The FCA recently confirmed that there would be new rules regulating the Appointed Representatives (ARs) regime which will apply to authorised firms in the financial services industry. There is a short timeframe for affected firms to ensure that their current procedures comply with the new requirements as these come into force on 8th December 2022.
ARs are persons or businesses who are able to carry out regulated activities within the financial services sector but are not regulated by FCA themselves. Instead, they work as agents of authorised firms, which are referred to as ‘principals’ and they assume responsibility for the ARs. It is not unusual for some ARs to be bigger and more sophisticated firms than their regulated principals.
The FCA has been aware of various issues with the current system for a while. In fact, recently they declined to authorise a compliance consultancy firm who sought to operate an investment network. This is because the FCA were not satisfied that the firm would have adequate oversight over ARs and investment businesses (see article News July 2022).
Sheldon Mills, Executive Director for Consumers and Competition at the FCA, said: “While appointed representatives can bring innovation and choice, principals and ARs account for more than 60% of the total value of recent claims to the Financial Services Compensation Scheme. They also generate up to 400% more supervisory cases and complaints than other directly authorised firms.”
The new obligations being imposed by FCA is intended to ensure that authorised firms are more responsible for the ARs who operate under their authority as principals, and these include:
- Applying enhanced oversight of ARs, ensuring they have adequate systems, controls and resources in place.
- Assessing and monitoring the risk that ARs pose to consumers and markets. This should meet similar levels of oversight as principals would have for their own business.
- Reviewing information on ARs’ activities, business and senior management annually. Principals must also be clear on the circumstances where they should terminate an AR relationship.
- Notifying the FCA of future AR appointments 30 calendar days before they take effect.
- Providing complaints and revenue information for each AR to the FCA on an annual basis.
The FCA believe that these changes will improve the management and oversight of ARs which ultimately prevents consumers from being mis-led and mis-sold and ensures that markets can operate safely and fairly.
Clarisse Robbins, Associate Director – Claims & Technical, Brunel Professions said: “Authorised firms with ARs have only a few months to carry out an in-depth assessment of their current policies and implement any changes in order to comply with the new FCA rules, so they have to act swiftly. The concerns surrounding the operation of ARs have been apparent for some time and professional indemnity insurers will be well aware of these. We anticipate that following the recent changes they will expect firms to illustrate compliance before agreeing to go on risk.”