Compliance
Appointing the right representation Ensuring the apple doesn’t fall too far from the tree Dean Williams Compliance Officer NACFB
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ack in February, the Financial Conduct Authority (FCA) wrote to all regulated firms confirming the key risks identified within different sectors of financial services subject to regulatory oversight. In relation to credit broking, the FCA highlighted a key emerging risk of firms having poor oversight of their staff and/or Appointed Representatives (ARs).
This article seeks to clarify the concerns the FCA has relating to ARs and should act as a prompt for principals to review their existing systems and controls, ensuring they are appropriate and meet FCA requirements.
FCA concerns The regulator underlined a lack of oversight by a principal of their ARs highlighting how some sales practices are going unchecked. This potentially increases the risk of misselling, fraud, or other poor consumer outcomes.
The role of the principal The AR is appointed by a principal. Both parties must enter a written contract to this effect. The contract must contain certain required terms as required by the regulations. Acting as a firm’s principal places a considerable burden on the role 18 | NACFB
in terms of costs and time, this burden only increases as more ARs are added. For some authorised firms, this can make them reluctant to take on ARs, with concerns often concentrating on the strict requirements to take responsibility for the AR’s actions, alongside the potential detrimental impact on the principal’s reputation in the event that the AR acts negligently or outside their remit.
Principal obligations Prior to entering the contract, the principal is obliged by FCA rules to ensure that any AR is fit and proper to deal with customers in their name and that clients dealing with a principal’s AR are afforded the same level of protection as if they had dealt with the principal directly. Simply, this is because the principal is responsible to the same extent as if they themselves had expressly permitted an action. The principal therefore assumes responsibility for anything the AR does – or omits to do – in carrying out the process of placing a deal.
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The regulator underlined a lack of oversight by a principal of their ARs highlighting how some sales practices are going unchecked
