Occasionally, we come across firms that are ‘Principal Firms’ – i.e. the firm has Appointed Representatives (AR) but where one or more individuals straddle both the Principal and the AR.
This can raise questions around the applicability of SM&CR to such individuals since the SM&CR does not apply to ARs.
Why does the SM&CR not apply to ARs?
At first sight it seems illogical that ARs will continue with the Approved Persons Regime (APR) instead of all firms being covered by the SM&CR.
The reason why ARs are excluded from the SM&CR is that the relevant enabling legislation doesn’t give the FCA the power to extend the SM&CR to ARs. Beyond this legal position, there is a certain logic to it.
The Principal Firm is the regulated entity not the AR and the Principal is responsible for everything that goes on at the AR within the terms of the AR Agreement, including compliance with regulations. As the SM&CR is all about responsibility and accountability, it is not unreasonable that these will remain with the Principal Firm.
Some specific questions arising
Q1: If an adviser is employed by a directly authorised Principal but acts as an adviser for the firm’s AR, will the adviser come into the Certification Regime or the APR?
A1: As an employee of the Principal firm the adviser would be under the Certification Regime, not the APR. The adviser will, however, also need to be a Directory Person due to their role at the AR (ie requiring qualifications).
Q2: Would a person employed by the Principal, who is not a senior manager, but whose only role is managing advisers (T&C supervisor) for the AR come under the Certification Regime?
A2: Yes, as an employee of the Principal firm, if they are conducting a Certification Function. However, they may not be conducting a certification function as they are not supervising/managing a certified person, as they would be if the advisers were at the Principal firm, but instead supervising advisers at the AR (who are not certified persons). If the person does not meet any of the definitions of certification functions, the firm can of course voluntarily apply similar standards if they wish.
Q3: Would the employee in Q2 (who is only supervising and has no client contact) have to be on the Directory as an AR Directory Person?
A3: No, as they are not dealing with customers of either the AR or the firm, or their property, (per the Glossary definition of AR Directory Person).
The relevant part of the Handbook is SYSC 27.4.2G (10/12/2018).
- Advisers can remain employed by the principal firm and act as advisers for the AR (subject to the caveats indicated below).
- Advisers do not need to become CF30 (AR) as they are employed by the principal firm, not the AR.
- Advisers will however need an addition to their Directory Persons listings on the Register – ‘AR dealing with clients for which they require qualification’ needs to be added.
It is essential that clients are clear about who is providing the advice (e.g. AR or Principal) so the adviser needs to wear the ‘right hat’!
- The AR agreement would need to include reference to this.
- The disclosure would need to explain this (and any implications).
- The HR agreements (contract to supply service to another company) would also need to be clear on this. There could be legal and HMRC implications and appropriate advice should be sought.