Clients of an Appointed Representative (AR) could find themselves unprotected against losses if the advice given by the AR sits outside of the AR agreement with the Principal firm.
In July, the Court of Appeal sided with the Sense network, which had been taken to court by 95 claimants over an alleged secret £12.8m “Ponzi scheme” run by one of its ARs. The ruling confirmed the judgement in the initial Court case that found the network was not responsible for losses experienced by the claimants because the advice given by the appointed representative sat outside of its AR agreement.
This judgement is an ‘interesting’ interpretation of FCA rules and guidance and, potentially, has significant implications and risks for clients of appointed representatives.
Rules and guidance
One of a Principal’s “Supervisory” responsibilities is to:
“… be able to deliver the same level of protection to clients as if clients had dealt with the Principal itself” (SUP 12.1.3G)
The FCA Sourcebook also states:
“Responsibility for appointed representatives
… anything that an appointed representative has done or omitted to do as respects the business for which the firm has accepted responsibility will be treated as having been done or omitted to be done by the firm
The firm is responsible, to the same extent as if it had expressly permitted it, for anything the appointed representative does or omits to do, in carrying on the business for which the firm has accepted responsibility.
In determining whether the firm has committed any offence, however, the knowledge or intentions of an appointed representative are not attributable to the firm, unless in all the circumstances it is reasonable for them to be attributed to it.”
Despite these rules/guidance, the recent judgement sets a precedent that it is actually the private contract between a Principal firm and an AR that determines the business for which the Principal is responsible. Therefore, any client of an AR advised in relation to anything which falls outside of the agreement with the Principal, may leave the client without protection, entirely without their knowledge.