Section 19 of the Financial Services and Markets Act 2000 (FSMA) provides that a person or business must not carry on a regulated activity in the UK, unless he is an authorised or exempt person. This is known as the general prohibition. Under section 39 of FSMA, a person who is an appointed representative or tied agent is an exempt person.
Section 39(1) of FSMA details the exemption from the general prohibition relating to appointed representatives, and states that a person or business is exempt from the general prohibition in relation to any regulated activity conducted by that business for which his principal has accepted responsibility, providing:
1. He is a party to a contract with an authorised principal that:
a. permits or requires him to carry on business of a defined nature; and
b. complies with legal contractual requirements for appointed representatives.
2. His principal has accepted responsibility in writing for his activities.
An appointed representative is a person who conducts regulated activities and acts on behalf of a firm directly authorised by the FCA.
There are many reasons why a firm/ person may wish to become an appointed representative including:
1. The business/ person does not need to become authorised in their own right as they benefit from the authorised status of a principal.
2. An application directly to the FCA for authorisation can be costly and the process can take up to six months, whereas becoming an appointed representative is a more straightforward process, far cheaper, and can be completed within a matter of weeks.
3. The ongoing compliance costs are generally considerably less than for authorised firms.
4. Appointed representatives are not required to comply with regulatory capital requirements, which means they do not need to satisfy minimum solvency requirements, or take out professional indemnity cover.
It is important to note that being an appointed representative does not mean that the person does not need to comply with the FCA's rules altogether. The principal must ensure that the contract it enters into with the appointed representative requires the appointed representative to comply with the relevant rules. You should instruct your business solicitor to advise on the contract. The contracts must include terms that deal with the following matters:
1. It should define the scope of the appointed representative’s activities.
2. It should include a provision prohibiting the appointed representative from carrying on regulated activities in breach of the general prohibition under section 19.
3. It should include a provision obliging the appointed representative to carry out its regulated activities in a way that is, clearly distinct from any of the appointed representative's other business.
4. It should include provisions that are required to enable the principal to comply with any limitations or requirements in accordance with its own authorisation.
5. It should include provisions that require the appointed representative to:
a. Co-operate with the FCA in any compliance and/ or information gathering exercise; and
b. Give to the principal access to any books, information and accounts of the appointed representative.
6. It should include suitable termination provisions enabling either party to terminate in accordance with legal and/ or regulatory rules.
Summerfield Browne Solicitors have offices in London, Birmingham, Cambridge, Oxford, Northampton and Market Harborough, Leicester.
