YOUR COMPLIANCE MATTERS – FCA Consultation Paper Appointed Representatives (ARs)

YOUR COMPLIANCE MATTERS – FCA Consultation Paper Appointed Representatives (ARs)

 

Relevance:                   All Firms with (or planning to appoint) ARs.

 

Action required:         Review your AR position against the potential new FCA Rules.

 

 

The FCA published a Consultation Paper (CP 21/34), relating to ARs. The expectation is that new rules will come into effect before the end of the first half 2022.

 

The FCA perceives that the AR regime has drifted significantly away from its original intent. Additionally, the FCA has done some research which suggests firms with ARs have higher complaint ratios than other firms. At the moment, the FCA has no way of identifying which complaints relate to the firm’s ARs (although this is set to change).

 

The consultation paper can be found here CP21/34: Improving the Appointed Representatives regime | FCA If you have ARs, or are considering making any appointments, we certainly recommend that you read the CP in order to prepare yourself for rules which will come into effect later this year.

 

We are not going to attempt to paraphrase the CP here as the document is far too long to make this effective.

 

However, we would draw firms’ attention to the specific concerns and issues which the FCA are seeking to address through the consultation process:

 

1.    The FCA does not believe it holds enough information about firms’ ARs.

 

2.    The FCA believe that many firms do not fully understand their obligations with regards to oversight of activities of their ARs.

 

One thing that does emerge from the consultation process is that the FCA does believe that ARs can add value to the market in providing access to additional products and services to consumers. It is therefore treading quite carefully in attempting to avoid disrupting existing business models that rely upon ARs.

 

Having said that, the FCA will be seeking information in relation to both existing and the new ARs outlining the reasons for the Principal appointing them, regulated activities to be undertaken, non-regulated activities of the AR, involvement with retail clients, previous AR relationships (and why an AR would move from one Principal to another), Group information relating to the AR, financial arrangements between the Principal/AR and expected revenue from the appointment.

 

As Introducers represent a lower risk, to the regulator, the level of information required is commensurately lower.

 

More details of the information required can be found in Sections 3.13 and 3.14 of the CP. The information gathered by the FCA will see much greater detail provided in the FCA Register, relating to the activities allowed for the AR.

 

The FCA is also suggesting that firms need to notify them at least 60 days ahead of the AR’s appointment by the firm. Given that it has currently taken the FCA up to three months to process AR applications, this point seems moot!

 

Ongoing Changes and Monitoring

 

Any updates to the information relating to the AR will need to be notified to the FCA.

 

Additionally, firms will have to complete an annual attestation of the details held for ARs (as they have to do for themselves currently).

 

Additionally, complaints data will need to be individually reported for the firm’s ARs so that this can be separated from the overall reporting currently provided.

 

Revenue related to ARs will also need to be separately reported (at the moment, this is not separated from the overall fee data provided by the firm).

 

Additional guidance is being proposed to enhance and clarify FCA expectations of principals and their responsibilities, most of which will also apply to introducer appointed representatives (IARs).

 

Size of AR v Principal

 

Under section 5.23 of the CP, the FCA is also raising questions over the ability of smaller firms to properly supervise ARs which are larger than they are. It is consulting on a number of potential changes in this area.

 

Regulatory Hosting Services

 

This is now defined in the proposed Glossary. Fundamentally this issue relates to firms that do not themselves undertake regulated activities for which they have permission but appoint others to do so, sometimes in areas of business which the Principal is not familiar with. The FCA is seeking input and the ways in which harms caused by such arrangements can be addressed.

 

Application and Periodic fees for ARs and Senior Managers.

 

Firms should also be reminded of the fact that the FCA intends to start charging fees to add ARs and their associated SMF roles and this needs to be factored in for any plans to appoint new ARs.

 

Next steps

 

As mentioned, we have not attempted to cover the full detail of the CP here. Suffice to say, the FCA is planning to be far more intrusive in this area and this needs to be included in any planning relating to ARs (new or existing) in future.

 

We will provide a further update once the Rules are published.