On 3 August 2022, the Financial Conduct Authority (FCA) published Policy Statement 22/11 ‘Improvements to the Appointed Representatives regime’ (PS22/11). In PS22/11, the FCA provides feedback to its earlier consultation, Consultation Paper 21/34 ‘Improving the Appointed Representatives Regime’ (CP21/34), and sets out its final policy and Handbook rules.
Whilst the appointed representatives (AR) regime has benefits, the FCA has identified a wide range of harm across all sectors where principals and ARs operate. Where harm occurs, it is often because principals do not undertake adequate due diligence before appointing an AR, and/or due to poor on-going control and oversight.
The FCA’s proposals in CP21/34 focussed on two main areas of change aimed at addressing the harms identified and protecting consumers. These were:
- Collecting additional information on ARs and strengthening reporting requirements for principals (chapter 3).
- Clarifying and strengthening the responsibilities and expectations of principals (chapter 4).
CP21/34 also included a discussion chapter (chapter 5), seeking views on potential areas of future change.
The FCA has considered the feedback received to CP21/34 and has made some changes to the final rules. The FCA has also made some changes to ensure that the data they are requiring from firms will be the most useful in identifying trends, issues and harms arising from the regime, while minimising the burden on firms.
In terms of key requirements:
- The FCA has reduced the pre-notification period for new AR appointments from 60 calendar days as consulted on in CP21/34 to 30 calendar days.
- The FCA is proceeding with its consultation proposal albeit not through the final rules that within 60 days of the rules coming into force, principals must provide information on their existing ARs. For existing ARs, the FCA will collect the data via a Section 165 data request. Principals will then have 60 days to submit the data to the FCA on all their existing ARs. The FCA considers that the period between publishing PS22/11 and firms having to submit the data to it gives principals enough time to compile and submit the data.
- The FCA is not taking forward its proposal to require principals to provide details on any non-regulated non-financial activities an AR performs, but will require this information for financial non-regulated activities.
- The FCA is not taking forward its proposal to require principals to provide, at appointment, an estimation of the proportion of a proposed AR’s non-regulated activities compared to its regulated activities in the first year following the appointment.
- The FCA is introducing revenue bands for reporting anticipated revenue of the AR from regulated and non-regulated activity during the first year of appointment.
- The FCA has given principals more time to annually report AR complaints and revenue data, from up to 30 business days after the principal firm’s accounting reference date, as proposed, to up to 60 business days.
- The FCA has introduced revenue bands for annually reporting AR revenue from non-financial non-regulated activities.
- The FCA has not added more information on the nature of regulated activities ARs are permitted to conduct to the FS Register at this time.
- The FCA has refined the definition of ‘regulatory hosting’ in light of feedback. The only effect of firms’ business models coming into scope of the definition of ‘regulatory hosting’ is that these firms will need to notify the FCA of their intention to provide such service in advance. The FCA is not imposing any additional rules or restrictions on firms which provide such services at this time.
- The FCA has clarified that the annual review requirements can be met by principals integrating them into existing internal reporting processes, so long as they continue to meet the standards set out in the rules and guidance.
- The FCA has clarified that the annual reviews can be conducted by responsible individuals with a suitable degree of knowledge and authority below the governing body’s level, with significant issues identified at specific ARs escalated to the governing body.
- The FCA has explained that for the principal’s self-assessment document reviewing the ARs’ activities, business and senior management the self-assessment should focus on how the principal itself is meeting its responsibilities. The FCA explains that it is a single document designed to identify any risks and gaps in compliance with the firm’s obligations as principal, and must be reviewed and signed-off by the principal’s governing body, at least every 12 months.
- The FCA is introducing a 4 month implementation period before the changes take effect.
- The FCA has put in place transitional arrangements to give firms more time to comply with the new rules, particularly those that require firms to submit information on an on-going basis and to review their ARs and self-assess annually.
Three year strategy
As part of its new three-year strategy to improve outcomes for consumers and markets the FCA is also undertaking targeted supervision of principal firms across the whole financial services sector, using improved data and analytical tools to focus its work. It is also increasing scrutiny on firms applying for authorisation and as they appoint ARs.
The changes set out in PS22/11 will take effect on 8 December 2022, following a four-month implementation period.
PS22/11 will affect all firms that currently have ARs or intend to have ARs in the future.
However, as proposed in CP21/34, the rules will not apply to firms in the Temporary Permissions Regime or the Financial Services Contracts Regime. However, these firms remain subject to relevant rules as set out in chapter 2 of the General Provisions in the Handbook.