Check your eligibility status
The Investment Business Committee continues to hear about firms that aren’t complying with the DPB (Investment Business) licensing eligibility requirements.
The most common cases include:
- the firm has not notified ICAEW about the appointment of new principals without the necessary qualifications or affiliate status
- exempt regulated activities being conducted for non-clients (who may instead be the clients of a connected, unregulated firm).
The committee invariably imposes substantial regulatory penalties, including the recovery of any fees saved, with publicity when issues are identified during monitoring reviews.
You need to inform ICAEW if your firm’s structure changes (for example if a new principal is appointed). Amendments to your annual return do not meet this notification requirement. You must notify ICAEW separately of all changes within 10 business days via our standing data form.
Reminder of the eligibility requirements
A principal can be an individual or a corporate body (LLP or company). It makes no difference whether or not the principal is involved in the day to day operations of the firm.
One common situation we see is when a spouse is appointed as a principal but has no active role in the practice. ICAEW must be notified of these appointments and the spouse will need DPB affiliate status unless the individual meets one of the other qualification criteria in Regulation 2.03.
A principal is defined as a:
- sole practitioner
- partner in a partnership (including a salaried partner)
- member of an LLP (designated or non-designated)
- director of a company (including shadow directors)
- anyone held out as a principal, so either:
- there are no other professional accountants in positions of seniority or supervision over you within the firm; or
- the clients of the entity are led to believe that they are a principal, unless it is very clear on the firm’s website or elsewhere that they are not a principal.
Each principal must be:
- a member of ICAEW, ICAS or ICAI; or
- a member of another DPB; or
- a firm with a DPB licence from ICAEW/ICAS/ICAI (irrespective of whether they are trading or not); or
- registered for audit work by the licensing Institute; or
- a DPB affiliate.
If your firm is regulated by ICAEW to undertake work in more than one regulated area (such as audit, probate, DPB), the principal will need to apply for affiliate status for each regulated area.
DPB affiliate status is not transferable. A principal must apply for DPB affiliate status for each firm which has/applies for a DPB licence. Note that this does not mean that there are duplicate fees payable.
Regulation 3.09 of the Handbook explains that a DPB licensed firm can only provide exempt regulated activities that arise out of, or are complementary to one or more professional services provided to that client.
Increasingly we see practices trading through two or more separate legal entities. A licenced firm cannot provide a regulated activity to a client of a connected firm if that client solely receives professional services from the connected firm. In this situation the regulated activity will not be complementary to another professional service provided by the licenced firm as required by Regulation 3.09.
If you run your practice using two or more connected entities, you should either:
- have a DPB licence for each entity; or
- ensure that you and all your staff are very clear about the restrictions that apply to clients of the unregulated entities.
If your firm is considering the appointment of a new principal, incorporating the firm, or changing the structure and or ownership of the firm, it could have an impact on eligibility.
Please discuss the implications of any intended changes with our regulatory support team firstname.lastname@example.org.