Supervisory work carried out by the FCA found that where there was an unexplained lack of reported regulated activity from an AR, this indicated weaknesses in networks’ governance, monitoring, oversight and risk management processes.
These failings, said the FCA, led to an increased risk of consumers being misled and suffering harm.
Inaccurate reporting
In some cases, said the regulator, the lack of reported regulated activity from an AR firm was down to inaccurately recording revenue as coming from unregulated transactions, for example. In other cases, income generated by the AR had been attributed the principle. Both errors would give the incorrect impression that the AR firm was not carrying out regulated business.
The use of vague and blanket explanations was also highlighted as bad practice by networks.
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Multiple networks entered ‘not trading’ or ‘not introduced business during this period’ as the reason ARs had been inactive, instead of explaining the reasons why the firm had not generated income.
Other shortcomings uncovered by the regulator included allowing ARs to remain in their network for long periods of time without engaging with them to understand their reasons for being inactive or reassessing whether they should remain a member and not monitoring how they were presenting themselves to customers.
The regulator said: “This increases the risk of misleading consumers about their regulatory status, particularly where ARs had not actively carried on regulated activities for some time.
“We have also observed a growing trend of ARs incorrectly referring to themselves as ‘Authorised Representative’. This is not the correct designation for an AR.”
Good practice
Among the recommended good practices, networks are advised to take steps to reassess the appropriateness of the AR relationship in situations of inactivity, as well as suspension and termination where necessary.
Networks should also ensure ARs are using the correct terminology on their websites so as not to mislead customers and set clear expectations when the AR joins the network to establish the level of regulated activity they expect to carry out.
As a result of the FCA’s supervisory work, positive changes were made in seven of the 14 networks reviewed, with 11 AR firms offboarded and networks strengthening their oversight processes.
Blind spot for networks
Phil Smith, head of redress at financial services consultancy Broadstone, said: “The FCA’s latest findings underline that inactive appointed representatives are not a passive risk – they can create significant blind spots for principal firms if oversight frameworks are not robust and regularly refreshed.
“The regulator has been clear for some time that weak governance, poor data and a lack of ongoing monitoring are at the heart of many of the issues seen across the AR regime.
“For firms, this is a timely reminder that accountability does not diminish when an AR becomes inactive. Regular reviews, clear exit strategies and strong record-keeping are essential to ensure firms can evidence control and avoid unnecessary conduct or redress risks further down the line.
“Ultimately, the direction of travel is towards more proactive supervision and higher expectations on principals. Firms that treat AR oversight as a continuous, risk-based process, rather than a one-off onboarding exercise, will be best placed to meet these expectations and protect customer outcomes.”
Earlier this year, the Treasury opened a consultation to update the legislative framework for ARs.
This followed the Treasury’s policy statement, released in August 2025, expressing concern about the “poor oversight” of ARs, potentially putting consumers at risk.
