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

20Where SUP 12.6.1R applies, the circumstances in which it is likely to be appropriate to terminate the contract include, but are not limited to, where:

1. (1)

   there are issues with the appointed representative which have not been resolved satisfactorily or within a reasonable period of time. This may include where the appointed representative has agreed to resolve known issues but it has not met the firm’s standards or expectations for remediation or where the firm considers the proposed remediation would risk it breaching applicable rules;

2. (2)

   the appointed representative is unable to satisfactorily explain unusually high rates of senior management turnover;

3. (3)

   the principal becomes aware that the appointed representative is carrying on regulated activities in breach of the general prohibition or (if the appointed representative is a firm with a limited permission) in breach of section 20(1) or (1A) of the Act;

4. (4)

   the appointed representative is found to have intentionally misled clients or potential clients in any way; or

5. (5)

   any of the appointed representative’s senior management with responsibility for, or involvement in, activities carried on within the scope of the appointed representative’s appointment are dismissed on the basis of gross misconduct.

20 SUP 12 Annex 7G contains a flowchart to assist firms in determining whether a particular matter is more properly addressed through remediation or termination.

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.

A firm is required to review the financial position of its appointed representatives (other than its introducer appointed representatives) at least annually (SUP 12.6A.2R). An appropriately experienced person (for example, a financial accountant) should carry out these checks in support of the firm’s obligation in SUP 12.6A.2R.20

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 CASS 7.13.3R and CASS 7.13.12R, 21firms' attention is drawn to CASS 7.13.34 R and CASS 7.13.35 G.10

1. (1)

   20Where a firm delegates functions or tasks to an appointed representative, it should apply appropriate safeguards including, but not limited to:

   1. (a)

      ensuring that the delegation does not represent a conflict of interest; and

   2. (b)

      applying enhanced monitoring to the delegated task or function.

2. (2)

   A firm should also refer, where applicable, to SYSC 3.2.3G.

20In determining what are reasonable steps for the purposes of SUP 12.6.6R, a firm should have regard to the guidance at SUP 12.4.4GG.

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.

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. (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

   6886
   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 implemented17 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 derived from17 article 3(2) of MiFID; and

2. (2)

   in the case of a firm appointing a structured deposit appointed representative, those requirements which are derived from17 article 1(4) of MiFID.

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.