Pressure is mounting on introducers and ARs

James Coney

James Coney

Sometimes you have to listen to the mood music.

There have been three separate stories in the past week that tell you the future of regulation is taking a different direction.

The first came in an interview with Caroline Rainbird, chief executive of the Financial Services Compensation Scheme. She told The Times that not only was she concerned about the number of claims they were now getting from savers who had lost more than the £85,000 limit, but that a change in the levy was needed.

In particular she seems to have found fault in advice businesses that use unregulated introducers to find clients. 

She said: “That’s increasing the risk of a poor outcome potentially, and more compensation. Perhaps the way to accurately reflect the risk of that practice is to look at putting more of the burden of the rising levy on those doing it.”

And as I type those words, the Financial Conduct Authority on Monday morning (December 6) launched a consultation on the future funding of the FSCS.

Next came the Financial Ombudsman Service, which has undergone a strategic review. It now wants a change in fees, too: businesses that have higher uphold rates and greater complaints should pay more.

And then finally came an actual bit of regulatory guidance from the FCA on the use of appointed representatives. 

The regulator said that it was seeing a “wide range of harm across all sectors where firms have appointed representatives. This harm often occurs because principals don’t perform enough due diligence before appointing an appointed representative, or from inadequate oversight and control after an appointed representative has been appointed”.

At last! I can’t tell you how many cases cross my desk where consumers have received advice from an AR, or from an unregulated introducer, only to then find that the company they were effectively representing walks away from all liability.

There is a case that I am looking at right now that involves a regulated advice business whose AR actually undertook criminal activity, and yet despite the fact he was using company emails and notepaper and it was all happening under what was supposed to be a strict regulatory regime, the authorised main company has washed its hands of the case.

The rules at the moment are just not strong enough, and what the mood music is telling us is that regulators know it. Somewhere in the back corridors of Stratford people that matter are discussing what they can do to restore consumer confidence.

For outsiders, the whole systems of ARs and introducers is utterly baffling, particularly as it seems many businesses appear to obfuscate their relationship with them as much as possible.

It matters not to the consumer because as far as they are concerned you work for the business that ultimately sells the product, as such the regulatory ties should be much stronger.