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FCA announces £10m fee for networks to tackle AR oversight failures

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  • 20/04/2021
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FCA announces £10m fee for networks to tackle AR oversight failures
The Financial Conduct Authority (FCA) is proposing a new fee for networks as the regulator aims to increase its oversight of principal firms and their appointed representatives (AR).

 

This will include greater scrutiny of principal firms and the ARs as they are appointing them.

Principal firms will be charged a flat £250 fee per AR firm which the regulator expects will raise £10m in the 2021/22 financial year.

The FCA has raised concerns about how networks are operating on several occasions, including a Dear CEO letter sent to the heads of businesses in October highlighting major issues.

In its regulated fees and levies CP21/8 paper published today, the FCA emphasised that increasing failings of principals and oversight of their ARs was draining its resources.

“We are increasingly seeing more examples of failings through our supervisory and enforcement work,” it said.

“The range of harms varies considerably – from mis-selling to fraud – but they often stem from principals’ failure to oversee their ARs appropriately.

“The new fee will help fund further work to address these harms in whichever sector they occur.”

 

‘Increased range of harms’

The FCA is proposing that principal firms pay the AR periodic fee based on the number of their ARs included in the Financial Services Register on the first day of a fee-year, which is 1 April.

Explaining how the sector had developed, the FCA said: “Traditionally, most ARs used the delegated permissions of their principal to sell mainstream products and services – and this generally continues to be the case.

“However, we are now seeing ARs being used in a more diverse range of business models and sectors, including asset management and wholesale activities. Currently approximately half of all principals have just one AR.

“These developments in the use of the AR regime have increased the range of potential harms to consumers.”

It concluded that “we need to do further work at our gateway for authorisations, and in supervision and policy, to address the harms in whichever sector they occur.

“This will include work to determine whether we should consider rules, or legislative, changes.”

 

The regulator’s work programme will include:

  • Undertaking greater engagement with, and scrutiny of, firms as they appoint ARs. This will apply both to new applicants and already authorised firms. The aim will be to understand how the AR fits into the firm’s business model and the FCA will assess whether the firm has appropriate systems and controls to oversee the AR.
  • Using a data-led approach, the FCA will undertake proactive supervision of principal firms that may pose a higher-risk of harm. It will use its full range of supervision and enforcement tools to reduce the risks identified.
  • Carrying out a range of targeted supervision activity in sectors, or portfolios, where it is considered that the AR regime is a particular driver of harm.
  • Undertake analysis, informed by the work above, to determine whether policy interventions, such as rule changes, are required to reduce the harm posed by the AR regime. This could include making recommendations to the Treasury for changes in the legislative regime.

 

 

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