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

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   1. (d)

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

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      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

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      1. (i)

         for persons to enter (or with a view to persons entering) as customers6 into home finance transactions (or as plan providers in the case of a home reversion plan)6 with other counterparties;4

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      2. (ii)

         for a person to vary a home finance transaction6 entered into by a person as customer (or as plan provider in the case of a home reversion plan)6 on or after 31 October 2004 (in the case of a regulated mortgage contract) or 6 April 2007 (in all other cases) with other counterparties;4

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   3. (f)

      gives advice (within articles 53A, 53B or 53C6 of the Regulated Activities Order) on the merits of:4

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      1. (i)

         persons entering as customers6 into home finance transactions (or as plan provider in the case of a home reversion plan)6with other counterparties;4

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      2. (ii)

         persons varying home finance transactions6 entered into by them as customer (or as plan provider in the case of a home reversion plan)6 on or after 31 October 2004 (in the case of a regulated mortgage contract) or 6 April 2007 (in all other cases)6 with other counterparties;54

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   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.

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 marketinggroup 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

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 the rule prohibiting multiple principals for certain activities6 is that, in relation to home finance activities6, appointed representatives are restricted to having four6principals: one for regulated mortgage contracts other than lifetime mortgages,6 one for lifetime mortgages4, one for home reversion plans and one for home purchase plans.6

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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.