HM Treasury has published its long-awaited consultation on reforming the Appointed Representatives regime. It has remained concerned that while the regime is important, and necessary, poor oversight of representatives is putting consumers at risk. Although the FCA had made enhancements to its requirements, Treasury feels legislative change is needed.
So, in line with what it suggested last year it would do, it plans:
- to require would-be principals to get FCA permission to act as such – following an approach similar to the requirement for FCA permission to approve financial promotions. So, while acting as principal will not be a regulated activity, it will require FCA permission under FSMA and any firm acting as principal without that permission will have breached FSMA;
- to expand the remit of the FOS so that it can consider complaints against ARs in cases where the principal is not responsible for the issue in dispute. This does not happen often, but the Government has decided that, when it does, it leaves consumers without protection in a way they are not likely to have anticipated. This may potentially lead to more AR defaults if they cannot pay redress awards, and therefore to the FSCS getting more claims on it, but the government does not think this requires any changes to be made to the FSCS funding framework; and
- to rationalise the conduct and F&P frameworks applicable to ARs so they are better aligned with the requirements on authorised firms. So it will bring ARs within the scope of the SMCR (noting the FCA is planning reforms to the current regime), and allow the FCA to apply those requirements as it sees fit. But generally it would apply the Conduct Rules to all staff, but require principals to apply F&P requirements to their ARs, which should result in a significant reduction in the numbers of individuals within ARs who need FCA approval. The FCA would also be able to create a new SMF dedicated to AR management.
The FCA will have discretion on granting, varying and cancelling permissions and will be able to include specific terms or restrictions in any given permission. However, HM Treasury does not want to disrupt existing activity, so any principal firm that currently has ARs will be deemed to have permission to appoint ARs, so it can appoint new ones in future should it wish. It is considering whether to limit certain existing principals so that they can appoint only IARs.
As part of the reforms, HM Treasury current clunky operation of the AR Regulations, which require that ARs carrying on only some types of regulated business must be entered on the Register as a condition of the exemption, and include the detail of the contractual relationship between principals and ARs. Treasury proposes that all these matters would be better dealt with in FCA Rules – which will both be more user-friendly and will give the FCA the flexibility to tailor the requirements.
Other changes will repeal s39A FSMA, which dealt with tied agents of MiFID firms and which, since Brexit, serves no purpose.
Consultation closes on 9 April.