The Appointed Representative Regime Gillian Tiplady Regulatory and Corporate Counsel

Webinar 30th July 2014

Introduction This presentation is directed at two groups of people: 1. those who are considering being a principal firm and having appointed representatives working for them; and 2. those who do not wish to have full FCA authorisation and are therefore considering becoming an appointed representative. Webinar 30th July 2014

What we will cover • • • • • • • • • • •

Why do you need to understand the compliance requirements? Conditions you must fulfil to be an Appointed Representative (AR) The checks a Principal must carry out on a prospective AR Multi-tie and lead principal, including agreement contents Contents of an AR agreement Continuing duties of Principal firms The approved persons position Notification requirements Status disclosure Termination Record-keeping

Webinar 30th July 2014

The need to understand the compliance regime • ARs will need to operate a compliance regime to the satisfaction of their Principal. • There will still need to be an approved person within an AR business. • The Principal must be satisfied that the AR is fit and proper to deal with clients in the Principal’s name. • The AR’s business must not prevent the Principal from meeting the Threshold Conditions (COND). Webinar 30th July 2014

What conditions must you fulfil to become an AR? • You must not have permission to carry on a regulated activity in your own right. • You must have entered into a contract with your Principal. • That contract must: a) permit you to carry on business; and b) comply with any prescribed requirements. • Your Principal must have accepted, in writing, responsibility for the work you do for him. Webinar 30th July 2014

Self- employed agents In order to act as agent for an authorised firm you must meet the following criteria: • be appointed by the principal to act as its agent; • work only for the principal and not for any other principal; • have in place a written contract that: 1. sets out effective measures by which the principal can control the agency business; and 2. requires the agent to make clear to customers that he is acting on behalf of his named principal. • receipt by the agent of repayments is treated as receipt by the principal; and • the principal must have accepted full responsibility for the acts of the agent when he is acting on behalf of the principal.

Webinar 30th July 2014

What steps must the Principal take before appointing an AR? • The Principal must have authorisation (not interim permission) for the activity that he is appointing the AR to undertake. • The Principal must be satisfied: a) that the AR will not prevent his business from satisfying the Threshold Conditions; b) the AR is solvent; c) the AR is suitable to act for the Principal firm; and d) the AR has no close links that would prevent his effective supervision. Webinar 30th July 2014

What steps must the Principal take before appointing an AR? continued • The Principal must ensure that it has adequate controls over the activities the AR is conducting for it and that it has the resource to monitor and enforce compliance. • The AR is ready and organised to comply. • The Principal needs to complete the FCA form “Add an Appointed Representative“ and submit it to the FCA. Webinar 30th July 2014

Suitability Assessments • There is guidance on the information the Principal needs to check the suitability of a prospective AR in a checklist at SUP12 Annex 2. • Broadly the Principal needs to be satisfied as to the following criteria in relation to the AR or if it is a business in relation to its directors of partners 1) honesty, integrity and reputation; 2) competence and capability; and 3) financial soundness. Webinar 30th July 2014

Multi-tied appointed representatives • The AR/Principal contract must state whether or not the AR can act for more than one principal; where this is permitted it is called a multi-tie. • If there is a multi-tie, the Principal cannot appoint the AR until he has entered into an agreement with all the other principals (called a multiple principal agreement). Webinar 30th July 2014

The lead principal concept • In a multiple principal agreement there has to be a lead principal who will be the point of contact for complaints. • This is so that customers do not have to work out which principal the complaint is about – the principals have to do this amongst themselves.

Webinar 30th July 2014

Contents checklist for multiple principal agreement Multiple principal agreement Matter

Explanation

1. Scope of appointment

The scope of appointment given by each principal to the appointed representative.

2. Complaints handling

The identity of the principal which will be the point of contact for a complaint from a client (referred to as the "lead-principal" in SUP 12.4.5D G to SUP 12.4.5E G). An agreement that each principal will co-operate with each other principal in resolving a complaint from a client in relation to the appointed representative's conduct. The arrangements for complaints handling, including arrangements for resolving disputes between the principals in relation to their liability to a client in respect of a complaint and arrangements for dealing with referrals to the Financial Ombudsman Service.

3. Financial promotions

The arrangements for approving financial promotion.

4. Control and monitoring

The arrangements for the control and monitoring of the activities of the appointed representative (see in particular SUP 12.6.6 R (Regulated activities and investment services outside the scope of appointment) and SUP 12.6.7 G (Senior management responsibility for appointed representatives)).

5. Approved person status

The arrangements for making applications for approved person status (see5 SUP 10A and SUP 10B5 (Approved persons)).

6. Training and competence

The arrangements for training and competence (see TC).

7. Co-operation

The arrangements for co-operation over any other issues which may arise from the multiple appointments, including issues which may damage the interests of clients dealing with the appointed representative and administrative issues. An agreement by each principal to take reasonable steps to ensure that it does not cause the appointed representative or any of its other principals to be in breach of their obligations to each other or under the regulatory system.

