What is the AR Regime?
Small businesses and individuals can participate in regulated activities under the Appointed Representative (AR) regime without needing to get their own authorisation. The small business or individual becomes an AR and works for an authorised business known as “the principal.” The regulated actions that the AR engages in are the principal’s responsibility. Currently, there are 35,000 ARs and about 2,900 principals.
Although the regime has been in existence since 1986, the FCA’s scrutiny of it has greatly grown in recent years. Although the regime offers advantages, the FCA has indicated that its regulatory case data has raised questions about the extent of harm caused by ARs. As a result, in order to tighten and clarify its expectations regarding principals’ control of ARs, it released new guidelines and advice in December of last year. Additionally, a specialized AR Department has been formed. The number of competent workers working on AR supervision has also significantly increased.
The FCA has published data analysis based on its 2021 and 2022 data requests submitted to key businesses and authorisation information gathered from firms. It also included a description of the AR regime’s improvements and expectations for principals.
There is little doubt that the FCA’s level of scrutiny of principals and ARs is not going to reduce any time soon.
Advice for ARs
The FCA is dedicated to making the AR regime better. In order to avoid greater FCA scrutiny or enforcement action, principals must make sure that any ARs they onboard do not pose a serious danger to their organization.
According to the FCA, its supervisory involvement caused principals to sever ties with more than 1,300 ARs. Anecdotal data also says that because of the dangers they pose, many more ARs are finding it incredibly challenging to find a principle business that is prepared to onboard them as a result of the increasing scrutiny.
Before approaching potential principals, push yourself and ask yourself the following questions if your company is interested in becoming an AR: Business Plans: do you have a robust business plan? Would this stand up to the scrutiny of the principal and the FCA?
- Fitness and Propriety: Can you provide evidence of the top management’s fitness and propriety? Is there anything that would lead the FCA or the principal to question your suitability? It’s crucial that you mention any potential difficulties up front because the principle and the FCA will discover anything you don’t tell them;
- Solvency: Are you able to convince the principle that your company is financially sound? They won’t be able to hire you as an AR if you can’t.
- Systems and Controls: How reliable are your systems and controls? How will you convince the principal of this?
We are aware of principal firms that demand that more complex ARs or those they believe to pose a greater risk undergo an evaluation by a third party before they are prepared to onboard them. Would a main firm onboard you if you were to pass this assessment?
How we can help ARs
We can give focused, appropriate, and cost-effective independent assessments that you can use to show that you are in charge, whether you are required to have one or you wish to be proactive.
Advice for Principal Firms
Twelve principal firms haveapplied for the imposition of requirements (VREQs) to restrict how they carry out their business. There have also been several further interventions, such as SSkilled Person reviews,requiring principals put tighter procedures and controls in place, and stopping the onboarding of any new ARs.
According to the FCA’s new regulations, therincipal firm is required to have sufficient controls over the operations of its ARs. Additionally, you must have sufficient resources to oversee and enforce ARs’ compliance to the pertinent conditions that are applicable to their regulated activities.
Ask yourself the following:
- Oversight of ARs: Have you improved your oversight of ARs sufficiently since the FCA’s new regulations came into effect? Do you have the necessary resources, processes, and controls to carry out your duties as a principal in an efficient manner? How were these tests conducted? What proof do you possess?
- Annual self-assessment: How do you spot risks and gaps, and how do you address them? Is there a clear record of this? Does your self-evaluation clearly show how you are abiding by your responsibilities as a principal? How can you be certain that your ARs are not causing harm?
- Annual review of AR’s activities and business: Are you efficiently reviewing data on the operations and activities of your ARs? How are you evaluating the senior management team’s suitability, the financial standing of the ARs, and the sufficiency of your controls and resources to efficiently manage your ARs? How well-defined is this, and how well would it hold up to outside scrutiny?
- Complaints data: Does your complaints data indicate that one or more of your ARs is causing harm? If so, what are you doing to address this?
How we can assist?
In order to advise you in avoiding regulatory attention, we may analyse or provide advice on your framework. We will work with you to determine a reasonable, knowledgeable solution, whether you are required to hire a professional individual or you simply want some confidence.
Please get in contact if you want to talk.
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