Guidelines on mutiple-principal agreements are as clear as mud, says Alan Hughes

Following PS 159, brokers will now be able to appoint as many principals as they wish, including multiple principals for the same type of business. But in order to ensure that consumers are protected, the FSA requires there to be a multiple-principal agreement between all the principals of any one appointed representative (AR).

Some detail is given in the FSA's near-final rules set out in PS 159 on how multiple-principal agreements will work:

- Existing principal(s) must not unreasonably withhold consent to their ARs having a further principal(s), unless the original principal has specified that an AR cannot have another principal

- Principals in a multiple-principal agreement must consider whether the AR should be a party to that agreement or at least have knowledge of it

- The multiple-principal agreement must set out the relationship between the rincipals and contain the required provisions to protect the interests of customers. This will include: appointing a 'lead principal for the purposes of handling client complaints; having arrangements to determine disputes over liability for complaints between principals; and arrangements for training and competence and control and monitoring of ARs.

The rules for multiple-principal agreements look like a potential minefield. No guidance is given on when it will be reasonable (or otherwise) for a principal to withhold consent to an AR having another principal.

Will commercial grounds be enough?

In reality, even if a principal cannot prevent an AR from appointing another principal, then that principal will presumably still be able to terminate its contract with the AR. Would such an action be "unreasonable"?

A further question arises if the principal that is the lead principal terminates its agreement with the AR. Will the AR be allowed to continued to trade while it has no lead principal? If so, for how long?

Agreeing to be the lead principal would appear to be fairly onerous as that principal will be responsible for dealing (at least initially) with all customer complaints. Will anyone want to do this?

Again, when will it be "easonable"for principals not to disclose the details of a multiple-principal agreement to an AR? If ARs don't know what has been agreed between their different principals, will they be able to run their business properly?

The proposals do not appear to contain enough detail of exactly how multiple-principal agreements will work so it looks like a case of "ait and see" In attempting to ensure that customers are not confused by multiple-principal arrangements, have the FSA made its rules so complex and potentially onerous that multiple principal situations will be unlikely to arise? Perhaps this was its intention

Alan Hughes is a solicitor in the financial regulation team at Bond Pearce