Back in April 2022, we published an article on the Voyc blog that discussed proposals by the FCA to introduce important changes for the regulation of the Appointed Representatives regime.
At that time, the proposed changes had been set out in the FCA’s consultation paper CP21/34 and our article attracted widespread interest from firms with an interest in the AR distribution channel.
The consultation process has now been completed and the new rules published in August 2022. This update provides an overview of the key changes involved for affected firms, plus an outlook on further potential developments to follow.
Recap: Why the change was needed
Appointed representatives (ARs) are firms that undertake regulated business in the UK without being directly authorised by the regulator, the FCA.
Instead, they are appointed by firms that are directly regulated, called Principals, and each AR conducts regulated business under its Principal’s FCA authorisation.
This arrangement, known as the “Appointed Representatives regime”, was introduced following the 1986 Financial Services Act and there are now some 40,000 ARs in the UK, operating through 3,600 principals. These firms work across a wide range of financial services markets, including retail lending, retail investments, general insurance and protection.
In 2021, the FCA announced that it considered that the AR regime posed considerable risks to the fair treatment of customers and that a higher level of regulatory control was needed.
This was largely driven by the FCA’s view that many principal firms were not exercising due care and diligence in the monitoring and control of their ARs and their activities.
In fact, (as detailed in consultation paper CP21/34) customer complaints per £1m of revenue of regulated activities were consistently higher for AR principal firms than non-principals. And principals were involved in 50% to 400% more cases being referred to the FCA’s supervisory teams than non-principals.
These concerns led to the consultation process that has recently concluded.
The key areas for change
- Additional information on ARs and notification requirements for principals
- Clarifying and strengthening the responsibilities of principals
The consultation paper received 107 responses from a range of stakeholders including principals, ARs, individuals and trade bodies. Both the key areas mentioned above are, indeed, central to the new rule changes that have now been announced.
These new rules come into force on 8th December 2022 – allowing a 4-month implementation period.
Comprehensive details of the new rules are set out in the FCA’s Policy Statement PS22/11 and we highlight below the main areas for change affecting principal firms on a day-to-day basis:
1. Additional information on ARs and notification requirements for principals
- Principals will be required to provide more information to the FCA on the business of their ARs, including all regulated business and any financial non-regulated business.
- Principals will be required to provide to the FCA complaints data and revenue information for ARs on an annual basis – up to 60 business days after the principal firm’s accounting reference date.
- The FCA will publish on the Financial Services Register the nature of the regulated activities that each principal permits each AR to undertake.
- Principals are required to inform the FCA if they provide currently, or intend to provide, regulatory hosting services.
(Please note: an explanation of regulatory hosting can be found in our April 2022 blog article.) As a result of feedback received in the consultation process, the FCA is now refining the definition of “regulatory hosting”.
Details of the information on ARs and notification requirements for principals can be found in section 2.81 (pages 35-36) of Policy Statement PS22/11.
2. Clarifying and strengthening the responsibilities of principals
- apply enhanced oversight of their ARs, including ensuring adequacy of systems and controls, sufficiency of resources and monitoring AR growth.
- take more effective responsibility for their ARs, including by monitoring and assessing the risk of harm to consumers and market integrity and overseeing ARs to a comparable standard as if they were employees of the principal.
- have clear criteria on the circumstances in which they should terminate an AR relationship and assist such ARs with an orderly wind-down.
- review information on ARs’ activities, business and senior management on an annual basis. These reviews can be integrated into existing reporting processes and should be conducted by responsible individuals of suitable knowledge and authority. Any significant issues related to specific ARs should be escalated as appropriate to the principal’s governing body.
(Please note: the annual review requirement does not apply to “Introducer Appointed Representatives” (IARs) whose function is essentially confined to lead generation for the principal firm. IARs are described further in our April 2022 blog article).
- prepare a self-assessment document at least annually, covering how they meet the FCA’s requirements regarding their obligations with regard to all ARs. The document must identify any compliance risks and gaps and must be signed off by the firm’s governing body.
Details of the rules on the responsibilities of principals and the FCA’s expectations can be found in section 3.83 (pages 61-62) of Policy Statement PS22/11.
Further changes ahead?
The changes imposed by the new rules discussed above are significant – largely due to the high level of concern that the FCA felt about the way in which the regime has been operating and the potential for a negative impact on customers.
In addition, high-profile initiatives from the regulator have stressed the importance of treating customers fairly and with due care – as evidenced most recently in the new Consumer Duty (more detail in this recent article from Voyc).
What’s more, the FCA is actively working with the Treasury to consider areas of potential legislative change. This includes ideas discussed in the Treasury’s “Call for Evidence” on the AR regime, covering, for example, the scope of activities ARs are permitted to conduct and coverage of ARs by the Financial Ombudsman Service.
Against this background, it’s likely, in our view, that there will be further regulatory or even legislative changes in the changes to the Appointed Representatives regime in the future. You can rely on the Voyc blog to keep you updated as appropriate.
How Voyc can help
At Voyc, we enable firms to monitor and control the interactions their staff and representatives have with customers on the telephone – to maximise quality and minimise complaints and compliance errors.
Our software actively “listens” to and monitors 100% of customer calls made and received. Voyc is programmed and trained to spot words, phrases and issues in calls that represent a quality concern to the user. And when that happens, the software instantly sends an alert to team members designated to handle that particular matter.
Voyc is highly suited to supporting call centre operations, where numerous agents and representatives are engaged to handle customer calls across single or multiple sites. In fact, we’ve seen rapid growth in the number of users of this kind – including principals operating through extensive networks of ARs.
PPL is a principal, working with Voyc to support regulatory compliance across its network of ARs: mainly retailers using consumer credit products to support sales of their goods and services.
“Voyc helps us monitor more of our AR's calls”, says Wendy Clegg, PPL’s Head of Governance & Risk. “That provides great reassurance for us as we approach the implementation date of the new rules for the AR regime. It’s really like having an additional member of our senior team looking after a critical area of compliance”.
Jon Rix, Director at The Compliance Guys, agrees.” We offer AR status to SMEs and independents in a range of sectors and it’s clear that the new FCA changes will add much sharper focus to the responsibilities of principals of all kinds – which is good news. Voyc certainly has the capability and track record to play a vital role in supporting great customer outcomes under the new roles, through ensuring a level of compliance monitoring that traditional methods just can’t deliver”.
It’s easy to find out more