Recruit, change or terminate an appointed representative

Carry out the necessary checks and due diligence. This includes verifying that the firm is financially stable and that staff are competent. It's not enough to just rely on confirmation from a previous employer without doing your own assessment and checks. You're responsible for keeping the required information and records for future reference. 

We may ask for more information from principals where ARs operate business models that may make it harder for you to oversee them effectively, such as Overseas ARs. Other circumstances where we may want more information may include: 

• when a principal firm appoints its first AR
• where there is a rapid expansion in the number of ARs appointed by a principal firm
• when an AR has much higher revenues than the principal firm conducting oversight
• if the AR has a complex ownership structure 

When a notification is more complex, we’ll ask you for more information. For example, if the AR works for more than 1 authorised firm, you'll need a Multiple Principal Agreement (unless it's an introducer AR[4]), so that 1 principal firm is identified as the lead principal. 

You must state:

• the primary reason for appointing the AR
• the nature of the regulated activities you permit the AR to carry out
• whether the AR will conduct any non-regulated activities and, if so, whether these are financial or non-financial (for financial non-regulated activities, please indicate what the activity is)
• whether the AR will provide services to retail clients 
• whether the AR was previously an AR of a different principal and, if so, why the AR is now intending to operate for you 
• whether the AR is part of a group and, if so, the name of the parent undertaking 
• whether any individuals from the AR will be seconded or contracted to you to carry on portfolio management and/or dealing activities and, if so, the rationale for entering into this arrangement 
• the estimated revenue from regulated and non-regulated activity in the first year following the appointment (using revenue bands) 
• the nature of the financial arrangements between you and your AR(s)

Good practice

Examples of good practice that meet our expectations include: 

• Checks of relevant information concerning a candidate’s fitness and propriety in the public domain and raising questions with the candidate to ensure risks are identified. Giving us the results and descriptions of any information that may be relevant to our assessment. 
• An in-depth review of the candidate’s competence and suitability for the role. Where necessary, this may include testing the candidate’s competency with measurable training and the development of a remedial plan to deal with gaps. 
• Evaluating the candidate’s employment history and reasons for leaving each role, clarifying products and types of customers the candidate has been involved with and any risks which may arise for the future. 
• Checks of a candidate’s previous and current company directorships and verification against Companies House and overseas records where available. 
• Assessing whether the candidate has the capacity and experience to perform the role you’re seeking approval for. 
• Getting a standard Disclosure and Barring Service (DBS) check where appropriate.  

Areas for improvement 

Some examples of where we have concerns and would like to see improvements include:     

• Firms relying on us to identify the risk of appointing a candidate from our due diligence and using our process as a way of forming decisions on an applicant. This reflects poorly on the competency of the principal firm.
• Firms submitting and not providing additional explanatory information when the candidate has been the director of an insolvent business or has had historical financial difficulties (such as County Court Judgments, Individual Voluntary Arrangements or Debt Management Plans).
• Firms not adequately assessing complaints about the candidate, for example, complaints that have arisen as part of the candidate conducting high risk business, such as defined benefit pensions transfers.

We expect you to identify and disclose all information that might be relevant to an assessment of the candidate’s fitness and propriety.

If something is missing from your assessment of the candidate, we consider due diligence to be incomplete and we’ll challenge you.

We take non-disclosure very seriously and may view it as evidence of dishonesty or lack of integrity.  

Good practice

Examples of good practice that meet our expectations include:

• Firms providing full explanations if the answer is 'yes' to a candidate’s fitness and propriety questions. This includes explaining the process the principal has been through to check the accuracy and completeness of the information provided.
• Firms explaining how any identified risks have been mitigated, for example, through testing, training and additional monitoring and oversight.
• Firms explaining a termination or disciplinary in relation to a candidate’s previous role and why they believe the candidate’s conduct or competence is of a high enough standard to not pose a risk in the future. Examples of mitigating steps we’ve seen include a review of the candidate’s existing work and the introduction of enhanced monitoring.

Areas for improvement

Some firms aren’t able to demonstrate that they have effective governance and controls. Examples of where submissions could be improved include:

• Firms failing to disclose that they have previously applied for direct authorisation for Part 4A permissions and withdrew their application because they could not meet the regulatory standards. Even where firms have disclosed that they have applied previously and withdrew because of concerns, they have failed to say how they have enhanced their business model or systems and controls to address our original concerns.
• Firms answering ‘yes’ to a candidate’s fitness and propriety questions, describing checks that have uncovered adverse information, but failing to explain why they now deem the candidate suitable and how they will ensure effective supervision is in place.
• Firms failing to disclose that a candidate’s conduct is the subject of ongoing litigation, or where a disciplinary hearing or a court decision is pending.