FCA proposes stronger requirements on oversight of appointed representatives

An appointed representative (AR) is a firm or person who carries on a regulated activity on behalf, and under the responsibility of, a firm authorised by the FCA (the principal). In appointing an AR, the principal assumes responsibility for the regulated activities the AR carries out.

The FCA is seeing a wide range of harm across all sectors where firms have ARs. 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.

The FCA’s 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 principals to provide the FCA with more information on their ARs, allowing the FCA to spot risks more quickly.

The FCA will also expect ARs to be more effectively overseen by their principals.

The FCA is also seeking views, through a discussion chapter in the consultation, 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.

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.'

Notes to editors

1. Read the Consultation Paper CP21/34: Improving the Appointed Representatives regime[1]. The consultation closes on 3 March 2022.
2. In addition to these proposed changes to the regime, the FCA is exploring with HMT whether legislative change is needed and encourages responses to the Call for Evidence that HMT has published today.
3. In its Lessons from Greensill Capital report[2], the Treasury Select Committee recommended that the FCA and HMT consider reforms to the AR regime to limit its scope and reduce the opportunities available to abuse the system. We welcome this recommendation and have committed to reviewing the use of the regime as a business priority.
4. FCA data analysis has 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.