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.

Emma Radmore