Earlier this month the FCA published its Consultation Paper (CP21/34) on improving the Appointed Representative (AR) regime. Simultaneously, the HMT released its Call for Evidence, seeking views on how participants use the AR regime, the potential challenges and issues associated with the regime, how effectively the regime works in practice and possible future legislative change.
Both these papers will be of interest to the businesses across all sectors that use, or are considering using, the AR framework.
The FCA’s paper focuses on two key areas of change, which include holding additional information on ARs and their business and clarifying and strengthening the responsibilities of principals, as well as the regulator’s expectations of them.
Currently, information held by principals on their appointed representatives and their businesses is high-level and limited. By requesting further information the regulator believes it can more readily identify possible risks, and therefore target interventions to address potential harm. Additional information will include the AR’s revenue, complaints against the AR and the AR’s regulated and non-regulated activities.
Furthermore, principals will be required to notify the FCA at least 60 calendar days before the appointment of a new appointed representative. They will also be required to notify the FCA of any planned changes to an AR’s name or to the categories of regulated activities the principal allows the AR to undertake, at least 10 calendar days before the change takes effect.
The role of principals is also to be reviewed. The regulator is looking to clarify and strengthen the responsibilities of principals by consulting on extensive proposals clarifying principals’ responsibilities for their ARs and the FCA's expectations. These proposals currently include:
improve existing oversight requirements
give principals more detail on the circumstances in which it may be necessary to terminate an AR relationship, and if so, how they should ensure that the relationship is wound down in an orderly way
require principals to annually review senior management at ARs and aspects of ARs’ business and activities
require principals to complete an annual self-assessment of compliance with relevant rules and guidance for ARs
Last but not least discussions regarding future policy changes are to be conducted, which in turn should improve efficiency of the regime and reduce harm. Whilst not consulting on potential rule changes, the regulator is inviting views and input on potential policy changes.
Changes cover potential risks in ‘regulatory hosting’ arrangements and business models where ARs are larger in relative terms than the principal, and whether, where there are particular prudential standards, that a business model that include ARS should be either introduced or strengthened.
The Call for Evidence and the CP close on 3 March 2022.