FCA said principal firms are responsible for ensuring their ARs comply with their rules. It noted that while some principals supervise effectively, many do not adequately oversee the activities of their ARs.
“While appointed representatives can bring innovation and choice, principals and ARs account for more than 60% of the total value of recent claims to the Financial Services Compensation Scheme,” Sheldon Mills, executive director for consumers and competition, said. “They also generate up to 400% more supervisory cases and complaints than other directly authorised firms.
“The changes we’re making will help ensure that principals manage their ARs better – ensuring that they provide the oversight needed to avoid consumers being mis-sold or misled and to make sure markets can operate safely and fairly.”
Under these new rules, principal firms will need to apply enhanced oversight of their ARs, including ensuring they have adequate systems, controls, and resources. They must also assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business.
Principals are told to review information on their ARs’ activities, business and senior management annually, and be clear on the circumstances of when they should terminate an AR relationship. They are also required to notify the FCA of future AR appointments 30 calendar days before it takes effect, and provide complaints and revenue information for each AR to the regulator on an annual basis.
FCA said that as part of its new three-year strategy to improve outcomes for consumers and markets, it is undertaking targeted supervision of principal firms across the whole financial services sector, using improved data and analytical tools to focus its work. It is also increasing scrutiny on firms applying for authorisation and as they appoint ARs.
The conduct regulator of financial services firms and financial markets in the UK said it is working with HMT to explore if further changes are needed to the AR Regime, which would require future legislative change.
