Knowing your ARs from your elbow

Recent developments in the UK courts underscore the importance of Principal firms properly understanding the risks associated with their business and their Appointed Representative (AR) framework. Although currently subject to appeal in the Supreme Court, the existing Court of Appeal decision in KVB Consultants Ltd and others v Jacob Hopkins McKenzie Ltd and others is that a principal firm can be held liable in respect of activities that it believes it has expressly prohibited its AR from undertaking and/or that it may not legally be able to do itself.[1] Whilst principal firms may want to avoid confronting the issue, the Court of Appeal decision coupled with recent rulings finding the liability for bad advice transferred to wealth platform businesses from independent financial advisors (despite the platform having no direct access to the end customer) would suggest that courts and regulators will continue to find ways to impose liability on principal firms. This issue is, therefore, something that needs to be examined by firms before the Supreme Court rules on the KVB appeal in the summer.

The timeliness of such a review is also underscored by the FCA’s recent finding that nearly 10% of reviewed principal firms have inadequate cover in place for the regulated / approved activities of their ARs leading to the suspension of business activities for some of those principal firms. [2] A recent reminder in the February regulatory newsletter about the focus on adequate insurance cover shows that this issue is also not going to go away.

If you have concerns about the scope of your PI insurance then rest assured coverage is available in the insurance market to ensure compliance with current and anticipated legal / regulatory developments as outlined above. We have an award-winning specialist team who understand the complexities surrounding PII, and our expertise can help guide your firm toward the right solution, safeguarding both your business and your clients.

Please reach out to a member of the team to discuss your insurance requirements: