The guidance says that principal firms will apply enhanced oversight of ARs, which includes making sure AR firms have “adequate systems, controls and resources”.
Principal firms will have to assess and monitor risk that ARs pose to consumers and markets and review information on AR’s activities, business and senior management annually.
They will also have to make circumstances when they would terminate AR relationship clear and notify the regulator of future AR appointments 30 days prior to it taking effect.
They will also have to produce complaints and revenue information for each AR on an annual basis.
The FCA said that principal firms were responsible for making sure that ARs complied with rules, and whilst some did this effectively, “many do not adequately oversee the activities of their ARs”.
The regulator said that the changes come into effect from 8 December after a four-month implementation period.
The FCA confirmed that this would impact around 3,400 principals, with around 37,000 ARs, including introducer ARs. It was not disclosed how many of these were in the mortgage market.
The regular added that it was also undertaking “targeted supervision” of principal firms” across the whole financial services sector, pointing to improved data and analytical tools.
It added that there would be enhanced scrutiny on firms applying for authorization and appointing ARs. In its latest annual report the FCA said that 300 AR notifications had been withdrawn for the year 2021/22.
Sheldon Mills, FCA’s executive director for consumers and competition, said that ARs could bring more “innovation and choice”, principals and ARs account for over 60 per cent of total value of recent claims to the Financial Services Compensation Scheme.
He added they also generated around 400 per cent more supervisory cases and complaints than other directly authorised firms.
Mills continued: “The changes we’re making will help ensure that principals manage their ARs better – ensuring that they provide the oversight needed to avoid consumers being mis-sold or mis-led and to make sure markets can operate safely and fairly. They will also need to provide us with better data and information to support our own work.”
The regulator launched a consultation in December of the AR regime in order to address a “wide range of harm”.
An AR is a firm or person who carries out regulated business on behalf of a principal, or a firm authorised by the FCA. As a result, the principal takes on the responsibility of the activities the AR carries out.
