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:14

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   1. (a)

      14they fall within article 28 of the Regulated Activities Order (Arranging transactions to which the arranger is a party);

   2. (b)

      14they constitute CBTL business and the principal is a CBTL firm; or

   3. (c)

      14the principal is appropriately authorised (see article 53(1A) of the Regulated Activities Order).

11In relation to CBTL business only a CBTL firm which is a firm can appoint an appointed representative.

14Where the principal is appropriately authorised for the purposes of article 53(1A) of the Regulated Activities Order (and so does not need permission to provide non-personal recommendation advice), the terms of the appointed representative’s appointment will still need to cover their business in carrying on non-personal recommendation advice. This is because an appointed representative providing non-personal recommendation advice will only be exempt from the general prohibition if the principal has accepted responsibility in writing for the appointed representative in carrying on such business. An appointed representative is not exempt from the general prohibition simply because the principal is appropriately authorised for the purposes of article 53(1A) of the Regulated Activities Order (see also PERG 8.24.1AG (Advising on investments))17.

1. (1)

   13 A firm to which SUP 12.4.2AR applies should also have regard to SYSC 5.1 (Skills, knowledge and expertise). The requirements of the Training and Competence sourcebook (TC) and guidance in the Fit and Proper Test for Employees and Senior Personnel16 (FIT) may also be relevant.

2. (2)

   ESMA has issued guidelines for MiFID investment firms specifying the criteria for the assessment of knowledge and competence. These guidelines are relevant to tied agents (see SYSC 5.1.5ADG).

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 10A Annex 416.

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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 2C or 3B as applicable23 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 Financial Services 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 introducerappointed 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 introducerappointed representative or other person is of sufficiently good reputation and otherwise fit and proper, the FCA 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

15 SYSC 28.1 (Minimum knowledge and ability requirements for carrying out insurance distribution activities), SYSC 28.2 (Knowledge and ability requirements) and SYSC 28.4 (Record-keeping requirements) apply in relation to a firm’s relevant employees. This includes its appointed representatives and their employees.

[Note: articles 10(1), 10(2) and last paragraph of article10(8) of the IDD]

1. (1)

   1An appointed representative must not commence an insurance distribution activity15 until they are15 included on the Financial Services 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 activityinsurance distribution activity15, the principal must notify the FSAFCA 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 RegisterFinancial Services Register as carrying on insurance mediation activitiesinsurance distribution activities15 in another capacity (for example, as the appointed representative of another principal).

1. (1)

   1The FCA has the power to decide not to include on the Financial Services Register (or to remove from the Financial Services Register) an appointed representative whose scope of appointment includes an insurance distribution activity15, if it appears to the FCA 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 FCA proposes to use the power in (1), it must give the appointed representative a warning notice. If the FCA decides to proceed with its proposal, it must give the appointed representative a decision notice. The procedures followed by the FCA 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 FCA for a determination of the kind referred to in (1) to be revoked. If the FCA proposes to refuse the application, it must give the appointed representative a warning notice, and if the FCA decides to proceed with the refusal, it must give the appointed representative a decision notice.

1. (1)

   10If an appointed representative's scope of appointment is to include MCD credit intermediation activity, the principal must notify the FCA of the appointment before the appointed representative commences that activity (see SUP 12.7.1 R (1)).

2. (2)

   An appointed representative must not commence an MCD credit intermediation activity until they are included on the Financial Services Register.

3. (3)

   If an appointed representative's scope of appointment is to include MCD credit intermediation activity, the Act provides that that appointed representative'sprincipal may not be a tied MCD credit intermediary.

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 FCA is the applicable register for these purposes. If the tied agent is established in another EEA State, 13the applicable register is that maintained by the competent authority in the EEA State in which the tied agent is established13.

2. (2)

   A UK MiFID investment firm that appoints an FCA registered tied agent who is not registered with the FCA 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 established13.

5. (5)

   If an appointed representative's scope of appointment is to include acting as a tied agent, the principal must notify the FSAFCA 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)).

1. (1)

   13 A MiFID optional exemption appointed representative or a structured deposit appointed representative may not start to act as such until it is included on the Financial Services Register (sections 39(1A) and 39(1AA) of the Act).

2. (2)

   A firm must notify the FCA of the appointment of a MiFID optional exemption appointed representative or a structured deposit appointed representative before such appointed representative starts acting in that capacity (SUP 12.7.1R).

1. (1)

   18SUP 16.26 (Reporting of information about Directory persons) requires an SMCR firm that has appointed an appointed representative to report information to the FCA in respect of any individual who is an appointed representative Directory person.

2. (2)

   The SMCR firm should ensure that appropriate arrangements are in place so that the SMCR firm is able to report all relevant information about each such appointed representative Directory person to the FCA within the specified timeframes, in accordance with the requirements of SUP 16.26 (Reporting of information about Directory persons).