While we await the results of a wider Government review of the way the appointed representative (AR) regime works, the FCA has made new rules that mean firms with ARs must delve deeper into their representatives' business and provide FCA with more information. The new rules take effect on 8 December, so principal firms should be gearing up for compliance.
The key message is that all of the current requirements on firms looking to appoint and maintain ARs remain, but the new rules bolt on several additional requirements. The main changes will see:
- More searching due diligence required on prospective ARs before appointment
- Principal firms needing to submit appointment forms to FCA at least 30 days before the AR appointment is to take effect
- More onerous requirements on principals when monitoring their ARs
- New triggers for termination of AR agreements
- A new requirement for principals to provide FCA with complaints and revenue/remuneration data in respect of their ARs on an annual basis
- A new requirement for senior management of principal firms to provide annual confirmation that they consider the systems and controls the firm has over the appointment and supervision of ARs is adequate
- While FCA has (at least for now) held back on a requirement for a specific permission for firms to act as hosting firms, any firm wishing to act as a host will now need to tell FCA in advance.
The changes will affect all firms with ARs – and will mean significant work for some.
What must firms do?
In terms of the key practical effects of the changes, we see that:
- Principal firms should be conducting a gap analysis against their current AR onboarding and monitoring proceeses, to check whether they currently get, and check, all the information FCA will now require. In many cases, they may do this anyway, but the new Rules require a deeper dive into the overall business structure and management than is technically currently the case, and a new specific requirement that principals must be able to confirm the activities of the AR will not result in any undue risk of harm to consumers or market integrity. As a consequence, firms may need to delve more deeply into the experience, competence and supervision of non-management staff within ARs
- Principal firms will not only need to be confident their own assessments will meet FCA's expectations, but will also need to have significantly more information than is currently required in order to complete the new version of the "appoint AR" form – and will have to build into their expectations the need to submit the form at least 30 days in advance, although practically this may make little difference given the corresponding Form As will be taking at least that much time to process also
- Firms will need to make changes to their template AR agreements and look to amend existing agreements as soon as possible (at the latest on next renewal), specifically to reflect the additional notification requirements (particularly of key changes within the AR or its senior management), most likely to increase the information ARs are required to provide as part of the audit and monitoring process, and to review and update termination events (including giving the principal the risk to terminate in cases of concern about harm to consumers or market integrity)
- Firms will need a clearly documented process for information to be provided to senior management in order for the newly required annual sign off to be given, for keeping records of the sign off and for updating senior management should any changes or concerns arise before the next annual sign off.
When must firms do this?
All appointments taking place from 8 December must meet all the new requirements. For existing arrangements, there are some transitional provisions that mean that:
- All existing agreements should be amended at their first renewal or revision after 8 December, and we recommend doing it as soon as possible
- Firms must complete their first review and report on existing ARs by 30 November 2023, and complete the first check of accuracy of information in respect of their first accounting date on or after 1 December 2023.