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SUP 12.5 Contracts: required terms

Required contract terms for all appointed representatives

SUP 12.5.1 G

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.

SUP 12.5.2 G
  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

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    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)

    8The requirement described in paragraph (1) does not apply if the firm is an EEA MiFID investment firm.

  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, 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

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      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

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    3. (f)

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

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      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

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      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

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    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. (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

    15. (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

    16. (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 mediation activities.

SUP 12.5.2A G

8If a UK MiFID investment firm or a third country investment firm appoints an appointed representative that is a tied agent, regulation 3(6) of the Appointed Representatives Regulations17 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 Article 4(1)(25) of MiFID while17 entered on the Register.

SUP 12.5.3 G

(Subject to SUP 12.5.3AG) a 13firm should satisfy itself that the terms of the contract with its appointed representative (including an introducer appointed representative):

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  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); and

  3. (3)

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

SUP 12.5.3A G

13To 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), 14as applied by SUP 2.1.2AG.

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SUP 12.5.4 G

A firm should have the ability to terminate the contract with its appointed representative in the circumstances in SUP 12.6.1 R (2). However, such a termination provision should not be automatic (see SUP 12.8.3 R (1)).4

SUP 12.5.5 R

A firm must ensure that its written contract with each of its appointed representatives:4

  1. (1)

    complies with the requirements prescribed in regulation 3 of the Appointed Representatives Regulations (see SUP 12.5.2 G);4

  2. (2)

    requires the appointed representative to comply, and to ensure that any persons who provide services to the appointed representative under a contract of services or a contract for service comply, with the relevant requirements in or under the Act (including the rules) that apply to the activities which it carries on as appointed representative of the firm;

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  3. (2A)

    (where the scope of appointment of the appointed representative includes CBTL business) requires the appointed representative to comply, and to ensure that any persons who provide services to the appointed representative under a contract for service comply, with the requirements of and arising under Part 3 of the MCD Order; and

  4. (3)

    (unless the written contract prohibits appointments by other principals) requires the appointed representative to notify the firm:4

    1. (a)

      that it is seeking appointment as an appointed representative of another person, who the person is and the business for which the other person will accept responsibility;4

    2. (b)

      (as soon as possible) of any change in the business notified under (a); and4

    3. (c)

      (as soon as possible) of the termination of any such appointment.4

SUP 12.5.6 G
  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 (Information about the firm, its services and remuneration).9

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  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

4Prohibition of multiple principals for certain activities

SUP 12.5.6A R
  1. (1)

    4A firm must ensure that, if appointing an appointed representative (other than an introducer appointed representative), to carry on any of the following regulated activities, its written contract prohibits the appointed representative from carrying on any of the specified activities as an appointed representative for another firm:4

    1. (a)

      any designated investment business for retail clients7: the prohibition must cover all designated investment business for retail clients7;4

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    2. (b)

      any regulated mortgage activities (other than in relation to lifetime mortgages): the prohibition must cover all regulated mortgage activities (other than lifetime mortgages);4

    3. (c)

      any regulated mortgage activities in relation to lifetime mortgages: the prohibition must cover all lifetime mortgages;64

      6
    4. (d)

      any reversion activities: the prohibition must cover all reversion activities;

      6
    5. (e)

      any home purchase activities: the prohibition must cover all home purchase activities.6

  2. (1A)

    If the appointed representative is a tied agent, the prohibition must prevent the appointed representative acting as a tied agent for any other MiFID investment firm or third country investment firm.8

  3. (1B)

    In relation to any MCD credit intermediation activity, the prohibition must prevent the appointed representative acting as an appointed representative in respect of MCD credit intermediation activity for any other firm.12

  4. (2)

    As an exception to (1), if the firm is a long-term insurer or an operator of a UCITS scheme, it may permit an appointed representative to carry on designated investment business as the appointed representative of one or more other firms provided that:

    1. (a)

      each of those other firms is a long-term insurer or an operator of a UCITS scheme;

    2. (b)

      the first firm and each of those other firms is a member of the same group; "group" means for this purpose a group of bodies corporate all having the same holding company including the holding company; and

    3. (c)

      the scope of each appointment does not overlap, as to both activities and investments.

      [Note: articles 4(1)(25) and 23(1) of MiFID]8

SUP 12.5.6B G
4
  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

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SUP 12.5.6C G

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.

Required contract terms for an introducer appointed representative

SUP 12.5.7 R

A firm must ensure that its written contract with each of its introducer appointed representatives limits the scope of the appointment to:4

  1. (1)

    effecting introductions to the firm or other members of the firm's group; and4

  2. (2)

    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.4

Required contract terms for EEA tied agents

SUP 12.5.8 R

8If a UK MiFID investment firm appoints an EEA tied agent, SUP 12.5.6A R (1A) applies to that firm as though the EEA tied agent were an appointed representative.

[Note: articles 4(1)(25) and 23(1) of MiFID]

Required contract terms for FCA registered tied agents

SUP 12.5.9 G

8Under section 39A(6)(a) of the Act a UK MiFID investment firm 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.

Required contract terms for appointed representatives of MCD credit intermediaries

SUP 12.5.10 R

12A firm must ensure that, if appointing an appointed representative to carry on MCD credit intermediation activity, its written contract requires the appointed representative to provide such evidence to the FCA as to the knowledge and competence of the staff of the appointed representative, as the FCA may require from time to time.

[Note: article 9(4) of the MCD]