On 6 September 2024 the FCA published a Review setting out its findings on how principals are embedding new rules for overseeing appointed representatives (“ARs”) (as set out in PS22/11) and examples of good practice and areas for improvement. These rules have been in place since 8 December 2022.
This is relevant to all firms that currently have ARs or intend to do so in the future. Principals should ensure they have assessed their existing processes in response to the new rules and have sufficiently documented any revisions. The FCA have sad that they will take “swift action” where principals continue not to meet the relevant standards.
The FCA surveyed around 250 firms and performed an in-depth assessment at 23 principal firms. The FCA found that, whilst some effort has been made by firms to comply with the rules, not all principal firms could show they had undertaken a good quality annual review or self-assessment as required by SUP 12.6A. Most principals had also not changed their AR onboarding or termination procedures in light of the new rules, or could not demonstrate how they considered their existing processes were sufficient.
The FCA have considered the requirements in turn and offered examples of good and areas for improvement for each. We have summarised these below.
Self-assessments
Examples of good practice
- Having a clear single document outlining any material deficiencies in the principal’s AR oversight, with an action plan to address any gaps.
- Using a broad range of MI (e.g. complaints rates) and a RAG rating system to identify gaps in compliance.
- Annual refresh.
Areas for improvement
- Some firms treated this as a “tick box” exercise with no clear action plan.
- Insufficient template that does not cover all of the points as set out in the Rules.
- No annual refresh.
Annual reviews
Examples of good practice
- Documenting any change in an AR’s business model or senior management (or if it has been appointed by another principal).
- Embedding Consumer Duty compliance into the review.
- Embedding operational resilience into the review.
Areas for improvement
- Some firms treated this as a “tick box” exercise rather than a holistic review of the AR’s activities.
- Insufficient template that does not cover all of the points as set out in the Rules.
- Lack of evidence, detail and information (e.g. looking at website of AR only).
Monitoring, oversight and acting out of scope
Examples of good practice
- Proactively monitoring AR’s activities including unregulated activities (e.g. reviewing marketing materials, website).
- In-person visits to ARs.
- Reviewing all financial promotions immediately.
- AR monitoring as standing item on board agenda / governance meetings.
Areas for improvement
- Not addressing issues identified as part of monitoring.
- Not checking all consumer-facing materials.
- Lack of records of file reviews.
- Unclear AR agreements.
Approach to onboarding ARs
Examples of good practice
- Clear document showing AR onboarding process.
- Providing training to ARs regarding the relevant regulated activities.
- Improved due diligence when onboarding ARs (e.g. individual Companies House checks).
Areas for improvement
- Using automated background checks only.
- Not considering the impact onboarding an AR will have on a firm’s financial resources.
Termination, offboarding and orderly wind-down
Examples of good practice
- Terminating an AR where the AR has not conducted regulated activities for some time and does not have a valid reason for continuing to use the principal’s permissions.
- Avoiding and being conscious of the risk of the “halo effect”.
- Monitoring changes in size and business model of ARs.
Areas for improvement
- Not checking AR’s website after termination to ensure it has reflected that it is no longer an AR.
- No clear mechanism to consider whether it is appropriate to terminate AR arrangements.
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