5 In addition to those rules in SUP 12 relating to the MiFID business of appointed representatives and tied agents, there are other obligations derived from MiFID6 in the Handbook relevant to the knowledge and competence of tied agents and related compliance obligations (see SYSC 5.1, TC and FIT (in respect of appointed representatives that are approved persons)). These provisions are subject to the territorial application requirements in their respective chapters.

7This chapter applies to a Gibraltar-based firm which is considering appointing, has decided to appoint or has appointed an appointed representative in accordance with the general application of this chapter.

This chapter gives guidance to a firm, which is considering appointing an appointed representative, on how the provisions of section 39 of the Act (Exemption of appointed representatives) work. For example, it gives guidance on the conditions that must be satisfied for a person to be appointed as an appointed representative. It also gives guidance to a firm on the implications, for the firm itself, of appointing an appointed representative.

The chapter also sets out the FCA'srules, and guidance on these rules, that apply to a firm before it appoints, when it appoints and when it has appointed an appointed representative. The main purpose of these rules is to place responsibility on a firm for seeking to ensure that:

1. (1)

   its appointed representatives are fit and proper to deal with clients in its name; and

2. (2)

   clients dealing with its appointed representatives are afforded the same level of protection as if they had dealt with the firm itself.

The FCA’s website includes information about becoming and appointing an appointed representative. This information can be found at https://www.fca.org.uk/firms/appointed-representatives-principals5.

2This chapter also sets out:5

1. (1)

   guidance about section 39A of the Act, which is relevant to a MiFID investment firm6 that is considering appointing an FCA registered tied agent; and5

2. (2)

   the FCA’s rules, and guidance on those rules, in relation to the appointment of:5

   1. (a)

      an FCA registered tied agent by a MiFID investment firm6;5

   2. (b)

      a MiFID optional exemption appointed representative; and5

   3. (c)

      a structured deposit appointed representative.5

1. (1)

   Under section 19 of the Act (The general prohibition), no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is an authorised person, or he is an exempt person in relation to that activity.

2. (2)

   A person will be an exempt person if he satisfies the conditions in section 39(1) of the Act, guidance on which is given in SUP 12.2.2 G. A person who is exempt as a result of satisfying these conditions is referred to in the Act as an appointed representative.

3. (3)

   If an appointed representative is also a tied agent or a MiFID optional exemption appointed representative20 he must also satisfy the condition in section 39(1A) of the Act in order to be an exempt person. See SUP 12.4.12 G and SUP 12.4.13G20 for guidance on that condition,20SUP 12.2.16 G for more general guidance about tied agents.12 and SUP 12.2.17G for guidance about MiFID optional exemption appointed representatives.20

4. (3A)

   If an appointed representative is also a structured deposit appointed representative he must also satisfy the condition in section 39(1AA) of the Act in order to be an exempt person. See SUP 12.4.12G and SUP 12.4.13G for guidance on that condition and SUP 12.2.18G for guidance about structured deposit appointed representatives.20

5. (4)

   If an appointed representative has entered into a contract with an MCD credit intermediary and is a person to whom section 39(1BA) of the Act applies, they must also satisfy the conditions in section 39(1BB) of the Act to be an exempt person. See SUP 12.4.10C G for guidance on those conditions.17

1. (1)

   A person (other than a firm with only a limited permission)15must satisfy the conditions in section 39(1) of the Act to become an appointed representative. These are that:

   1. (a)

      the person must not be an authorised person, that is, he must not have permission under the Act to carry on any regulated activity in his own right (section 39(1) of the Act);

   2. (b)

      the person must have entered into a contract with an authorised person, referred to in the Act as the 'principal', which:

      1. (i)

         permits or requires him to carry on business of a description prescribed in the Appointed Representatives Regulations (section 39(1)(a)(i) of the Act) (see SUP 12.2.7 G); and

      2. (ii)

         complies with any requirements that may be prescribed in the Appointed Representatives Regulations (section 39(1)(a)(ii) of the Act) (see SUP 12.5.2 G (1)); and

   3. (c)

      the principal must have accepted responsibility, in writing, for the authorised activities of the person in carrying on the whole, or part, of the business specified in the contract.

2. (2)

   The appointed representative is an exempt person in relation to any regulated activity comprised in the carrying on of the business for which his principal has accepted responsibility.

1. (1)

   15Under sections 20(1) and (1A) of the Act (Authorised persons acting without permission), if an authorised person carries on a regulated activity in the United Kingdom, or purports to do so, otherwise than in accordance with his permission, he is to be taken to have contravened a requirement imposed by the FCA (in the case of a FCA-authorised person) or the FCA and the PRA (in the case of a PRA-authorised person).

2. (2)

   In addition, under section 23(1A) of the Act (Contravention of the general prohibition or section 20(1) or (1A)), an authorised person is guilty of an offence if he carries on a credit-related regulated activity in the United Kingdom, or purports to do so, otherwise than in accordance with his permission. For these purposes, entering into a regulated credit agreement as lender,exercising, or having the right to exercise, the lender's rights and duties under a regulated credit agreement and debt collecting are credit-related regulated activities, except in so far as the activity relates to an agreement under which the obligation of the borrower to repay is secured on land (see the Financial Services and Markets Act 2000 (Consumer Credit) (Designated Activities) Order 2014).

3. (3)

   Section 39(1D) of the Act provides, however, that sections 20(1) and (1A) and 23(1A) of the Act do not apply:

   1. (a)

      to an authorised person with only a limited permission;

   2. (b)

      in relation to the carrying on by him of a regulated activity which is not one to which his limited permission relates;

   if the conditions in section 39(1C) of the Act are met. Guidance on these conditions is given at SUP 12.2.2B G. A firm carrying on a regulated activity in circumstances where, as a result of section 39(1D) of the Act, sections 20(1) and (1A) and 23(1A) of the Act do not apply is also referred to as an appointed representative.

1. (1)

   15A firm must satisfy the conditions in section 39(1C) of the Act to become an appointed representative. These are that:

   1. (a)

      the firm must have only a limited permission (section 39(1C)(a) of the Act);

   2. (b)

      the firm must have entered into a contract with another authorised person, referred to in the Act as the 'principal', which:

      1. (i)

         permits or requires him to carry on business of a description prescribed in the Appointed Representatives Regulations (section 39(1C)(b)(i) of the Act) (see SUP 12.2.7 G); and

      2. (ii)

         complies with any requirements that may be prescribed in the Appointed Representatives Regulations (section 39(1C)(b)(ii) of the Act); and

   3. (c)

      the principal must have accepted responsibility, in writing, for the authorised activities of the firm in carrying on the whole, or part, of the business specified in the contract.

2. (2)

   The appointed representative is not subject to sections 20(1) or (1A) or 23(1A) of the Act in relation to the carrying on of the regulated activity which is comprised in the business for which his principal has accepted responsibility and for which he does not have limited permission.

