Principal firms who use appointed representatives (ARs) must do more to ensure they are complying with the new rules and enhanced expectations that came into effect on 8 December 2022, recent analysis from the Financial Conduct Authority (FCA) has shown.

A review into how principals are meeting its enhanced AR rules, published by the FCA at the start of September, found that some firms were taking a “tick-box approach to complying with its rules” and “relying on basic information like website checks, or using self-declarations from their ARs”, to demonstrate effective oversight.

The review also found:

• One in five principals had not carried out a required self-assessment or annual review of their ARs.
• Approximately half of principals were not regularly reviewing their AR agreements.
• A third of principals were not using data or management information to keep tabs on whether ARs were acting within the scope of AR agreements.
• Most firms had not changed their AR onboarding or termination procedures since the rules were introduced.

An AR is a firm or person who carries on a regulated activity or activities under the responsibility of an authorised financial services firm, known as a ‘principal’.

In appointing an AR, the principal assumes responsibility for the regulated activities carried on by the AR agreed with the AR in a written contract.

The FCA introduced new rules governing the relationship between principal firms and ARs in December 2022 in a bid to enhance consumer protection and help protect markets. Under the new regime, principals are required to provide more information on ARs.

The review, which involved a telephone survey with 251 principals and in-depth assessments of documentation from 23 firms, also found some evidence of improvement. Examples of good practice from principals included keeping clear documentation to show compliance with the enhanced rules and using a broad range of checks and information to oversee and monitor ARs’ activities, revealed the FCA.

Jane Savidge, the Interim Head of Department for Appointed Representatives said: “Some firms have been embedding our rules well, but some aren’t getting the basics right and are taking a ‘bare minimum’ approach.

“Principals must have clear, written AR agreements from the outset and effectively monitor their ARs to make sure they act within scope,” she reiterated.

The FCA has followed up directly with firms in the review and has resolved that it will take “swift action” where it sees principals not meeting its standards in the future.

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A review of this nature provides valuable insight into a business when performed correctly. Along with an overview of risk, these crucial assessments also highlight issues within the business, so it is essential to undertake a proper review. All of a company’s building blocks must be considered, including its staff, clients, operations, and finances.

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