The FCA confirms new rules to make authorised financial firms more responsible for their appointed representatives (ARs).
ARs are not authorised by the FCA – they can offer certain financial services or products under the responsibility of authorised firms (known as principals). Principal firms are responsible for ensuring their ARs comply with our rules. While some principals do this effectively, many do not adequately oversee the activities of their ARs.
As a result, the rules will help prevent consumers being mis-sold or mis-led by ARs and will prevent misconduct by ARs undermining markets operating fairly and safely. Under them, principal firms will 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 ARs’ 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 it takes effect.
- Provide complaints and revenue information for each AR to the FCA on an annual basis.
As part of its new three-year strategy to improve outcomes for consumers and markets, the FCA is also undertaking targeted supervision of principal firms across the whole financial services sector, using improved data and analytical tools to focus its work. It’s also increasing scrutiny on firms applying for authorisation and as they appoint ARs.
The new rules do not change the fact that principals are responsible for the activities of their ARs. The FCA is working with HMT to explore if further changes are needed to the AR Regime, which would require future legislative change.
Sheldon Mills, Executive Director for Consumers and Competition, 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 changes we’re making will help ensure that principals manage their ARs better – ensuring that they provide the oversight needed to avoid consumers being mis-sold or mis-led and to make sure markets can operate safely and fairly. They will also need to provide us better data and information to support our own work.”