Having recently seen examples of firms registering trading names in the wrong circumstances and/or using them in a way which may mislead consumers, the FCA has updated the information on its website.
The relevant page can be accessed here. The FCA will also be increasing focus on this area and is encouraging firms using trading names to review these and take any necessary action to ensure they are in compliance with the rules.
Reviewing your firm’s trading names
Firms should check the trading names listed on the FS Register and make sure that any current trading names tie in with the trading names currently in use by the firm, also that any name in use is genuinely a trading name (a name that the firm has chosen to be known by which is different to its registered name).
The FCA points out that adding a third party as a trading name does not change that third party’s regulated status and does not mean that unauthorised third parties can carry out regulated activities, they would need to be authorised, for example, as an Appointed Representative, or exempt. The use of a trading name is strictly reserved for the authorised firm to use when they wish to be known by a different name.
We would add that we have seen examples where self-employed advisers in firms have remuneration paid to a limited company – presumably for tax purposes. That carries its own risks but the primary issue was that the firm adopted the name of that unregulated limited company as a trading name – XYZ Wealth Management Limited became the trading name ‘XYZ Wealth Management’. That creates a significant risk of clients not being clear about who they are being advised by and should be avoided.
We have also seen many cases where Firm A acquires Firm B (usually where Firm B is a one adviser firm) and succumbs, as part of the deal, to create a trading name that is close or identical to Firm B’s former name and permit the adviser to operate under that trading name banner – “to ensure continuity for clients”. That sounds laudable but carries the potential issue from the previous paragraph where Firm B operates as a Limited Company and that company will continue to exist in a dormant unregulated state. Even where that does not apply because Firm B was, say, a sole trader, it is a bad idea for Firm A as additional disclosure documents need to be created and used correctly. While that might not seem such a price to pay to smooth the deal through, we would strongly recommend that it is avoided. We have seen firms where this was done for one acquired adviser and that precedent then resulted in several subsequent acquisitions also getting the trading name ‘privilege’. The firm ended up having to run multiple versions of disclosure documents and agreements. An unnecessary additional cost and complication that is also best avoided.
Trading names, current and previous, will appear within the firm’s Financial Services (FS) Register entry. A firm can add and remove trading names via an application on Connect (Firm Details Application).
Sensitive business names
If it is intended that a business name, or a trading name, will contain certain any sensitive words relating to financial services then consent from the Secretary of State (via Companies House) is required. Sensitive names include ‘assurance’, ‘fund’ and ‘unit trust’; a full list of sensitive names can be found here.
When a trading name is used in communications with customers, it should be clear, fair and not misleading. This includes making accurate disclosures and making sure the ‘consumer understanding’ outcome is met.