SUP 12.6 Continuing obligations of firms with appointed representatives or EEA tied agents7

11SUP 12.6.1B R requires a firm to which that rule applies to monitor the knowledge and competence of the appointed representative that carries on MCD credit intermediation activity and its staff.

The FSAFCA 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.

7When complying with the MiFID client money segregation requirements, firms' attention is drawn to CASS 7.13.34 R and CASS 7.13.35 G.10

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.

1. (1)

   Some of the controlled functions, as set out in SUP 10A.4.1 R22, apply to an appointed representative of a firm, other than an introducer appointed representative, just as they apply to a firm (see SUP 10A.1.15 R22). These are the governing functions and the customer function5. In the case of an appointed representative that also has a limited permission, an FCA required function may apply to it.9 As explained in SUP 10A.1.16 R22 and SUP 10A.3.2 G22 respectively:2

   2222522522
   1. (a)

      the effect of SUP 10A.1.15 R22 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

      22
   2. (b)

      although the customer function applies5 to an appointed representative, the descriptions of the functions themselves do not extend to 2home finance mediation activity3,92insurance distribution activity15 or credit-related regulated activity;92

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   3. (ba)

      if an appointed representative also has a limited permission:9

      1. (i)

         the apportionment and oversight function applies to it in relation to the carrying on of the regulated activity for which it has limited permission, unless it is a not-for-profit debt advice body;9

      2. (ii)

         if it is a not-for-profit debt advice body and a CASS large debt management firm, the CASS operational oversight function applies in relation to the carrying on of debt management activity; and9

   4. (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

2. (2)

   The approved persons regime applies differently to an appointed representative whose scope of appointment includes insurance distribution activity15 in relation to non-investment insurance contracts or credit-related regulated activity9but 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 10A.1.16 R22).2

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3. (3)

   The approved persons regime does not apply in relation to CBTL business carried on by CBTL firms.

4. (4)

   The approved persons regime for relevant authorised persons is in SUP 10C (FCA senior management regime for approved persons in relevant authorised persons), rather than SUP 10A. However, SUP 10A still applies to approved persons of appointed representatives of relevant authorised persons (see SUP 10A.1.16BR to SUP 10A.1.16DG and SUP 10C.1.8G for more about this).13

Firms should be aware that, under the approved persons regime, the firm is responsible for submitting applications to the FCA for the approval as an approved person of:

1. (1)

   any individual who performs a controlled function and who is an appointed representative; and

2. (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 FCA (see SUP 10A.13.1 G22).

1. (1)

   The rules and guidance relating to training and competence in SYSC 3 and SYSC 5 and in TC for a firm carrying on retail business extend to any employee of the firm in respect of whom the relevant rules apply.15

2. (2)

   The specific knowledge and ability requirements in SYSC 28.2 and TC 4.2 for a firm with Part 4A permission to carry on insurance distribution activities apply to a relevant employee (as defined in SYSC 28.1.2R and TC 4.2.3R) of the firm.15

3. (3)

   For the purposes of (1) and (2), an employee or a relevant employee of a firm includes an individual who is:15

   1. (a)

      an appointed representative of a firm; and15

   2. (b)

      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.15

14A firm that is a principal of a tied agent should also refer to the guidelines for MiFID investment firms issued by ESMA specifying criteria for the assessment of knowledge and competence (see SYSC 5.1.5ADG).

A firm should take reasonable care to ensure that:

1. (1)

   it has satisfied:15

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   1. (a)

      SYSC 3 or SYSC 4 to 9 and where applicable, SYSC 28.2; and 15

   2. (b)

      TC,15

2. (2)

   its appointed representative has adequate arrangements in respect of training and competence, which meet the requirements in SYSC and 6 TC.

14In SUP 12.6.15AR(1), the obligations which implement relevant provisions of MiFID to which a firm is subject include:

1. (1)

   in the case of a MiFID optional exemption firm appointing a MiFID optional exemption appointed representative, those conduct requirements which are imposed pursuant to article 3(2) of MiFID; and

2. (2)

   in the case of a firm appointing a structured deposit appointed representative, those requirements which are imposed pursuant to article 1(4) of MiFID.

13SYSC 5.2.22G explains the application of the certification regime in SYSC 5.2 to appointed representatives of relevant authorised persons. The certification regime does not apply to firms that are not relevant authorised persons.