FCA Signals a Stronger Governance Requirement

Appointed Representatives: FCA signals a stronger governance requirement – deadline to comply 8th December 2022

The full FCA press release can be found here.

The Appointed Representatives (AR) regime allows self-employed representatives to engage in regulated activities without needing direct authorisation. While the regime has benefits, the FCA has identified a wide range of harm across all the sectors where principals and ARs operate.

The consultation and policy statement both acknowledge the benefits, which include:

Increased customer choice.
Providing principals and ARs with a cost-effective way to comply with regulation.
Giving market access for smaller firms.
Supporting innovation – some firms use the model to trial new services and propositions.

However, the scale of the harm is not insignificant:

According to the FCA research, on average, principals generate 50 to 400% more complaints and supervisory cases than non-principals across all sectors where this model is in operation.
From 2018 to H1 2019, principals and ARs accounted for 61% of value from FSCS claims, for which the total was £1.1bn during this period. The FCA have stated that where harm occurs, it’s often because principals do not undertake adequate due diligence before appointing an AR, and/or due to poor on-going control and oversight.

A new policy statement

The FCA have recently closed a consultation on improving the appointed representative’s regime and tackling harm they feel sits within this model. The resulting Policy Statement PS22/11 was published in August 2022, with an initial compliance deadline of December 2022 (transitional arrangements notwithstanding).

The proposals (in CP21/34) focused on two main areas of change aimed at addressing the harms identified and protecting consumers. These were:

Collecting additional information on ARs and strengthening reporting requirements for principals (Chapter 3)
Clarifying and strengthening the responsibilities and expectations of principals (Chapter 4).

The policy statement sets out the response to the consultation and the resulting changes which are imminent and take effect on 8 December 2022 following a four-month implementation period.

Transitional arrangements are in place to give firms more time to comply with some of the new rules, particularly those requiring them to submit information on an on-going basis and to review their ARs and self-assess annually.

What the FCA is looking for

Here are the key outcomes that the FCA seeks:

Principals understand their responsibilities concerning ARs and have more vigorous oversight of, and more effective responsibility for, their ARs.
The ability to better challenge firms and those looking to appoint ARs.
Principals address problems with their ARs that are or have the potential to cause harm to consumers or markets.
Consumers can access better quality information on principals and ARs and make good decisions when choosing products or services.

Be prepared for stronger AR governance with Grath

Grath can help you assess your current state of readiness, providing a powerful tool to undertake a full compliance gap analysis and assurance report, to drive your actions to ensure your firm is compliant for the regulatory deadline.

Alongside, Grath can help you to deploy a solution across your ARs and your firm to ensure robust governance of the AR relationship, functions, and reporting to demonstrate the attestations and effectiveness of your risk and control environment operating across your AR relationships and from your 2nd and 3rd line perspective.

Interested in learning more?

If you’d like to know how Grath’s technology can help future-proof your regulatory compliance and risk management process, then we’d love to talk.

Get in touch with us at Grath | Reinventing Regulatory Compliance