Appointed Representative Regime Changes: New Requirements & Responsibilities
What can appointed representatives expect now that the consultation process has been completed and the new rules published by the FCA?
This update provides an overview of the key changes involved for affected firms, plus an outlook on further potential developments to follow
Why the change was needed to the AR regime
Appointed representatives (ARs) are firms that undertake regulated business in the UK without being directly authorised by the regulator, the FCA.
Instead, they are appointed by firms that are directly regulated, called Principals, and each AR conducts regulated business under its Principal’s FCA authorisation.
This arrangement, known as the “Appointed Representatives regime”, was introduced following the 1986 Financial Services Act and there are now some 40,000 ARs in the UK, operating through 3,600 principals. These firms work across a wide range of financial services markets, including retail lending, retail investments, general insurance and protection.
In 2021, the FCA announced that it considered that the AR regime posed considerable risks to the fair treatment of customers and that a higher level of regulatory control was needed.
This was largely driven by the FCA’s view that many principal firms were not exercising due care and diligence in the monitoring and control of their ARs and their activities.
In fact, (as detailed in consultation paper CP21/34) customer complaints per £1m of revenue of regulated activities were consistently higher for AR principal firms than non-principals. And principals were involved in 50% to 400% more cases being referred to the FCA’s supervisory teams than non-principals.
These concerns led to the consultation process that has recently concluded.
The key areas changing in the AR regime
The consultation paper CP21/34 focuses on:
Additional information on ARs and notification requirements for principals
Clarifying and strengthening the responsibilities of principals
The consultation paper received 107 responses from a range of stakeholders including principals, ARs, individuals and trade bodies. Both the key areas mentioned above are, indeed, central to the new rule changes that have now been announced.
These new rules come into force on 8th December 2022 – allowing a 4-month implementation period.
Comprehensive details of the new rules are set out in the FCA’s Policy Statement PS22/11.
Areas for change affecting principal firms:
1. Additional information and notification requirements
Report more on AR business: principals will be required to provide more information to the FCA on the business of their ARs, including all regulated business and any financial non-regulated business.
Submit annual data: principals will be required to provide complaints data and revenue information for ARs on an annual basis, within 60 business days of the principal firm's accounting reference date.
Register transparency: the FCA will publish on the Financial Services Register the nature of the regulated activities that each principal permits each AR to undertake.
Declare regulatory hosting: principals are required to inform the FCA if they provide, or intend to provide, regulatory hosting services.
As a result of feedback received in the consultation process, the FCA is now refining the definition of “regulatory hosting”.
Details of the information on ARs and notification requirements for principals can be found in section 2.81 (pages 35-36) of Policy Statement PS22/11.
2. Clarified and strengthened responsibilities
Principals should:
Apply enhanced oversight of their ARs: ensure adequacy of systems and controls, ensure sufficiency of resources, and monitor AR growth.
Take more effective responsibility for their ARs by monitoring and assessing the risk of harm to consumers and market integrity, and by overseeing ARs to a standard comparable to how they oversee their own employees.
Have clear criteria for terminating an AR relationship, and assist ARs with an orderly wind-down when necessary.
Review information on ARs' activities, business and senior management on an annual basis. These reviews can be integrated into existing reporting processes and should be conducted by responsible individuals with suitable knowledge and authority.
Escalate any significant issues related to specific ARs, as appropriate, to the principal's governing body.
Prepare a self-assessment document at least annually, covering how they meet the FCA's requirements regarding their obligations for all ARs. The document must identify any compliance risks and gaps, and must be signed off by the firm's governing body.
Please note: the annual review requirement does not apply to “Introducer Appointed Representatives” (IARs) whose function is essentially confined to lead generation for the principal firm.
Details of the rules on the responsibilities of principals and the FCA’s expectations can be found in section 3.83 (pages 61-62) of Policy Statement PS22/11.
Further changes ahead?
The changes imposed by the new rules discussed above are significant – largely due to the high level of concern that the FCA felt about the way in which the regime has been operating and the potential for a negative impact on customers.
In addition, high-profile initiatives from the regulator have stressed the importance of treating customers fairly and with due care – as evidenced most recently in the new Consumer Duty (more detail in this article from Voyc).
What’s more, the FCA is actively working with the Treasury to consider areas of potential legislative change. This includes ideas discussed in the Treasury’s “Call for Evidence” on the AR regime, covering, for example, the scope of activities ARs are permitted to conduct and coverage of ARs by the Financial Ombudsman Service.
Against this background, it’s likely, in our view, that there will be further regulatory or even legislative changes in the changes to the Appointed Representatives regime in the future. You can rely on the Voyc blog to keep you updated as appropriate.
How Voyc can help
At Voyc, we enable firms to oversee the conversations and interactions their staff and representatives have with customers to maximise quality and minimise complaints and compliance errors.
Voyc listens to every customer call, inbound and outbound, rather than a small manual sample. It's tailored scorecards and alerts enable words, phrases and risks in conversations to be flagged for action.
This makes Voyc well suited to call centre operations, where numerous agents and representatives handle customer calls across one or many sites. We've seen strong growth among firms of this kind, including principals overseeing extensive networks of Appointed Representatives (ARs).
Product partnerships Limited is a principal, working with Voyc to support regulatory compliance across its network of ARs: mainly retailers using consumer credit products to support sales of their goods and services.
“Voyc helps us monitor more of our AR’s calls. That provides great reassurance for us as we approach the implementation date of the new rules for the AR regime. It’s really like having an additional member of our senior team looking after a critical area of compliance”.
"We offer AR status to SMEs and independents in a range of sectors and it’s clear that the new FCA changes will add much sharper focus to the responsibilities of principals of all kinds – which is good news. Voyc certainly has the capability and track record to play a vital role in supporting great customer outcomes under the new roles, through ensuring a level of compliance monitoring that traditional methods just can’t deliver”
For further information, without obligation, simply contact Voyc here.
