Current regulations allow ARs to offer certain services and products under the supervision of authorised firms (principals), without themselves being directly authorised by the regulator.

However, the industry watchdog has noted that many firms are not adequately overseeing the activities of their ARs, leaving consumers vulnerable to misleading and mis-selling practices.

The tightened policies place increased responsibility on authorised firms to monitor, assess and report the activities of their ARs, with the aim of cracking down on poor practice.

•   FP Show 2021 - The Big Debate: Do we need a specialist finance qualification?
•   Industry reacts to FCA's new consumer duty rules
•   FCA tells banks to treat struggling SMEs fairly

Under the new rules, authorised firms will need to:

• apply enhanced oversight of their ARs, including ensuring they have adequate systems, controls, and resources
• assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business
• annually review information on their Ars’ activities, business, and senior management, and be clear on the circumstances when they should terminate an AR relationship
• notify the FCA of future AR appointments 30 calendar days before it takes effect
• provide complaints and revenue information for each AR to the FCA on an annual basis

Principals will still be responsible for the activities of their ARs, but the regulator is working with HMT to explore if further changes or additional legislation are needed.

Sheldon Mills, FCA executive director for consumers and competition, said: "While ARs can bring innovation and choice, principals and ARs account for more than 60% of the total value of recent claims to the Financial Services Compensation Scheme.

“They also generate up to 400% more supervisory cases and complaints than other directly authorised firms.

"The changes we’re making will help ensure that principals manage their ARs better, ensuring that they provide the oversight needed to avoid consumers being mis-sold or mis-led and to make sure markets can operate safely and fairly.

“They will also need to provide us better data and information to support our own work."