FCA Cracks Down on Principal Firms Under AR Regime to Prevent Consumer Harm
The UK’s Financial Conduct Authority (FCA), steadfast in its mandate to protect UK consumers within the financial services markets has collected extensive data on appointed representatives (ARs) in order to improve oversight of the AR regime and prevent harm to consumers. ARs are authorised by principal firms to provide certain financial services under the principal’s regulatory permissions.
The FCA analysis shows there are around 2,900 principal firms overseeing approximately 35,000 ARs. While most principals have small networks of ARs, some have over 50 ARs under their watch. The AR regime expanded significantly when the FCA began regulating consumer credit in 2014, leading to growth in ARs providing services like credit broking.
Lack of Oversight Raises Risks
According to the FCA, most principals are conducting regular oversight checks on their ARs. However, some outliers are performing minimal, and in some cases no checks at all on their ARs’ activities. Key risks identified include inadequately monitored introducer ARs, ARs based overseas, insufficient professional indemnity insurance, and principals lacking the resources to properly oversee ARs.
FCA Implements Stricter Rules and Oversight
In response, the FCA has implemented stricter rules and elevated expectations for principal oversight, including requiring self-assessments, notifications and detailed reporting. Regulators are now supervising more assertively, restricting principals with poor controls and terminating dormant AR relationships. Enforcement actions will be pursued where necessary.
The recently introduced Consumer Duty also increases the responsibilities on principals to oversee AR conduct and treat customers fairly. Looking ahead, the FCA plans to continue leveraging data-driven tools to identify high-risk principals and ARs to engage with firms and raise standards across the board.
How Complyport Can Help
As experienced and leading Compliance Consultants, we provide tailored support to principal firms seeking clarity and full compliance with these new FCA regulations.
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