FCA refuses compliance firm permission to run investment network

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Compliance consultancy Alexander Jon Compliance Consulting has been refused authorisation from the financial regulator to run an investment network. The compliance consultant had sought FCA authorisation to provide regulatory hosting services, taking responsibility for a number of Appointed Representatives (“ARs”) who would be performing regulated activities.

At the time of the application Alexander Jon Compliance Consulting only had one director and no employees. The regulator was not satisfied that the consultancy could demonstrate it had the appropriate skills, experience or staff to adequately oversee the network of ARs.

The City watchdog’s concerns were further compounded by the firm’s inability to describe a viable and sustainable business model, or how the ARs would assess whether products and services were suitable for consumers.

The decision to refuse authorisation comes at a time when the FCA is beginning a wider crackdown on ARs. Back in May the regulator launched a dedicated unit to focus on the harm caused by ARs and their principal firms. This follows an announcement in December 2021 that the FCA will require firms to run annual checks on their ARs and report findings to the regulator.

It is clear that the supervision of ARs has become an area of increasing concern for the FCA. In a recent Consultation Paper the regulator noted that on average principals generate 50% to 400% more complaints and supervisory cases than directly authorised firms. The FCA’s 2022-25 strategy sets out more detailed plans on how they intend to reduce harm and improve oversight of ARs.

Emily Shepperd, executive director of authorisations at the FCA, said: “It is vital those who are seeking the FCA’s authorisation meet our high standards. If this is not the case, we will refuse their applications in the interests of consumers and other businesses.”

Matthew Golightly, Associate Director – Claims & Technical, Brunel Professions said: “Firms acting as principal to ARs should ensure that they are ready for the increased scrutiny that ARs are coming under. Professional Indemnity Insurers are closely following the regulator’s concerns with the hosting model and will want to be sufficiently reassured that firms have robust procedures in place to protect consumers from harm before they will consider providing cover.”

The FCA has published its 2022-25 Strategy and a press release about denying authorisation for Alexander Jon Compliance Consulting on its website. Reports on the decision have been published by Burges Salmon and FT Adviser.

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