Two years have passed since the FCA introduced its new rules aimed at improving standards in the Appointed Representative (“AR”) sector (https://www.fca.org.uk/publication/policy/ps22-11.pdf) – prompted by the FCA’s view that the standard of oversight being delivered by Principal firms (“Principals”) was not in line with the Regulator’s expectations.
As a follow-up to those rules, the FCA has now published its findings of its recent review on how well the market has responded to those rules. The headline finding is that “Oversight of ARs improving but there is still more to do”.
The Review
The FCA’s review looked at a variety of processes adopted by Principals when overseeing their ARs, including onboarding, annual reviews and termination, in order to gauge whether Principals are taking sufficient steps to ensure the effective oversight of the AR’s under their supervision.
The FCA found evidence that some Principals have not acted adequately to embrace the enhanced regime, for example, taking only a tick-box approach to complying with the 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.
The FCA has said that “‘Some firms have been embedding our rules well, but some aren’t getting the basics right and are taking a ‘bare minimum’ approach”. Crucially this is despite FCA’s review finding that 96% of Principals were very confident they were effectively implementing the new rules and guidance!
In other words, the FCA’s view is that a degree of misplaced over-confidence in how well principals are implementing the rules and meeting expectations.
As a result of the review, the FCA has set out detailed examples of both good practice identified and areas for improvement to ensure that Principals effectively monitor their ARs.
Looking ahead, the FCA’s focus will now inevitably be on those areas for improvement identified and, in particular, whether Principals are finally getting the message and responding accordingly.
Where this is deemed not to be the case then a knock on the door from the FCA seems to be a likely next step – the FCA has confirmed that it “will take swift action where it sees Principals not meeting its standards in the future”.
Full details of the review can be found on the FCA’s website here:
Principal firms should now take the time to familiarise themselves with the FCA’s findings in detail and act promptly to ensure that they are fully in line with expectations here.
How Complyport can help
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