Following on in short succession from the FCA’s Host ACD review, the FCA’s freshly published November 2021 Regulatory Initiatives Grid flags that a new consultation paper on appointed representative (AR) structures is expected this month alongside a HMT consultation on the same regime. A policy statement is expected in Q2 2022.
In view of the Host ACD review and the FCA’s earlier “Dear CEO letter” on AR arrangements, firms which are Principals should consider:
- revisiting the 2019 Dear CEO letter to check that all findings in that letter have been appropriately addressed;
- whether it might be prudent to discontinue or restructure associated secondment arrangements (whereby employees or directors of the AR are seconded into the Principal to perform regulated activities such as “managing investments” and “dealing as agent” in investments (other than certain contracts of insurance) which cannot be performed under an AR structure);
- revisiting any practices whereby they, as Principal firm, are also being treated as regulatory client by the AR;
- checking whether “section 39 Financial Services and Markets Act 2000” agreements comply with the Principal’s FCA permissions, the requirements in SUP and the FSMA (Appointed Representatives) Regulations 2001 and, more generally, that they are robust enough contractually to ensure appropriate supervision. Principals should be in a position to verify whether their ARs are entering into client agreements which respect the restrictions in the model;
- where necessary, re-assessing their fee structures and business model to ensure that the fees taken from ARs are appropriate and reflect all of the work that the FCA expects to be carried on, so as to ensure robust AR supervision; and
- reviewing governance arrangements in place to ensure that the Principal’s SMFs have the management information and oversight they require to satisfy themselves that all ARs are being supervised appropriately.
Irrespective of the FCA’s forthcoming policy proposals on the regime, firms which are concerned that they may not be operating compliant AR structures or are concerned that those structures may be introducing unnecessary regulatory risk may wish to consider: (i) terminating or running those arrangements off; or (ii) renegotiating them to reflect the current expectations of the FCA with regard to supervision and oversight, particularly following the Host ACD review.