ARs and network businesses are at risk of being “inappropriately” influenced by introducers, the Financial Conduct Authority (FCA) said in a stark alert.
Some ARs may also use their firm reference numbers to do business not agreed with the network, according to the watchdog.
It means customers could believe the AR has authority to act, when they do not.
The FCA warned that some networks are not paying enough attention to risks and failing to monitor the type, volume and source of business submitted by ARs.
For example, the FCA said it has seen cases where introducer referrals contain clear customer preferences and documentation already completed.
In some cases, investments or choices could be linked to introducers or ARs, warned the financial watchdog.
In a statement, the FCA said: “We have found some principals undertake insufficient due diligence on their ARs and introducers and there is a risk customers may suffer financial harm as a result.”
Close tabs should be kept on all representatives and the introducers used, the regulator said.
And networks should consider striking off ARs who have not recently submitted business or introductions remain.
It comes after the FCA last year issued a similar alert.
The regulator warned it will take action where it finds failure to comply with its requirements.