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SUP 12.5 Contracts: required terms

Required contract terms for all appointed representatives

SUP 12.5.1GRP

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.

SUP 12.5.2GRP
  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

    4
    1. (d)

      assists in the administration and performance of a contract of insurance (article 39A of the Regulated Activities Order);42

      4

      where an "investment transaction" means a transaction to buy, sell, subscribe for or underwrite a security or a relevant investment (that is, a designated investment, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan; or4

    2. (e)

      arranges:4

      4
      1. (i)

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

        41
      2. (ii)

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

        4
    3. (f)

      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 contractswith other counterparties; or4

      2. (ii)

        persons varying regulated mortgage contracts entered into by them as borrower on or after 31 October 2004 with other counterparties;54

    4. (g)

      provides basic advice on stakeholder products.5

  3. (3)

    4If the scope of appointment covers, in relation to a contract of insurance, dealing in investments as agent, arranging, assisting in the administration and performance of a contract of insurance or advising on investments, regulation 3(4) of the Appointed Representatives Regulations makes it a requirement that the contract between the firm and the appointed representative contains a provision providing that the appointed representative is not permitted or required to carry on such business unless he is included in the Register as carrying on insurance mediation activities.

SUP 12.5.3GRP

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 .

SUP 12.5.4GRP

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

SUP 12.5.5RRP

A firm must ensure that its written contract with each of its appointed representatives:4

  1. (1)

    complies with the requirements prescribed in regulation 3 of the Appointed Representatives Regulations (see SUP 12.5.2 G);4

  2. (2)

    requires the appointed representative to comply, and to ensure that any persons who provide services to the appointed representative under a contract of services or a contract for service comply, with the relevant requirements in or under the Act (including the rules) that apply to the activities which it carries on as appointed representative of the firm; and4

  3. (3)

    (unless the written contract prohibits appointments by other principals) requires the appointed representative to notify the firm:4

    1. (a)

      that it is seeking appointment as an appointed representative of another person, who the person is and the business for which the other person will accept responsibility;4

    2. (b)

      (as soon as possible) of any change in the business notified under (a); and4

    3. (c)

      (as soon as possible) of the termination of any such appointment.4

SUP 12.5.6GRP
  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

4Prohibition of multiple principals for certain activities

SUP 12.5.6ARRP
  1. (1)

    4A firm must ensure that, if appointing an appointed representative (other than an introducer appointed representative), to carry on any of the following regulated activities, its written contract prohibits the appointed representative from carrying on any of the specified activities as an appointed representative for another firm:4

    1. (a)

      any designated investment business for private customers: the prohibition must cover all designated investment business for private customers;4

    2. (b)

      any regulated mortgage activities (other than in relation to lifetime mortgages): the prohibition must cover all regulated mortgage activities (other than lifetime mortgages);4

    3. (c)

      any regulated mortgage activities in relation to lifetime mortgages: the prohibition must cover all lifetime mortgages.4

  2. (2)

    As an exception to (1), if the firm is a long-term insurer or an operator of a UCITS scheme, it may permit an appointed representative to carry on designated investment business as the appointed representative of one or more other firms provided that:

    1. (a)

      each of those other firms is a long-term insurer or an operator of a UCITS scheme;

    2. (b)

      the first firm and each of those other firms is a member of the same group; "group" means for this purpose a group of bodies corporate all having the same holding company including the holding company; and

    3. (c)

      the scope of each appointment does not overlap, as to both activities and investments.

SUP 12.5.6BGRP
4
  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

SUP 12.5.6CGRP

4As SUP 12.5.6A R does not apply to non-investment insurance contracts, there are no restrictions on the number of principals an appointed representative may have in relation to those contracts.

Required contract terms for an introducer appointed representative

SUP 12.5.7RRP

A firm must ensure that its written contract with each of its introducer appointed representatives limits the scope of the appointment to:4

  1. (1)

    effecting introductions to the firm or other members of the firm's group; and4

  2. (2)

    distributing non-real time financial promotions which relate to products or services available from or through the firm or other members of the firm's group.4