SUP 12.5 Contracts: required terms

The Appointed Representative Regulations include, among other things, the prescribed requirements applying to contracts between firms and appointed representatives for the purposes of section 39(1)(a)(ii) of the Act.

1. (1)

   Regulations 3(1) to (3B) of the Appointed Representatives Regulations makes it a requirement that the contract between the firm and the appointed representative (unless it prohibits the appointed representative from representing other counterparties) contains a provision enabling the firm to:4

   1. (a)

      impose such a prohibition; or

   2. (b)

      impose restrictions as to the other counterparties which the appointed representative may represent, or as to the types of investment in relation to which the appointed representative may represent other counterparties.

2. (2)

   Under the Appointed Representative Regulations, an appointed representative is treated as representing other counterparties if, broadly, it4:

   1. (a)

      makes arrangements (within article 25 of the Regulated Activities Order) for persons to enter into investment transactions with other counterparties; or

   2. (b)

      arranges the safeguarding and administration of assets by other counterparties; or

   3. (c)

      gives advice (within article 53 of the Regulated Activities Order (Advising on investments)) on the merits of entering into investment transactions with other counterparties;4

   where an "investment transaction" means a transaction to buy, sell, subscribe for or underwrite a security, a contractually based investment or long-term care insurance; or4

   1. (d)

      arrange:4

      1. (i)

         for persons to enter (or with a view to persons entering) as borrowers into regulated mortgage contracts with other counterparties; or4

      2. (ii)

         for a person to vary a regulated mortgage contract entered into by a person as borrower on or after 31 October 2004 with other counterparties; or4

   2. (e)

      gives advice (within article 53 of the Regulated Activities Order (Advising on investments)) on the merits of:4

      1. (i)

         persons entering as borrowers into regulated mortgage contracts with other counterparties; or41

      2. (ii)

         persons varying regulated mortgage contracts entered into by them as borrower on or after 31 October 2004 with other counterparties.4

A firm should satisfy itself that the terms of the contract with its appointed representative (including an introducer appointed representative):

1. (1)

   are designed to enable the firm to comply properly with any limitations or requirements on its own permission;

2. (2)

   require the appointed representative to cooperate with the FSA as described in SUP 2.3.4 G (Information gathering by the FSA on its own initiative: cooperation by firms) and give access to its premises, as described in SUP 2.3.5 R (2); and

3. (3)

   require the appointed representative to give the firm's auditors the same rights as are provided by section 341 of the Act, as described in .

A firm should have the ability to terminate the contract with its appointed representative in the circumstances in SUP 12.6.1R(2). However, such a termination provision should not be automatic (see SUP 12.8.3R(1)). 4

1. (1)

   If the appointed representative is appointed to give advice on investments to private customers concerning packaged products, the firm should also satisfy itself that:

   1. (a)

      the contract requires compliance with the rules in COB 5.1 (Advising of packaged products)3; and

   2. (b)

      if the firm is a provider firm, the contract prevents the appointed representative from giving advice on investments to a private customer concerning the purchase of a packaged product which is not issued by the firm or by another member of its marketing group or is not an adopted packaged product (see COB 5.1.8 R).

2. (2)

   The contractual requirements in SUP 12.5.5 R should extend to:

   1. (a)

      the activities of the appointed representative, if the appointed representative is an individual; and3

   2. (b)

      the activities of the employees of, representatives and introducers appointed by, the appointed representative.34

4The effect of SUP 12.5.6A R (1) is that, in relation to designated investment business with private customers, appointed representatives are restricted to one principal.

1. (1)

   The effect of SUP 12.5.6A R (1)(a) is that, in relation to designated investment business with private customers, appointed representatives are restricted to one principal.4

2. (2)

   The effect of SUP 12.5.6A R (1)(b) and SUP 12.5.6A R (1)(c) is that, in relation to regulated mortgage activities with customer, appointed representatives are restricted to having two principals: one for regulated mortgage contracts and one for lifetime mortgages4