The FCA has published a policy statement, ‘Improving the Appointed Representatives (ARs) regime’, which sets out its updated rules and requirements for principals and ARs.
The statement (PS22/11) provides the final FCA Handbook rules, guidance and forms for principals to meet the updated requirements. These took effect on 8 December 2022, with the specific elements of the requirements and activities extending through 2023 to be completed by 30 November 2023.
The FCA is continuing to work with the Treasury to determine the most effective ways to reduce opportunities for misuse of the AR regime. The aim is to strengthen the regime through these enhancements, in combination with the new Consumer Duty (which was published last July). The Duty sets a new, higher standard of care that firms should give to consumers in retail financial service markets. Principals and ARs now need to consider how the Duty applies to them.
What are the FCA’s aims?
The FCA is seeking the following outcomes:
- Principals understand their responsibilities in relation to ARs, and have stronger and better oversight of, and take more effective responsibility for, their ARs
- Greater effectiveness in challenging firms with, and those looking to appoint, ARs
- Principals address problems with their ARs that are causing, or have the potential to cause, harm to consumers or markets
- Consumers can access better-quality information on principals and ARs and make good decisions when choosing products or services.
Final rules and guidance for responsibilities of principals
PS22/11 provides the FCA’s final rules and guidance for principals and ARs and outlines specific requirements, including the time frames for principals to collate and submit AR details to the FCA. The final rules outline the following core responsibilities for principles in managing their AR’s.
Clarify principals’ for their ARs
- Appropriate safeguards for delegated tasks
- Assess ARs’ senior management competency and capability
- ARs act within scope of appointment.
Overseeing ARs effectively
- Ensure adequate controls and resources as part of the annual self-assessment
- Scenario assessment with controls and resources
- Systems and controls to oversee ARs
- AR activities do not result in undue risk of harm
- Regular reviews of ARs – fitness and propriety, financial position, adequacy of AR controls
- Arrangement of ongoing oversight and practical considerations.
Termination of AR contracts and winding down
- Clarity on the circumstances in which a relationship should be terminated
- Ensure that any termination is conducted in an orderly manner.
Self-assessment
- Develop a self-assessment document demonstrating compliance with aspects of the policy and methodologies used to complete the assessment
- Focuses on the activities of the principal in relation to ARs
- Identifies risks and any gaps in a firm’s compliance and obligations
- Reviewed and signed off by a principal’s governing body annually
- Submit to the FCA upon request.
Final rules on AR data and notification requirements
Under PS22/11 the FCA requires principals to provide reportable information on ARs under the following elements.
Explain the AR’s business model
- Primary reason for AR appointment
- Nature of the permitted regulated activities
- Indication of AR conduct of non-regulated activities
- Services to retail clients
- AR relationship with other principals and group / parent undertakings
- Secondment of AR individuals
- Estimated revenue from regulated and non-regulated activities in the first year
- Nature of the financial arrangements between.
Timing for reporting is 30 calendar days before new AR appointment; changes to the type of regulated activities reported at least 10 calendar days before changes take effect; any other changes in the details provided within 10 business days of the changes being made.
Verification of AR details
- Principals to check the accuracy of the details of their ARs (including Introducer ARs) on the register on an annual basis
- Annually.
Complaints data on their ARs
- Principals to submit complaints data for all AR’s (including Introducer ARs) on an annual basis
- Within 60 business days after the principals’ accounting reference date.
AR revenue information
- Submit revenue data for each of their ARs (including Introducer ARs) annually
- Revenue data for regulated activities and financial non-regulated activities to be provided to the nearest £5k
- Describe Revenue data on non- financial non-regulated activities to be reported in bands
- Within 60 business days after the principals’ accounting reference date.
Next steps for principals and what to expect
In light of the enhanced regime, principals should review and evaluate their current AR relationships and the benefits these provide to their overarching business model. This initial review should focus on the costs and benefits of continuing AR relationships. It should also provide a clear assessment for each AR engagement against the improved oversight, reporting and responsibilities.
Once assessed, principals should formalise their governance, oversight and assessment of continued AR relationships. To do this, they must incorporate the following FCA-defined transitional provisions:
- Annual review – principals must make sure annual reviews are conducted on all ARs on or before 30 November 2023.
- Self-assessments – principals’ governing body must approve a firm’s first self-assessment document on or before 30 November 2023.
- AR reporting – principals must submit information on ARs’ compliance, revenue and remuneration within 60 business days for accounting reference dates falling after 1 December 2023.
- Verification of firm details – principals must undertake the firm’s first check of the accuracy of information about its ARs for its first accounting reference date falling on or after 1 December 2023.
How we can help
PKF’s Governance, Risk & Control Assurance team can help you to assess the impact of the enhanced regime on your firm. We can provide assurance as to whether the new AR oversight, controls, documentation and reporting you implement meet the FCA requirements.
Implementation review and analysis – we’ll provide an independent analysis, considering the new rules against your current practices. This is designed to help principals understand their AR relationships and identify what they need to do to meet the enhanced regime. Implementation reviews could also provide assurance that principals have adopted effective project or change management processes to deliver outcomes aligned to the FCA timelines and outcomes.
Post-implementation review – we’ll provide assurance that principals have implemented the regime enhancements in their governance, oversight and reporting frameworks in line with FCA expectations. This assurance work would consider both the design and operational effectiveness of processes in meeting the enhanced regime.
For more information, please contact Jessica Wills.
