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Here to help with Regulation and Compliance

Compound Growth

25th February 2016

Principal Firms of Appointed Representatives

The FCA is currently undertaking a thematic review into the oversight of appointed representative arrangements for some parts of the industry.

In addition, following a Final Notice issued earlier this month, the FCA highlighted their concerns that there is poor understanding and scrutiny of appointed representatives and a greater need for clarity and certainty about roles and responsibilities.

Principal firms that have appointed representatives should review their own arrangements to ensure that they have fully considered their role and responsibilities when it comes to their own Appointed Representative.

Principal Firm Responsibilities for Appointed Representatives:

Principal Firms need to have rigorous management information and adequate systems, controls and resources in place to effectively select their Appointed Representatives and to allow robust supervision and monitoring of their appointed representatives in relation to practices and provision of services. It should be noted that:

• Appointed Representatives are the responsibility of their Principal Firm;
• The Principal Firm is ultimately accountable for the activities of the Appointed Representative such as:

o what they sell or arrange;

o any advice that they provide to customers; and

o that customers are treated fairly in accordance with FCA requirements;

• Appointed Representatives must be assessed as fit and proper by the Principal Firm and be deemed competent to carry out the proposed activities;
• Before a Principal Firm may apply to have an Appointed Representative, there must be a written contract in place between the parties that details the nature of the arrangement; and
• Principal Firms must continuously monitor their Appointed Representatives for the activities they undertake as well as with regards to their ongoing training and development.

Appointed Representative Risk Management

Thus to ensure potential risks to customers and the firm’s business are controlled and reduced, Principal Firms will need to have well-structured systems and controls over any and all Appointed Representatives with particular focus to:

• Ensure that sufficient due diligence is carried out before appointing its appointed representatives;
• Ensure that the appointed representatives are treating their customers fairly and that they are financially sound;
• Undertake close and continuous supervision of its appointed representatives in order to ensure the continuing suitability to be their appointed representatives;
• Identify and mitigate risks relating to the competence, suitability and approval of the Appointed Representative’s senior management and sales advisers; and
• Review and monitor their Appointed Representative’s financial position.

Undertaking the above measures will help ensure that sufficient information is obtained by the Principal Firm to assess the suitability, competence and capability of appointed representatives and to monitor and enforce compliance by the appointed representatives with the FCA’s Principles and Rules.

Compliance Support:

If you would like to discuss any aspect of having Appointed Representatives,or are weighing up whether to become an Appointed Representative or applying for Direct Authorisation please call our experienced compliance consultants who would be happy to help.

Whilst the ultimate responsibility for compliance cannot be outsourced by a Principal Firm’s senior management, firms should remember that outsourcing parts of their compliance to third party services and compliance consultants can greatly assist them in the efficient running of their business and regulatory requirements.

Appointed Representatives: Principal Firm Responsibilities

Directly Authorised or Appointed Representative?

Investment adviser firms have two options when they are establishing their business – either they will need to become directly authorised by the FCA or become an authorised representative of another firm, also known as a Principal Firm.

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