Making good on its statements to focus on the Appointed Representative (AR) sector, the FCA has established a department to exclusively focus on confronting consumer harm posed by errant ARs and their principals.
The new department will be staffed with 30 senior associates.
In the beginning …
It was initially envisaged that the AR regime would allow representatives to engage in certain types of regulated activities without having to be directly authorised. However, over time, a whole industry has emerged commonly referred to as “Regulatory Hosting”. The model is used at times as an incubation programme for firms that wish to gain experience prior to considering their own authorisation. Regulatory Hosting welcomes various business models across most sectors and markets.
The FCA’s business plan for 2022-2023 clearly laid out plans to strengthen its control of ARs and the new department and recent hires are just the start.
Operating ‘at the regulatory gateway’, the regulator will seek more engagement with principal firms. The new approach will see the FCA intervene at the first stage as principals will need to complete more in-depth applications when appointing ARs.
Time to step up
The new approach will require firms to step up their regulatory reporting and monitoring on their ARs. We wrote an article on the 22 December 2021 titled “The Rules are Changing: AR Regime under Review” which expanded in detail as to the key areas the FCA was interested in amending as part of their CP on the appointed representative regime.
This focused tactic to supervising ARs should come as no surprise. Last December, the regulator said it was going to ramp up its expectations on principal firms as it has observed increased harm to investors in the AR sector.
The FCA said: “Improving oversight of appointed representatives is called out as a priority in our three-year strategy. The risk of consumer harm caused by appointed representatives is currently too high. We’re addressing this through increased supervision work, improving data and intelligence, and scrutinising firms applying for authorisation. We’re also consulting on changes to the rules for appointed representatives.”
The newly formed department will have four groups made up of a triage and case evaluation team, a brace of casework teams and a unit focussed on strategy and engagement. All will be supported by a dedicated data team.
The FCA intends to evaluate cases initially with the triage team and pass higher harm and complex cases to the two case handling units.
In addition to handing complex cases, the teams will respond to whistleblowing, develop strategy and engage with internal and external stakeholders. Firms with multiple ARs can expect the FCA to “engage” with them shortly.
The FCA expressed previously that the harm often occurs because principals do not perform enough due diligence before appointing an AR, or from inadequate oversight and control after an AR has been appointed.
In the evidence presented by the FCA, on average, principals create 50 to 400% more supervisory cases than non-principals and that cases are higher than for non-principals.
