The FCA has proposed tougher measures to tackle the harm the regulator claims has been caused by some appointed representatives.
The FCA says it is seeing a wide range of harm across all sectors where firms have ARs. This harm often occurs because principals don’t perform enough due diligence before appointing an AR, or from inadequate oversight and control after an AR has been appointed.
What may concern advisers and networks operating on an AR basis, is that the proposals come with a lot of read-across from general insurance and somehow Greensill, which may come as a surprise given that that seemed to be about invoice financing.
The statistics deployed by the regulator should have had some journalistic challenge but that was not forthcoming in the coverage. To quote the FCA paper directly -
“The FCA has analysed supervisory cases and FCA and Ombudsman complaints data. On average, principals cause 50 to 400% more supervisory cases than non-principals.”
As you can see it is a quite a range of percentages. Also as the paper says - non-principal means directly authorised firms but you might question whether that has been made clear.
In addition, the AR regulatory status extends across a lot of City and financial activity.
My reading of figure three in the FCA paper shows that the biggest problems per million pounds of activity afflicts the general insurance sector.
There are some issues with ‘retail investment’ between AR firms and DAs – ARs have more complaints. Whether it is to the extent that would justify such an intervention is moot.
It will be interesting to see if any trade websites do some better, stronger analysis next week because the initial coverage is not all that impressive.
Anyway, having looked at the stats, what exactly is the FCA proposing to do?
The big change is in the information to be reported on ARs by principals - they must report annually and information will be included on the register.
These are a few examples below -
"Principals should check the accuracy of the details of their ARs on an annual basis, confirm where details remain accurate and report changes to the FCA, including on the activities they permit their ARs to carry out.
"Principals should submit complaints data for each AR.
"Principals to submit revenue data for each AR. Firms would need to submit data on both regulated revenue of the AR and non-regulated revenue of the AR(s)."
The FCA is also proposing to raise a periodic flat fee of £250 for each appointed representative.
What of the industry response? Well clearly there will be some challenges for networks and network members if plans go ahead. Even with some queries regarding the FCA stats, there are differences between DA and AR with more complaints for the latter.
There will be more for networks to do, and the less well-run ones or those on tighter margins may face a challenge.
Clearly some directly authorised firms will welcome the change if it leads to fewer liabilities falling on the FSCS.
The above is obviously the longest review entry for a single story in several years, so I’ll add just three more stories.
Former IFA Harry Katz slams the slow response from insurers as he claimed for cancer from two policies.
Covid uncertainty is deemed the biggest risk by advisers, perhaps unsurprisingly given Omicron.
Consolidation is bad for clients argues a group of advisers who have remained independent, at an Albemarle Street Partners round table.