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.
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.
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.
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.
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.
B/D; Bank; BHC; Depo; Exch; Fiduciary; HF; IA; Inv Co