Action taken by the Financial Conduct Authority (FCA) in its latest financial year has resulted in principals terminating relationships with 300 introducer appointed representatives (ARs) and 350 full ARs, according to the regulator.
In recent years the FCA has made the AR regime a key focus for its regulatory activities as it has published evidence showing that authorised firms’ oversight of ARs was not always effective.
The figures were revealed alongside the FCA’s Annual Report and Accounts for 2023-24, where it said it was making better use of data to target its resource on the highest risk principals and their ARs.
Further action included reminding all principal firms of their obligations to have the right professional indemnity insurance which covered the activities of its ARs and emphasising the requirement for principal firms to hold adequate financial resources taking into account the activities of their ARs.
The regulator also revealed that it has reviewed a sample of credit brokers with ARs and, where necessary, ensured that they did not appoint ARs until they met its requirements.
Maintaining standards
The report also showed that in 2023 the withdrawal rate of notifications of appointments of ARs increased to 5.9% from 1.6% in 2022.
The rejection, withdrawal and refusal rate for applications to perform controlled functions for an AR also more than doubled, to 6.5% from 2.8% the year before.
The FCA pointed out that a survey it commissioned showed 63% of principal firms thought oversight of ARs had improved in the last year due to its actions, up from 56% last year.
Complaints data showed the gap between principals and non-principals narrowed significantly in 2023, which the regulator said suggested that principal firms were taking steps to improve their AR oversight since the start of the AR strategy.
Proactive action
This past year the FCA proactively engage principal firms to ensure they were taking account of new rules and guidance it introduced in December 2022.
It added it ran a call campaign to more than 250 firms, roughly 10% of the principal firm population, and conducted deep-dive assessments of 23 firms at the start of 2024.
This included telephone questionnaires, video calls and information requests. It found while most firms were taking steps to address its requirements, not all firms could show adequate annual reviews or self-assessments.
The regulator added it has also implemented a new regulatory return which enables it to collect financial resilience data from 23,000 firms.
