FCA keeps a firm grip on the oversight of Appointed Representatives

Last week the FCA published the findings of its review of how principal firms are meeting its enhanced appointed representative rules, introduced in December 2022.

As a reminder, an appointed representative (AR) is a firm that undertakes regulated activities and acts as an agent for a firm directly authorised by the FCA. This firm is known as the appointed representative’s “principal” firm.

The FCA’s review involved a telephone survey with 251 principals and in-depth assessments of documentation from 23 firms and they are keen to share their findings.

The current rules state that principal firms must oversee their ARs effectively and are responsible for making sure their ARs comply with our rules in relation to their activities as ARs.

The FCA feels that while some principals do this effectively, not all firms adequately oversee the activities of their ARs. The changes made to the rules were designed to ensure that principals manage their ARs better.

Following the introduction of the new rules and enhanced expectations for principal firms, the FCA has tested the implementation of how firms are embedding the new rules.

The regulator reported examples of good practice from principals which included keeping clear documentation to show compliance with the FCA’s enhanced rules and using a broad range of checks and information to oversee and monitor ARs’ activities.

But at same time the FCA found some firms were just taking a tick-box approach to complying with its rules, relying on basic information like website checks, or using self-declarations from their ARs, to demonstrate effective oversight.

The review also found:

• 1 in 5 principals had not carried out a required self-assessment or annual review of their ARs.
• Approximately half of principals were not regularly reviewing their AR agreements.
• A third of principals were not using data or management information to keep tabs on whether ARs were acting within the scope of AR agreements.
• Most firms had not changed their AR onboarding or termination procedures since the rules were introduced.

Unsurprisingly, the Consumer Duty was also mentioned as part of the review. The FCA thought it good where they saw firms embedding Consumer Duty into their review of ARs. Examples included considering fair value assessments and training for staff on Consumer Duty.

The FCA has reminded firms who have ARs or intend to have ARs in future that they should read and consider the findings when assessing their obligations as principals under the rules.

Principals should ensure they have assessed their existing processes in response to the new rules and have sufficiently documented any revisions that they can call on if required.

The regulator will not hesitate to take swift action where they see principals are not meeting standards in the future.

Like much of the regulatory regime, this is a continuous process.  FCA will monitor compliance with the rules, with a particular focus on annual reviews, self-assessments, and the quality of oversight of ARs.

These are the key areas that principles should be focusing on moving forward.