CP 21/34 – Improving the Appointed Representatives regime

The FCA has launched a consultation (CP21/34 ) which is intended to improve the appointed representatives regime and tackling harm from this model.

 

The consultation arises from what the FCA describes as ‘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.’

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 AR regime was created to allow self-employed representatives to engage in regulated activities without having to be authorised. Over time, it has evolved to include a wider range of business models across sectors and markets. However, according to FCA data, on average, principals cause 50 to 400% more supervisory cases than non-principals. It also shows that supervisory cases are higher than for non-principals across every sector. In addition, principals have more complaints per £1m of revenue compared to non-principals, particularly where they are smaller in size. This suggests that smaller principals are not able to resolve problems leading to complaints as effectively as larger principals.

The proposed changes to the AR regime aim to reduce potential harm and ensure that the regime delivers good outcomes for consumers and markets. The primary proposals are:

  • require principals to provide additional and more timely information on their ARs and how these are overseen, and
  • clarify and strengthen the responsibilities and expectations of principals

Other potential implications

Additionally, the FCA is seeking views, through a discussion chapter, on other potential areas of policy change, including FOS and FSCS coverage.

Currently, if a consumer has a complaint about an AR, consumers are covered by the Financial Ombudsman Service when the complaint concerns activity undertaken by the AR that was included in the written agreement with the principal. However, if an AR is undertaking activities that are outside the scope of the AR’s agreement with its principal, or if there is a technical fault with the written contract, then this can have adverse implications for consumers, e.g. consumers may find themselves without recourse to the Financial Ombudsman Service even though the client is unlikely to have been aware that the principal is allowed, under FSMA, to confer on the AR the right to conduct certain types of regulated financial services but also limit the scope of its own responsibility for such activities. Also, the client of an AR is unlikely to be aware of what the AR has agreed with its principal. If something goes wrong and a consumer suffers loss, the principal may seek to avoid responsibility by relying on a narrow reading of what its agreement with the AR covers. This can result in poor use of FOS resource in assessing whether it has jurisdiction before it can even begin to consider the client complaint. Possible outcomes, which are mentioned in the relevant but not directly associated Call for Evidence issued by the Treasury include:

  • extending the jurisdiction of the FOS to ARs
  • limiting the regulated activities that ARs are permitted to undertake

Some issues around the relationship of the FSCS to ARs are also discussed.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

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Our View

For information.

Action Required By You

Review both papers and submit a response by the relevant deadline if desired. The deadline for both the FCA paper and the Treasury paper is 3 March 2022. The FCA expects to publish a follow-up Policy Statement (PS) and final rules in H1 2022.
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