FCA presses on with new rules to strengthen Appointed Representatives regime
The Financial Conduct Authority (FCA) has confirmed new rules to improve Principals’ oversight of their appointed representatives (ARs). Feedback, final Handbook rules and guidance were set out in Policy Statement (PS22/11) Improvements to the Appointed Representatives regime with the majority of changes taking effect on 8 December 2022 following a four?month implementation period. The FCA said it has put in place transitional arrangements 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.
The proposed rules in Consultation Paper CP21/34 were focused largely around collecting additional information on ARs and strengthening reporting requirements for Principals (Chapter 3); and clarifying and strengthening the responsibilities and expectations of Principals (Chapter 4). Through the new rules the FCA expects Principals to more understand their responsibilities more clearly in relation to ARs, have stronger and better oversight of, and take more effective responsibility for, their ARs. In return, the FCA aims to be better able to challenge firms with, and those looking to appoint, an AR because it was receiving higher quality data about appointments.
The FCA said it had received 107 responses to CP21/34 from a range of stakeholders including firms, ARs, individuals and trade bodies. The majority of responses were supportive of the proposals. Some of the Feedback to Chapters 3 and 4 is set out in the tables below with more detail included in the policy statement:
Information and notification requirements
FCA proposed
FCA response following feedback
Principals notify the FCA of future AR appointments 60 days before the appointment takes effect.
Pre-notification period for new AR appointments reduced from 60 calendar days to 30 calendar days.
Within 60 days of rules coming into force, principals must provide information on their existing AR.
FCA proceeding with the proposal as consulted on but not through the final rules. For existing ARs, the regulator will collect the data via a Section 165 data request. Principals will then have 60 days to submit the data to the FCA on all their existing ARs.
Principals provide more information on the business of their ARs, including the nature of the regulated activities the ARs will conduct
Requirement for principals to provide details on any non-regulated non-financial activities an AR performs – not taken forward. Information for AR’s financial non-regulated activities will need to be provided.
Requirement that principals provide at appointment, an estimation of the proportion of a proposed AR’s non-regulated activities compared to its regulated activities in the first year following the appointment – not taken forward.
Introduction of revenue bands for reporting anticipated revenue of the AR from regulated and non-regulated activity during the first year of appointment.
Principals provide complaints data and revenue information for ARs on an annual basis
Principals to receive more time to annually report AR complaints and revenue data, from up to 30 business days after the principal firm’s accounting reference date, as proposed, to up to 60 business days.
Revenue bands for annually reporting AR revenue from non-financial non-regulated activities to be introduced.
Details published in FS Register about the nature of the regulated activities the principal permits the AR to undertake.
More information not being added at this time.
Require principals to notify it of whether they provide currently, or intend to provide, regulatory hosting services.
Definition of ‘regulatory hosting’ to be refined. Firms will need to notify FCA that they intend to provide such services in advance. No additional rules or restrictions on firms which provide such services at this time.
Responsibilities of principals and expectations
FCA proposed that principals
FCA response following feedback
Apply enhanced oversight of their ARs, including ensuring adequacy of systems and controls, sufficiency of resources and monitoring AR growth.
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Take more effective responsibility for their ARs, including by monitoring and assessing the risk of harm to consumers and market integrity and overseeing ARs to a comparable standard as if they were employees of the principal.
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Have clarity on the circumstances where they should terminate an AR relationship and assist ARs with an orderly wind down.
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Annually review information on ARs’ activities, business and senior management. Principals would also need to prepare a self?assessment document at least once a year, covering how they meet the requirements of the policy.
Clarification provided that the annual review requirements can be met by principals integrating them into existing internal reporting processes, so long as they continue to meet the standards set out in the rules and guidance.
It was also clarified that the annual reviews can be conducted by responsible individuals with a suitable degree of knowledge and authority below the governing body’s level, with significant issues identified at specific ARs escalated to the firm’s governing body.
Explanation provided that the self-assessment should focus on how the Principal itself is meeting its responsibilities in relation to all of its ARs. It is a single document designed to identify any risks and gaps in compliance with the firm’s obligations as a Principal, and must be reviewed and signed-off by the firm’s governing body, at least every 12 months.
Some of the proposed rules have been made in the CP guidance instead.
Chapter 4 of PS22/11 included feedback on a discussion opened to gather industry views on potential areas of future change to the AR regime to reduce harm, which included: the regulatory hosting model; overseas ARs; smaller principals with larger ARs which respondents agreed could cause issues; and the potential for enhancing prudential standards for the principal, which most respondents were against. The FCA developed this alongside HM Treasury’s Call for Evidence (CfE) on the regime, which explored potential legislative changes. Treasury is currently analysing the responses to its CfE and will set out next steps on its review of the AR regime in due course.
The FCA said it would continue to work with the Treasury to consider areas of potential legislative change, including the ideas discussed in its CfE, for example on the scope of activities ARs are permitted to conduct, an introduction of a principal permission, potential application of the SM&CR or parts of it to ARs, and coverage of ARs by the Financial Ombudsman Service.
BIBA members’ compliance and regulation queries should be directed to: compliance@biba.org.uk quoting their membership number.
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