Targeted reforms to the AR regime

HM Treasury has published a Policy Statement on the regime for appointed representatives (ARs), setting out two specific targeted reforms:

• A new gateway requiring authorised firms wishing to use ARs to first obtain permission from the FCA.
• Changes to enable the FOS to directly investigate the AR itself in cases where a principal firm cannot be held responsible for its AR’s actions.

On the whole, the statement is supportive of the AR regime's role in promoting competition, supporting innovation and contributing to economic growth. The government has concluded that the regime should be maintained and the current scope of regulated activities which ARs can carry on should not change, and welcomes previous FCA initiatives to strengthen the regulation of principal firms in their oversight of their ARs. 

However, it has also concluded that there are currently two regulatory gaps in the framework for ARs which it proposes to fill. 

A new gateway

Currently, any authorised firm is permitted to act as a principal and appoint ARs, with no further permission or approval needed from the FCA. Of course, under legislation this may only be in respect of business which ARs are permitted to carry on. 

The government has decided that a regulatory gateway requiring permission from the FCA would allow the FCA to ensure that authorised firms wishing to act as a principal have the necessary expertise, resources and systems in place to provide effective oversight of ARs. The comparison is drawn with the recent reform of the approval of financial promotions by authorised firms to introduce a similar gateway.   

Extension of FOS coverage

Currently, the FOS will investigate the principal firm which is responsible if there is a complaint involving an AR. However, the statement cites instances in which the FOS finds that a complaint concerns something for which the principal firm is not responsible and has to declare it cannot deal with the complaint.

The government's view is that the FOS should be able to investigate complaints made in relation to the carrying on of regulated activities, regardless of whether the regulated activity is directly carried on by an authorised firm or through its AR.

A targeted extension of the FOS compulsory jurisdiction will therefore provide that in cases where the FOS decides that a principal firm cannot be held responsible for its AR’s actions, the FOS will be able to directly investigate the AR itself. 

Implementation

Implementation of the new gateway is likely to require an amendment to section 39 FSMA through primary legislation. The government is also committed to ensuring the new approach does not disrupt existing business activity. Significantly, the intention is that existing principal firms will not be required to apply for the new permission. 

As for the extension of the FOS jurisdiction, the government intends to develop a detailed proposal (working with the FCA and the FOS itself) and consult in due course.

The government... intends to adapt the legislative framework for ARs to provide a proportionate level of protection for consumers of AR firms, while ensuring that the current broad scope of the AR regime is preserved, enabling the financial services sector and the UK economy as a whole to continue benefitting from the regime well into the future.

https://www.gov.uk/government/publications/policy-statement-the-appointed-representatives-regime