Appointed Representatives

What is an appointed representative?

An appointed representative (“AR”) is a person or firm which is able to arrange deals in investments and advise on investments by being authorised under the umbrella of a firm which is directly authorised by the FCA (the “principal”) which is already authorised to arrange deals in investments and advise on investments.

In order to be an appointed representative, the AR must meet certain requirements, namely:

If these conditions are satisfied, the AR will become an ‘exempt person’ for the purposes of the Financial Services and Markets Act and may then arrange deals in investments and/or advise on investments.

It is important to note that the relevant individuals will need to be approved to perform the customer function pursuant to the FCA’s approved person regime.

Regulated activities which an AR may conduct

Appointed representative regulations (the “Regulations) list the type of activities that an AR may conduct, and these are also set out in SUP 12.2.7 of the FCA Handbook.

These can generally be summarised as advising and arranging activities.

An obvious point but one to note is that the AR cannot conduct any activity which does not fall within the scope of its principal’s permission. If an AR wishes to carry on regulated activities wider than its principal’s scope, then it must obtain authorisation in its own right.

All AR business will be FCA-regulated, as no PRA-regulated activities are set out in the Regulations, so a person cannot be an AR in respect of a PRA-regulated activity.

The advantages of becoming an appointed representative

While the appointed representative regime is not a route which every firm or person will take, others find it useful for a number of reasons, including:

applying for direct authorisation from the FCA can be costly and time-consuming (an application can take up to 6 months to process);

it may be more efficient for small businesses to be an AR rather than obtain direct authorisation;

on-going compliance costs for an AR are likely to be much less than for authorisation;

ARs need not comply with regulatory capital requirements; and

it may obviate the need to seek authorisation under the AIFMD

FCA rules applicable to appointed representatives

As well as complying with the Regulations, the AR and its principal must comply with the applicable FCA rules, which can be found in SUP 12 of the FCA Handbook. The AR needs to understand and comply with the regulatory requirements applicable to the business it is carrying out and cannot delegate these to its principal. The AR’s principal is responsible, however, for ensuring that the AR complies with the Handbook. An AR is therefore required to allow its principal access to its staff, premises and records so that the principal can carry out its supervisory responsibilities.

Where an individual is appointed as an AR, in addition to complying with SUP 12, the principal should also ensure that, where applicable, the rules for representatives in COBS 6 (which deals with information about the firm, its services and remuneration) are complied with.

Role and responsibilities of the principal

The AR is appointed by a principal and the parties must enter into a written contract to this effect. The contract must contain certain required terms as required by the Regulations, as to which please see “Required contract terms for all appointed representatives” below.

Acting as a principal places a considerable burden on the principal in terms of costs and time and the burden increases the more ARs a principal has. This means that some authorised firms can be reluctant to take on ARs, their concerns often centring on the strict requirement to take responsibility for the AR’s actions and the potential detrimental impact on the principal’s reputation in the event that the AR acts negligently or outside its authority.

Obligations of principal prior to appointment

Prior to entering the contract, the principal is obliged by the FCA rules to ensure that its ARs are fit and proper to deal with clients in its name and that clients dealing with the principal’s AFs are afforded the same level of protection as if they had dealt with the principal itself. This is because the principal is responsible, to the same extent as if it had expressly permitted it, for anything the AR does or omits to do in carrying out the business for which the principal has accepted responsibility.
The principal must therefore establish on reasonable grounds that:

SUP 12 in the FCA Handbook provides further clarification as to how a principal can determine the solvency and suitability of a proposed AR.

Continuing obligations of principal

During the AR appointment, the principal will be responsible for:

An AR can have more than one principal, albeit that certain activities prohibit multiple principals, for example any designated business for retail clients. If a principal appoints an AR which is already an AR for another firm, the principal must enter into a written agreement, a multiple principal agreement, with every other principal the AR may have. Again, the multiple principal agreement must contain certain required terms set out in SUP 12 (see SUP 12.4.5C).

Required contract terms for all appointed representatives

The terms of the contract which are required in all AR agreements are set out in SUP 12.5 and include the following:

Becoming an appointed representative

In order to become an AR:

once appointed, the AR must understand and comply with all rules and regulatory requirements relating to its business as an AR, including record-keeping requirements, and must use the following regulatory wording where appropriate: “[name of AR] is an appointed representative of [name of principal] which is authorised and regulated by the Financial Conduct Authority [of the United Kingdom].”

Tied agents as appointed representatives

A 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 UK MiFID investment firms are also ARs, but for a tied agent to be an AR, it must carry on its activities as a tied agent in the UK. If it does not carry on activities as a tied agent in the UK, it will not be an AR (but will be referred to as an EEA tied agent). A tied agent carrying on its activities as a tied agent in the UK will be subject to the rules set out in SUP 12 as an AR, as will its UK MiFID investment firm as principal.