FCA notes good and poor practice for credit broking ARs

The FCA has carried out a review of the key harms and drivers of harm caused by ARs and IARs in the credit broking market. Key areas where some principals could improve are;

• making sure they undertake criminal or credit checks;
• ensuring their onboarding procedures are effective and up to date – especially if they have not onboarded ARs for a while;
• intelligently challenging Companies House results on individuals so they look at links individuals have previously had that might indicate a cause for concern, rather than just matching names to company records;
• using more human oversight on automated checks;
• carrying out open-source checks;
• taking to other former or current principals;
• giving greater consideration to the impact of appointing an AR on the principal firm’s financial and non-financial resources and their ability to monitor their ARs; and
• ensuring they understand the contractual requirements for AR agreements.

Good practices the FCA has noted include:

• clear and documented onboarding procedures such as a manual with a step by step guide to the sign off process, due diligence check lists, a scoring system and a hierarchy of governance approval;
• documentary audit trails to evidence compliance;
• initial and ongoing training for ARs;
• onsite vetting;
• requiring ARs to complete a compliance call before allowing them to start regulated activities;
• having dedicated staff to monitor ARs;
• directly controlling relevant parts of an AR’s website;
• recording calls or contacting customers to check ARs and particularly IARs have acted within their authority;
• constantly monitoring an AR’s financial position and engaging to understand why an AR was not carrying on regulated activities where this occurred; and
• using automated processes to identify outlier behaviours

Poor practices include:

• not considering the reasons an AR may not have carried out regulated activity for some time;
• failing to carry out file review;
• not considering potential conflicts of interest;
• not updating AR details to reflect Companies House changes and not taking prompt action to terminate appointments if the AR entity becomes insolvent;
• not monitoring AR websites for compliance;
• not using consumer feedback forms to properly monitor any risks of harm; and
• not checking that AR websites were updated after termination and not notifying the FCA immediately of the termination.