The Financial Conduct Authority has seen more than 300 appointed representative (AR) notifications withdrawn over 2021/22.
According to the regulator’s annual reports and accounts published yesterday (July 19), the FCA has made changes to its systems so principal firms must submit the approved persons forms at the same time as the AR notification form.
The FCA said this ensures it can target activities on those principal firms and ARs that can cause the most harm.
“For the year 2021/22 over 300 AR notifications were withdrawn,” it said. “This is alongside a 1 per cent increase in withdrawals compared to the previous year in approved persons applications.”
The FCA's AR reform will see AR notifications having to take place at least 60 days prior to the arrangement coming into effect.
Firms will have to disclose why the principal is entering into an AR relationship and what regulated activity will be undertaken.
Principal firms are responsible for ensuring their ARs comply with the FCA rules, however, the FCA said many principals do not adequately oversee the activities of their ARs.
“Consumers are at risk of being misled and mis-sold, while misconduct by ARs in the financial sector can undermine market integrity.” the City watchdog said.
The FCA is making changes to improve principals’ oversight of their ARs and increase the information they provide.
The regulator said the changes are designed to improve the data it receives from principals about their ARs and help it to identify potential risks, as well as clarify and strengthen the responsibilities and expectations of principals in relation to their ARs.
In May, the FCA launched a dedicated AR department which will focus on tackling harm posed by ARs and their principal firms.
The newly-formed AR unit sits within supervision, policy and competition and reports to the director of insurance.
This came as last December, the FCA said it will require firms to run verification checks on ARs annually after detecting a "wide range of harm across all sectors" containing this model.
In a consultation paper, it outlined firms will be required to annually verify their ARs' details and report to the regulator whether these remain accurate and confirm the activities they permit their ARs to carry out.
“We have intensified our scrutiny of principal firms and applicants applying for authorisation who state that they will appoint ARs on approval,” the FCA said.
“In a small pilot of this stronger approach, approximately 80 per cent of firms intending to appoint ARs have either withdrawn their applications or we have refused them.”
Supervision, policy and competition
In April 2019, the FCA took on the regulation of claims management companies (CMCs) and the regulator made rules about the fees the CMCs charge for redress claims.
The FCA said it had to make rules that secured appropriate protection against excessive CMC charges on claims about financial products and services.
In response, it introduced a fee cap for CMCs managing these claims.
Under the fee cap, CMCs can charge consumers who choose to use them to claim redress of £50,000 or more no more than 15 per cent of the redress or £10,000, whichever is lower.
In 2021/22, the FCA said it received more than 3,600 applications from firms and more than 58,000 applications from individuals to enter, change or leave the industry.
“We have introduced more intensive assessment of applicant firms’ financials and business models,” it said.
“This greater scrutiny now results in an increasing number of firms withdrawing their applications or having them refused. This was one in five applications in the last financial year, up from one in 14 in the previous financial year.”
In November 2021, the FCA also changed rules to streamline decision making processes, enabling it to act more quickly where firms and individuals do not meet required standards.
Between July 2021 and the end of April 2022, there have been 25 decisions taken to impose own initiative requirements, an increase from 16 intervention cases between July 2020 and June 2021.
“We continue to see significant increases in firms and individuals carrying out regulated business without our authorisation,” the FCA said.
“In 2021 we issued over 1,400 alerts on our website about firms or individuals, a near 18 per cent increase from the 1,196 alerts issued in 2020.”
sonia.rach@ft.com
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