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

Suitability etc. of appointed representatives

SUP 12.6.1R

If at any time a firm has reasonable grounds to believe that the conditions in SUP 12.4.2 R, 2SUP 12.4.6 R or SUP 12.4.8A R2 (as applicable) are not satisfied, or are likely not to be satisfied, in relation to any of its appointed representatives, the firm must:

2
  1. (1)

    take immediate steps to rectify the matter; or

  2. (2)

    terminate its contract with the appointed representative.

SUP 12.6.1AR

7A firm that is a principal of a tied agent that is an appointed representative must monitor the activities of that tied agent so as to ensure the firm complies with obligations imposed under MiFID (or equivalent obligations relating to the equivalent business of a third country investment firm) when acting through that tied agent.

[Note: paragraph 3 of Article 23(2) of MiFID]

SUP 12.6.1BR

11A firm that is a principal of an appointed representative that carries on MCD credit intermediation activity must monitor the activities of that appointed representative to ensure compliance with obligations imposed under the MCD (including those in MCOB and TC).

[Note: article 31(3) of the MCD]

SUP 12.6.1CG

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

SUP 12.6.2G

The FCA would normally expect a firm to carry out a check on its appointed representative's financial position every year (more often, if necessary) and to review critically the information obtained. An appropriately experienced person (for example, a financial accountant) should carry out these checks.

SUP 12.6.3G

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.

SUP 12.6.4G

A firm should look into any concerns that may arise at any time about an appointed representative's financial standing and take the necessary action. The necessary action may include, for example, increased monitoring or, if appropriate, suspension or termination of the appointment.

Appointed representatives not to hold client money

SUP 12.6.5R
  1. (1)

    A firm must not permit an appointed representative to hold client money unless the firm is an insurance intermediary acting in accordance with CASS 5.5.18 R to CASS 5.5.23 R (which include provision for periodic segregation and reconciliation)2.

  2. (2)

    The firm must take reasonable steps to ensure that if client money is received by the appointed representative, it is paid into a client bank account of the firm, or forwarded to the firm, in accordance with :

    1. (a)

      CASS 4.3.15 R to CASS 4.3.17 R; or2

    2. (b)

      CASS 5.5.18 R to CASS 5.5.21 R unless acting in accordance with CASS 5.5.23 R (Periodic segregation and reconciliation); or72

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    3. (c)

      the MiFID client money segregation requirements.7

SUP 12.6.5AG

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

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Regulated activities and investment services outside the scope of appointment

SUP 12.6.6R

A firm must take reasonable steps to ensure that each of its appointed representatives:

  1. (1)

    does not carry on regulated activities in breach of the general prohibition in section 19 of the Act or (if the appointed representative is a firm with a limited permission) in breach of section 20(1) or (1A) of the Act9; and

  2. (2)

    carries on the regulated activities for which the firm has accepted responsibility in a way which is, and is held out as being, clearly distinct from any of the appointed representative's other business:

    1. (a)

      which is performed as an appointed representative of another firm or in accordance with a limited permission9; or

    2. (b)

      which:

      1. (i)

        is, or is held out as being, primarily for the purposes of investment or obtaining credit2, or obtaining insurance cover2; and

      2. (ii)

        is not a regulated activity.

Senior management responsibility for appointed representatives

SUP 12.6.7G

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.

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Obligations of firms under the approved persons regime

SUP 12.6.8G
  1. (1)

    Some of the controlled functions, as set out in SUP 10A.4.1 R15, apply to an appointed representative of a firm, other than an introducer appointed representative, just as they apply to a firm (see SUP 10A.1.15 R15). These are the governing functions and the customer function5. In the case of an appointed representative that also has a limited permission, an FCA required function may apply to it.9 As explained in SUP 10A.1.16 R15 and SUP 10A.3.2 G15 respectively:2

    1515515515
    1. (a)

      the effect of SUP 10A.1.15 R15 is that the directors (or their equivalent) and senior managers (or their equivalent) of an appointed representative, other than an introducer appointed representative, must also be approved under section 59 of the Act for the performance of certain controlled functions;2

      15
    2. (b)

      although the customer function applies5 to an appointed representative, the descriptions of the functions themselves do not extend to 2home finance mediation activity3,922 insurance mediation activity or credit-related regulated activity;92

      53599
    3. (ba)

      if an appointed representative also has a limited permission:9

      1. (i)

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

      2. (ii)

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

    4. (c)

      sections 59(1) and 59(2) of the Act (Approval for particular arrangements) provide that approval is necessary in respect of a controlled function which is performed under an arrangement entered into by a firm, or its contractors (typically an appointed representative), in relation to a regulated activity.21

  2. (2)

    The approved persons regime applies differently to an appointed representative whose scope of appointment includes insurance mediation activity in relation to non-investment insurance contracts or credit-related regulated activity9but no other regulated activity and whose principal purpose is to carry on activities other than regulated activities. These appointed representatives need only one person performing one of the governing functions. This means that only one director (or equivalent) of these appointed representatives must be approved under section 59 of the Act for the performance of the director function, the chief executive function, the partner function or the director of unincorporated association function, whichever is the most appropriate (see SUP 10A.1.16 R15).2

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  3. (3)

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

  4. (4)

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

SUP 12.6.9G

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 G15).

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Obligations of firms under the training and competence rules

SUP 12.6.10G

The rules and guidance relating to training and competence in SYSC 3 and SYSC 5 and 6 in TC for a firm carrying on retail business 6extend to any employee of the firm in respect of whom the relevant rules apply. For these purposes, an employee of a firm includes:

  1. (1)

    an individual who is an appointed representative of a firm; and

  2. (2)

    an individual who is 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.

SUP 12.6.11G

A firm should take reasonable care to ensure that:

  1. (1)

    it has satisfied SYSC 3 or SYSC 4 to 98 and TC6 in respect of the relevant staff of the appointed representative; and

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  2. (2)

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

SUP 12.6.11-AR

12A CBTL firm must take reasonable care to ensure that:

  1. (1)

    individuals who are its appointed representatives; and

  2. (2)

    individuals who are employed or appointed by appointed representatives (whether under a contract of service or for services);

who act in connection with the CBTL business of the appointed representative for which the CBTL firm has accepted responsibility satisfy the knowledge and competence requirements set out in paragraph 3 of Schedule 2 to the MCD Order.

2Compliance by an appointed representative with the contract

SUP 12.6.11AR

2A firm must take reasonable steps to establish and maintain effective systems and controls for ensuring that each of its appointed representatives complies with those terms of its contract which are imposed under the requirements contained or referred to in SUP 12.5 (Contracts: required times).

SUP 12.6.12R

2[Deleted]

Continuing obligations of firms with tied agents

SUP 12.6.13R

7A firm must ensure that its tied agent discloses the capacity in which he is acting and the firm he is representing when contacting a client or potential client or before dealing with a client or potential client.

[Note: paragraph 1 of article 23(2) of MiFID]

SUP 12.6.14R

7A firm must take adequate measures in order to avoid any negative impact of the activities of its tied agent not covered by the scope of MiFID (or relating to the equivalent business of a third country investment firm) could have on the activities carried out by the tied agent on behalf of the firm.

[Note: paragraph 1 of article 23(4) of MiFID]

Continuing obligations of firms with EEA tied agents

SUP 12.6.15R

The certification regime

SUP 12.6.16G

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