The watchdog is concerned that some of the underlying investments recommended by introducers and appointed representatives (ARs) may be controlled by or closely linked to those firms and could be either badly run or outright scams.
Introducers and ARs are unregulated firms that do business on behalf of FCA-regulated companies, known as Principals.
The regulator said: “Principals are responsible for the regulated activities of your ARs.”
The UK watchdog previously voiced concerns about the inappropriate influence that unauthorised introducers have on investment choices made by UK advisers in August 2016.
Undue influence
The FCA warned that ARs and introducers can inappropriately influence the business of advisers and other firms. This can include an introducer exercising substantial influence over the final investment choice and undertaking tasks central to the advice process.
“For example, we have seen instances where the referral from the introducer is made with a clear investment desire expressed by the customer and documentation already completed,” the FCA said.
In accepting business from an introducer, advisers must meet its regulatory requirements as set out in the FCA handbook.
Firm reference number
ARs are given a Firm Reference Number (FRN) when they are appointed by an adviser. However, these can be wrongly used and customers can be misled into believing ARs have authority to act when they do not.
Adviser should “be aware of all of the activities carried out by its ARs”, the watchdog said.
The necessity of providing ARs with this reference number should also be considered, as some of the work carried out by introducers does not require an FRN.
“For example, if the introduction is to an authorised person who will provide the client with independent advice or will exercise independent discretion in relation to the investment or class of investments that are the subject of the introduction,” the FCA said.
Monitoring
The UK regulator also found that some Principals are not always monitoring the type, volume and source of business submitted by ARs.
“A Principal needs to have a well-structured monitoring process in place to identify business trends which could result in risk to customers, including poor investment outcomes,” the regulator said.
“In addition, if an AR has not submitted any business or generated introductions for some time, a Principal should consider why they should remain registered.”
Finally, the FCA said that companies using ARs should ensure that no one at the AR is appointed for a role without prior regulatory approval where required. Failure to identify all persons with significant control or senior management responsibility may mean the Principal is not aware of any potential inappropriate influence.
