FCA warns networks over advisers using introducers

FCA warns networks over advisers using introducers

The Financial Conduct Authority has issued a warning to networks about the use of introducers by their appointed representatives.

It follows concerns raised by the regulator earlier this year about the influence introducers appear to have over the advice process.

The FCA’s latest concerns relate to two types of introducers: those who are appointed representatives themselves and those who work with appointed representatives.

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Often introducers are not authorised by the FCA and their role in bringing business to a regulated adviser will involve some sort of commercial arrangement.

In a warning published today, the FCA said: “The business carried out by a principal and its ARs can be inappropriately influenced by an introducer.

“This can include an introducer exercising substantial influence over the final investment choice and undertaking tasks central to the advice process.

“For example, we have seen instances where the referral from the introducer is made with a clear investment desire expressed by the customer and documentation already completed.

“In accepting business from an introducer, a principal must meet its regulatory requirements as set out in our handbook.

“It must ensure it understands and mitigates these risks and has adequate oversight of its ARs and introducers. Otherwise, it may result in the firm and its customers experiencing harm.”

The FCA said it found some networks carrying out insufficient due diligence on their ARs and introducers.

It also found some principals were not always monitoring the type, volume and source of business being submitted by Ars.

Another area of concern for the FCA was the use of firm reference numbers, which are given to an AR as a result of the appointment by their principal.

The FCA said an AR may wrongly use its FRN to carry out additional regulatory activities separate from the business arrangement they have with the principal, leading to a risk customers may be misled into believing the AR has the authority to act because they have an FRN.

The regulator said: “A principal should also consider why it is appointing an AR and whether this is necessary for the activities they will be carrying out.

“We have found Introducer Appointed Representatives being appointed when their only business is to generate investment introductions.  In this case, they may not need to be authorised for this type of activity.”

The FCA's concerns about the relationship between advisers and introducers goes back at least four years, when it wrote to a number of firms with requests for information on the sources of all new business and especially any business introduced by unauthorised persons or firms.