As long as the conditions in section 39 of the Act are satisfied, any person, other than an authorised person (unless he has only a limited permission)15, may become an appointed representative, including a body corporate, a partnership or an individual in business on his own account. However, an appointed representative cannot be an authorised person under the Act unless he has only a limited permission. A person15 cannot be exempt for some regulated activities and authorised for others. An appointed representative with a limited permission is not an exempt person, but he may carry on the regulated activity comprised in the business for which his principal has accepted responsibility without being taken to have contravened a requirement imposed on him by the FCA or PRA or committing an offence, even though the activity is not covered by his limited permission.15

The Act and the Appointed Representatives Regulations19 do not prevent an appointed representative from acting for more than one principal. However, SUP 12.5.6A R (Prohibition of multiple principals for certain activities) prevents this for particular kinds of business.5

A firm is referred to as a 'network' if it appoints five or more appointed representatives (not counting introducer appointed representatives)7 or if it appoints fewer7 than five appointed representatives (again, not counting introducer appointed representatives)7 which have, between them, twenty-six or more representatives. However, a network does not include:54

(a) a product provider;4

(b) a firm which markets the packaged products of a product provider in the same group as the firm and which does so other than by selecting products from the whole market;4

(c) an insurer in relation to a non-investment insurance contract; or4

(d) a home finance provider.842

1. (1)

   The Appointed Representatives Regulations are made by the Treasury under sections 39(1)18, (1C) and (1E)15 of the Act. These regulations describe, among other things, the business for which an appointed representative may be exempt or to which sections 20(1) and (1A) and 23(1A) of the Act may not apply15, which is business which comprises any of:

   1. (a)

      dealing in investments as agent (article 21 of the Regulated Activities Order) where the transaction relates to:26

      553
      1. (i)

         26a pure protection contract (but only where the contract is not a long-term care insurance contract) or general insurance contract; or

      2. (ii)

         26a funeral plan contract;

   2. (aa)

      25bidding in emissions auctions (article 24A of the Regulated Activities Order) where that activity does not consist either of dealing on own account or the execution of orders on behalf of clients;

      2414
   3. (b)

      arranging (bringing about) deals in investments (article 25(1) of the Regulated Activities Order) (that is in summary, deals in a designated investment (other than a P2P agreement)16, structured deposit20, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan);5

      5
   4. (c)

      making arrangements with a view to transactions in investments (article 25(2) of the Regulated Activities Order) (that is in summary, transactions in a designated investment (other than a P2P agreement)16, structured deposit20, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan);5

      5
   5. (d)

      arranging (bringing about) a home finance transaction8(

      588

      articles 25A(1), 25A(2A),17 25B(1) and 25C(1)8 of the Regulated Activities Order);5

   6. (e)

      making arrangements with a view to a home finance transaction8 (articles 25A(2), 25B(2) and 25C(2)8 of the Regulated Activities Order);5

      588
   7. (ea)

      credit broking (article 36A of the Regulated Activities Order);15

   8. (eb)

      operating an electronic system in relation to lending (article 36H of the Regulated Activities Order);15

   9. (f)

      assisting in the administration and performance of a contract of insurance (article 39A of the Regulated Activities Order);53

      5
   10. (fa)

       debt adjusting (article 39D of the Regulated Activities Order);15

   11. (fb)

       debt counselling (article 39E of the Regulated Activities Order);15

   12. (fc)

       debt collecting (article 39F of the Regulated Activities Order);15

   13. (fd)

       debt administration (article 39G of the Regulated Activities Order);15

   14. (g)

       arranging safeguarding and administration of assets (part of article 40 of the Regulated Activities Order);5

       5
   15. (h)

       giving basic advice on a stakeholder product10(article 52B of the Regulated Activities Order);6

       55610
   16. (i)

       advising on investments (except P2P agreements) (article 53(1)18 to (1D)21 of the Regulated Activities Order) (that is in summary, advising21 on any designated investment (other than a P2P agreement)16, structured deposit20, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan);6

       56
   17. (ia)

       advising on P2P agreements (article 53(2) of the Regulated Activities Order);18

   18. (j)

       advising on a home finance transaction8 (articles 53A, 53B and 53C8 of the Regulated Activities Order); 6

       568815
   19. (ja)

       entering into a regulated credit agreement as lender or exercising, or having the right to exercise, the lender's rights and duties under a regulated credit agreement (article 60B of the Regulated Activities Order) when carried on in relation to a credit agreement under which the credit is provided free of interest and without any other charges;15

   20. (jaa)

       advising on regulated credit agreements for the acquisition of land (article 53DA of the Regulated Activities Order);17

   21. (jab)

       advising on conversion or transfer of pension benefits (article 53E of the Regulated Activities Order);22

   22. (jb)

       entering into a regulated consumer hire agreement as owner or exercising, or having the right to exercise, the owner's rights and duties under a regulated consumer hire agreement (article 60N of the Regulated Activities Order);15

   23. (k)

       agreeing to carry on a regulated activity (article 64 of the Regulated Activities Order) where the regulated activity is one of those specified in Regulation 2(1)(d) of the Appointed Representatives Regulations27; and

       15
   24. (l)

       providing credit information services (article 89A of the Regulated Activities Order).15

2. (2)

   If the appointed representative is also a tied agent20, the business for which the appointed representative may be exempt includes the following additional activities:12

   12
   1. (a)

      placing financial instruments or structured deposits27;12

   2. (b)

      providing advice to clients or potential clients in relation to the placing of financial instruments or structured deposits27.12

3. (3)

   [deleted]12

   212
4. (4)

   Regulated claims management activity is not a type of business for which an appointed representative may be exempt.23

1. (1)

   An introducer appointed representative is an appointed representative appointed by a firm whose scope of appointment must, under SUP 12.5.7 R, be limited to:

   1. (a)

      effecting introductions to the firm or other members of the firm's group; and5

   2. (b)

      distributing non-real time financial promotions which relate to products or services available from or through the firm or other members of the firm's group.5

2. (2)

   The permitted scope of appointment of an introducer appointed representative does not include in particular:5

   1. (a)

      dealing in investments as agent; or5

      5
   2. (b)

      arranging (bringing about) deals in investments or arranging (bringing about) regulated mortgage contracts; or5

      5
   3. (c)

      assisting in the administration and performance of a contract of insurance; or53

   4. (d)

      advising on investments, giving basic advice on a stakeholder product 106advising on a home finance transaction8, advising on regulated credit agreements for the acquisition of land,17 or other activity that might reasonably lead a customer to believe that they had received, 27 or that the introducer appointed representative is permitted to provide, one of those services27.

