SUP 12.4 What must a firm do when it appoints an appointed representative or an FCA registered tied agent?8

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.

21 SUP 12.4.2R applies before a firm appoints a person as an appointed representative and on a continuing basis thereafter. References in this guidance to an appointed representative should therefore be read as also referring to a prospective appointed representative where appropriate.

In assessing, under SUP 12.4.2 R(2)1(a) and (b), whether an 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 is given in SUP 12 Annex 1.

In assessing, under SUP 12.4.2 R (2)(b), whether an 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;

2. (2)

   the fitness and propriety (including good character) 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; and 21

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3. (3)

   21the competence and capabilities of relevant directors, partners, proprietors and managers of the person, including whether they have:

   1. (a)

      appropriate experience, knowledge, skills and training in relation to the activities and business carried out, or to be carried out, on behalf of the firm; and

   2. (b)

      the necessary time to properly perform the tasks and functions for which they are, or will be, responsible.

21In considering the competence and capabilities of relevant individuals, firms should note that other provisions, including SYSC 3.1 (Systems and controls) and 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 Personnel sourcebook (FIT) may also be relevant. See also SUP 12.6.10G.

21In assessing whether the firm has adequate controls and resources for the purposes of SUP 12.4.2R(3)(a) and SUP 12.4.2R(3)(b), a firm should consider whether these:

1. (1)

   are commensurate to:

   1. (a)

      the size or potential size of the appointed representative; and

   2. (b)

      the nature of the regulated activities for which the firm has, or proposes to have, responsibility;

2. (2)

   enable the firm to effectively manage conflicts of interest;

3. (3)

   allow the firm to maintain effective oversight of the appointed representative;

4. (4)

   enable the firm to identify and remediate any issues arising at the appointed representative; and

5. (5)

   enable the firm to maintain a level of oversight of the appointed representative’s regulated activities equivalent to that which would be, and ought reasonably to be, applied if:

   1. (a)

      those activities were carried on by the firm in a principal capacity; and

   2. (b)

      all individuals engaged in those activities were employees of the firm,

   (and see also Principle 3, COND 2.5.6G(1) and (1A) and SUP 12.6.11G).

21In assessing, under SUP 12.4.2R(5), whether an appointed representative’s activities or proposed activities give rise to an undue risk of harm, a firm should consider, without limitation:

1. (1)

   the nature of the risks associated with the person’s appointment and activities or proposed activities having regard to, amongst other things, the person’s:

   1. (a)

      business model;

   2. (b)

      (as applicable) senior management and governance arrangements;

2. (2)

   the likely impact on clients or potential clients were a relevant risk to crystallise having regard to, amongst other things:

   1. (a)

      the number of clients with which the person is, or is likely be, dealing;

   2. (b)

      whether the clients or potential clients with which the person is, or is likely to be, dealing include those in vulnerable circumstances who may be at greater risk of harm if things go wrong;

   3. (c)

      the likely extent of any financial loss that clients may suffer;

3. (3)

   the likely impact on the firm were a relevant risk to crystallise including, but not limited to, the impact of a significant volume of complaints relating to the person’s activities;

4. (4)

   the likely impact on the continuity of the provision of services to clients in the event of the person’s failure;

5. (5)

   the potential for reputational damage which could harm the clients with which the person deals, or is likely to deal; and

6. (6)

   the ability of its own arrangements to effectively identify and manage those risks in compliance with its obligations in SYSC.

21In determining, under SUP 12.4.2R(2)(c), whether an 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 applicable in COND 2.3.

21In undertaking the assessment required by SUP 12.4.2R, a firm should:

1. (1)

   ensure and verify that information provided by the appointed representative, either at entity-level or about relevant individuals (SUP 12.4.4G(2) and (3)), is accurate, sufficiently detailed and up to date;

2. (2)

   discuss any omissions or concerns proactively with relevant individuals at the appointed representative; and

3. (3)

   ensure that it is made aware of any changes, including to relevant individuals at the appointed representative, which may affect the quality or integrity of the information provided.

21 SUP 12.4.2R applies on a continuing basis. In particular:

1. (1)

   a firm should re-assess whether its controls and resources remain adequate for the purposes of SUP 12.4.2R(3)(a) and (b) if any of the following circumstances arise:

   1. (a)

      the size or volume of the appointed representative’s business involving regulated activity increases significantly in a short period of time;

   2. (b)

      the firm identifies an unusually high rate of turnover at the appointed representative of:

      1. (i)

         senior management; or

      2. (ii)

         other staff of the appointed representative involved in carrying on the regulated activities for which the firm has accepted responsibility;

   3. (c)

      the firm identifies a significant increase in the number of complaints it receives about the appointed representative;

   4. (d)

      the appointed representative changes its business model (including target market); or

   5. (e)

      a change is made to the scope of the appointed representative’s appointment.

2. (2)

   SUP 12.6A.3R requires a firm to carry out a review, including of the adequacy of the firm’s controls and resources, in any of the circumstances specified in that rule.

21In order to comply with the various obligations in this chapter and having due regard to the nature of the appointed representative’s activities and the risks associated with them, a firm should:

1. (1)

   collect and scrutinise relevant management information and agree with its appointed representative how and when management information should be provided, the format it should take and the data it should capture;

2. (2)

   analyse data provided by the appointed representative to identify emerging risks and issues;

3. (3)

   closely monitor the delivery of the appointed representative’s activities and business, within the scope of its appointment (for example, by reviewing call scripts or other materials provided by the appointed representative and organising regular meetings with them);

4. (4)

   engage regularly with its appointed representative, whether through in-person meetings, telephone calls or email communication; and

5. (5)

   establish clear processes for the escalation of issues, including service level agreements where necessary. This could include, for example, grading of issue severity based on impact and potential harm to clients and processes for remediation within defined timeframes. Where appropriate, such expectations should be included in the contract between the firm and the appointed representative.

1. (1)

   21A firm to which SUP 12.4.4HR 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 Personnel (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).

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

21In complying with the requirements in SUP 12.4.6R, a firm should also have regard, so far as relevant, to the guidance in SUP 12.4.4BG, SUP 12.4.4CG, SUP 12.4.4FG and SUP 12.4.4GG.

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)

   21[deleted]

3. (3)

   21[deleted]

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)

   21[deleted]

1. (2)

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

2. (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). The19 register maintained by the FCA is the applicable register for these purposes.

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2. (2)

   A MiFID investment firm19 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)

   [deleted]19

4. (4)

   [deleted]19

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5. (5)

   21[deleted]

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)

   [deleted]21

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).