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.