Appointed representatives (ARs) of principal firms should have access to an accelerator programme so that they can grow and eventually become directly authorised by the Financial Conduct Authority (FCA), according to one principal firm.
Daniel Rajkumar, managing director of Rebuildingsociety, said that there is “a significant amount of risk” involved in operating AR firms, and called on the FCA to introduce a programme to encourage ARs to scale up.
“It takes a lot of risk to run an AR network and the consequence of getting it wrong are pretty significant,” said Rajkumar.
“But we feel after the regulatory sandbox there should be an accelerator for helping firms to scale and firms need the opportunity to grow if they are to succeed.
“Being an AR puts you on a programme for preparing yourself for being a DA so it’s a good extension to the work that would happen in the sandbox and is a good way for people with less experience working with regulated entities and have them take some responsibilities if things go wrong.
“It also helps the regulator as the financial services compensation scheme (FSCS) protections do not exist in the sector so there is no recompense the regulator is able to provide if things go wrong whereas with a principle they absorb some of the impact with the ARs so they can take some risk.”
Rebuildingsociety acts as principal for a number of peer-to-peer lending platforms, including Huddle Capital, Sourced, and Propio.
Rajkumar added that despite the high cost of maintaining ARs in the P2P sector, Rebuildingsociety has not adjusted its pricing.
“Whilst it’s true the regulator is putting more scrutiny into principal platforms, we haven’t adjusted our pricing and have had a lot of interest in our network,” added Rajkumar.
“We’ve been investing a lot of effort preparing the Rebuildingsociety network.
“There is a significant amount of risk running and operating AR firms and principal need to be adequately absorbed to accept risks they take.”