The FCA has published its review of how firms manage risks relating to appointed representatives who are inactive. It notes that while an AR is registered to a firm the firm needs to have effective oversight of it that goes beyond transaction oversight. It goes further, to say that if there is an unexplained lack of reported regulatory activity from the AR this suggests there is a problem with the principal’s controls.
The FCA used the last 2 years of REP025 returns to explore whether principals would explain absence of income, were accurately reporting AR activity and could show effective oversight of the AR’s business.
It found different issues arose in different markets. For instance in the credit markets, there were often instances of commission paid to ARs for whom regulated activity is ancillary to their main business being wrongly recorded as being unregulated income. So the issue could be not that there was no regulated activity, but that the principals did not understand how to report correctly.
The FCA’s good practice tips are:
- setting clear expectations on regulated activity volumes at onboarding;
- having a clear understanding of AR activity;
- active, data-led oversight; and
- early intervention.
It criticised firms who did not terminate AR relationships which were inactive when the principal had been told the AR would not conduct regulated activity, and firms who suspended ARs but did not reassess the relationship appropriately. It also noted that firms should monitor their ARs’ communication channels including status disclosures on website, and of course ensure their agreements meet regulatory requirements.