UK: FCA reviews embedding of rules on appointed representative oversight

Why should I read this?

The FCA has published the findings of a review of how Principal Firms (principals) are embedding its new rules for overseeing Appointed Representatives (ARs) – see ‘Principal firms embedding the new rules for effective appointed representative oversight: Good practice and areas for improvement’. To assist principals with embedding the rules, the FCA has also set out examples of good practice and areas for improvement for firms to consider.

The FCA surveyed approximately 270 principals (around 10% of the population). The survey asked principals about:

• annual AR reviews and self-assessments
• AR oversight and ensuring ARs don’t act outside of the scope of their appointment
• AR onboarding and termination processes
• monitoring of changes and growth at ARs

In addition, the FCA selected 23 principals for an in-depth assessment involving calls and a review of documentation, such as annual reviews and self-assessments.

96% of the firms surveyed told the FCA they were confident that they had effectively implemented the new AR oversight rules. However, in view of the implementation weaknesses identified by the review, the FCA believes there is likely to be some over-confidence among principals about how well they are implementing the rules. 

In view of the findings, principals cannot afford to be complacent about their approach to overseeing ARs.

What should principals do?

Principals, as well as firms that plan to have ARs in the future, should carefully consider the review findings, including the examples of good practice and areas identified for improvement. Those examples cover: self-assessments; annual reviews; monitoring, oversight and acting out of scope; onboarding ARs; and termination, offboarding and orderly wind-down. 

Principals should also assess their processes for overseeing ARs in light of the review findings, make improvements where necessary, and document the rationale for any changes made.

The FCA will continue to monitor principals’ compliance with the new rules, focussing on annual reviews, self-assessments and the quality of oversight of ARs. A failure to respond appropriately to the review findings increases the risk of regulatory scrutiny and intervention. The FCA intends to take swift action where it sees principals falling short of its standards.

What were the main findings of the review?

• Not all principals could show they had undertaken an adequate annual review or self-assessment covering all the points set out in SUP 12.6A (Assessment of compliance).
• 1 in 5 principals had not carried out the required self-assessments and annual reviews.
• The quality and completion of self-assessments and annual reviews undertaken requires improvement. The FCA found that 4 in 5 principals had completed either annual reviews or self-assessments, but only around half of these were of good quality. 
• Most principals had not changed their AR onboarding or termination procedures since the introduction of the new rules in December 2022. Where a principal considers its existing (i.e. pre-December 2022) processes to be robust and sufficient, it should review those processes in light of the new rules and be able to evidence why it considers them to be adequate.

The new AR oversight rules came into effect in December 2022. By now, the FCA expects every principal to have completed its annual reviews and to have completed and signed off a self-assessment at least once (unless it became a principal less than 12 months ago).

How can Eversheds Sutherland help?

The Eversheds Sutherland Financial Services sector teams have specialist knowledge of the AR regime. We can advise principals and ARs on:

• your regulatory obligations
• compliance with FCA requirements
• how to manage your relationship with the FCA
• what to do when if things go wrong