If at any time a firm has reasonable grounds to believe that the conditions in SUP 12.4.2 R, SUP 12.4.6 R or SUP 12.4.8A R (as applicable) are not satisfied, or are likely not to be satisfied, in relation to any of its appointed representatives, the firm must:
take immediate steps to rectify the matter; or
terminate its contract with the appointed representative.
Where 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:
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;
the appointed representative is unable to satisfactorily explain unusually high rates of senior management turnover;
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;
the appointed representative is found to have intentionally misled clients or potential clients in any way; or
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.
SUP 12 Annex 7G contains a flowchart to assist firms in determining whether a particular matter is more properly addressed through remediation or termination.
A 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 derived from 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 29(2) of MiFID]
A 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 derived from the MCD (including those in MCOB and TC).
[Note: article 31(3) of the MCD]
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.
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.
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).
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:
[deleted]
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); or
When complying with CASS 7.13.3R and CASS 7.13.12R, firms' attention is drawn to CASS 7.13.34 R and CASS 7.13.35 G.
Where a firm delegates functions or tasks to an appointed representative, it should apply appropriate safeguards including, but not limited to:
ensuring that the delegation does not represent a conflict of interest; and
applying enhanced monitoring to the delegated task or function.
A firm should also refer, where applicable, to SYSC 3.2.3G.
A firm must take reasonable steps to ensure that each of its appointed representatives:
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 Act; and
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:
which is performed as an appointed representative of another firm or in accordance with a limited permission; or
which:
is, or is held out as being, primarily for the purposes of investment or obtaining credit, or obtaining insurance cover; and
is not a regulated activity.
In 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.
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:
any individual who performs a controlled function and who is an appointed representative; and
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 G).
(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.
(2)
The specific knowledge and ability requirements and guidance in SYSC 28.2 and TC 4.2 for a firm with Part 4A permission to carry on insurance distribution activities apply to non-investment insurance personnel and to long-term insurance personnel (as defined in SYSC 28.1.2R and TC 4.2.3R and in SYSC 28.1.2AR and TC 4.2.3AR respectively) of the firm.
(3)
For the purposes of (1) and (2), an employee or a non-investment insurance employee or a long-term insurance employee of a firm includes an individual who is:
(a)
an appointed representative of a firm; and
(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.
A 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 CBTL firm must take reasonable care to ensure that:
individuals who are its appointed representatives; and
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.
A 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).
A 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 29(4) of MiFID]
If a MiFID investment firm appoints an FCA registered tied agent, SUP 12.6.1 R, SUP 12.6.1A R, SUP 12.6.5 R and SUP 12.6.11A R apply to that firm as though the FCA registered tied agent were an appointed representative.
If a firm appoints a MiFID optional exemption appointed representative or a structured deposit appointed representative, that firm must:
monitor the activities of the appointed representative to ensure that the firm complies with those obligations which implemented provisions of MiFID and to which it is subject when acting through its appointed representative;
ensure that its appointed representative discloses the capacity in which it is acting and the firm it is representing when contacting a client or potential client or before dealing with a client or potential client; and
take adequate measures to avoid any negative impact that the activities of its appointed representative not covered by the scope of MiFID could have on the activities carried out by the appointed representative on behalf of the firm.
In SUP 12.6.15AR(1), the obligations which implemented relevant provisions of MiFID to which a firm is subject include:
in the case of a MiFID optional exemption firm appointing a MiFID optional exemption appointed representative, those conduct requirements which are derived from article 3(2) of MiFID; and
in the case of a firm appointing a structured deposit appointed representative, those requirements which are derived from article 1(4) of MiFID.
SYSC 27.4.2G explains the application of the certification regime in SYSC 5.2 to appointed representatives of SMCR firms. The certification regime does not apply to firms that are not SMCR firms.
