Changes afoot in the Appointed Representative landscape 

The FCA is on a roll now; just as everyone is taking a breath from the first of the Consumer Duty deadlines, we are now faced with the first deadline (8th December) of the new rules to improve oversight of Appointed Representatives (ARs). Unsurprisingly, the FCA’s Policy Statement (PS) on principals, and their ARs, focuses on reducing the risk of undue harm to customers by aligning itself with the aims of the Consumer Duty.  

It has been three months since the PS; however, several of the requirements are reminders to the principals of their current responsibilities, with additional supporting rules on oversight and reporting, and then finally, some housekeeping items to ensure the information the FCA holds, internally and on the FCA Register, is accurate. 

I am sure many principals will be in an excellent position to fulfil the additional requirements. Still, many will be turning their attention to the PS and having internal meetings to understand the full impact these requirements will have on the controls they already have in place. 

What changes has the FCA introduced? 

In essence, the FCA has announced that heightened scrutiny will be placed on principal firms to ensure they carry out “enhanced oversight” on their existing ARs and provide significantly more information about proposed ARs. 

In addition, the FCA will be requesting data on all existing ARs via a section 165 data request, with a deadline of 60 days from receipt of the request. 

What does this mean? 

This means different things depending on whether you are the principal or the AR. However, it doesn’t matter which camp you fall under; each will experience enhanced scrutiny and reporting requirements brought about by the new rules and will have a significant impact on many firms’ workloads. 

If you work within compliance, the chances are that FCA publications and internal forms, and checklists surround you. I know my trusty yellow highlighter can’t cope with my highlighting demands! 

FCA Expectations on the Principal 

Principals will be required to: 

• Ensure their resource, oversight of ARs and associated risk tolerances and controls are robust in monitoring the ARs’ actions, with the ability to recognise when an AR no longer fits the principal’s risk appetite 
• Verify the details of their ARs on the FCA Register annually 
• Submit complaints data for each AR and AR revenue annually on regulated and non-regulated financial activities via a banding system
• Consider if their due diligence and onboarding processes are robust enough that the principal’s risk appetite is clearly defined, and they collect from the AR all the information required to provide the FCA before appointing a new AR.  To note: a new AR FCA application must be completed 30 days before the appointment and will run parallel with any approved person applications 
• Review the contracts with the ARs and amend them, where necessary, to demonstrate the new requirements.  To note: this exercise can be undertaken as each contract falls due
• Where applicable, notify the FCA at least 60 days before starting to provide regulatory hosting services

Expectations on ARs by the Principal 

• Most existing ARs will see a noticeable shift in the request for information by their principal as they gather any missing information before the first submission to the FCA and then yearly submissions after that
• An increase in oversight and monitoring of the ARs’ controls to ensure they are effective at reducing risk and are operating within the agreed business model  
• Furthermore, new contracts will be provided at the renewal date, highlighting the new requirements 

For those businesses which fall under the category ‘Introducer Appointed Representative’ (IARs), the requirements are significantly fewer due to the very nature of their business model, which carries less risk as they can only undertake a limited set of activities.  

While some might argue that there is insufficient time to implement the necessary changes, others agree that this is a welcome move from the FCA to ensure that all businesses are doing what they should be in terms of good governance and, ultimately, fair treatment of consumers. 

Why now? 

Doubtless oversight of ARs has been causing the regulator concern for some time, with many industry players saying that this change has been inevitable.  

The number of consumer complaints and supervisory cases received about firms operating under the Principal/AR model can be as much as 400% higher than other directly authorised businesses. 

And, with the heightened concern around Consumer Duty, vulnerable customers, and fair value for consumers, this is another way in which the FCA can demonstrate it is obliging firms to ensure they are doing ‘enough’ to address the issue of customers being “mis-sold and misled”. 

So, what’s next? 

The critical advice I would give firms captured by this PS is to raid the stationery cupboard and map out your processes and controls. Do they remain suitable or need amending, or do you need to introduce new controls?  

My last point: having worked for many years in compliance, I know this is not a job just for the compliance department. It will require the input and support of all business areas dealing with the ARs.  Therefore, compliance should not be the ones left holding the proverbial baby.  

If you are a principal providing regulatory oversight and are responsible for several ARs, we recommend a review of existing arrangements to ensure your framework will meet existing and new requirements. We at GK can support you in assessing and strengthening your oversight and ensure you select and support appropriate partners in the future. Equally, if you are an AR and have been thinking of becoming fully authorised, now might be the right time; why risk the success of your business because of the risk of your principal’s infrastructure? 

Please get in touch with Sarah Kelly to find out how we can support you.  

[email protected]