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New Appointed Representatives (ARs) Regime Deadline Approaches
Principal firms and their ARs have only a month left to meet the new requirements on information and reporting under the new regime, which will be implemented on the 8th of December 2022. We previously reported the announcement of the new rules back in August of this year.
Why are the new rules being implemented?
Research conducted by the FCA revealed wide-ranging cross-sectoral failings where the current AR model operates, with a significantly high number of complaints and supervisory cases compared to other directly authorised firms. According to the FCA’s report, these failings were a result of principals not carrying out their due diligence to effectively oversee prospective and appointed ARs.
The expectations of the new rules are to provide clarity on principal’s responsibilities for the activities of individual ARs, which should in turn provide better oversight. The new rules will also enable the FCA to determine whether principals have identified potential risks, as well as ensuring firms can demonstrate they have the appropriate systems in place to effectively oversee their ARs.
The introduction of the regime is in line with the FCA’s Consumer Duty legislation which aims to minimise foreseeable consumer harm and ensure that firms act to produce good outcomes for all consumers. In turn, this should allow customers to make a more informed decision and take responsibility when choosing a product or service.
What are principals required to do?
Under the new rules, Principal firms will need to ensure they:
- Apply enhanced oversight of their ARs, including ensuring they have adequate systems, expertise, controls, and resources.
- Assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business.
- Review information on their ARs’ activities, business, and senior management annually, and be clear on the circumstances when they should terminate an AR relationship. This calls for firms to complete a self-assessment document demonstrating how they meet policy requirements.
- Notify the FCA of future AR appointments 30 calendar days before they take effect.
- Provide complaints and revenue information for each AR to the FCA on an annual basis
Once the regime is implemented, the FCA intends to request detailed information on current arrangements from all principals with active ARs or IARs, within 60 days. This information will include the primary reason for the appointment of the AR, any financial non-regulated activities carried out by the AR, and whether the AR was previously the AR of a different principal, and if so, the reason why they are now operating under a new principal.
What do principals and ARs need to do before the implementation date?
In preparation for the 8th of December, principals will need to critically assess each of its ARs relationships to highlight opportunities, as well as any potential regulatory risks. If potential future risks have been identified, principals will need to take appropriate reasonable steps to mitigate the risk of foreseeable harm. A review of governance arrangements around ARs should also be carried out to ensure that individuals responsible for the supervision of ARs are sufficiently experienced and that the appropriate systems, staffing, and controls are ready in time for the new regime.
ARs will also need to be ready to provide all the appropriate information to show they are in compliance with the new rules and demonstrate that they have the right skills, experience, and expertise to carry out their duties.
If you would like more information about this, please contact your Compliance Consultant or get in touch via email at helpdesk@rwagroup.co.uk or call 01604 709509.