The Financial Conduct Authority (FCA) has launched a consultation on improving the appointed representative (AR) regime and tackling harm the model might be causing.
An AR is a firm or person who carries out regulated activities on behalf, and under the responsibility of, a firm (the principal) authorised by the FCA. In appointing an AR, the principal assumes responsibility for the regulated activities the AR carries out.
The FCA said that the “proposed changes to the regime aim to address the harm arising in this market while retaining the cost, competition and innovation benefits the AR model can provide”.
The proposals would improve principals’ oversight of ARs, and require them to provide the FCA with more information on their ARs, allowing the watchdog to spot risks more quickly. The regulator “will also expect ARs to be more effectively overseen by their principals”, it said.
The FCA is seeking views 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.
Harm
The consultation comes at a time where the FCA sees “a wide range of harm across all sectors where firms have ARs”.
The regulator said: “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.”
FCA data found that, on average, principals generate 50% to 400% more complaints and supervisory cases than non-principals across all sectors where this model operates, “demonstrating that there are more issues arising from principals and ARs than from other directly authorised firms”, the watchdog added.
Sheldon Mills, executive director for consumers and competition at the FCA, said: “The appointed representative model helps bring choices to consumers, but the level of harm we are currently seeing is too high. There are real risks of consumers being misled and mis-sold with little scope for recourse.
“We have already started work looking at high risk ARs and these proposals build on that work. We want to ensure that principals are properly overseeing their appointed representatives, ensuring they are competent, financially stable and delivering fair outcomes for consumers.”
The consultation will close on 3 March 2022.
