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Scrutiny of the Appointed Representative Regime increases

This month the Appointed Representative regime is under scrutiny with both the FCA and HMT exploring what changes might be needed.

The FCA has released an ‘Act Now’ Survey to gather evidence from Principal firms and is to release a consultation paper. Meanwhile HMT is releasing a call for evidence paper.

There is clearly appetite to kick the tyres on how things are being done in the industry, and both appointed representatives and the Principal firms that supervise them can expect changes afoot.

What is an Appointed Representative?

An appointed representative, or AR, is a firm or person who is able to undertake certain regulated activities without being FCA authorised on the basis that an FCA regulated firm, known as a Principal firm, takes responsibility for these activities.

A contract needs to be in place between the two firms and the Principal firm is expected to provide supervision and to ensure that the AR complies with the FCA’s rules.

Why the focus?

Currently there are around 40,000 appointed representatives able to undertake regulated activities because they are being supervised by a Principal firms.

Done properly it’s a great system. It enables new financial businesses to get started quickly, in a controlled and supported way. Many new firms use this while they are preparing to submit their application for FCA authorisation or while they are in the authorisation process, which can take up to 12 months.

However, there is concerned that harm can arise through the system as it is currently being used. The FCA has been closely been supervising a number of Principal firms and its ‘Act Now’ survey will produce even more data. It is likely that, as a minimum, new standards will be set for Principal firms which may well change their business models and the shape of the industry.

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