      10868810610588
3. (3)

   An introducer appointed representative may have more than one principal, but will need a contract with each principal.5

4. (4)

   The approved persons regime does not apply to an introducer appointed representative (see SUP 10A.1.15 R28).5

   28

To become an introducer appointed representative, a person must meet the conditions in the Act to become an appointed representative (see SUP 12.2.2 G).5

All rules in SUP 12 apply in relation to introducer appointed representatives except for:

1. (1)

   SUP 12.4.2 R, SUP 12.4.5B R and SUP 12.4.5C, on the appointment of appointed representatives, which are replaced by SUP 12.4.6 R;

   5
2. (2)

   SUP 12.5.6A R on required contract terms, which is replaced by SUP 12.5.7 R;

   5
3. (2A)

   27SUP 12.6A.2R to SUP 12.6A.4R; and

4. (3)

   SUP 12.9.1 R (4) (Record keeping).5

If an introducer appointed representative is an individual in business on his own, then he will also be an introducer (see SUP 12.2.13 G). This has certain implications in COBS.10

A firm or its appointed representative may appoint or employ individuals to act as introducers or representatives in respect of designated investment business.4

1. (1)

   An introducer is an individual appointed by a firm or by an appointed representative of such a firm to carry out, in the course of designated investment business, either or both of the following activities:4

   1. (a)

      effecting introductions;

   2. (b)

      distributing non-real time financial promotions.

2. (2)

   An introducer is not an exempt person under section 39 of the Act (unless he is also an introducer appointed representative) and hence cannot benefit from the exemption to carry on regulated activities in his own right. As a result, an introducer that is not an introducer appointed representative works in the name of his firm or the firm's appointed representative but he does not fall within the scope of the approved persons regime as he does not, as such, perform a controlled function.1

1. (1)

   A representative is an individual who is appointed by a firm or an appointed representative, to carry on any of the activities in (1)(a) to (c):54

   1. (a)

      advising on investments;5

   2. (b)

      arranging (bringing about) deals in investments;5

   3. (c)

      dealing in investments as agent.5

2. (2)

   If a firm appoints an appointed representative who is an individual in (1), that appointed representative will also be a representative. The individual may need to be approved to perform the customer function9, (see SUP 12.6.8 G and SUP 12.6.9 G). In these circumstances, in addition to complying with the requirements of SUP 12 and other regulatory requirements, the firm should ensure that the rules for representatives inCOBS 6 (Information about the firm, its services and remuneration)13 are complied with.54

   91113

1. (1)

   12A tied agent is a person who acts for and under the responsibility of a MiFID investment firm (or a third country investment firm) in respect of MiFID business (or the equivalent business of the third country investment firm). Most tied agents appointed by firms are also appointed representatives.

2. (2)

   Unless otherwise provided, this chapter applies to a firm that appoints a tied agent that is an appointed representative in the same way as it applies to the appointment of any other appointed representative.

3. (3)

   This chapter sets out the provisions which apply to tied agents appointed by a MiFID investment firm24.

4. (4)

   [deleted]24

5. (5)

   A tied agent will not be an appointed representative if it does not and is not likely to conduct any business as a tied agent in the UK. Such a tied agent will be an FCA registered tied agent24.

6. (6)

   This chapter only applies to a firm that appoints a tied agent that is not an appointed representative where it expressly refers to tied agents.

7. (7)

   A MiFID investment firm24 may24 may appoint20 a tied agent established in the UK but that does not, and is not likely to, conduct any business as a tied agent in the UK. That20 must be registered with the FCA. Such a tied agent24 is referred to in the Handbook as an FCA registered tied agent.

   20
8. (8)

   [deleted]24

   20

1. (1)

   20 A MiFID optional exemption appointed representative is a person who acts for and under the responsibility of a MiFID optional exemption firm. Such appointed representatives are not also tied agents since they do not act on behalf of a MiFID investment firm in respect of MiFID business.

2. (2)

   Unless otherwise provided, this chapter applies to a firm that appoints a MiFID optional exemption appointed representative in the same way as it applies to the appointment of any other appointed representative.

3. (3)

   The rules in this chapter which apply with respect to tied agents appointed by firms24 also apply to a firm that appoints a MiFID optional exemption appointed representative.

1. (1)

   20 If a MiFID investment firm or a third country investment firm appoints a person to act under its full and unconditional responsibility but only for the purpose of selling, or advising clients in relation to, structured deposits (and not any of the activities within section 39(7) of the Act24), that person will not be a tied agent in respect of that activity.

2. (2)

   Unless otherwise provided, this chapter applies to a firm that appoints a structured deposit appointed representative in the same way as it applies to the appointment of any other appointed representative.

3. (3)

   The rules in this chapter which apply with respect to tied agents appointed by firms24 also apply to a firm that appoints a structured deposit appointed representative.

In determining whether a firm has complied with:5

1. (1)

   any provision in or under the Act such as any Principle or other rule; or5

2. (2)

   any provision in Part 3 of the MCD Order; or5

3. (3)

   any qualifying 7provision specified, or of a description specified, for the purpose of section 39(4) of the Act by the Treasury by order,5

anything that an appointed representative has done or omitted to do as respects the business for which the firm has accepted responsibility will be treated as having been done or omitted to be done by the firm (section 39(4) of the Act and article 17 of the MCD Order4).

The firm is responsible, to the same extent as if it had expressly permitted it, for anything the appointed representative does or omits to do, in carrying on the business for which the firm has accepted responsibility (section 39(3) of the Act and article 17 of the MCD Order).4

In determining whether the firm has committed any offence,3 however, the knowledge or intentions of an appointed representative are not attributable to the firm, unless in all the circumstances it is reasonable for them to be attributed to it (section 39(6) of the Act).

1 SYSC 6.1.1 R requires a MiFID investment firm and a credit firm2to ensure the compliance of its appointed representative with obligations under the regulatory system. The concept of a relevant person in SYSC includes an officer or employee of a tied agent.

1The effect of section 39A(6)(b) of the Act is to prohibit a MiFID investment firm7 from appointing an FCA registered tied agent unless it has accepted responsibility in writing for the agent's activities in acting as a tied agent.

1The effect of sections 20 (Authorised persons acting without permission) and 39(4) (Exemption of appointed representatives) of the Act is that the regulated activities covered by an appointed representative's appointment need to:

1. (1)

   fall within the scope of the principal's permission; or

2. (2)

   be excluded from being regulated activities when carried on by the principal, for example because:14

   1111
   1. (a)

      14they fall within article 28 of the Regulated Activities Order (Arranging transactions to which the arranger is a party);

   2. (b)

      14they constitute CBTL business and the principal is a CBTL firm; or

   3. (c)

      14the principal is appropriately authorised (see article 53(1A) of the Regulated Activities Order).

11In relation to CBTL business only a CBTL firm which is a firm can appoint an appointed representative.

14Where the principal is appropriately authorised for the purposes of article 53(1A) of the Regulated Activities Order (and so does not need permission to provide non-personal recommendation advice), the terms of the appointed representative’s appointment will still need to cover their business in carrying on non-personal recommendation advice. This is because an appointed representative providing non-personal recommendation advice will only be exempt from the general prohibition if the principal has accepted responsibility in writing for the appointed representative in carrying on such business. An appointed representative is not exempt from the general prohibition simply because the principal is appropriately authorised for the purposes of article 53(1A) of the Regulated Activities Order (see also PERG 8.24.1AG (Advising on investments))17.

