WIREDGOV

The FCA has set out good practice and areas for improvement to help principal firms effectively monitor their Appointed Representatives (ARs).

The findings follow a review of how principals are meeting its enhanced AR rules, introduced in December 2022. The analysis involved a telephone survey with 251 principals and in-depth assessments of documentation from 23 firms.

Examples of good practice from principals included keeping clear documentation to show compliance with the FCA’s enhanced rules and using a broad range of checks and information to oversee and monitor ARs’ activities.

But the FCA found some firms were taking a tick-box approach to complying with its rules, relying on basic information like website checks, or using self-declarations from their ARs, to demonstrate effective oversight.

The review also found: 

• 1 in 5 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.

Jane Savidge, 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.”

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

Notes to Editors

• Read more about the FCA.
• Read the FCA’s enhanced AR rules – improving the AR regime (December 2022). Under the rules principals must carry out: 
  • annual reviews of each AR they appoint
  • annual self-assessments of their ability to oversee their ARs.
• Read the FCA’s review.
• The review involved engagement with 274 principals (approximately 10% of the principal population).
• Other examples of good practice from principal firms included: 
  • having clear written records of reviews and self-assessments that were signed off by the principal’s governing body
  • evidence of using a range of management information to assess the risk of harm to consumers or markets, such as quality assurance checks on client files, customer satisfaction surveys, in-person visits to ARs, and mystery shopping exercises
  • having regard to Consumer Duty obligations when carrying out annual reviews, such as considering fair value assessments and providing training for staff