FCA proposes stronger oversight requirements for ARs

The FCA has launched a consultation on improving the appointed representatives (ARs) regime and tackling harm from this model.

This comes as the financial regulator has seen a wide range of harm across all sectors where firms have ARs — FCA data analysis found that, on average, principals generate 50 to 400% more complaints and supervisory cases than non-principals across all sectors where this model operates.

According to the body, this is caused by principals not performing enough due diligence before selecting an AR or by 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 this model can provide. 

They would improve principals’ oversight of ARs and require them to provide the FCA with more information on their ARs in order for the regulator to spot risks faster.

The regulator body 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.

Sheldon Mills, executive director for consumers and competition at the FCA, said: “The AR model helps bring choices to consumers, but the level of harm we are currently seeing is too high. 

“There are real risks of consumers being misled and mis-sold with little scope for recourse.

“We have already started work looking at high-risk ARs and these proposals build on that work. 

“We want to ensure that principals are properly overseeing their ARs, ensuring they are competent, financially stable and delivering fair outcomes for consumers.”

Simon Harrington, senior policy adviser at PIMFA, commented: “The FCA has clearly identified issues within the AR model which are not working well for consumers. 

“Given the relative size of the AR universe, we believe that a data-led approach is the right one provided that it is proportionate.

“The challenge for the regulator is how it uses any additional data collected in its supervision and enforcement activities.

“The regulator already collects a substantial amount of data at great financial and resource cost to the industry and we have little evidence of what it does with it. 

“These additional requirements placed on firms who are already more than fulfilling their obligations with regards to being principals will only be worthwhile if the bad actors in the market either reform or leave.”

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