21 SUP 12.4.2R applies before a firm appoints a person as an appointed representative and on a continuing basis thereafter. References in this guidance to an appointed representative should therefore be read as also referring to a prospective appointed representative where appropriate.

In assessing, under SUP 12.4.2 R(2)1(a) and (b), whether an appointed representative is solvent and otherwise 1suitable, a firm should determine, among other matters, whether the person is likely to be adversely influenced by its financial position in the conduct of the business for which the firm is responsible. This might arise, for example, if the person has cashflow problems and is not able to service its debts. Guidance for firms on assessing the financial position of an appointed representative is given in SUP 12 Annex 1.

In assessing, under SUP 12.4.2 R (2)(b), whether an appointed representative is otherwise 1suitable to act for the firm in that capacity, a firm should consider:

1. (1)

   whether the person is fit and proper; guidance on the information that firms should take reasonable steps to obtain and verify is given in SUP 12 Annex 2;

2. (2)

   the fitness and propriety (including good character) and financial standing of the controllers, directors, partners, proprietors and managers of the person; firms seeking guidance on the information which they should take reasonable steps to obtain and verify should refer to FIT and the questions in the relevant 6Form A (Application to perform controlled functions under the approved person regime) in SUP 10A Annex 416; and 21

   1612
3. (3)

   21the competence and capabilities of relevant directors, partners, proprietors and managers of the person, including whether they have:

   1. (a)

      appropriate experience, knowledge, skills and training in relation to the activities and business carried out, or to be carried out, on behalf of the firm; and

   2. (b)

      the necessary time to properly perform the tasks and functions for which they are, or will be, responsible.

21In considering the competence and capabilities of relevant individuals, firms should note that other provisions, including SYSC 3.1 (Systems and controls) and SYSC 5.1 (Skills, knowledge and expertise), the requirements of the Training and Competence sourcebook (TC) and guidance in the Fit and Proper test for Employees and Senior Personnel sourcebook (FIT) may also be relevant. See also SUP 12.6.10G.

21In assessing whether the firm has adequate controls and resources for the purposes of SUP 12.4.2R(3)(a) and SUP 12.4.2R(3)(b), a firm should consider whether these:

1. (1)

   are commensurate to:

   1. (a)

      the size or potential size of the appointed representative; and

   2. (b)

      the nature of the regulated activities for which the firm has, or proposes to have, responsibility;

2. (2)

   enable the firm to effectively manage conflicts of interest;

3. (3)

   allow the firm to maintain effective oversight of the appointed representative;

4. (4)

   enable the firm to identify and remediate any issues arising at the appointed representative; and

5. (5)

   enable the firm to maintain a level of oversight of the appointed representative’s regulated activities equivalent to that which would be, and ought reasonably to be, applied if:

   1. (a)

      those activities were carried on by the firm in a principal capacity; and

   2. (b)

      all individuals engaged in those activities were employees of the firm,

   (and see also Principle 3, COND 2.5.6G(1) and (1A) and SUP 12.6.11G).

21In assessing, under SUP 12.4.2R(5), whether an appointed representative’s activities or proposed activities give rise to an undue risk of harm, a firm should consider, without limitation:

1. (1)

   the nature of the risks associated with the person’s appointment and activities or proposed activities having regard to, amongst other things, the person’s:

   1. (a)

      business model;

   2. (b)

      (as applicable) senior management and governance arrangements;

2. (2)

   the likely impact on clients or potential clients were a relevant risk to crystallise having regard to, amongst other things:

   1. (a)

      the number of clients with which the person is, or is likely be, dealing;

   2. (b)

      whether the clients or potential clients with which the person is, or is likely to be, dealing include those in vulnerable circumstances who may be at greater risk of harm if things go wrong;

   3. (c)

      the likely extent of any financial loss that clients may suffer;

3. (3)

   the likely impact on the firm were a relevant risk to crystallise including, but not limited to, the impact of a significant volume of complaints relating to the person’s activities;

4. (4)

   the likely impact on the continuity of the provision of services to clients in the event of the person’s failure;

5. (5)

   the potential for reputational damage which could harm the clients with which the person deals, or is likely to deal; and

6. (6)

   the ability of its own arrangements to effectively identify and manage those risks in compliance with its obligations in SYSC.

21In determining, under SUP 12.4.2R(2)(c), whether an appointed representative has any close links which would be likely to prevent the firm’s effective supervision, a firm should consider the guidance to threshold condition 2C or 3B as applicable in COND 2.3.

21In undertaking the assessment required by SUP 12.4.2R, a firm should:

1. (1)

   ensure and verify that information provided by the appointed representative, either at entity-level or about relevant individuals (SUP 12.4.4G(2) and (3)), is accurate, sufficiently detailed and up to date;

2. (2)

   discuss any omissions or concerns proactively with relevant individuals at the appointed representative; and

3. (3)

   ensure that it is made aware of any changes, including to relevant individuals at the appointed representative, which may affect the quality or integrity of the information provided.

21 SUP 12.4.2R applies on a continuing basis. In particular:

1. (1)

   a firm should re-assess whether its controls and resources remain adequate for the purposes of SUP 12.4.2R(3)(a) and (b) if any of the following circumstances arise:

   1. (a)

      the size or volume of the appointed representative’s business involving regulated activity increases significantly in a short period of time;

   2. (b)

      the firm identifies an unusually high rate of turnover at the appointed representative of:

      1. (i)

         senior management; or

      2. (ii)

         other staff of the appointed representative involved in carrying on the regulated activities for which the firm has accepted responsibility;

   3. (c)

      the firm identifies a significant increase in the number of complaints it receives about the appointed representative;

   4. (d)

      the appointed representative changes its business model (including target market); or

   5. (e)

      a change is made to the scope of the appointed representative’s appointment.

2. (2)

   SUP 12.6A.3R requires a firm to carry out a review, including of the adequacy of the firm’s controls and resources, in any of the circumstances specified in that rule.

21In order to comply with the various obligations in this chapter and having due regard to the nature of the appointed representative’s activities and the risks associated with them, a firm should:

1. (1)

   collect and scrutinise relevant management information and agree with its appointed representative how and when management information should be provided, the format it should take and the data it should capture;

2. (2)

   analyse data provided by the appointed representative to identify emerging risks and issues;

3. (3)

   closely monitor the delivery of the appointed representative’s activities and business, within the scope of its appointment (for example, by reviewing call scripts or other materials provided by the appointed representative and organising regular meetings with them);

4. (4)

   engage regularly with its appointed representative, whether through in-person meetings, telephone calls or email communication; and

5. (5)

   establish clear processes for the escalation of issues, including service level agreements where necessary. This could include, for example, grading of issue severity based on impact and potential harm to clients and processes for remediation within defined timeframes. Where appropriate, such expectations should be included in the contract between the firm and the appointed representative.

