Out-Law News 2 min. read
13 Dec 2022, 10:29 am
New UK rules for the regulation of appointed representatives (ARs), which entered into force last week, come with new data provision timelines and are an example of the Financial Conduct Authority’s (FCA) new focus as a data-led regulator, according to one legal expert.
ARs carry out certain regulated activities but are not directly authorised by the FCA. Instead, authorised financial firms known as ‘principals’ are responsible for overseeing their ARs’ regulated activities. An FCA review found a higher incidence of harms, from mis-selling to fraud, in all sectors where principals and ARs operate, prompting the regulator to develop new rules for the regime. The reforms include a strengthened framework for requiring principal firms to ensure they have appropriate systems, controls and resources to oversee their ARs effectively.
The new regime does not operate retrospectively, but now it is in force, existing principals will receive a ‘s165 request’ from the FCA in the coming days, seeking information on the reasons for any appointments, the nature of regulated business, whether any unregulated business is conducted, anticipated revenue, the nature of financial arrangements between the principal and its ARs, complaints information and whether the AR is part of a group. Principals will have to answer the FCA’s request by 28 February 2023.
Venetia Jackson of Pinsent Masons said: “With the s165 request on top of the new rules, we can see the seriousness with which the FCA is taking being a data led regulator. This request will give the FCA a comprehensive picture of the current usage of appointed representatives and the type of business being conducted. In line with the FCA’s more active approach, we can expect to see the FCA taking action if it has any concerns arising from the information it has received.”
She added: “The FCA set out the information it would include in the s165 request in August and suggested that firms should start preparing for its arrival then too, so officials are unlikely to be sympathetic to concerns about the time frame for responding to it. The request mirrors the new reporting requirements for ARs which firms will now have to provide on an ongoing basis.”
Under the new rules, principals will be required to notify the FCA of future AR appointments 30 calendar days before they take effect and provide complaints and revenue information on their ARs to the FCA on an annual basis. The FCA said it would require significantly less data in respect of ‘introducer’ appointed representatives (IARs) because of the limited scope of activities that IARs are permitted to undertake, and lower potential risk as a result.
There is also a new rule requiring the principal to be able to terminate the agreement when no longer able to oversee the AR. Whether the principal is able to adequately oversee the AR requires the principal to consider its continuing obligations to have regard to a range of factors including amongst other factors, the AR’s solvency and suitability. Firms will therefore need to check their AR contract review dates and ensure that, as contract reviews fall due, they add in the termination clause that allows them to terminate the contract in such circumstances.
The first annual review of the solvency of all existing ARs, as well as the fitness and propriety of their directors and managers – and the adequacy of the principal’s controls over them – is due on or before 30 November 2023. Each existing principal must ensure that its governing body approves its first self-assessment of its compliance with the new oversight rules on or before 30 November 2023.
Josie Day of Pinsent Masons said: “With another requirement for governing body approval and oversight to add to the governing body report under the Consumer Duty, alongside the additional reporting, firms will need to keep their calendars up to date to ensure all reporting and monitoring deadlines are met.” She noted that complaints and review data reporting and checks on the accuracy of information about ARs are tied to the principal firm’s accounting reference date rather than a date specified by the FCA. The first reports for these elements are, however, only due from principal firms for their first accounting reference date after 1 December 2023.”
15 Sep 2022