Q&A: Helping You Become an Appointed Representative
What is an Appointed Representative?
An Appointed Representative is a legal person (e.g. company or partnership) that has been appointed by a Principal Firm (e.g. Khepri Advisers Limited (“KAL”)) and has signed an Appointed Representative Agreement (“ARA”).
Who can be an Appointed Representative?
Subject to meeting certain conditions, anyone can become an Appointed Representative. In general, KAL takes on Appointed Representatives from the following industry sectors:
Private Equity
Venture Capital
Real Estate
Infrastructure
Debt
Fintech Platforms
Corporate Finance
M&A
Institutional investment advisers
If your sector is not listed we may still be able to support you, please do get in touch with us.
What are the conditions to be an appointed representative?
There are many conditions that need to be met and in summary they include inter alia:
Having a clear and well-designed business model
Being based in the UK (but certain activities can happen outside the UK and your head-office does not need to be in the UK)
Being financially solvent
Having a sufficient operational resources to conduct your business to a high standard
Why become an Appointed Representative?
In short, you need to be an Appointed Representative or directly authorised by the FCA if you wish to perform, by way of business in the UK, a regulated activity.
There are many regulated activities that can be conducted. However, KAL only have permissions for the following activities:
advising on investments;
arranging (bringing about) deals in investments; and
making arrangements with a view to transactions in investments.
We can help you evaluate which regulated activities you are undertaking or you may like to speak to your legal adviser.
Why become an Appointed Representative instead of becoming directly authorised by the FCA?
Often a key reason to become an Appointed Representative is speed to market. However, this is too complex a question to be answered properly in this Q&A, please speak to your Khepri contact who can discuss with you further whether the activities you are expecting to undertake amount to you needing a licence from the FCA, either directly or via Khepri.
What if I want to become directly authorised by the FCA?
We can help you become directly authorised by the FCA. Please see here for more information.
Once you have an authorisation in principal from the FCA they will work with us to ensure that there is no timing gap between us removing you from the register and your full licence from the FCA become effective.
What are the important things to know about being an Appointed Representative?
Khepri is responsible for certain actions and omissions of the Appointed Representative as they relate to the regulated activities undertaken, this places Khepri on risk and therefore we have to ensure that the Appointed Representative is conducting business prudently.
Individuals within the Appointed Representative can be fined directly by the FCA (in the same way as if the Appointed Representative was directly authorised by the FCA) – Khepri has designed its policies and procedures around protecting those individuals.
Khepri only takes responsibility for activities you do that amount to regulated activities, if you are also undertaking other activities or bundle other services into your agreements with clients, we do not take responsibility for those.
In the same vein, we do not take responsibility for your tax affairs (to HMRC), compliance with employment legislation, that you pay your rent-on time (to your landlord), etc.
However, we do care if your other activities impact your ability to provide regulated activities to clients e.g. because of conflicts of interest, etc.
Think of us like an internal compliance team.
How much support will you provide us?
Think of us like your compliance function, we will advise and guide you on all aspects of your business.
What are “Clients”?
Basically, the people that pay you money because you have agreed to provide them with services which amount to a Regulated Activity. Having a chat with a potential investor and giving them some information doesn’t then mean they are your client. You will have to have established a duty of care to them and documented this in a written agreement.
Who are Professional Clients?
This is a complex definition but generally they are legal persons who work in the investment sector plus other legal persons that are very large. You can also sign-up individuals to be Professional clients in certain circumstances.
What activities cannot be undertaken by Appointed Representatives?
We do not allow our ARs to:
deal in investments as agent i.e. sign in the name of the firm but on behalf of a client
have discretion over the investments of another person i.e. be a discretionary investment manager; and
finding investors in connection with placing securities on primary markets e.g. the LSE/AIM.
Practically, what types of business can be an Appointed Representative?
Corporate finance houses;
M&A businesses that does not use their own balance sheet;
advisers to investment funds (Venture capital, private equity, real estate, etc)
placement agents that don’t work on primary market listings;
advisers to issuers on debt structuring;
advisers to family offices;
investment research houses; and
many others.
What checks does Khepri undertake prior to appointing an Appointed Representative?
