What are the key rule changes the FCA has made on ARs?

These include that the appointment does not prevent the principal firm from satisfying the FCA’s threshold conditions, and that it has adequate controls and resources in place to monitor the regulated activities of the AR. The full list of requirements can be found in SUP 12.4.2 R. 

The principal must also assess whether a potential AR is suitable to act for it in that capacity and should also consider the fitness and propriety (including good character) and financial standing of the controllers, directors, partners, proprietors and managers of the AR. More details are found in SUP 12.4.4 G and 12.4.4A G.

Notification requirements

Principal firms are subject to an increased number of reporting obligations in relation to their ARs.

New guidance in SUP 15.3.7 G, makes clear that principle 11 – which requires a firm to deal with its regulators in an open and co-operative way and to disclose to the FCA appropriately anything relating to the firm of which the FCA would reasonably expect notice – now includes the activities of any ARs.

In practice, this is likely to increase the frequency of notifications made by principal firms to the FCA and, by extension, may also increase the potential enforcement risk for firms that fail to make reports when required.  

Pre-appointment notification

One particularly significant change in these new rules is the requirement that, where a firm intends to appoint a new AR, it must now provide notice to the FCA 30 calendar days in advance of the appointment taking effect. 

Although this is still a notification, and not an application, in practice the FCA is effectively being given the opportunity to consider the proposed relationship and, if it has concerns, to take action.

The FCA is being given more scope than it previously had to object to any changes.

This could involve interrogating the principal on its level of due diligence or, in cases where the FCA’s concerns are particularly serious, it could seek to use its powers of requirement to prevent the application taking effect at all. 

The required content of this notice is set out in SUP 12.7.2 G: as well as the name of the AR and the individuals responsible for its management, the notice must, among other things include the main reason for the appointment, any financial relationship between the parties and whether the AR has ever had a different principal and, if so, why that previous relationship was terminated. 

For new appointments, the "add an AR or tied agent form" found on Connect should be used.

On occasion, the FCA may also issue statutory information requirements (as it did between December 8 and 12 2022) requiring principal firms to provide specific information on their ARs.