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 FSA'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 FSA has produced a leaflet entitled "Becoming an appointed representative" which provides a comprehensive summary of some of the main features of the appointed representative regime. You may download a copy of this leaflet from our website at http://www.fsa.gov.uk/pubs/other/factsheet_appointed.pdf.

2This chapter also sets

out guidance about section 39A of the Act, which is relevant to a UK MiFID investment firm that is considering appointing an FSA registered tied agent. It also sets out the FSA'srules, and guidance on those rules, in relation to the appointment of an EEA tied agent by a UK MiFID investment firm.

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 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 for guidance on that condition and SUP 12.2.16 G for more general guidance about tied agents.12

1. (1)

   A person must 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.

As long as the conditions in section 39 of the Act are satisfied, any person, other than an authorised person, 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; that is, it cannot be exempt for some regulated activities and authorised for others.

The Act and the Appointed Representative Regulations 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 section 39(1) of the Act. These regulations describe, among other things, the business for which an appointed representative may be exempt, 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 a pure protection contract (but only where the contract is not a long-term care insurance contract) or general insurance contract;53

      5
   2. (b)

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

      5
   3. (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, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan);5

      5
   4. (d)

      arranging (bringing about) a home finance transaction8(

      588

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

   5. (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
   6. (f)

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

      5
   7. (g)

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

      5
   8. (h)

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

      55610
   9. (i)

      advising on investments (article 53 of the Regulated Activities Order) (that is in summary, on any designated investment, funeral plan contract, pure protection contract, general insurance contract or right to or interest in a funeral plan);6

      56
   10. (j)

       advising on a home finance transaction8 (articles 53A, 53B and 53C8 of the Regulated Activities Order); and6

       5688
   11. (k)

       agreeing to carry on a regulated activity (article 64 of the Regulated Activities Order) where the regulated activity is one of those in (a) to (h).6

2. (2)

   If the appointed representative is a tied agent of an EEA firm, the business for which the appointed representative may be exempt includes the following additional activities:12

   12
   1. (a)

      placing financial instruments ;12

   2. (b)

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

3. (3)

   [deleted]12

   212

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 or other activity that might reasonably lead a customer to believe that he had received basic advice or 6advice on investments or on regulated mortgage contracts8home finance transactions8 or that the introducer appointed representative is permitted to give basic advice10 or 6give personal recommendations on investments10 or on home finance transactions.8

      10858
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 10.1.16 R).5

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; and5

3. (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:

   1. (a)

      established in the UK; or

   2. (b)

      established in another EEA State and appointed by a UK MiFID investment firm.

4. (4)

   A tied agent appointed by a firm to carry on investment services and activities or ancillary services on its behalf may not provide cross border services or establish a branch in another EEA State in its own right. This is because tied agents do not have passporting rights. The tied agent of a MiFID investment firm may, however, provide cross border services or establish a branch in another EEA State by availing itself of the appointing firm's passport. MiFID investment firms may also appoint tied agents established in different EEA States.

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. If such a tied agent is appointed by a UK MiFID investment firm it will be an EEA tied agent. EEA tied agents are either FSA registered tied agent or EEA registered tied agents.

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)

   Under MiFID, an EEA State may prohibit the appointment of tied agents by MiFID investment firms for which it is the Home State. If a UK MiFID investment firm appoints a tied agent established in such an EEA State, the tied agent must be registered with the FSA. Such an EEA tied agent is referred to in the Handbook as an FSA registered tied agent.

8. (8)

   If a UK MiFID investment firm appoints a tied agent established in an EEA State that allows MiFID investment firms for which it is the Home State to appoint tied agents, the tied agent must be registered with the competent authority of the EEA State in which it is established. Such an EEA tied agent is referred to in the Handbook as an EEA registered tied agent.

In determining whether a firm has complied

with any provision in or under the Act such as any Principle or other rule, 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 ).

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).

In determining whether the firm has committed any offence, 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 to 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 UK MiFID investment firm from appointing an FSA 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 they fall within article 28 of the Regulated Activities Order (Arranging transactions to which the arranger is a party).

In assessing, under SUP 12.4.2 R(2)1(a) and (b), whether an appointed representative or prospective 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 or prospective appointed representative is given in SUP 12 Annex 1.

In assessing, under SUP 12.4.2 R (2)(b), whether an appointed representative or prospective 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; and

2. (2)

   the fitness and propriety (including good character and competence) 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 10 Annex 4.

In determining, under SUP 12.4.2 R (2)(c), whether an appointed representative or prospective 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 3 (Close links) in COND 2.3.

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 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

If a firm has doubts that a prospective introducerappointed representative or other person is of sufficiently good reputation and otherwise fit and proper, the FSA 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

1In assessing, under SUP 12.4.8A R, whether an appointed representative, or prospective appointed representative, has established the knowledge and ability requirements for persons within its management structure and for those directly involved in its insurance mediation activity, a firm should refer to TC.

1. (1)

   1An appointed representative must not commence an insurance mediation activity until he is included on the Register as carrying on such activities (see SUP 12.5.2 G (3)).

