Changes to the Appointed Representatives regimes will take effect from 08 December 2022.
The final rules were published in the Financial Conduct Authority’s policy statement to improve the appointed representative's regime.
Why was the regime created?
The APR regime was created primarily to allow individuals operating under a self-employed statement the opportunity to engage in regulated activities without having to apply for full authorisation. This included individuals operating in the insurance space and other product providers used it to distribute products through ARs.
The model has since changed and the remit has widened to include a wide range of industries and different types of companies operating over a wider sector.
What went wrong?
The FCA’s main reason for reviewing the model is that they see a wide range of harm across all the sectors where ARs exist. This is due to a number of factors:
Principal firms fail to perform the appropriate level of due diligence before appointing an AR - many Principal firms charge a high monthly premium for using their licence and can be motivated by the commercial arrangement, therefore onboarding firms without assessing/understanding their business model
Inadequate oversight over the AR - a number of ARs have been left to their own devices once onboarded and have not had the same degree of scrutiny/supervision that they would have if they were directly authorised. This has led to misleading/unfit products and services entering the market
No control after the appointment
The market was consulted earlier this year on proposals for change. The FCA is also collaborating with HM Treasury to explore whether legislative change is needed in this area. We are currently waiting for the results of HM Treasury’s call for evidence.
Changes made to the AR regime
All changes to the regime are applicable to principal firms (those that already have ARs or intend to in the future) and appointed representatives.
The main changes include:
Understanding more about the ARs business - what this means in practice, is that ARs will be asked to report more information to principals. The reportable areas include further information on the AR’s business model, verifying their details, submitting complaints data, and providing revenue information.
Additional responsibilities on principals - The FCA has clarified and strengthened the responsibilities and expectations of principals. Principals will need to apply enhanced oversight to the ARs operations, additional effective responsibility, exercise termination of ARs and winding down plans when required, as well as request annual reviews and self-assessments
All affected firms should review the new rules and make sure they have sufficient processes and procedures in place to comply.
The FCA will be issuing a data request form to principal firms for information on ARs between 8 and 10 December 2022.
Firms should make sure the principal user on Connect is up to date. Firms will have until 28 February 2023 to respond to the request