SUP 12.6 Continuing obligations of firms with appointed representatives or FCA registered 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 principal14 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 derived from17 MiFID (or equivalent obligations relating to the equivalent business of a third country investment firm) when acting through that tied agent.
11A firm that is a principal of an appointed representative that carries on MCD credit intermediation activity must monitor the activities of that appointed representative to ensure compliance with obligations derived from17 the MCD (including those in MCOB and TC).
[Note: article 31(3) of the MCD]
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.
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 CASS 7.13.34 R and CASS 7.13.35 G.10
10Regulated 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 or (if the appointed representative is a firm with a limited permission) in breach of section 20(1) or (1A) of the Act9; 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 in accordance with a limited permission9; 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 and senior managers regime
SUP 10A applies certain controlled functions to an appointed representative of a firm. In the case of an appointed representative that also has a limited permission, SUP 10C may apply in addition to SUP 10A.19
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)
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 FCA (see SUP 10A.13.1 G22).
22Obligations of firms under the training and competence rules
- (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)
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)
For the purposes of (1) and (2), an employee or a relevant employee of a firm includes an individual who is:15
- (a)
an appointed representative of a firm; and15
- (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
- (a)
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).
12A CBTL firm must take reasonable care to ensure that:
- (1)
individuals who are its appointed representatives; and
- (2)
individuals who are employed or appointed by appointed representatives (whether under a contract of service or for services);
who act in connection with the CBTL business of the appointed representative for which the CBTL firm has accepted responsibility satisfy the knowledge and competence requirements set out in paragraph 3 of Schedule 2 to the MCD Order.
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.
Continuing obligations of firms with FCA registered tied agents
7If a MiFID investment firm17 appoints an FCA registered tied agent17, 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 FCA registered tied agent17 were an appointed representative.
Continuing obligations of firms with MiFID optional exemption appointed representatives or structured deposit appointed representatives
14If a firm appoints a MiFID optional exemption appointed representative or a structured deposit appointed representative, that firm must:
- (1)
monitor the activities of the appointed representative to ensure that the firm complies with those obligations which implemented17 provisions of MiFID and to which it is subject when acting through its appointed representative;
- (2)
ensure that its appointed representative discloses the capacity in which it is acting and the firm it is representing when contacting a client or potential client or before dealing with a client or potential client; and
- (3)
take adequate measures to avoid any negative impact that the activities of its appointed representative not covered by the scope of MiFID could have on the activities carried out by the appointed representative on behalf of the firm.
14In SUP 12.6.15AR(1), the obligations which implemented17 relevant provisions of MiFID to which a firm is subject include:
- (1)
in the case of a MiFID optional exemption firm appointing a MiFID optional exemption appointed representative, those conduct requirements which are derived from17 article 3(2) of MiFID; and
- (2)
in the case of a firm appointing a structured deposit appointed representative, those requirements which are derived from17 article 1(4) of MiFID.
The certification regime
13SYSC 27.4.2G16 explains the application of the certification regime in SYSC 5.2 to appointed representatives of SMCR firms16. The certification regime does not apply to firms that are not SMCR firms16.