Changes to FCA appointed representatives regime: What you need to know

The appointed representatives regime – why the need for change?

The regime was created primarily to allow self-employed representatives to engage in regulated activities without having to be authorised. For example, insurers and other product providers used it to distribute products through appointed representatives (or ‘ARs’). It has since evolved to include a wider range of models such as regulatory hosting and networks, with principals and their ARs also offering a wider set of products and services across many different sectors.

The FCA sees a wide range of harm across all the sectors where firms have ARs. This often happens because principals fail to perform enough due diligence before appointing an AR, or from inadequate oversight and control after appointment. The FCA 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.

What is changing and who is affected?

The changes are relevant to all firms that currently have appointed representatives (or intend to in future) and to ARs themselves. The two main areas are:

• Collecting additional information on ARs and strengthening reporting requirements for principals: A summary of the final rules in this area is set out in the table at paragraph 2.81 on page 35 onwards in the policy statement. They cover requirements on explaining the AR’s business model, verifying their details, submitting complaints data and providing revenue information.

• Clarifying and strengthening the responsibilities and expectations of principals: A summary of the final rules in this area is set out in the table at paragraph 3.83 on page 61 onwards of the policy statement. They cover applying enhanced oversight, taking more effective responsibility, termination of AR contracts and winding down, annual reviews and self-assessment. The flowchart on page 60 provides an overview of the annual review and self-assessment requirements and guidance, and illustrates the relationship between the two.

The appointed representatives regime and the new Consumer Duty

The FCA reminds firms that the new Consumer Duty applies to all those in the distribution chain for products and services sold to retail customers, including certain small and medium enterprises. It will therefore apply to many of the firms in scope of the policy statement on the AR regime. Firms will need to think about any changes they need to make to meet the Duty’s requirements alongside the above changes.

Transitional provisions

The majority of the changes to the appointed representatives regime come into force on 8 December 2022. The FCA has put transitional arrangements in place to give firms more time to comply with some of the new rules, particularly those requiring them to submit information on an ongoing basis and to review their ARs and self-assess annually. Details are found in the TP section at pages 66 to 68 of the rules at Appendix 1 of the policy statement.

Next steps and how we can help

Affected firms should familiarise themselves with the new rules and make sure they have the processes in place to comply in time.

The FCA has said that principal firms should receive a data request for information on their ARs between 8 and 10 December 2022. The request will be sent to the Principal User on Connect and so firms should make sure that this data is up to date. They will have until 28 February 2023 to respond to the request.

If you have any queries about the changes and how they will affect you, or need advice or assistance with implementing them in your business, please contact Andrew, who will be very happy to help.