1. (1)

   21A firm to which SUP 12.4.4HR applies should also have regard to SYSC 5.1 (Skills, knowledge and expertise). The requirements of the Training and Competence sourcebook (TC) and guidance in the Fit and Proper test for Employees and Senior Personnel (FIT) may also be relevant.

2. (2)

   ESMA has issued guidelines for MiFID investment firms specifying the criteria for the assessment of knowledge and competence. These guidelines are relevant to tied agents (see SYSC 5.1.5ADG).

1If a firm proposes to appoint an appointed representative, but not to prohibit its appointment by any other principals (see SUP 12.5.2 G (3)), the firm should, in particular:

1. (1)

   require, in the contract, that the appointed representative notifies the firm about other principals (see SUP 12.5.5 R (3)) and

2. (2)

   unless the appointed representative is an introducer appointed representative:

   1. (a)

      take reasonable steps to check whether the appointed representative is already appointed by one or more other principals and, if it is, contact those other principals; such steps should include asking the appointed representative and checking the Financial Services Register;

   2. (b)

      if there are any other principals, agree arrangements with the other principals (see SUP 12.4.5B R) ; and

   3. (c)

      establish effective systems and controls for ensuring that the appointed representative complies with all contractual restrictions imposed, including those relating to multiple principals under the Appointed Representatives Regulations and under SUP 12.5.6A R (see SUP 12.6.11A R).

1One effect of the multiple principal agreement is to introduce a 'lead-principal' concept in relation to complaints handling for the benefit of the client. For example, where the client has been given advice by an appointed representative who has two principals, and the advice could have led to a transaction being arranged with either principal, the client will know that he may pursue his complaint with (but not necessarily against) one of the principals. Whether he later decides to refer his complaint to the Financial Ombudsman Service, and if so, against which principal, will depend on the circumstances.

1. (1)

   1Under the relevant provisions in COBS, ICOBS7 and MCOB, the customer will receive details of how to complain to the appointed representative and, when a product is purchased, details of the complaints procedure for the product provider, insurer or home finance provider.2

   772
2. (2)

   Under DISP 1.2.1 R4, a firm must among other things, supply summary details of its internal process for dealing promptly and fairly with complaints4 to the customer when it receives a complaint4. In complying with DISP 1.2.1 R4, a firm should ensure that the "lead-principal" is clearly identified in the procedures.

   4444
3. (3)

   The complaints procedure should also explain that the customer has a choice of whether to contact the appointed representative, the "lead-principal" or the product provider, insurer or home finance provider2 and that the "lead-principal" will be the appropriate point of contact where the customer does not wish to complain about a specific product or is unsure who to contact.

   2
4. (4)

   In other words, where the customer, has a doubt who to complain to the "lead-principal" is to be the point of contact for all complaints arising out of the activities of the appointed representative.

1When considering the provisions for complaints handling (see SUP 12.4.5C(2)) firms should consider the use of a mediation clause. If a complaint is made by a client, principals which are unable to resolve a dispute about liability to the client should consider all quick and effective ways of resolving the dispute, including referring the matter to the Financial Ombudsman Service and mediation.

1It is for the principals to consider in each case whether it would be appropriate to show the multiple principal agreement to their appointed representative, or in some circumstances make their appointed representative a party to it.

In assessing, under SUP 12.4.6 R(1)1, whether an introducer appointed representative or prospective introducer appointed representative is otherwise suitable to act for the firm in that capacity, the firm should determine whether the introducer appointed representative and those persons who will be, or who are, directly responsible for its activities are of sufficiently good reputation and otherwise fit and proper for that appointment. The firm should, as a minimum, verify the identity of a prospective introducerappointed representative and relevant persons but need not carry out the more extensive due diligence required for the appointment of an appointed representative under SUP 12.4.2 R.1

21In complying with the requirements in SUP 12.4.6R, a firm should also have regard, so far as relevant, to the guidance in SUP 12.4.4BG, SUP 12.4.4CG, SUP 12.4.4FG and SUP 12.4.4GG.

If a firm has doubts that a prospective introducerappointed representative or other person is of sufficiently good reputation and otherwise fit and proper, the FCA will expect it to resolve those doubts before appointing the prospective introducer appointed representative. For example, if a firm is aware that a person's previous appointment as an introducer appointed representative or representative was terminated, it should take reasonable steps to find out the reasons for the termination and the extent to which those reasons reflect on the person concerned.1

15 SYSC 28.1 (Minimum knowledge and ability requirements for carrying out insurance distribution activities), SYSC 28.2 (Knowledge and ability requirements) and SYSC 28.4 (Record-keeping requirements) apply in relation to a firm’s relevant employees. This includes its appointed representatives and their employees.

[Note: articles 10(1), 10(2) and last paragraph of article10(8) of the IDD]

1. (1)

   1An appointed representative must not commence an insurance distribution activity15 until they are15 included on the Financial Services Register as carrying on such activities (see SUP 12.5.2 G (3)).

2. (2)

   21[deleted]

3. (3)

   21[deleted]

1. (1)

   1The FCA has the power to decide not to include on the Financial Services Register (or to remove from the Financial Services Register) an appointed representative whose scope of appointment includes an insurance distribution activity15, if it appears to the FCA that he is not a fit and proper person to carry on those activities (article 95 of the Regulated Activities Order).

2. (2)

   If the FCA proposes to use the power in (1), it must give the appointed representative a warning notice. If the FCA decides to proceed with its proposal, it must give the appointed representative a decision notice. The procedures followed by the FCA in relation to the giving of warning notices and decision notices are set out in DEPP 2.5

   5
3. (3)

   An appointed representative may apply to the FCA for a determination of the kind referred to in (1) to be revoked. If the FCA proposes to refuse the application, it must give the appointed representative a warning notice, and if the FCA decides to proceed with the refusal, it must give the appointed representative a decision notice.

1. (1)

   22The effect of SUP 12.4.10AR(2) is that a firm itself must take out and maintain professional indemnity insurance that covers claims for which it may be liable as a result of the conduct of its appointed representatives (in addition to the conduct of the firm and its employees). This approach is consistent with the requirement in MIPRU 3.2.4R(1) and the responsibility of the firm for the conduct of all of its appointed representatives (MIPRU 3.2.6G).

2. (2)

   In addition to the professional indemnity insurance that the principal must hold under SUP 12.4.10AR(2), an appointed representative may take out, or have its own, professional indemnity insurance covering its activities to provide additional mitigation against the risk of harm to consumers, market integrity or itself.

1. (1)

   21[deleted]

1. (2)

   An appointed representative must not commence an MCD credit intermediation activity until they are included on the Financial Services Register.

2. (3)

   If an appointed representative's scope of appointment is to include MCD credit intermediation activity, the Act provides that that appointed representative'sprincipal may not be a tied MCD credit intermediary.

