How to ensure compliance with the FCA’s Appointed Representative Regime

Since December 2022, FCA regulated firms appointing Appointed Representatives (ARs) have needed to comply with the enhanced rules and standards. This article examines the practical implications of the rules and provides insights on best practices for compliance.

The AR model has proved popular with firms, enabling new entrants speedy access to the market and widening the market share of principle firms. However, the FCA have had a number of concerns about the level of compliance of AR firms with data showing, in some sectors, the majority of complaints derive from ARs rather than Principles. The FCA have even created a team solely focused on ARs.

The primary aim behind the FCA’s AR regime is to help prevent consumers being mis-sold or mis-led by ARs and to prevent misconduct by ARs that undermines the ability of the UK financial industry to operate fairly and safely.

The FCA’s AR regime is designed to ensure that:

• Principals understand their responsibilities in relation to ARs, have stronger and better oversight of, and take more effective responsibility for, their ARs.

• The FCA can effectively challenge principal firms with, and those looking to appoint, ARs.

• Principals address problems with their ARs that do, or have the potential to, cause harm to consumers or markets.

• Consumers can access better‑quality information on principals and ARs and make good decisions when choosing products or services.

At summary level, under the FCA’s rules and guidance, principal firms need to: 

• Apply enhanced oversight of their ARs, including ensuring they have adequate systems, controls and resources.

• Assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business.

• Review information on their AR’s activities, business and senior management annually, and be clear on the circumstances when they should terminate an AR relationship.

• Notify the FCA of future AR appointments 30 calendar days before they take effect.

• Provide complaints and revenue information for each AR to the FCA on an annual basis.

• Consider the size of the AR. The FCA have said an indicator of harm are ARs who are disproportionately large compared to the Principle. This harm could be caused by the AR’s influence on the Principle due to reliance on income generated by the AR and the Principle’s ability to provide redress in the case of the AR failing.  

It must be noted that anything that an AR does or omits to do in respect of any provision under the Financial Services & Markets Act 2000 (FSMA), FCA Principles and their rules or guidance will be treated as having been done or omitted by the Principle itself if it relates to the activities for which the Principle has accepted responsibility.

Undertaking the above activities are particularly important as the FCA are currently focusing on AR compliance through deeper data analysis aimed at higher risk firms and a more assertive approach in their dealing with those firms.

We have a number of resources which can help with your AR compliance, including a due diligence template, AR Policy and Fit and Proper Assessment designed to be used for ARs. You can download these resources here:  https://www.rbcompliance.co.uk/ar-framework-templates