The FCA has set out good practice and areas for improvement to help principal firms to monitor their Appointed Representatives (ARs) effectively.

It carried out a review of how principals are meeting its enhanced AR rules, which the FCA introduced in December 2022. Under the rules, principals must carry out: 

• annual reviews of each AR they appoint; and
• annual self-assessments of their ability to oversee their ARs.

Examples of good practice from principals included:

• keeping clear documentation to show compliance with the FCA’s enhanced rules;
• using a broad range of checks and information to oversee and monitor ARs’ activities;
• having clear written records of reviews and self-assessments that were signed off by the principal’s governing body;
• evidence of using a range of management information to assess the risk of harm to consumers or markets, such as quality assurance checks on client files, customer satisfaction surveys, in-person visits to ARs, and mystery shopping exercises; and
• having regard to Consumer Duty obligations when carrying out annual reviews, such as considering fair value assessments and providing training for staff,

However, the FCA found some firms were taking a tick-box approach to complying with its rules, relying on basic information like website checks, or using self-declarations from their ARs, to demonstrate effective oversight.

The review also found: 

• that one in five principals had not carried out a required self-assessment or annual review of their ARs;
• around half of principals were not regularly reviewing their AR agreements;
• a third of principals were not using data or management information to keep tabs on whether ARs were acting within the scope of AR agreements; and
• most firms had not changed their AR onboarding or termination procedures since the rules were introduced.

Firms who have ARs or intend to have ARs in future should read and consider these findings and the FCA’s examples of good practice and areas for improvement when assessing their obligations as principals under the rules. Not all examples will be relevant to all situations, but principals may find it helpful to consider them. Principals should make sure that they have assessed their existing processes in response to the new rules and have sufficiently documented any revisions. 

The FCA has followed up directly with firms in the review and says that it will take swift action where it sees principals are not meeting its standards in the future. It intends to continue to monitor compliance with the rules, with a particular focus on annual reviews, self-assessments, and the quality of oversight of ARs.