The Financial Conduct Authority (FCA) expects around 10% of authorised representatives (ARs) to leave the financial services industry following its crackdown on the sector.
With the general insurance and protection market one of the biggest sources of ARs at around 13,500, this could mean more than a thousand firms leaving the markets if the FCA predictions prove accurate.
With 40,000 ARs active including introducing ARs, it could mean as many as 4,000 businesses potentially leaving the sector in total.
The FCA said such an exodus would likely be a good thing as it would reduce the number of highest risk ARs operating in the market.
And the regulator also believed that any sizeable number of departures would not reduce consumer access to products or services.
“We consider there is a low risk that our proposals will reduce access to products and/or services for consumers or competition in the market through a material reduction in the number of principals and/or ARs,” the FCA said.
“As much of our proposals clarify or enhance existing requirements, which we would expect many well-run principals to already be meeting, we consider the number of principals and ARs should remain relatively stable, with an approximate potential for around 10% of them leaving the market.”
The FCA noted some of those ending AR arrangements may choose to return to the market as directly authorised (DA) firms.
“In others, principals may decide to end relationships with ARs where they have concerns, which may cause them to leave the market,” it continued.
“We consider this would be positive, as, for example, it would reduce the number of ARs in the market with the highest potential to cause harm through poor conduct.”
More data updated annually
The FCA launched its consultation on tightening the AR regime today.
It is proposing a greater emphasis on information from principal firms about their AR firms which will be updated annually, including complaints data, revenue, and business model details.
The CP21/34 proposals are designed to address potential harm from the AR regime, which the FCA noted had become increasingly significant, with complaints rates between 50% and 400% higher than for DA firms.