The Financial Conduct Authority (FCA) continues to put a spotlight on firms who are directly authorised by the FCA and use other individuals or firms to run regulated activity on their behalf, acting as an agent.
The agent, known as an ‘appointed representative’ is a separate legal entity (sole trader, partnership or limited company). The authorised firm, known as the AR’s 'principal' is fully responsible for the regulated activities undertaken by the AR, including any liabilities that might arise for ensuring the AR complies with FCA rules.
In 2016, the FCA carried out a thematic review into the insurance sector and later published findings which highlighted four key areas of concern:
1. Many principal firms had not taken reasonable steps to assess their ability to oversee their ARs effectively or put in place appropriate risk management frameworks to identify and manage the risks arising. This resulted in some ARs conducting activities outside their principal’s core areas of expertise where the principal lacked the ability or resources to oversee them effectively.
2. Some principals had not assessed the solvency and suitability of ARs.
3. Some principals had not put in place compliant contracts with their ARs, which clearly set out what activities the ARs were allowed to undertake.
4. Many principals had not put in place appropriate control frameworks for the ongoing monitoring of their AR and to enforce compliance with relevant regulatory requirements. This was particularly relevant in relation to sales activities and treating customers fairly, where the FCA found numerous examples of poor practices and mis-selling.
The FCA took a number of actions following the review and issued a statement saying: “We will continue to engage with the industry, including via relevant trade bodies, to discuss our findings and how they can be addressed.”
In November 2017, the FCA issued an ‘alert’ to remind principals that they should monitor the type, volume and source of business being submitted by their ARs and emphasised the importance of having a well-structured monitoring process in place.
The alert also urged principles to consider whether any additional steps should be taken to ensure the action of their ARs is compatible with their obligations as an AR and allows the principals to meet their regulatory responsibilities.
An increasing number of BVRLA leasing broker members are operating as a ‘principal’ with ‘Appointed Representatives (ARs)’ so the association has established a dedicated Appointed Representatives Working Group which met on 6 March for the first time.
The working group, which consists of a cross-section of funders and leasing brokers, discussed the various types of business models operating AR’s and agreed that the BVRLA should carry out some work to better understand how many members operate ARs and to determine the nature of the relationship.
The group will then discuss the best way to support those members to proactively ensure FCA compliance.
To find out more, contact BVRLA Director of Policy and Membership Jay Parmar.