FCA - Improving the Appointed Representatives Regime PS22/11
The FCA has identified a wide range of harm across all sectors where Principals and Appointed Representatives (AR) operate. It has also been addressed that most of these harms are due to Principals not conducting adequate due diligence before appointing an AR and not having robust ongoing control. Wide ranging harms were also identified such as mis-selling and fraud.
The FCA conducted an analysis which showed that:
On average, Principals cause 50 to 400% more supervisory cases and complaints than non-principals (other directly authorised firms), and
Supervisory cases were higher for principals across all sectors (general insurance & protection; investment management; retail investments; retail lending and wholesale financial markets).
As a result, the FCA proposed changes on the following areas and requested the affected firms for their feedback:
Collecting additional information on ARs.
Strengthening reporting requirements for Principals.
Clarifying and strengthening the responsibilities and expectations of Principals
Finally, these proposals have been supported by most respondents who agreed that changes are needed to the AR regime to ensure it remains fit for purpose.
This policy statement by the FCA will affect all firms that currently have an AR or intend to have ARs in future. This will also affect ARs.
These rules have not been applied to firms in the Temporary Permissions Regime (TPR) or the Financial Services Contracts Regime (FSCR).
The key outcomes expected by the FCA from these changes are:
Better understanding and oversight by Principals on their AR responsibilities.
Improved data collection for reducing consumer harm.
Reduced level of misconduct and complaints across the market which will enhance market integrity.
Consumers can take informed decisions by having access to better information on Principals and ARs when choosing products or services.
Identification of problems that can or have the potential to cause harm to consumer or markets.
How the FCA is Expected to Measure Success?
Metrics will be used to monitor the success of this policy. For example, volume of consumer to complaints to firms, the FCA, the Financial Ombudsman Service and open supervisory cases.
The FCA has introduced a 4-month implementation period for affected firms/persons before the changes take effect, hence these changes will come into force on 08 December 2022.
The FCA has also introduced a transitional period in respect to the self-assessment document which will allow principals to prepare their initial assessment and seek approval from their governing body up to a year after the rules come into force on 08 December 2022.
Proposed AR Process for Annual Review and Self-Assessment
AR Annual Review (for each individual AR)
Should cover suitability, financial position, fitness and propriety and adequacy of oversight.
Identify emerging risks or issues, and a plan to remediate issues/ escalate it up to the governing body if needed.
No prescribed format, this should further feed into self-assessment for governing body approval.
Holistically covers the firm’s AR and IAR arrangements and relationships.
Designed to identify any risks and gaps in compliance with the firm’s obligations as a Principal.
Highlights any issues with specific ARs, arising from the Annual Reviews, and proposes ways to mitigate them.
Available to the FCA for review on request.
Kept for at least 6 years.
The FCA High Level Strategy 2022 – 2025 on AR Regime
Greater engagement with, and scrutiny of, firms as they appoint Ars, both for new applicants and firms already authorised;
Targeted supervision of Principal firms across the whole financial services sector, using improved data and analytical tools to focus our work; and
Introducing a new fee that Principals must pay for each of their ARs to help fund the FCA’s work in this area.
How CSL Can Help
CSL has a wealth of expertise in regulations relating to our Clients ARs and IARs. We also work directly with ARs, IARs and other holders of delegated authority.
We have the experience and expertise to deliver pragmatic business centric solutions to keep you compliant.
If your business requires advice, support, and solutions please reach out to CSL today.
0203 488 4612