Don’t get caught out by the Appointed Representatives regime

Once the changes to the Appointed Representatives regime go live in December, the FCA expects Principals to raise their game when it comes to oversight. And with s165 information requests to follow those who haven’t reviewed their controls will have no-where to hide.

The policy statement PS22/11: Improvements to the Appointed Representatives regime was published in the summer following the consultation at the start of the year. In it, the FCA sets out revised expectations for how authorised firms – or the Principals – oversee and control the Appointed Representatives (ARs) within their remit. It comes into force on 8th December 2022 and the FCA has stated its intention to require information from Principal firms on their ARs through a S165 request before the end of the year.

In some cases, depending on the Principal firm’s current arrangements for AR oversight, this could require major changes to systems and controls. Of particular note is the requirement for annual assessments of management teams at the AR, which is akin to an extension of some aspects of the SMCR regime which currently does not apply to ARs. PS 22/11 should also be read in conjunction with the Consumer Duty; both of which are large regulatory projects which will stretch compliance teams

The main areas of the policy statement cover information gathering and reporting, and wider systems and controls.

Information gathering

Information-gathering and disclosure requirements

The intent of this is for the Principal to fully understand the risks posed to it, its customers, and the wider system by the AR. Among the information required is the need for the Principal to understand why any previous AR / Principal relationship was terminated, and details of the financial arrangements between the Principal and the AR.

An important change for many Principals is likely to be the need for them to gather information on the AR’s non-regulated business, including where it is not financial services related. According to the PS, many firms believe they already hold the information required by FCA. That is good news for if that’s the case, but any firm affected would be well-advised to check with their ARs if the information they hold remains up to date.

S165 information requests

The FCA will issue a S165 notice requesting relevant information in December 2022, following which firms will have 60 days to respond. As well as starting to consider the information you’re likely to need to provide, it makes sense to double check now that the contact details the FCA holds are correct.

Reporting changes in AR business

The FCA expect Principals to report certain significant changes in the AR and its business within 10 days of them taking effect. FCA is also proceeding with the requirement for Principals to give FCA 10 days’ notice before an AR embarks on a new regulated activity. Principals should be fully cognisant of those data points and ensure they are embedded within any existing procedures for reporting and notifications to FCA.

Onboarding a new Appointed Representative

If the Principal wishes to onboard a new AR, it must notify FCA at least 30 calendar days prior to take-on. This is a change from the original proposal of 60 days, and for Principals on the acquisition trail, this is more advantageous than a Change in Control application for an authorised firm.

FCA register

There’ll be no change to the amount of information currently on FCA Register regarding the regulated activities undertaken by ARs.

Complaints data

Principals will be required to collate complaints data from ARs; this is unlikely to be a new endeavour as these will already be submitted in firm’s biannual reports. But FCA will have a clearer line of sight on any ‘problem’ ARs which receive high complaint volumes and Principals may therefore need to strengthen systems and controls because of this.

Systems and controls

Put simply, the FCA expects Principals to up their game when implementing and operating systems and controls over their ARs.

Principals should be reviewing and amending their arrangements in the three main areas of:

  • Onboarding new ARs, which should include consideration of the impact posed by the AR on the firm and whether it poses any conflicts of interest or impact on the firm’s financial stability.
  • Ongoing management and oversight, including a focus on the regularity and frequency of monitoring (such as at least an annual review). This should include a consideration of the ARs growth strategy and financial position and whether the AR is too large for the Principal.
  • Termination of ARs, including who in the Principal takes the decision to terminate an AR relationship and the firm’s process for orderly wind-down of the AR relationship and the ARs activities.

A clear message from PS22/11 is that the FCA expects greater oversight and control to be exercised by Principals over their ARs. This includes Introducer Appointed Representatives (IARs) too, although the information-gathering requirements for IARs will be less onerous. Principals should review whether they have correctly appointed an entity either as an AR or IAR and, if necessary, apply to the FCA for change to how the AR/IAR is registered.

Note that the FCA expects Principals to assess the fitness and propriety assessments of senior staff, as well as assessing the legal entity. This should include competency assessments and could be interpreted as SMCR ‘by the back-door’ in the absence of primary legislation to implement SMCR formally over ARs. The FCA has been clear that AR staff should be overseen as though they worked for the Principal.

Getting ready for December

On the face of it the updated Appointed Representative Regime is not massively different from what’s gone before. But the FCA has made it clear that they expect firms to do more than they have in the past to when it comes to monitoring their ARs.  With compliance teams currently focused on the new Consumer Duty requirements it would be easy to overlook some of these additional requirements – but ultimately both regimes are about ensuring good governance to prevent consumer harm and there is merit in looking at the two projects in parallel. And the knowledge that the regulator is planning to issue s165 information requests as soon as the regime goes live should certainly focus the mind.

We can help

Our regulatory compliance experts have experience working within the Appointed Representative regime across fund management, lending and insurance, and financial advice. We can help review your set up in line with the updated requirements and help with take on, management and exit of ARs. We are also experts in FCA applications and can support with changes of control, variations of permission, full authorisation, and coaching for senior managers facing FCA interviews.