1. (1)

   8A tied agent that is an appointed representative may not start to act as a tied agent until it is included on the applicable register (section 39(1A) of the Act). The19 register maintained by the FCA is the applicable register for these purposes.

   13
2. (2)

   A MiFID investment firm19 that appoints an FCA registered tied agent who is not registered with the FCA will, subject to certain conditions, be taken to have contravened a requirement imposed on it by or under the Act (see section 39A(6)(c) and (d) of the Act).

3. (3)

   [deleted]19

4. (4)

   [deleted]19

   13
5. (5)

   21[deleted]

6. (6)

   A tied agent can only act as such for one MiFID investment firm or third country investment firm (see SUP 12.5.6A R (1A)).

1. (1)

   13 A MiFID optional exemption appointed representative or a structured deposit appointed representative may not start to act as such until it is included on the Financial Services Register (sections 39(1A) and 39(1AA) of the Act).

2. (2)

   [deleted]21

1. (1)

   18SUP 16.26 (Reporting of information about Directory persons) requires an SMCR firm that has appointed an appointed representative to report information to the FCA in respect of any individual who is an appointed representative Directory person.

2. (2)

   The SMCR firm should ensure that appropriate arrangements are in place so that the SMCR firm is able to report all relevant information about each such appointed representative Directory person to the FCA within the specified timeframes, in accordance with the requirements of SUP 16.26 (Reporting of information about Directory persons).

The Appointed Representatives Regulations17 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) 8and (2) of the Appointed Representatives Regulations make 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

   88
   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. (1A)

   [deleted]21

   8
3. (2)

   Under the Appointed Representatives Regulations17, 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(1)16 of the Regulated Activities Order (Advising on investments)) on the merits of entering into investment transactions with other counterparties;4

   4
   1. (d)

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

      4

      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 (other than a P2P agreement)11, structured deposit (where applicable)18, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan; or4

   2. (e)

      arranges:4

      4
      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

         41666
      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 before 31 October 2004 (in the case of a legacy CCA mortgage contract), or15 on or after 31 October 2004 (in the case of any other15regulated mortgage contract) or 6 April 2007 (in all other cases) with other counterparties;4

         4666
   3. (f)

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

      66
      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

         666
      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 before 31 October 2004 (in the case of a legacy CCA mortgage contract), or15 on or after 31 October 2004 (in the case of any other15regulated mortgage contract) or 6 April 2007 (in all other cases)6 with other counterparties;54

         6
   4. (g)

      giving basic advice on a stakeholder product10;75

      710
   5. (h)

      effects introductions (within article 36A (Credit broking) of the Regulated Activities Order) of individuals to other counterparties;10

   6. (i)

      facilitates persons becoming the lender and borrower under an article 36H agreement (within the meaning of the Regulated Activities Order) on behalf of other counterparties;10

   7. (ia)

      facilitates a person assuming the rights of the lender under an article 36H agreement (within the meaning of the Regulated Activities Order) by assignment or operation of law on behalf of other counterparties;16

   8. (j)

      carries on any of the other activities specified in article 36H(3) of the Regulated Activities Order on behalf of other counterparties in the course of, or in connection with, facilitation mentioned in (i) or (ia)16 by the appointed representative or its principal;10

   9. (ja)

      gives advice (within article 53(2) of the Regulated Activities Order) on the merits of:16

      1. (i)

         a person entering into a ‘relevant article 36H agreement’ (within the meaning of the Appointed Representatives Regulations) as a lender or assuming the rights of a lender under such an agreement by assignment or operation of law; or16

      2. (ii)

         a person providing instructions to a P2P platform operator with a view to entering into a ‘relevant article 36H agreement’ as a lender or assuming the rights of a lender under such an agreement by assignment or operation of law, where the instructions involve:16

         1. (A)

            accepting particular parameters for the terms of the agreement presented by a P2P platform operator; or16

         2. (B)

            choosing between options governing the parameters of the terms of the agreement presented by a P2P platform operator; or16

         3. (C)

            specifying the parameters of the terms of the agreement by other means; or16

      3. (iii)

         a person enforcing or exercising the lender’s rights under a ‘relevant article 36H agreement’; or16

      4. (iv)

         a person assigning rights under a ‘relevant article 36H agreement’;16

      on behalf of other counterparties;16

   10. (k)

       takes steps (within article 39D (Debt adjusting) of the Regulated Activities Order) on behalf of other counterparties;10

   11. (l)

       gives advice to a borrower (within article 39E (Debt-counselling) of the Regulated Activities Order) on behalf of other counterparties;10

   12. (m)

       takes steps (within article 39F (Debt-collecting) of the Regulated Activities Order) to procure the payment of debts on behalf of other counterparties;10

   13. (n)

       performs duties (within article 39G (Debt administration) of the Regulated Activities Order) under, or exercises or enforces rights under, an agreement on behalf of other counterparties;10

   14. (na)

       gives advice (within article 53E of the Regulated Activities Order (Advising on conversion or transfer of pension benefits)) on behalf of other counterparties;19

   15. (o)

       enters into regulated credit agreement or exercises or has the right to exercise the lender's rights and duties under such agreements (within article 60B (Regulated credit agreements) of the Regulated Activities Order) on behalf of other counterparties;10

   16. (p)

       enters into regulated consumer hire agreements or exercises, or has the right to exercise, the owner's rights and duties under such agreements (within article 60N (Regulated consumer hire agreements) of the Regulated Activities Order) on behalf of other counterparties;10

   17. (q)

       takes steps on behalf of, or gives advice to, an individual in relation to the taking of any steps (in circumstances constituting the carrying on of providing credit information services) on behalf of other counterparties.10

4. (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 unless17 included in the Financial Services Register as carrying on insurance distribution activities20.

(Subject to SUP 12.5.13G)22 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 FCA as described in SUP 2.3.4 G (Information gathering by the FCA on its own initiative: cooperation by firms) and give access to its premises, as described in SUP 2.3.5 R (2);

3. (3)

   require the appointed representative to give the firm's auditors the same rights as are provided by section 341 of the Act17; and22

4. (4)

   22require the appointed representative to provide the firm with such information as is necessary to enable the firm to comply with its obligations under this chapter (SUP 12), including, without limitation:

   1. (a)

      as to any matters which might require the firm to undertake a review under SUP 12.6A.3R;

   2. (b)

      to enable the firm to comply with its reporting and notification obligations in SUP 12.7.

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)). 4SUP 12.5.5R(4) also requires that the firm be able to terminate the contract in the event that the firm determines that it is no longer able to effectively oversee the activities of the appointed representative.22

1. (1)

   If the appointed representative is appointed to give advice on investments to retail clients7 concerning packaged products, the firm should also satisfy itself that the contract requires compliance with the rules in COBS 6 or COBS 6.1ZA18 (Information about the firm, its services and remuneration).9

   79
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 retail clients7, appointed representatives are restricted to one principal.4

   7
2. (1A)

   The effect of SUP 12.5.6A R (1A) is that tied agents are restricted to one principal when acting as such. A tied agent who has a MiFID investment firm or a third country investment firm as a principal may have other principals who are not MiFID investment firms or third country investment firms.8

3. (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 However, if any of the business of the appointed representative involves MCD credit intermediation activity, the appointed representative is restricted to having one principal in relation to that business.12

   6666

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.

