Has the Appointed Representative Firm model for Regulatory Hosting and incubation changed in the UK since BREXIT?
Sturgeon Ventures LLP created and pioneered the wholesale Appointed Representative Firm in the early 2000s with the innovation of the market leading and award-winning, institutional Regulatory Incubation for starts ups and for overseas companies coming to the UK who wanted to set up a 1–2-person office, for example, to Arrange or Advise (depending on the Principal’s permissions to different categories of Clients).
By Arranging we mean introducing potential investors to investments including direct investments in small and medium enterprises, alternative investment funds, as well as more traditional investments into funds that the Principal Firm/the Appointed Representative had engaged in.
The Appointed Representative Firm was and is still predominantly used by insurance companies to distribute insurance products to Retail Clients, as well as Independent Financial Advisors who give investment advice on pensions to Retail Clients. Sturgeon Ventures and most of the newer wholesale Principals are not involved these days in the insurance sector and the same is true in Europe with the Tied Agency. European regulators are less aware of the wholesale use of the Tied Agent because it has not been customary to use this outside the retail distribution of pension advice and insurance products.
Appointed Representative Firms and Pre-BREXIT
Pre-BREXIT the UK Appointed Representative Firm could also avail themselves of the Principal Firm’s European Passport, however this is no longer possible. Post Brexit there has been talk within Europe of the regulators taking a less positive approach to the use of the Tied Agent Firm of a European Principal (the equivalent of the Appointed Representative of a Principal UK Firm). However, Sturgeon Ventures has formed several alliances with Principal Firms in Portugal, Malta, and Germany whose regulators are seemingly comfortable with the Tied Agent being able to operate in a similar fashion to the UK’s Appointed Representative, working cross border within wholesale markets.
In later years Sturgeon Ventures created the Fund Start up model using the Appointed Representative as an Advisor and/or Promoter of the Fund managed by the Principal Firm, bringing together different service providers into one offering; “a fund in a box” was another phrase coined by Sturgeon. Sturgeon was visited by firms enquiring about the wholesale model in the early days and some of those firms became direct competitors, who in turn were later acquired by larger firms creating a wider footprint in the Wholesale Appointed Representative model. Many of those firms were compliance consultants who as individuals, have not actually been fund managers, corporate financiers nor advisors. This differed from the Sturgeon model of practitioners educating the new firms to be both compliant and to grow a business. Sturgeon developed an educational brand, AIFM Solutions, www.aifmsolutions.com, educating overseas non-EU Fund Managers how to distribute funds into the European Union. Today of course the UK is now a non-EU Manager, and therefore can avail its marketing under the National Private Placement Regime; please email hello@sturgeonventures.com for copies of our latest guidance which was prepared in partnership with Eversheds https://www.eversheds-sutherland.com and Bryan Cave Leighton Paisley https://www.bclplaw.com/en-US/
Our New Regulatory Hosting Offering post BREXIT
Sturgeon’s offering is an Institutional Offering. Sturgeon has hosted firms that have gone on to be leading names in the Financial Services sector and to date, Sturgeon is purely focused on regulated activities and complimentary services with institutional pedigrees.
For those new to the concept of Regulatory Hosting the framework not only works in the UK but can also work in overseas markets using local rules and exemptions, often using local chaperones for groups based in the UK.
As Europe realises that the transition rules to operate in the UK are also coming to an end, and they want to access UK Institutional Investors, the Appointed Representative Firm model is becoming an attractive offering.
The UK Financial Conduct Authority (FCA) outlines the regulated activities an appointed representative can carry on in the Perimeter Guidance Sector of the FCA Handbook.
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What is an Appointed Representative Firm?
https://www.handbook.fca.org.uk/handbook/PERG/5/13.html
Note that an Appointed Representative can be an Individual or a Firm and for that reason, we refer to the companies that work within our Regulatory Ecosystem as Appointed Representative Firms.
Becoming an Appointed Representative (AR)
PERG 5.13.5G01/01/2021 Link to FCA: RP
A person may wish to become an appointed representative in relation to one or more of the insurance distribution activities specified in the Appointed Representatives Regulations (see table in PERG 5.13.4 G). If so, the person must be appointed under a written contract by an authorised person, who has permission to carry on those regulated activities and who accepts responsibility for the appointed representative’s actions when acting for them. SUP 12.4 (What must a firm do when it appoints an appointed representative) and SUP 12.5 (Contracts: required terms) set out the detailed requirements that must be met for an appointment to be made. In particular, an appointed representative will not be able to commence an insurance distribution activity until that appointed representative is included on the Financial Services Register for such activities.