2. (2)

   If an appointed representative's scope of appointment is to include an insurance mediation activity, the principal must notify the FSA of the appointment before the appointed representative commences that activity (see SUP 12.7.1 R (1)).

3. (3)

   As an exception, pre-notification is not required if the appointed representative is already included on the Register as carrying on insurance mediation activities in another capacity (for example, as the appointed representative of another principal).

1. (1)

   1The FSA has the power to decide not to include on the Register (or to remove from the Register) an appointed representative whose scope of appointment includes an insurance mediation activity, if it appears to the FSA 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 FSA proposes to use the power in (1), it must give the appointed representative a warning notice. If the FSA decides to proceed with its proposal, it must give the appointed representative a decision notice. The procedures followed by the FSA 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 FSA for a determination of the kind referred to in (1) to be revoked. If the FSA proposes to refuse the application, it must give the appointed representative a warning notice, and if the FSA decides to proceed with the refusal, it must give the appointed representative a decision notice.

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). If the tied agent is established in the UK, the register maintained by the FSA is the applicable register for these purposes. If the tied agent is established in another EEA State, it should consult section 39(1B) of the Act to determine the applicable register.

2. (2)

   A UK MiFID investment firm that appoints an FSA registered tied agent who is not registered with the FSA 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)

   A UK MiFID investment firm that appoints an EEA registered tied agent will be required to register that agent with the competent authority of the EEA State in which it is established. This requirement will be imposed by the rules of that EEA State.

4. (4)

   If the tied agent is not established in the UK and is appointed by an EEA MiFID investment firm, it cannot commence acting as a tied agent until it is included on the public register of tied agents in the EEA State in which it is established (or in certain cases, of the Home State of the firm).

5. (5)

   If an appointed representative's scope of appointment is to include acting as a tied agent, the principal must notify the FSA of the appointment before the appointed representative starts acting as such (see SUP 12.7.7 R (1A)).

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)).

The Appointed Representative Regulations 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)

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

3. (2)

   Under the Appointed Representative Regulations, 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 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, 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 on or after 31 October 2004 (in the case of a regulated 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 on or after 31 October 2004 (in the case of a regulated mortgage contract) or 6 April 2007 (in all other cases)6 with other counterparties;54

         6
   4. (g)

      giving basic advice on a stakeholder product.75

      7
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 unless he is included in the Register as carrying on insurance mediation activities.

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 Representative 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 Article 4(1)(25) of MiFID while he is entered on the applicable Register.

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 FSA as described in SUP 2.3.4 G (Information gathering by the FSA 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 Act, as described in .

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)). 4

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

   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

   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 UK MiFID investment firm must ensure that the contract it uses to appoint an FSA registered tied agent complies with the requirements that would apply under the Appointed Representative Regulations if it were appointing an appointed representative.

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

Consideration should be given, among other things, to the impact on the appointed representative's financial position of any debts owed to, or by, the appointed representative. Indicators that an appointed representative is experiencing financial problems may include failure to adhere to repayment schedules for any debts, failure to meet any other financial commitments or requests for advances of commission.

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

7When complying with the MiFID client money segregation requirements, firms' attention is drawn to the guidance in CASS 7.4.24 G to CASS 7.4.27 G.

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.

1. (1)

   Some of the controlled functions, as set out in SUP 10.4.1 R, apply to an appointed representative of a firm, other than an introducer appointed representative, just as they apply to a firm (see SUP 10.1.16 R). These are the governing functions and the customer function5. As explained in SUP 10.1.16A R and SUP 10.3.2 G respectively:2

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   1. (a)

      the effect of SUP 10.1.16 R 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

   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 or 22insurance mediation activity; and2

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   3. (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 but 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 10.1.16A R).2

   5

Firms should be aware that, under the approved persons regime, the firm is responsible for submitting applications to the FSA 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 FSA (see SUP 10.12).

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.

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 6TC.

A firm's notice under SUP 12.7.1 R should give details of the appointed representative and the regulated activities which the firm is, or intends to, carry on through the appointed 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. (3)

   a description of the regulated activities which the appointed representative is permitted or required to carry on and for which the firm has accepted responsibility;

   4
4. (4)

   any restrictions imposed on the regulated activities for which the firm has accepted responsibility; and

5. (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 mediation activity.

A firm need not notify the FSA 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 10.12.4A G.1

To contact the Individuals, Mutuals and Policy Department65: 7

1. (1)

   telephone on 020 7066 00196; fax on 020 7066 1099; or

2. (2)

   write to: Individuals, Mutuals and Policy 6Department5, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS; or

   5
3. (3)

   email iva6@ fsa.gov.uk.

8If the FSA's information technology systems fail and online submission is unavailable for 24 hours or more, the FSA 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, addressingclearly marking applications for the attention of the Individuals and Mutuals Team.

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 FSA's information technology systems fail and online submission is unavailable for 24 hours or more, the FSA 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 be aware that the notification rules in SUP 15 require notification to be made immediately to the FSA 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 FSA 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 10.3).

2The FSA has the power to remove from the Register an appointed representative, whose scope of appointment covers insurance mediation activities (see SUP 12.4.9 G and SUP 12.4.10 G).

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, if these records are not maintained by the firm;

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 10 and TC for the applicable record keeping rules.