SUP 12.6 Continuing obligations of firms with appointed representatives or EEA tied agents7
Suitability etc. of appointed representatives
If at any time a firm has reasonable grounds to believe that the conditions in SUP 12.4.2 R, 2SUP 12.4.6 R or SUP 12.4.8A R2 (as applicable) are not satisfied, or are likely not to be satisfied, in relation to any of its appointed representatives, the firm must:
2- (1)
take immediate steps to rectify the matter; or
- (2)
terminate its contract with the appointed representative.
7A firm that is a principal of a tied agent that is an appointed representative must monitor the activities of that tied agent so as to ensure the firm complies with obligations imposed under MiFID (or equivalent obligations relating to the equivalent business of a third country investment firm) when acting through that tied agent.
[Note: paragraph 3 of Article 23(2) of MiFID]
The FSA would normally expect a firm to carry out a check on its appointed representative's financial position every year (more often, if necessary) and to review critically the information obtained. An appropriately experienced person (for example, a financial accountant) should carry out these checks.
Consideration should be given, among other things, to the impact on the appointed representative's financial position of any debts owed to, or by, the appointed representative. Indicators that an appointed representative is experiencing financial problems may include failure to adhere to repayment schedules for any debts, failure to meet any other financial commitments or requests for advances of commission.
A firm should look into any concerns that may arise at any time about an appointed representative's financial standing and take the necessary action. The necessary action may include, for example, increased monitoring or, if appropriate, suspension or termination of the appointment.
Appointed representatives not to hold client money
- (1)
A firm must not permit an appointed representative to hold client money unless the firm is an insurance intermediary acting in accordance with CASS 5.5.18 R to CASS 5.5.23 R (which include provision for periodic segregation and reconciliation)2.
- (2)
The firm must take reasonable steps to ensure that if client money is received by the appointed representative, it is paid into a client bank account of the firm, or forwarded to the firm, in accordance with :
- (a)
CASS 4.3.15 R to CASS 4.3.17 R; or2
- (b)
CASS 5.5.18 R to CASS 5.5.21 R unless acting in accordance with CASS 5.5.23 R (Periodic segregation and reconciliation); or72
7 - (c)
- (a)
7When complying with the MiFID client money segregation requirements, firms' attention is drawn to the guidance in CASS 7.4.24 G to CASS 7.4.27 G.
Regulated activities and investment services outside the scope of appointment
A firm must take reasonable steps to ensure that each of its appointed representatives:
- (1)
does not carry on regulated activities in breach of the general prohibition in section 19 of the Act; and
- (2)
carries on the regulated activities for which the firm has accepted responsibility in a way which is, and is held out as being, clearly distinct from any of the appointed representative's other business:
- (a)
which is performed as an appointed representative of another firm; or
- (b)
which:
- (i)
is, or is held out as being, primarily for the purposes of investment or obtaining credit2, or obtaining insurance cover2; and
- (ii)
is not a regulated activity.
- (i)
- (a)
Senior management responsibility for appointed representatives
The senior management of a firm should be aware that the activities of appointed representatives are an integral part of the business that they manage. The responsibility for the control and monitoring of the activities of appointed representatives rests with the senior management of the firm.
447Obligations of firms under the approved persons regime
- (1)
Some of the controlled functions, as set out in SUP 10.4.1 R, apply to an appointed representative of a firm, other than an introducer appointed representative, just as they apply to a firm (see SUP 10.1.16 R). These are the governing functions and the customer function5. As explained in SUP 10.1.16A R and SUP 10.3.2 G respectively:2
55- (a)
the effect of SUP 10.1.16 R is that the directors (or their equivalent) and senior managers (or their equivalent) of an appointed representative, other than an introducer appointed representative, must also be approved under section 59 of the Act for the performance of certain controlled functions;2
- (b)
although the customer function applies5 to an appointed representative, the descriptions of the functions themselves do not extend to 2home finance mediation activity3 or 22 insurance mediation activity; and2
535 - (c)
sections 59(1) and 59(2) of the Act (Approval for particular arrangements) provide that approval is necessary in respect of a controlled function which is performed under an arrangement entered into by a firm, or its contractors (typically an appointed representative), in relation to a regulated activity.21
- (a)
- (2)
The approved persons regime applies differently to an appointed representative whose scope of appointment includes insurance mediation activity in relation to non-investment insurance contracts but no other regulated activity and whose principal purpose is to carry on activities other than regulated activities. These appointed representatives need only one person performing one of the governing functions. This means that only one director (or equivalent) of these appointed representatives must be approved under section 59 of the Act for the performance of the director function, the chief executive function, the partner function or the director of unincorporated association function, whichever is the most appropriate (see SUP 10.1.16A R).2
5
Firms should be aware that, under the approved persons regime, the firm is responsible for submitting applications to the FSA for the approval as an approved person of:
- (1)
any individual who performs a controlled function and who is an appointed representative; and
- (2)
any person who performs a controlled function under an arrangement entered into by any of the firm'sappointed representatives.
Applications for approval should be submitted as early as possible since a person may not perform a controlled function if he has not been approved by the FSA (see SUP 10.12).
Obligations of firms under the training and competence rules
The rules and guidance relating to training and competence in SYSC 3 and SYSC 5 and 6 in TC for a firm carrying on retail business 6extend to any employee of the firm in respect of whom the relevant rules apply. For these purposes, an employee of a firm includes:
- (1)
an individual who is an appointed representative of a firm; and
- (2)
an individual who is employed or appointed by an appointed representative of a firm (whether under a contract of service or for services) in connection with the business of the appointed representative for which the firm has accepted responsibility.
A firm should take reasonable care to ensure that:
2Compliance by an appointed representative with the contract
2A firm must take reasonable steps to establish and maintain effective systems and controls for ensuring that each of its appointed representatives complies with those terms of its contract which are imposed under the requirements contained or referred to in SUP 12.5 (Contracts: required times).
2[Deleted]
Continuing obligations of firms with tied agents
7A firm must take adequate measures in order to avoid any negative impact of the activities of its tied agent not covered by the scope of MiFID (or relating to the equivalent business of a third country investment firm) could have on the activities carried out by the tied agent on behalf of the firm.
[Note: paragraph 1 of article 23(4) of MiFID]
Continuing obligations of firms with EEA tied agents
7If a UK MiFID investment firm appoints an EEA tied agent, SUP 12.6.1 R, SUP 12.6.1A R, SUP 12.6.5 R and SUP 12.6.11A R apply to that firm as though the EEA tied agent were an appointed representative.