8. Sharing information

The arrangements for sharing information on matters relevant to the matters covered under the multiple principal agreement and each principal's obligations under SUP 12.6 (Continuing obligations of firms with appointed representatives). An agreement that each principal will notify each other principal of any information which is materially relevant to the multiple principal agreement.

Webinar 30th July 2014

The contract in more detail part 1 • Complaints handling 1. Who is the lead principal? 2. Agreement to co-operate on complaints 3. Arrangements for complaints handling • Financial promotions

How are financial promotions, letters, leaflets etc to be produced and approved?

• Control and monitoring

How will the principals co-operate on monitoring the AR? Will one undertake the work for the others? Will this obligation rotate?

• Approved persons

We will cover this in more detail later in this presentation you will need to know who your ARs approved persons are and require your AR to notify you promptly of any changes.

Webinar 30th July 2014

The contract in more detail part 2 • Training and competence

Consider how you will ensure that your AR is up to date with the knowledge they need to perform their role.

• Cooperation

– What steps will you take to protect the interests of clients dealing with your ARs – Each principal must commit not to do anything that would cause the AR to breach its obligations under the regulatory system.

• Sharing information

Arrangements need to be made for sharing important information between principals but also protecting data.

Webinar 30th July 2014

Contents of an Appointed Representative contract The contract must: • state whether the AR can act for more than one principal and if so whether there are any conditions or restrictions; • enable the principal to comply with any requirements/limitations on its own permission; • require the AR to cooperate with the FCA as described in SUP 2.3.4 by giving access to its premises and information; • require the AR to cooperate with the Principal’s auditors; • include termination provisions should the AR cease to meet solvency/suitability provisions etc; • require the AR to conduct its business on behalf of the principal in a compliant fashion; and • require the AR to notify the principal if it is seeking to act for any other principal. Webinar 30th July 2014

Continuing obligations of principal firms • Principal must be satisfied that the AR remains compliant with threshold conditions throughout the agreement; • Principal must check the AR’s financial position once a year; • AR must not hold client money – debt recovery is not treated as client money but must be kept in a separate account. Webinar 30th July 2014

Keeping the AR activities within the scope of the appointment • Business which the AR conducts for the Principal must be kept separate and distinct from any other business conducted by the AR • The Principal must clearly define in his contract with AR the scope of the appointment which must be within the principal’s own permissions. • Senior management of the Principal firm are responsible for the activities of the AR. Webinar 30th July 2014

Approved persons • Directors and senior managers of an appointed representative firm must be approved persons, (governing functions). • If however the AR activities are: 1. confined to credit-related regulated activities; and 2. the main purpose of the AR business is to carry on activities other than regulated activities then only one approved person will be required taking one of the governing functions ,for example, director or partner. • If the above exemption does not apply to your firm all senior managers in governing functions will need to be approved persons. • If the AR carries on activities of its own under a limited permission the apportionment and oversight provision will also be required. Webinar 30th July 2014

Compliance with the AR contract • The principal firm is obliged to ensure that its ARs comply with the required terms of the contract. • To do this measures might include: 1. compliance manual; or 2. procedures manual; or 3. regular audits/ compliance reviews of AR. Webinar 30th July 2014

Status Disclosure • The status disclosure you need to provide to customers in communications is set out in GEN (General Provisions) High Level Standards of the FCA Handbook, GEN 4 Annex 1. • [Name of appointed representative] is an appointed representative of [name of principal] which is authorised and regulated by the Financial Conduct Authority.* • * Principal status disclosure will depend on which regulators have authorised it. Webinar 30th July 2014

Termination of the AR relationship • The FCA must be notified if the AR contract is terminated. • Notification is by standard form and submission details are included in the compliance manual. • Notification must be given within 10 days of the decision to terminate or of confirmation that the AR wishes to terminate. • The principal firm also has a duty to notify the FCA of the reasons for the termination if it arises out of an offence or a serious regulatory breach. Webinar 30th July 2014

Record-keeping • The Principal firm must keep a record of the AR’s name together with a copy of the relevant contract, details of amendments and/or termination. • Records to be maintained for three years. • AR needs to keep appropriate records to show the financial position of the AR business it conducts. Webinar 30th July 2014

The next steps • If you want to act as Principal you have to apply for your authorisation first. • You need contracts in place with your ARs and any principals in a multi-tie situation. • You need to coordinate with your ARs on the submission of your notification and approved persons form. • Decide how you will control and monitor AR activities. Webinar 30th July 2014

How we can help • This webinar coincides with the release of the compliance manual issue two on the appointed representative regime. • We will provide a model contract for the Principal/AR relationship shortly. • We can answer ad hoc queries via [email protected].

Webinar 30th July 2014

Any questions • We will take questions that have come in during the webinar now and publish the responses afterwards. • You can also contact us directly at CSA, using the FCA queries e-mail address.

Webinar 30th July 2014