UK FCA Appointed Rep. Oversight Rules

On Aug. 3, UK FCA announced improved appointed rep. oversight.

  • UK FCA confirmed new rules to improve oversight of appointed representatives (ARs).
  • Policy statement set out final rules for appointed representative regime to enhance consumer protection and protect markets; also responded to CP21/34 feedback.
  • Follows UK FCA Dec. 2021 proposed appointed rep. oversight requirements, #123205.
  • Appointed Representatives
  • ARs are not authorized by UK FCA, but they can offer certain financial services or products under the responsibility of authorized firms - known as principals.
  • Principal firms are responsible for ensuring their ARs comply with UK FCA rules.
  • While some principals do this effectively, many do not adequately oversee the activities of their ARs, thus these rules will help prevent consumers being mis-sold/mis-led by ARs and prevent misconduct by ARs undermining markets operating fairly and safely.
  • Consultation Responses
  • UK FCA consulted on the plans for the improved AR oversight regime in Dec. 2021.
  • Most responses supported the proposals, with many respondents agreeing that changes are needed to the AR regime to ensure it remains fit for purpose.
  • Many principal firms said they were already doing some version of what was proposed.
  • Many said they often already collect, process AR information that was proposed.
  • A few respondents said the AR regime was not at all fit for purpose and the harms arising from principals and ARs are significant, so the regime should be phased out.
  • They acknowledged however that this was a matter for legislation and not for UK FCA.
  • UK FCA is proceeding as proposed for proposals that received wide ranging support.
  • For other proposals, the regulator made some changes in the final rules, to add flexibility, to make it easier for firms to implement relevant proposals.
  • And to reduce duplication and regulatory burden, while still meeting its objectives.
  • FCA also made changes to ensure data required from principals is most useful to spot trends, issues, harms arising from the regime, while minimizing burden on firms.
  • Changes in Final Rules
  • Among other things, FCA reduced pre-notification period for new AR appointments from 60 to 30 calendar days, after some said 60 days was too long, maybe disruptive.
  • Not proceeding with need for principals to give details on non-regulated non-financial activities an AR performs, but will need this for financial non-regulated activities.
  • Not taking forward requirement for principals to estimate proportion of a proposed AR’s non-regulated activities v. regulated activities in 1st year post- appointment.
  • UK FCA will introduce revenue bands for reporting anticipated revenue of the AR from regulated and non-regulated activity during the first year of appointment.
  • FCA will give principals more time to annually report AR complaints and revenue data, from up to 30 to 60 business days after principal firm’s accounting reference date.
  • Introducing revenue bands for annually reporting AR revenue from non-financial non-regulated activities; new 4 month implementation period before changes in effect.
  • PS22/11 on Improved AR Regime
  • The policy statement explained that the AR regime is set in primary legislation.
  • It allows self-employed representatives to engage in regulated activities without authorization, but there are a range of harms in sectors where principals, ARs operate.
  • This is usually because principals do not undertake adequate due diligence before appointing an AR, and/or because of poor on-going control and oversight.
  • Principal Firm Action
  • Under the new rules, principal firms will need to apply enhanced oversight of their ARs, including ensuring they have adequate systems, controls and resources.
  • Principal firms should assess and monitor the risk posed by ARs 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 UK FCA of future AR appointments 30 calendar days before it takes effect.
  • Provide complaints, revenue information for each AR to UK FCA on an annual basis.
  • FCA Supervision
  • UK FCA committed in its 3-year strategy to improve outcomes for consumers and markets by undertaking targeted supervision of principal firms across the whole financial services sector, using improved data and analytical tools (see #134653).
  • It’s will also boost scrutiny on firms applying for authorization, as they appoint ARs.
  • FCA has dedicated supervisory department to lead, co-ordinate its cross organizational AR work; principals cause 50-400% more supervisory cases than non-principals.
  • Under the new rules, principals are still responsible for the activities of their ARs.
  • FCA is working with UK Treasury to explore if more changes are needed to AR regime.
  • Key Outcomes
  • UK FCA wants principals to understand their responsibilities in relation to ARs, have stronger and better oversight of, take more effective responsibility for, their ARs.
  • UK FCA seeks better challenge of firms with, and those looking to appoint, ARs.
  • UK FCA wants principals to address problems with their ARs that are/have potential to, cause harm to consumers/markets; and it wants consumers to access better quality information on principals, ARs, make good decisions when choosing products/services.
  • Next Steps
  • The changes will take effect on Dec. 8, 2022.
  • Principals should read the updated rules and expectations and take all steps to comply.
  • As part of the enhanced reporting requirements, principal firms should expect to receive a request for data about their appointed representatives later in 2022.
  • In Aug. 2022, FCA updated webpage on appointed rep/principals rules, see #144948.

Regulators UK FCA
Entity Types B/D; Bank; BHC; Depo; Exch; Fiduciary; HF; IA; Inv Co
Reference PS22/11, Rsp, PR, 8/3/2022; CP21/34
Functions Compliance; C-Suite; Financial; HR; Legal; Operations; Registration/Licensing; Reporting; Technology
Countries United Kingdom
Products Banking; Clearing; Commodities; Corporate; Derivatives; Fixed Income; Fund Mgt; Investment Bank; Loan; Mortgage; Repo/Reverse; Securities
Regions EMEA
Rule Type Final
Rule Date 8/3/2022
Effective Date 12/8/2022
Rule Id 144944
Linked to Rule :123205
Reg. Last Update 8/3/2022
Report Section UK

Last substantive update on 08/05/2022