In the latest development in the reform of the appointed representatives regime, the FCA is adding to the due diligence requirements on principals pre-appointment of appointed representatives (ARs) and requiring enhanced ongoing control and oversight of ARs by their principals. Details are set out in the FCA Policy Statement on Improvements to the Appointed Representatives regime.
These are not the more fundamental changes to the AR regime we are expecting (and which are still under discussion) around, for example, the types of regulated activities which ARs can carry out, a possible extension to the senior management and certification regime and the extension of the FOS to cover ARs, but the changes will mean more time and cost for principals appointing and overseeing ARs.
What are the changes?
The new rules deal with two main types of change for principals: information and notification obligations and AR oversight obligations and responsibilities.
New information and notification requirements
- notify the FCA of future AR appointments 30 days before the appointment takes effect.
- provide information on existing ARs via response within 60 days to a section 165 FSMA data request.
- annually report AR complaints and revenue data, within 60 business days of the principal's accounting reference date. Revenue bands for non-financial non-regulated activities apply.
- verify and confirm the information on its ARs annually.
- notify the FCA of regulatory hosting currently provided or which they intend to provide. No additional rules or restrictions are applied at this time.
- notify changes to AR information provided. Changes to regulated activities of ARs, for example, have to be notified 10 days in advance.
Enhanced AR oversight responsibilities
- arrange oversight of their ARs on an ongoing basis.
- have systems and controls in place to enable oversight of ARs as if they were employees.
- ensure ARs' activities do not cause undue risk of consumer harm.
- annually review the fitness and propriety of ARs' senior management, ARs' financial position and their own controls and resources to effectively oversee their ARs.
- annually prepare a self-assessment document of their compliance with its obligations and have this signed off by the principal's board.
The new rules also impact contractual arrangements between principals and their ARs. Contracts must:
- require the AR to provide the principal with the information it needs to comply with its obligations under the new rules.
- enable the principal to terminate the contract where it is no longer able to effectively oversee an AR's activities.
Where contracts with ARs are terminated, principals must ensure an orderly wind down.
Next steps for principals
The changes come in on 8 December 2022, which doesn't give principals much time to review their own internal processes and implement the new rules, although transitional arrangements will reduce the more immediate burden.
Principals should review their systems and controls against the new requirements and resource the new information gathering, notification and oversight obligations. The requirement to give the FCA prior notice of new AR appointments will need to be factored into business and project timelines going forward. Contractual arrangements should be reviewed and templates updated to ensure principals can get the information they need to comply with their FCA reporting obligations and to include the right to terminate where effective AR oversight ceases to be possible.