The Financial Conduct Authority (FCA) has ramped up its efforts to better supervise appointed representatives (ARs) by setting up a new department.
The City watchdog has been looking into the AR market in the last few years. An AR is a firm that carries out regulated activity under the responsibility of another firm that is authorised by the FCA, which is known as the principal.
Previously, the FCA said that it had observed a wide range of harm across sectors where businesses have ARs. An analysis published in December found that principals generate 50 to 400 per cent more complaints and supervisory cases than non-principals.
This is mainly due to a lack of due diligence on the part of principal firm or because of inadequate oversight after an AR has been appointed.
One of the ways in which the regulator is working to improve its own supervision of ARs is through the creation of a dedicated division.
In a job posting on LinkedIn, the FCA said it is recruiting an intelligence analyst to “to focus on intelligence work arising from the newly created appointed representatives department”.
The department was set up to address potential harms from the AR regime, with the regulator saying it is a priority area. Other roles the FCA advertised for as part of the division include technical specialist, senior data analyst and professional support.
The AR department sits within the supervision, policy and competition division of the FCA, according to one of the ads.
In December the regulator proposed changes to its AR regime to address some of these issues. They include requiring principal firms to provide more information to the FCA and setting limits on arrangements.
More recently, the FCA published a three-year strategy to reduce “the most significant risks” from ARs.
In its business plan for 2022/2023, published earlier in April, the regulator said it will engage with principal firms as they appoint ARs and intensify their supervision; clarify and strengthen principals’ responsibilities; and undertake a more assertive supervision of high-risk principals.
A number of peer-to-peer lending platforms have previously used the AR model, but 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 stopped 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 structure for P2P platforms.
The FCA has been contacted for further comment.