The Financial Conduct Authority (FCA) has rejected calls from firms for a 12-month implementation period for its new regime for appointed representatives (AR).
The regulator revealed firms have until 8 December to implement the new rules which force principals to take greater responsibility for their ARs and prevent consumers being mis-sold or mis-led by ARs.
The plea for a longer implementation period came in response to the FCA’s consultation on tighter controls and greater data sharing on ARs to cut complaints and consumer harm which launched at the end of last year.
“Some respondents suggested that there should be an implementation period of at least 12 months,” the FCA noted.
It rejected this, saying it was giving a four-month introducing a four-month implementation period before the changes take effect.
“We have put in place transitional arrangements to give firms more time to comply with some of the new rules, particularly those that require firms to submit information on an on-going basis and to review their ARs and self‑assess annually,” it added.
Prevent mis-selling and misconduct
At the time of the consultation the regulator revealed complaint levels against ARs were 50% to 400% higher than directly authorised (DA) businesses and was putting the onus on principal firms to address this through the new rules.
Confirming the rules in policy statement PS22/11, the FCA said they would help prevent consumers being mis-sold or mis-led by ARs and prevent misconduct by ARs undermining markets operating fairly and safely.
Under the new rules, principal firms will need to:
- Apply enhanced oversight of their ARs, including ensuring they have adequate systems, controls and resources.
- Assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business.
- Review information on their ARs’ activities, business and senior management annually, and be clear on the circumstances when they should terminate an AR relationship.
- Notify the FCA of future AR appointments 30 calendar days before it takes effect.
- Provide complaints and revenue information for each AR to the FCA on an annual basis.
Targeted supervision
The FCA added the new rules will affect all firms that currently have ARs or intend to have ARs in future and also affect ARs themselves. The FCA estimates there are currently around 3,400 principals with around 37,000 ARs, including introducer ARs (IARs).
The regulator also pointed out that the new rules do not change the fact that principals are responsible for the activities of their ARs and that it is working with the Treasury to ascertain if further changes are needed to the AR regime, which would require future legislative change.
As part of its new three-year strategy to improve outcomes for consumers and markets, the FCA revealed it is also undertaking targeted supervision of principal firms across the whole financial services sector, using improved data and analytical tools to focus its work and is increasing scrutiny on firms applying for authorisation and as they appoint ARs.
Sheldon Mills, executive director for consumers and competition at the FCA, (pictured) said: “While appointed representatives can bring innovation and choice, principals and ARs account for more than 60% of the total value of recent claims to the Financial Services Compensation Scheme.
“They also generate up to 400% more supervisory cases and complaints than other directly authorised firms.
“The changes we’re making will help ensure that principals manage their ARs better – ensuring they provide the oversight needed to avoid consumers being mis-sold or mis-led and to make sure markets can operate safely and fairly. They will also need to provide us better data and information to support our own work.”