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- Robert Bell
Appointed Representatives Consultation
The Financial Conduct Authority has published a consultation on proposed changes to the Appointed Representatives Regime. The consultation closes on 3 March 2022. The Regime allows firms that are not authorised to undertake some regulated activity on behalf of the ‘principal’ firm, which takes responsibility for and oversees the regulated activity that the appointed representative (AR) does. The FCA has identified some problems with the regime, including where there is insufficient oversight of ARs and inadequate controls over the activities the principal firm has responsibility for, arising from a lack of understanding about regulatory responsibilities in oversight of the AR.
The FCA recognises the benefits to the regime, and so proposes some additional guidance and amendments to the rules to offer principal firms more clarity around the types of measures the FCA expects to see in undertaking due diligence when appointing an AR, and in ongoing oversight. This will mean that the benefits the regime brings – wider consumer access and greater innovation, according to the FCA – can continue, while lessening any potential harms.
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The changes should have the effect of remediating issues that have arisen from changes in the way the regime is used. When it was first introduced in 1986, it was envisaged that the regime would allow self-employed representatives to be able to undertake regulated activities without having to be authorised themselves. This benefited principal firms – usually insurers and other product providers – who used it to distribute products through the AR. However, the regime is now used by a wider range of representatives (around 40,000) and principal firms (around 3600) for a wider range of models, such as regulatory hosting and networks, and many more types of products and services across many different sectors. The Treasury Select Committee’s Lessons from Greensill Capital report found the AR regime may be being used for purposes well beyond those it was designed for, and so the FCA’s consultation is part of a review of the use of the regime as a priority.
The changes the FCA are proposing fall into two categories; additional information on ARs and notification requirements for principals and clarifying and strengthening the responsibilities and expectations of principals. They are also seeking views on the risks from regulatory hosting arrangements and business models where the AR is large, relative to the principal.
The hoped-for outcomes are that principals will have additional clarity on the expectations of the FCA, making them better able to monitor, oversee and manage their ARs, that the FCA will be able to more proactively challenge firms on current and potential ARs, and that customers will have better quality information on principals and ARs, meaning they will be able to make better decisions.
Under the proposal to have principal firms provide more information on their Appointed Representatives’ business, firms will need to provide more than the current basic information on their AR – including for example the AR’s revenue, complaints and the regulated and non-regulated activities that the AR undertakes. The principal will be required to report this information at least 60 calendar days before the appointment takes effect. If there are any planned significant changes at the AR, the principal will also be required to report these, at least 10 calendar days before the change takes effect. Principals will also be required to check the accuracy of their ARs’ details on an annual basis, and information on the nature of regulated activities that the AR undertakes for the principal firm will be included on the Financial Services Register.
The FCA is also clarifying its expectations of principals and of their responsibilities through a series of additional guidance points within SUP. The guidance will make clear:
Where principals delegate functions or tasks to an AR, they should have appropriate safeguards in place
The principal should conduct an annual review of AR senior management’s fitness and propriety
Principal firms must use guidance in FIT to assess the ongoing fitness and propriety of individuals and key personnel at the AR through detailed assessments
The expectations around principal firms’ monitoring of ARs’ activities outside the scope of appointment are strengthening, with guidance to help principals better identify when the AR might be acting outside of the scope of appointment and steps to take to make sure the ARs do not undertake unlawful regulated activity
Principal firms must ensure that ARs have adequate controls to undertake the activities – additional guidance clarifies the nature of controls and resources expected
Where an AR firm grows significantly in a short time, a review of oversight appropriateness should be conducted
Principal firms should have systems and controls in place to oversee financial services staff at an AR to a comparable standard as if they were employed in-house, through collection of MI, close monitoring of activities and scrutiny of Directors
Principal firms should be more actively assessing and preventing activities by the AR creating an undue risk of harm
There will be a new rule that requires principal firms to annually review fitness and propriety of senior management, the AR’s financial position, spans of control and the adequacy of the firm’s controls and resources
In certain circumstances, the principal firm will need to conduct a review more often than annually, e.g. if the AR changes business model, or enters into a new contractual agreement with another principal
Principals will have responsibility for ensuring any wind down happens in an orderly way where termination is necessary
Principals will need to conduct a self-assessment to document how they are meeting aspects of the policy, which will need to be available to the FCA on request.
Firms are being asked for comments on the consultation to be submitted by 3 March 2022 via website form, in writing or email.
We offer a FCA Advice and Application Support service, offering guidance, support and creation of documents and procedures to assist firms to pass through the authorisation process quickly. Further information can be found on our Services page. To contact us to discuss, contact Rob Bell at robert.bell@rbcompliance.co.uk.
