One of our compliance partner experts, UKGI, rounds up the latest news on Appointed Representatives (AR) consultation and what those involved should be aware of:
‘As anticipated, the Regulator and HM Treasury have arrived in relation to scrutiny of ARs.
Since the AR regime began in 1986 the use of ARs has increased and spread across much of the financial services sector with around 40,000 ARs currently operating under 3,600 principal firms. According to the FCA in its new ARs Consultation, CP21/34, the failure of firms to perform adequate due diligence before they appoint an AR or having inadequate oversight and control in place once an AR is appointed, is causing harm throughout the regime.
The proposals put forward in the Consultation will build upon the FCA’s current work in looking at all high risk ARs. The two main areas of change put forward in the consultation are:
- to require principals to provide additional and more timely information on their ARs and how these are overseen (allowing the FCA to spot risks more quickly); and
- to clarify and strengthen the responsibilities and expectations of principals (requiring more effective oversight on their ARs).
There are three outcomes sought from this work on ARs:
- Principals will better monitor, oversee and manage their ARs
- Consumers will be able to access better quality information on principals and ARs and make good decisions when choosing any products or services; and
- The FCA will be able to better challenge firms with, and those looking to appoint, ARs.
There are significant new draft Rules and Guidance proposed in the consultation (additions to the Supervision Manual in the FCA Handbook, in SUP 12) in relation to:
- what a firm must do when it appoints an AR
- the termination of AR relationships and AR contract cancellation terms in the event of a Principal firm’s inability to oversee an AR
- continuing obligations of firms with ARs
- assessments of AR compliance
- notification and reporting requirements; and
- maintaining records of a firm’s self-assessments and reviews undertaken of AR arrangements.
Within the discussion chapter of the consultation (chapter 5) views are being sought on the wider risk which is posed by some of the business models which are operated by principals and whether the potential harm could be reduced if limits were set on such arrangements.
In conjunction with the consultation paper the FCA has also collaborated with the Treasury on its Call for Evidence, which explores how the regime works in practice, the potential challenges to the safe operation of the regime, and possible future reforms which could include placing more regulatory obligations upon ARs, enhancing the role of the FCA and extending the ability of the FOS to investigate complaints involving the activity of ARs.
Both the consultation and call for evidence will remain open until 3rd March 2022, with a follow-up Policy Statement and final rules due most likely at some time during the first half of 2022. Firms with, or considering taking on, ARs would be well advised to read the Consultation.’