8Under section 39A(6)(a) of the Act a MiFID investment firm21 must ensure that the contract it uses to appoint an FCA registered tied agent complies with the requirements that would apply under the Appointed Representatives Regulations17 if it were appointing an appointed representative.

22If:

1. (1)

   a MiFID investment firm or a third country investment firm appoints an appointed representative that is a tied agent or a MiFID optional exemption appointed representative, regulation 3(6) of the Appointed Representatives Regulations requires the contract between the firm and the appointed representative to contain a provision that the representative is only permitted to provide the services and carry on the activities referred to in section 39(7) of the Act while entered on the Register;

2. (2)

   a firm appoints an appointed representative that is a structured deposit appointed representative, regulation 3(6) of the Appointed Representatives Regulations requires the contract between the firm and the appointed representative to contain a provision that the representative is only permitted to sell, or advise clients on, structured deposits while entered on the Register.

22To the extent that the appointment of the appointed representative includes CBTL business, a firm should satisfy itself that the terms of the contract with its appointed representative:

1. (1)

   are designed to enable the firm to comply properly with any direction issued or imposed under article 19 of the MCD Order; and

2. (2)

   require the appointed representative to deal with the FCA in an open and co-operative manner and give access to its premises, as set out in SUP 2.3.4G and SUP 2.3.5R(2), as applied by SUP 2.1.2AG.

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.

11 SUP 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 6TC.

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.

13 SYSC 27.4.2G 16 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.

1. (1)

   1SUP 12.4.2R imposes continuing obligations on a firm that has appointed an appointed representative. This includes to ensure on reasonable grounds that the person is suitable to act in the capacity of an appointed representative and that the firm has adequate controls and resources to oversee the person’s activities. SUP 12.4.6R imposes similar obligations in relation to introducer appointed representatives.

2. (2)

   SUP 12.6.1R requires a firm to act where it has reasonable grounds to believe that the conditions referred to in (1) are not, or are not likely to be, satisfied in relation to any appointed representative.

3. (3)

   Without prejudice to these continuing requirements, the rules in this section require:

   1. (a)

      a firm to undertake a specific review (referred to in this section as the ‘annual review’) of certain aspects of its arrangements with appointed representatives (other than introducer appointed representatives) on at least an annual basis; and

   2. (b)

      the governing body of a firm to:

      1. (i)

         review and approve at least once every 12 months a written record of the firm’s assessment of how it is meeting the requirements in this chapter (referred to in this section as the ‘self-assessment document’); and

      2. (ii)

         agree the firm’s response to any material issues identified.

4. (4)

   The assessment in (3)(b) applies in relation to introducer appointed representatives to the extent that the rules in this chapter apply to arrangements with introducer appointed representatives.

1. (1)

   1In carrying out, and documenting, each review required by SUP 12.6A.2R or SUP 12.6A.3R, a firm:

   1. (a)

      should have regard to the guidance on assessing the matters covered by the review in SUP 12.4;

   2. (b)

      may focus on any changes from the previous such review undertaken in relation to the relevant appointed representative and cross-refer, where appropriate, to previous reviews.

2. (2)

   A firm may determine the most appropriate way in which to undertake and document each review required by SUP 12.6A.2R or SUP 12.6A.3R. Each review should be undertaken by one or more individuals at the firm with an appropriate level of knowledge and experience.

3. (3)

   A firm should ensure that any significant issues which arise as a result of a review undertaken for the purposes of SUP 12.6A.2R or SUP 12.6A.3R are escalated for consideration by its governing body, where appropriate, in particular in so far as those issues give rise to risks of harm to consumers or market integrity (see also SUP 12.6A.7G(1)(c)).

1. (1)

   1The self-assessment document should include, as appropriate, the firm’s current assessment of:

   1. (a)

      the effectiveness of the firm’s arrangements for overseeing its appointed representatives;

   2. (b)

      the adequacy of the firm’s controls and resources for the purposes of SUP 12.4.2R(3);

   3. (c)

      the firm’s assessment of the risk of harm to consumers or market integrity arising from its appointed representatives’ activities or business (SUP 12.4.2R(5));

   4. (d)

      the outcome of any re-assessment of the continuing adequacy of the firm’s controls and resources for the purposes of SUP 12.4.4FG; and

   5. (e)

      the methodologies used to assess and verify the firm’s compliance with the requirements.

2. (2)

   In respect of any introducer appointed representatives, the self-assessment document should include, as appropriate, those matters in (1) which are relevant to introducer appointed representatives (including those matters specified in SUP 12.6A.7G(1)(a), SUP 12.6A.7G(1)(c) and SUP 12.6A.7G(1)(d)).

1. (1)

   1While the self-assessment document must be approved by the governing body each year (SUP 12.6A.6R), it is not expected that the firm creates a new document each year.

2. (2)

   A firm that has appointed more than one appointed representative need only maintain a single self-assessment document covering all of its appointed representative relationships.

1While the self-assessment document need only be approved by the governing body once a year, firms are reminded that the senior management of a firm is responsible for the control and monitoring of the firm’s appointed representatives (SUP 12.6.7G). Notwithstanding the requirements of this section, a firm should ensure that any issues relating to its appointed representatives are escalated for consideration by its governing body where appropriate, in addition to the annual approval of the self-assessment document, in particular in so far as those issues give rise to risks of harm to consumers or market integrity.

A firm's notice under SUP 12.7.1 R should give details of the proposed 20appointed representative, including:

1. (1)

   the name of the firm's new appointed representative (if the appointed representative is a body corporate, this is its registered name);

2. (2)

   any trading name under which the firm's new appointed representative carries on a regulated activity in that capacity;

3. (2A)

   20if the appointed representative is a company, its company registration number;

4. (3)

   a description of the nature of the 20regulated activities which the appointed representative will be 20 permitted or required to carry on and for which the firm intends to accept 20 responsibility;

   4
5. (4)

   any restrictions imposed on the regulated activities for which the firm intends to accept 20responsibility;

6. (5)

   where the appointed representative is not an individual, the name of the individuals who are responsible for the management of the business carried on by the appointed representative so far as it relates to insurance distribution activity;20

   15
7. (6)

   20where the appointed representative will carry on insurance distribution activities, the name of the individual to be named as the primary point of contact at the appointed representative on the Financial Services Register;

8. (7)

   20information on the nature of any non-regulated activities of the appointed representative;

9. (8)

   20any group of which the appointed representative is a part;

10. (9)

    20the principal reason for the appointment;

11. (10)

    20information about the financial relationship between the firm and the appointed representative;

12. (11)

    20an estimate of the expected level of revenue of the appointed representative during the first year of its appointment by reference to its regulated activities and non-regulated activities;

13. (12)

    whether the appointed representative will provide services to retail clients;

14. (13)

    whether it was previously the appointed representative of a different principal; and

15. (14)

    information on any arrangements for seconding or contracting individuals from the appointed representative to the principal for the purposes of conducting portfolio management or dealing activities.

