Last week, the Treasury said it had opened a consultation to update the legislative framework for AR regime.
The consultation proposed requiring firms that wish to use ARs to secure permission from the Financial Conduct Authority (FCA), allowing consumers to take complaints to the FOS if they cannot resolve it with the AR and aligning AR frameworks with those for authorised firms.
Paul Day, founder and director of Network Consulting, said most of the proposals in the consultation were “fairly standard expectations of good governance and oversight”. In practice, most responsible firms should already be operating to these standards.
He continued: “FCA has clearly seen evidence that prompted concern around weak oversight and potential consumer harm, and it is important to remember that the AR regime extends well beyond mortgages and wealth.
“From what I see across the mortgage and wealth sectors, the majority of networks already have the necessary frameworks, resources, and controls in place. Most have been through similar assessments to demonstrate that they have the expertise and capability to oversee ARs effectively. The requirement for new principals to evidence suitability before appointing ARs feels like a logical extension of this.”
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Day added that he agreed with the proposal to bring ARs within the scope of the senior managers and certification regime.
“Strengthening individual accountability would support higher and more consistent standards across the regime,” he said.
‘Competent and responsible’ firms ‘have nothing to fear’
Rob Clifford, chief executive of Stonebridge, said the proposals won’t trouble most principals, as “if you’re competent and responsible as an authorised firm, you’ve got absolutely nothing to fear”.
He said: “Networks and other principals with existing ARs won’t need to apply for new permissions under likely new rules, avoiding a substantial amount of disruption. A key point here is that even authorised firms who lack experience or the ability to supervise ARs could use the AR regime simply as a way to grow their business more quickly.
“Deficient supervision can allow poor practice to multiply rapidly. The likelihood of extra checks and balances is entirely sensible because, at the moment, it’s as easy for an unprofessional brokerage as it is for a proven, reputable, well-capitalised network, to recruit ARs. That can’t be right and it’s this gap that the Treasury intends to address.”
Clifford noted that it was also the case that “not all networks are equally capable, despite their key competency being the provision of regulatory expertise and compliance”.
“New mortgage and protection networks, for example, will need FCA permission before starting to recruit advisers’ firms, so this will help keep standards high and protect consumers,” he added.
Christopher Tanner, CEO of HLPartnership, said the consultation was an “an important step in ensuring the framework continues to support good consumer outcomes while maintaining confidence in the AR model”.
“The AR structure plays a vital role in the intermediary market. When operated correctly, it allows firms to benefit from strong centralised compliance oversight, shared infrastructure and professional standards, while still delivering personalised advice to clients.
“We support proportionate measures that reinforce accountability and clarity of responsibility. Any changes should recognise that many networks already operate with robust governance, active supervision and clear lines of responsibility between principal and AR,” he added.
Tanner said it would be “important” that reforms “enhance consumer protection without creating unintended barriers for well-run firms or restricting access to advice”.
“The focus should remain on outcomes, supervision quality and transparency, rather than additional structural complexity,” he noted.
Widening FOS scope to cover ARs a ‘backward step’
Ahmed Bawa, CEO of Rosemount Financial Solutions (IFA), said the suggestion that AR firms may be “directly accountable” is “surprising” and “could cause real issues for the industry”.
He explained: “AR firms don’t have their own professional indemnity (PI) cover, and have neither the knowledge nor experience of how to deal with the Financial Ombudsman Service that is absolutely crucial.
“Without that PI cover in place, any payments they are compelled to make would hit their capital buffers and risk pushing firms into bankruptcy, a disaster at a time when we are trying to improve the numbers of advisers active in the market.”
Bawa noted that some AR firms “particularly value” that the network handles PI and have the resources to deal with complaints, viewing it as a form of risk management.
“If their network cannot guarantee to fully protect them, then we may see some firms opting to go directly authorised (DA), simply so they have their own PI cover in place. For networks that don’t add value and support in other areas, that could spell trouble.
“That could in turn have an impact on the FCA’s workload, with more firms it needs to directly oversee. I would think the FCA would rather deal with a smaller number of networks than a large number of new DAs – from a customer and Consumer Duty perspective, I think it’s fair to argue customers enjoy a better service and better protection when working with an adviser that’s part of a network,” he said.
Bawa said that last year, the FCA was discussing “creating more certainty around the position of the FOS” and had acknowledged it acted as a “quasi regulator”.
“That was a step in the right direction, helping to tackle the bureaucracy and spurious complaints, which can cause real issues for advisers. However, extending the scope of the FOS to apply directly to ARs seems a backwards step, which can only lead to more uncertainty. Frankly, it’s the last thing the industry, and the economy more widely, needs at the moment,” he said.
