FCA vows to “intensify” supervision of principals and ARs
The City regulator plans to “intensify” its supervision of principals in order to reduce “the most significant risks” from their appointed representatives (ARs).
The Financial Conduct Authority (FCA) has published a three-year strategy in which it vows to crack down on authorised companies in an effort to reduce consumer harm.
This year, the regulator will focus on implementing “more assertive supervision of high-risk principals, including greater use of our regulatory tools and appropriate enforcement action.”.
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The FCA has been examining the principal/AR model in recent years. Last year, Peer2Peer Finance News reported that the rising cost of maintaining ARs had led to a shift in the principal market.
In 2020, ShareIn decided to stop taking on ARs after a regulatory clampdown on speculative securities made it too costly to continue.
And since 26 February 2021, Rebuildingsociety’s ARs have been unable to do any new lending, after the FCA expressed concerns around the AR/principal structure for P2P platforms.
“Principal firms are responsible for ensuring their ARs comply with our rules,” said the FCA. “But many principals do not adequately oversee the activities of their ARs.
“Consumers are at risk of being mis-led and mis-sold, while misconduct by ARs in the financial sector can undermine market integrity. So we’re making changes to improve principals’ oversight of their ARs, increase the information they give us and raise standards across financial services.”
The theme of the FCA’s three-year strategy was the reduction of consumer harm.
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At least 80 new members of staff will be hired to help identify and shut down “problem firms” which do not meet basic regulatory standards.
The FCA said this will protect consumers from potential fraud, poor treatment and create a better market.
The regulator will continue to warn consumers that they should only invest what they can afford to lose in high-risk investments and cryptoassets, and will continue to call for changes to set higher thresholds for who can be classified as restricted, high net worth or sophisticated investors.
For the first time, the regulator will hold itself accountable against published outcomes and performance metrics. One of its objectives is reducing the potential for financial loss from scams and the mis-selling of high-risk products involving authorised firms.
“We are being tougher on firms who want authorisation to operate in the UK, using data more systematically to ask the firms we supervise more rigorous questions and using our enforcement and intervention powers more actively, pushing the boundaries where we need to,” said Nikhil Rathi, chief executive of the FCA.
“We are now focusing on results rather than being driven by processes.
“Our strategy sets out, for the first time, the outcomes we expect all firms to deliver across our markets. We will also be tougher on our own performance, collectively and individually.
“Whether it’s tackling unreasonable terms and conditions, increasing customer satisfaction levels, combatting scams, cleaning up our markets or improving diversity, this strategy supports positive metrics that we are accountable for.”
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