On 3rd December 2021 the FCA launched a consultation (CP21/34) on improving the appointed representatives (AR) regime.

The FCA is seeing a wide range of harm across all sectors where firms have ARs. This harm often occurs because principals don’t perform enough due diligence before appointing an AR, or from inadequate oversight and control after an AR has been appointed.  For example FCA data analysis has found that, on average, principals generate 50 to 400% more complaints and supervisory cases than non-principals across all sectors where this model operates.

The FCA’s proposed changes to the regime aim to address the harm arising in this market while retaining the cost, competition and innovation benefits the AR model can provide. The proposals would improve principals’ oversight of ARs and require principals to provide the FCA with more information on their ARs, allowing the FCA to spot risks more quickly.

The FCA is also seeking views on the wider risk posed by regulatory hosting services, and whether setting limits on such arrangements may help to reduce potential harm.  Options they are considering are:

  • Banning the use of regulatory hosting services;
  • Limiting the size of ARs;
  • Requiring specific consent from the FCA to provide regulatory hosting services or be a smaller principal with larger AR(s);
  • Limiting the range or scope of regulated activities that regulatory hosts can oversee and / or the number of ARs they can have;
  • Requiring firms that provide these services to meet additional requirements to

    those that apply to other principals

  • Requiring firms that want to provide regulatory hosting services to notify the FCA of their intention to do so before beginning to provide these services;

  • Requiring principals to regularly review the proportionality of business carried on by ARs.

Simultaneously, HM Treasury published The Appointed Representatives Regime: Call for Evidence (see here), which is an information gathering exercise on how market participants use the AR regime and how effectively the regime works in practice. It also gathers views on potential challenges to the safe operation of the AR regime and possible future reforms that might be considered to address those challenges.

The deadline for responding to both the Consultation Paper and the Call for Evidence is 3 March 2022.