On 3 December 2021, the FCA published Consultation Paper 21/34 ‘Improving the Appointed Representatives regime’ (CP21/34).

On the same date HM Treasury issued a call for evidence on how market participants use the appointed representatives (ARs) regime; how effectively the regime works in practice; potential challenges to the safe operation of the regime; and possible future reforms.

The FCA’s proposals in CP21/34 build on the findings of previous thematic reviews including one in the investment management sector in 2019. The reviews identified significant shortcomings in principals’ understanding of their regulatory responsibilities for their ARs. Failings included insufficient oversight of their ARs and inadequate controls over the regulated activities for which they had accepted responsibility.

In CP21/34 the FCA is consulting on two main areas of change. These are:

  • Additional information on ARs and notification requirements for principals. This will allow the FCA to more easily identify potential risks within principals and ARs. It will also help it better assess whether the principal has the expertise, systems and controls to effectively oversee its ARs and to target its supervisory interventions more effectively.
  • Clarifying and strengthening the responsibilities and expectations of principals in FCA rules and providing additional guidance for principals on their responsibilities, and the FCA’s expectations of how they should act and oversee their ARs.

The FCA is also proposing to simplify the structure of chapter 12 of the Supervision manual (SUP 12) where possible. The draft instrument set out in CP21/34 therefore includes a number of changes but these do not change the substance of the FCA’s requirements. The FCA is also seeking views, in a discussion chapter (Chapter 5), on the risk from regulatory hosting arrangements and business models where ARs are large in size relative to the principal. The FCA also wants views on whether it should introduce or strengthen prudential standards to reflect the harm posed to consumers and markets by firms with business models that include ARs. The FCA is also considering and seeking views on how it may be able to reduce potential harm, including by setting limits on AR arrangements.

The deadline for comments on CP21/34 is 3 March 2022. The deadline for responding to the HM Treasury call for evidence is also 3 March 2021.