The Financial Conduct Authority has proposed tougher measures to tackle harm caused by the appointed representatives regime.
An appointed representative (AR) is a firm or person which carries out a regulated activity on behalf, and under the responsibility of, a firm authorised by the FCA – known as the principal.
In appointing an AR, the principal assumes responsibility for the regulated activities the AR carries out.
FCA data analysis has found principals generate 50-400% more complaints and supervisory cases than non-principals, across all sectors where this model operates.
The regulator said this demonstrates there are more issues arising from principals and ARs than from other directly authorised firms.
Harm often occurs because principals do not perform enough due diligence before appointing an AR.
It can also be a result of inadequate oversight and control after an AR has been appointed.
The proposed changes to the regime aim to address the harm arising in this market, while retaining the cost, competition and innovation benefits the AR model can provide.
The proposals would improve principals’ oversight of ARs and require principals to provide the FCA with more information on their ARs, allowing the regulator to spot risks more quickly.
The FCA will expect ARs to be more effectively overseen by their principals.
It is also seeking views on the wider risk posed by some of the business models operated by principal firms, and whether setting limits on such arrangements may help to reduce potential harm.
This is part of the FCA’s wider intention to reduce the cost of the Financial Services Compensation Scheme (FSCS) levy.
The consultation published today (3 December) has a graph that breaks down FSCS claims amounts by principals and ARs compared to non-principals.