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FCA changes to the Appointed Representatives Regime signal serious intent

Posted on 8 August 2022

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On 3 August 2022, the FCA published its Policy Statement on strengthening the rules relating to the Appointed Representative ("AR") regime. This provides feedback on its December 2021 consultation, and sets out the final rules that will apply. (For our previous publications on this topic, see The Appointed Representatives regime – principals under scrutiny and Principals and appointed representatives in the FCA's sights).

It is evident that the FCA regards the AR regime in its current incarnation as having given rise to disproportionate harm across all sectors. It is therefore no surprise that its Policy Statement makes clear that it will be enacting all the changes to the rules that it proposed in its consultation, with only minor modifications.

The new rules broadly fall into two categories and these indicate clearly the purpose behind the changes. The first type relates to the FCA's expectations of principals and their oversight of ARs. The FCA's overriding goal is plainly to try to ensure that principals conduct themselves in a way that reduces harm caused by ARs. This is consistent with its strategy to reduce consumer harm and the new consumer duty it is introducing. The second type concerns the provision of information and notifications by principals to the FCA. The FCA no doubt wants to make sure that it is armed with sufficient information in order to be able to identify the principal/AR relationships where problems may arise and to be in a position to intervene where necessary.

The FCA estimates that there are approximately 3,400 principals and 37,000 ARs. Its analysis is that principals generate 50 to 400% more complaints and supervisory cases than non-principals across all sectors. The changes to the AR regime will not only significantly bolster the rules that principals are obliged to comply with, but they also contain quite detailed new guidance indicating to principals how they should do so. This is to be welcomed, although it is not without cost, which in some cases will be significant. In relation to large firms (those with 100 or more ARs), the FCA has increased its estimate of the likely cost, now estimating the average cost per large firm as just under £36,000. Firms have only four months to implement the changes (the changes come into force on 8 December 2022). For some firms, this timeframe will be challenging, although transitional arrangements will ease the difficulties to an extent.

Readers should also be aware that these rule changes are unlikely to be an end to the story. Discussions involving the Treasury and the FCA are ongoing about potential legislative reforms to the AR regime, including limiting the scope of the regime and including the potential application of all or part of the Senior Managers and Certification Regime.

In the meantime, we expect to see action by the FCA against principals it has concerns about. Following its survey of around half the population of principals and ARs in October 2021, the FCA identified over 60 principal firms across a wide range of sectors for further analysis. It also indicated that it had or would take action where it detected harm. We expect that the upcoming rule changes will lead to further interventions by the FCA and enforcement action as a result.

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