On 6 September 2024, the FCA published the results of a review it conducted which assessed how its new rules and enhanced expectations for principal firms have been embedded. The FCA has also set out good practice and areas for improvement to help principal firms effectively monitor their Appointed Representatives (ARs).

The new rules and enhanced expectations were introduced in December 2022 and the analysis involved a telephone survey with 251 principals and in-depth assessments of documentation from 23 firms.

Findings

Among other things the FCA found that:

  • Some firms were taking a tick-box approach to complying with the new rules, relying on basic information like website checks, or using self-declarations from their ARs, to demonstrate effective oversight.
  • 1 in 5 principals had not carried out a required self-assessment or annual review of their ARs.
  • Approximately half of principals were not regularly reviewing their AR agreements.
  • A third of principals were not using data or management information to keep tabs on whether ARs were acting within the scope of AR agreements.
  • Most firms had not changed their AR onboarding or termination procedures since the rules were introduced.

Good practice and areas for improvement

The FCA has set out good practices together with areas for improvement concerning:

  • Self-assessments.
  • Annual reviews.
  • Monitoring, oversight and acting out of scope.
  • Approach to onboarding ARs.
  • Termination, offboarding and orderly wind-down.

For monitoring, oversight and acting out of scope, the FCA provides the following examples of good practice:

  • Proactive monitoring of the AR’s activities including potential unregulated activities. This may include reviewing marketing materials/websites, scrutinising publicly available information such as Trustpilot reviews, and an AR’s financial accounts and consumer contracts. Monitoring is clearly documented including any follow-up with ARs where appropriate.
  • Conducting in-person visits to ARs, performing mystery shopping exercises and random file checks on ARs to make sure they are not acting outside of scope.
  • Analysing monthly activity comparing the activity report the AR submits with the principal’s own data.
  • Performing quarterly and ad hoc checks on ARs which feed into the annual review.
  • Setting up alerts to identify any changes to AR websites and linking AR marketing material directly to the principal’s website for a clear customer journey.
  • Reviewing all new financial promotions upon publication to ensure compliance.
  • Having a standard agenda item to discuss ARs at board meetings or relevant governance meetings, with discussions clearly recorded through detailed minutes. If issues are identified, these are taken forward and appropriate action is taken.

And areas for improvement for monitoring, oversight and acting out of scope include:

  • Monitoring is completed as a tick-box exercise with little analysis of the information found.
  • Not addressing any issues identified as part of ongoing monitoring. 
  • Not understanding the AR’s business model.
  • Not having sufficient resources to monitor and oversee ARs.
  • Not checking consumer-facing materials such as websites, social media, or leaflets to make sure ARs are not acting outside of scope.
  • File reviews or calls with ARs are unrecorded and largely informal.
  • Not undertaking file reviews or observing interactions between ARs and consumers.
  • AR agreement does not clearly state the regulated activities the AR is permitted to carry out.
  • Boards and/or governing body not discussing AR oversight or making use of management information to identify and appropriately manage any AR-related risks.

Next steps

The FCA has followed up directly with firms in the review and warns that it will take swift action where it sees principals not meeting the standards in the future.

Firms who have ARs or intend to have ARs in future should read and consider the findings from the review and the examples of good practice and areas for improvement when assessing their obligations as principals. Not all examples will be relevant to all situations, but principals are likely to find it helpful to consider them.

Principals should ensure they have assessed their existing processes in response to the new rules and have sufficiently documented any revisions.