📅 May 10, 2019 | Appointed Representative
In 2016, the FCA completed their most comprehensive review of ARs ever with staggering results and here are its findings. The FCA treats ARs in exactly the same way as a DA firms in terms of compliance. They should be subject to all the checks, controls, supervision and regulation of a DA firm. The only difference being the Principal firm rather than the FCA is expected to administer that level of compliance. Unsurprisingly, this review demonstrates huge shortcomings in the AR model.
If you would like to read the report in full it can be found at: https://www.fca.org.uk/publications/thematic-reviews/tr16-6-principals-and-their-appointed-representatives-general
The FCA highlighted issues under 3 main headings
Business Model and Risk Management
Over half of the firms reviewed could not demonstrate adequate understanding of the nature, scale or the complexity of the risks arising from their ARs and their respective activities or how these risk’s impacted onto customers. In addition, they could not consistently demonstrate how the appointment of ARs would impact their own business or core model, how the activities of potential ARs aligned with their own existing activities and whether they had adequate resources to oversee and enforce compliance. They also had no risk management framework in order to identify and manage these risks.
Governance and Oversight
Very few could adequately demonstrate the oversight and control frameworks to identify, monitor and mitigate the risks arising from their AR activities, as well as not clearly understanding the obligations required.
When appointing ARs, Principals could not demonstrate how they had met their obligations to consider solvency and suitability of an AR, the impact on their own compliance with threshold conditions or the adequacy of their controls and monitoring resources. In addition, AR contracts were not fully compliant with relevant requirements due to shortcomings with multiple principal arrangements and the implementation of the approved person’s regime
The report set out to review if customers are afforded the same level of protection with an AR as they are when buying from a DA firm. Many provided poor results with ARs lacking in PRIN and ICOBS requirements. In a third of cases, it was identified potential misselling and customer detriment was as a result of an ARs actions. This included customers buying products that they may not need, were ineligible to make claims or without first being provided enough information to make an informed choice. This absolutely damning report should be at the core of our model in order to correct every single issue raised and create a dynamic framework for compliance and governance, internally and externally, that provides an overall solution.