20A firm’s notice under SUP 12.7.1R relating to a proposed introducer appointed representative need not include those details specified in SUP 12.7.2G(7), SUP 12.7.2G(8), SUP 12.7.2G(9), SUP 12.7.2G(12), SUP 12.7.2G(13) and SUP 12.7.2G(14).

20A firm should only submit a notification pursuant to SUP 12.7.1R having first established those matters in SUP 12.4.2R or SUP 12.4.6R, as applicable.

A firm need not notify the FCA of any restrictions imposed on the regulated activities for which the firm has accepted responsibility (under SUP 12.7.2 G (4)) if the firm accepts responsibility for the unrestricted scope of the regulated activities.

Where a notification is linked to an application for approval under section 59 of the Act (Approval for particular arrangements), see SUP 10A.13.7 G21.1

To contact the FCA’s Supervision Hub19 with appointed representatives enquiries13: 7

1. (1)

   telephone 0300 500 059713; fax 020 7066 001713; or

   6
2. (2)

   write to: Supervision Hub19, The Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN14; or

   56513
3. (3)

   email firm.queries@fca.org.uk13.

18The purpose of SUP 12.7.6AR is to ensure that the FCA is notified when a firm diversifies its activities around regulated funeral plan activities. This may be because the firm:

1. (1)

   intends to appoint an appointed representative for the first time where the scope of business for which the firm will accept responsibility will include regulated funeral plan activity;

2. (2)

   is the principal to one or more appointed representatives:

   1. (a)

      and intends to expand the scope of business of one or more of those appointed representatives for which it accepts responsibility to include regulated funeral plan activity; or

   2. (b)

      in relation to which it has accepted responsibility for regulated funeral plan activity only and it intends to expand the scope of business of those, or new, appointed representatives for which it accepts responsibility beyond such activity.

1. (1)

   18For the purposes of SUP 12.7.6AR(1)(b), an increase through a material threshold should be understood as referring to an increase in the number of appointed representatives undertaking regulated funeral plan activity:

   1. (a)

      from fewer than 25 to 25 or more;

   2. (b)

      from fewer than 50 to 50 or more;

   3. (c)

      from fewer than 75 to 75 or more;

   4. (d)

      from fewer than 100 to 100 or more;

   5. (e)

      from fewer than 200 to 200 or more;

   6. (f)

      from fewer than 500 to 500 or more.

2. (2)

   Any notification required by SUP 12.7.6AR or SUP 12.7.6CR is in addition to any notification required by any other rule in SUP 12 (including the requirement to notify the FCA of the intention to appoint individual appointed representatives in SUP 12.7.1R).

3. (3)

   A firm making a notification in accordance with SUP 12.7.6AR or SUP 12.7.6CR should consider the guidance in SUP 15.7 on the form and method of notification.

1. (1)

   20Any notification required by SUP 12.7.9AR is in addition to any notification required by any other rule in SUP 12 (including the requirement to notify the FCA of an intention to appoint individual appointed representatives in SUP 12.7.1R).

2. (2)

   A firm making a notification in accordance with SUP 12.7.9AR should consider the rules and guidance in SUP 15.7 on the form and method of notification.

3. (3)

   When providing the notification required by SUP 12.7.9AR, a firm may include information about the service that it intends to offer.

1. (1)

   20A firm should also be aware that certain matters relating to firms’ appointed representatives may require notification to be made to the FCA under the notification rules in SUP 15 and Principle 11.

2. (2)

   In particular, SUP 15.3.8G(2) sets out the FCA’s expectation that a firm will notify the FCA in accordance with Principle 11 in the event of a significant failure of the firm’s systems and controls for overseeing its appointed representatives.

20In complying with SUP 12.7.9DR in relation to an appointed representative with more than one principal, a firm should only report information about the appointed representative’s revenue from that regulated activity for which the firm has accepted responsibility

8If the FCA's information technology systems fail and online submission is unavailable for 24 hours or more, the FCA will endeavour to publish a notice on its website confirming that online submission is unavailable and that firms, other than credit unions, should use the alternative methods of submission set out in SUP 12.7.1AR (3) and SUP 12.7.8AR (3) (as appropriate), and SUP 15.7.4 R to SUP 15.7.9 G, clearly marking 20applications as relating to appointed representatives.20

8Where SUP 12.7.1AR (3) or SUP 12.7.8AR (3) apply to a firm, GEN 1.3.2 R (Emergency) does not apply.

4If the FCA's information technology systems fail and online submission is unavailable for 24 hours or more, the FCA will endeavour to publish a notice on its website confirming that online submission is unavailable and that the alternative methods of submission set out in SUP 12.8.1AR(3) and SUP 15.7.4 R to SUP 15.7.9 G (Form and method of notification) should be used.

4Where SUP 12.8.1AR (3) applies to a firm, GEN 1.3.2 R (Emergency) does not apply.

In assessing whether to terminate a relationship with an appointed representative, a firm should have regard to the guidance in SUP 12.6.1-AG and 11be aware that the notification rules in SUP 15 require notification to be made immediately to the FCA if certain events occur. Examples include a matter having a serious regulatory impact or involving an offence or a breach of any requirement imposed by the Act or by regulations or orders made under the Act by the Treasury.

The firm is responsible for notifying the FCA of any approved person who no longer performs a controlled function under an arrangement entered into by a firm or its appointed representative (see SUP 10A.3 and SUP 10C.3)7.

2The FCA has the power to remove from the Financial Services Register an appointed representative, whose scope of appointment covers insurance distribution activities9 (see SUP 12.4.9 G and SUP 12.4.10 G).

6 SUP 12.6A also contains rules on maintaining records of a firm’s self-assessment documents and of reviews undertaken by a firm’s governing body of appointed representative arrangements.

The firm should also satisfy itself that:

1. (1)

   the appointed representative is making and retaining records in accordance with the relevant record keeping rules in the Handbook or, in relation to CBTL business, the record keeping requirements in or under Part 3 of the MCD Order, 3if these records are not maintained by the firm;

   3
2. (2)

   the appointed representative (other than an introducer appointed representative) is making and retaining records sufficient to disclose with reasonable accuracy the financial position of the business it carries on in its capacity as the firm's appointed representative; and

3. (3)

   the firm has full access to the appointed representative's records under (1) and (2) and any other records relevant to the regulated activities that the appointed representative carries on in that capacity.

Firms are reminded that they should make and retain records in relation to any person who falls within the scope of the rules in TC or who performs a controlled function under an arrangement entered into by a firm or by an appointed representative. See SUP 10A, SUP 10C4and TC for the applicable record keeping rules.