Context
The FCA has launched a web page about and a consultation on improving the appointed representatives regime and tackling harm that it see arising from this model. The AR regime was created to allow self-employed representatives to engage in regulated activities without having to be authorised. Over time, it has evolved to include a wider range of business models across sectors and markets. The FCA is seeing a wide range of harm across all the sectors where firms have ARs. This harm often occurs because principals don’t perform enough due diligence before appointing an AR, or from inadequate oversight and control after an AR has been appointed.
Key points to note
The FCA’s proposed changes to the regime aim to address and reduce any actual or potential harm arising in this market while retaining the cost, competition and innovation benefits the AR model can provide, ensuring that the regime delivers good outcomes for consumers and markets.
- Evidence shows that, on average, principals cause 50 to 400% more supervisory cases than non-principals. It also shows that cases are higher than for non-principals across every sector.
- The FCA’s consultation proposals relate to two main areas of change:
- to require principals to provide additional and more timely information on their ARs and how these are overseen; and
- to clarify and strengthen the responsibilities and expectations of principals
- There are significant new draft Rules and Guidance proposed in the consultation (additions to the Supervision Manual in the FCA Handbook, in SUP 12) in relation to:
- what a firm must do when it appoints an AR;
- the termination of AR relationships and AR contract cancellation terms in the event of a Principal firm’s inability to oversee an AR;
- continuing obligations of firms with ARs;
- assessments of AR compliance;
- notification and reporting requirements; and
- maintaining records of a firm’s self-assessments and reviews undertaken of AR arrangements.
- The FCA will also expect ARs to be more effectively overseen by their principals and is seeking views, through a discussion chapter in the consultation, on the wider risk posed by some of the business models operated by principal firms, and whether setting limits on such arrangements may help to reduce potential harm. They have already started work looking at high risk ARs and these proposals build on that work and collaborated with the Treasury on its Call for Evidence (see below).
- There are three outcomes which the FCA is seeking from the work on ARs:
- Principals better monitor, oversee and manage their ARs
- Consumers can access better quality information on principals and ARs and make good decisions when choosing products or services; and
- The FCA can better challenge firms with, and those looking to appoint, ARs
Next actions
The FCA will review feedback to the consultation and expects to publish a follow-up Policy Statement (PS) and final rules in H1 2022. The Consultation will close on 3rd March 2022.