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New rules will make financial firms more responsible for their appointed representatives, the UK’s financial watchdog has said, as it outlines new compliance requirements.
In another sign of the Financial Conduct Authority's (FCA) increased consumer outcomes focus, it has tightened appointed representative rules.
Appointed representatives can offer certain financial services or products under the responsibility of authorised firms (known as principals).
The FCA does not authorise them and it is the principal firms that are responsible for ensuring their appointed representatives comply with the regulator’s rules.
“While appointed representatives can bring innovation and choice, principals and appointed representatives account for more than 60 percent of the total value of recent claims to the Financial Services Compensation Scheme,” said Sheldon Mills, the FCA’s consumers and competition chief.
They also generate up to 400 percent more supervisory cases and complaints than other directly authorised firms, he pointed out.
“The changes we’re making will help ensure that principals manage their appointed representatives better, ensuring that they provide the oversight needed to avoid consumers being mis-sold or misled, and to make sure markets can operate safely and fairly,” he said. “They will also need to provide us better data and information to support our own work.”
Under new rules, principal firms will need to apply enhanced oversight of their appointed representatives, including ensuring they have adequate systems, controls and resources.
The principal firms will also need to assess and monitor the risk that their appointed representatives pose to consumers and markets, providing similar oversight as they would to their own business.
Firms will also need to be clearer when they terminate a relationship with an appointed representative, notify the FCA of future appointments 30 calendar days in advance, and provide complaints and revenue information for each appointed representative to the FCA on an annual basis.
The FCA has not hidden the fact that it is keen for tighter regulation of payments and e-money institutions' governance, whether via the new Consumer Duty or calls for these types of institutions to be in the scope of the Senior Managers and Certifications Regime (SM&CR).
