed by an EEA MiFID investment firm, it cannot commence acting as a tied agent until it is included on the public register of tied agents in the EEA State in which it is established (or in certain cases, of the Home State of the firm).

5. (5)

   If an appointed representative's scope of appointment is to include acting as a tied agent, the principal must notify the FSA of the appointment before the appointed representative starts acting as such (see SUP 12.7.7 R (1A)).

6. (6)

   A tied agent can only act as such for one MiFID investment firm or third country investment firm (see SUP 12.5.6A R (1A)).