In its consultation paper published back in December, the regulator proposed firms would be required to notify the FCA of future AR appointments 60 days before the appointment takes effect.
However, as part of updated rules in a policy statement published today (August 3), the FCA said almost all respondents agreed with the proposal to require pre‑notification of AR appointments but some considered a 60-day advance notice to be too long and argued it might create business disruption.
A small number said this might make switching principals harder for ARs and as a result negatively affect competition between networks, which might then negatively affect consumers.
“To avoid business disruption as far as possible, and reflecting consultation feedback, we have decided to require a shorter pre‑notification period of 30 calendar days before an appointment takes effect,” the FCA said.
“30 days would give us enough time to conduct an initial assessment of an AR appointment, where needed, and consider whether any further action is needed. We also confirm that where the appointment of the AR involves an approved persons process, the 30 days pre-notification period is not in addition to the existing three-month period for determination of approved persons applications.”
The City watchdog said the pre-notification rule would mean that the earliest an AR can begin operating is 30 calendar days following the appointment notification.
In relation to introducer ARs, the FCA has decided to require the same 30 calendar days notification period as for ‘full’ ARs.
“Although the scope of regulated activities IARs are permitted to undertake is limited, we still see harm associated with IARs, and may wish to conduct checks where appropriate,” it said.
Verifying AR details
The FCA proposed to require principals to annually verify the details of their ARs as they appear on the register.
But a few respondents to the proposal said this is unnecessary since principals are already required to report any changes under current rules.
Some of these also mentioned, in this context, a previous reporting requirement was removed, and queried why it should now be re‑instated.
The FCA said there was strong support for this proposal and it is proceeding with it as consulted on.
“While principals are required to keep the details of their ARs up to date at all times and notify us of changes, not all of them do so and changes can be missed,” it said.
The FCA argued it is very important that the data principals have provided on their ARs are accurate and up to date, and that the information presented on the register provides an accurate overview of a firm’s ARs.
“Principals will be required, once a year, to confirm that the details on their ARs as these appear on the FS Register are correct,” it said.
“We will be collecting data on existing ARs using a data request to be sent to firms later in the year. This should give us up to date information on all existing ARs. We are therefore not requiring existing principals to confirm the details of their ARs in the first year following the rules coming into force.”
Firms will be required to verify the details on their ARs for the first time after 12 months have passed from the rules coming into force.
“We have added transitional provisions to that effect. We will send firms reminders at the relevant times.”
The FCA also proposed that firms provide more information on the business of their ARs, including the nature of the regulated activities the ARs will conduct.
Some respondents challenged the proposals to require information on ARs’ non-regulated activities, while others considered providing revenue estimations difficult and said it could be inaccurate.
Taking this into consideration, the FCA said it is not taking forward the 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.
“We are not taking forward the 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.
“We are introducing revenue bands for reporting anticipated revenue of the AR from regulated and non-regulated activity during the first year of appointment.”
As part of the rules, the FCA had proposed firms would need to provide complaints data and revenue information for ARs on an annual basis.
Some respondents, mainly larger networks, argued that although they already have complaints and revenue data on their ARs, providing them to the FCA would be burdensome and costly.
They sought changes to the type, and level of detail, of some of the data the FCA proposed be submitted.
The FCA said it will give firms 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.
Implementation period
As part of the proposals, the FCA expects firms to be more responsible for their ARs, including by monitoring and assessing the risk of harm to consumers and overseeing ARs to a comparable standard as if they were employees of the principal.
It requires firms to have clarity on the circumstances where they should terminate an AR relationship and annually review information on ARs’ activities, business and senior management.
Firms would also need to prepare a self‑assessment document at least once a year, covering how they meet the requirements of the policy.
The FCA said it is clarifying that the annual review requirements can be met by firms integrating them into existing reporting processes, so long as they continue to meet the standards set out in the rules and guidance.
“It is a single document designed to identify any risks and gaps in compliance with the firm’s obligations as a principal, and must be reviewed and signed-off by the principal’s governing body, at least every 12 months,” it said.
In feedback to the consultation, some respondents suggested that there should be an implementation period of at least 12 months, with a few stating that the proposals will be costly.
The FCA said it is introducing a four month implementation period before the changes take effect.
“We have put in place transitional arrangements to give firms more time to comply with some of 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,” it said.
“We have updated the cost benefit analysis and increased the estimated costs for larger firms in implementing the new requirements
“The AR regime is set in primary legislation, and the FCA does not have the powers to remove it. The Treasury have invited views on the AR regime in its CfE and we continue to work closely with them on this.”
The new rules will take effect on December 8, 2022.
sonia.rach@ft.com
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