We have a streamlined approach to onboarding Appointed Representatives, please reach out to us for more information.
What information does Khepri need from the Appointed Representative to get it approved by the FCA?
This will depend on the precise activities being conducted. However, we will require at least the following information:
Register of Members/Directors
Certified List of Shareholders
Latest management and statutory accounts
Financial Model (forecast for the next 3 years)
Business Plan (with source of funds)
CVs of relevant individuals
What legal agreements must an Appointed Representative sign with the Principal Firm?
This is called an Appointed Representative Agreement.
What is a Tied Agent?
A Tied Agent is a type of Appointed Representative and we will let you know if you are of this type.
It is one which performs activities which amount to Investment Services, as defined by the Markets in Financial Instruments Directive (”MiFID”).
Not all ARs will be Tied Agents.
What are Investment Services?
The Investment Services are defined in MiFID and those that can be performed by a Tied Agent include:
receiving an order from a client and transmitting it to another person for execution;
arranging deals between two investors (but not between an issuer and an investor); and
making personal recommendations to an investor or agent of an investor on the merits of them buying/subscribing/holding financial instruments (e.g. stocks, shares, bonds, derivatives but not immovable property or currency).
When can an Appointed Representative agree to provide services to clients?
Once its name appears on the Financial Services Register and the appropriate individuals have been licensed.
When can an Appointed Representative start doing business for clients?
ARs can start working for clients when the necessary individual approvals have been received from the FCA.
What individuals need to be approved by the FCA?
Individuals that are working for the Appointed Representative need to be approved by the FCA where they are either:
statutory directors or members (if a partnership) of the Appointed Representative;
act like they are directors or partners but technical are not (e.g. they perhaps work at a parent company); or
dealing with customers of the Appointed Representative in the context of the provision of a service that is a regulated activity (e.g. investment professionals facing off against clients) and they are in the UK for more than 30 days in total in any rolling 12 months period.
What type of information does Khepri need in order to get individuals approved?
We ask for at least the following information:
employment history;
Fit and Proper Declaration Certified;
compliance Policies Acknowledgement;
past and current directorships (spanning the last 10 years); and
references.
Do individuals who are promoting investment opportunities need to be approved by the FCA?
It is our policy that such persons are approved by the FCA.
What does it mean once a person is approved by the FCA to be a CF1/4/30?
The form that the person signs gives the FCA the ability under law to take direct action against the individual.
Practically, how will becoming an Appointed Representative of Khepri impact how you do business?
We will provide you with policies which you must follow, please read these and let us know if anything is unclear.
The policies are designed to help protect the individuals that are licenced by the FCA.
If there is a culture of trying to act in the best interests of your client then it is unlikely that implementing the policies will impact your day-to-day client facing activities.
There is a significant number of records that need to be kept and we find that this is the main area where our Appointed Representatives feel takes time.
There are periodic training requirements for persons holding controlled functions.
Is becoming an Appointed Representative an “easier” / “lighter” route that becoming directly authorised by the FCA?
The conduct standards expected of Appointed Representatives by the FCA are the same as if the business was being performed by Khepri directly.
However, there are many rules that do not apply directly to the Appointed Representative in relation to:
the holding of minimum levels of regulatory capital;
the obligation to report trades to the FCA; and
specific governance obligations for the business as a whole.
What will be the main interaction between an Appointed Representative and Khepri?
This will depend on the nature of the activities performed and will change as we get to know you better. However, in general we expect that the touch points will be:
periodic review meetings;
the approval of any financial promotions that the Appointed Representative intends to issue;
the approval of any contracts that the Appointed Representative intends to sign to the extent that it involves the provision of services that amounts to regulated activity;
obtaining approval from the FCA for new CF1/4/30s;
assisting you address any known breaches that have been identifying by Khepri or the Appointed Representative; and
responding to any ad-hoc questions the Appointed Representative asks of Khepri.
Can I do business in Europe post Brexit?
We can provide you with names of legal firms that can advise you on this matter.
What are Appointed Representative’s data-protection obligations?
They will apply to you in the same way irrespective of whether you are an Appointed Representative of Khepri and are not within the scope of our services as a Principal Firm.
