UK signals changes to appointed representatives regime

Appointed representatives are not authorised to provide financial services but can carry on regulated activities under the supervision of a regulated principal firm. In 2021 the UK Government asked for feedback on how the regime for appointed representatives was working and has now finalised its future approach in a policy statement. Its two main proposals will impact both appointed representatives and their principals.

New FCA gateway: Permission to act as principal

Under HM Treasury’s plans, authorised firms that want to use appointed representatives will first need to have permission from the Financial Conduct Authority to do so. According to HMT, this would allow the FCA to ensure that prospective principals have the expertise, resources and systems in place to oversee their appointed representatives.

The proposal to introduce a “regulatory gateway” follows recent changes for approving financial promotions. Authorised firms that wish to approve financial promotions made by unauthorised firms must now seek permission from the FCA to do so. HMT is proposing a similar model for firms planning to use appointed representatives.

There is, however, good news for principal firms that already have appointed representatives. HMT says that it aims to design an approach that does not require existing principal firms to apply for the new permission so as not to disrupt business activity. However existing principal firms will likely nevertheless want to keep an eye on these proposals, as they may indicate that further scrutiny is coming of how they oversee and challenge appointed representatives.

Wider FOS coverage: Acting outside contract with principal

HMT has identified a gap in the consumer protection framework. When an appointed representative’s conduct is the cause of complaint, sometimes that conduct relates to activities that fall outside of the scope the arrangement it has with the principal firm. This limits the ability of the Financial Ombudsman Service to deal with the complaint.

HMT wants to extend the jurisdiction of the FOS so that it can investigate any complaint involving regulated activities carried on by an appointed representative. This will mean consumers can take a complaint to the FOS if they are unable to resolve a dispute even where the authorised firm is not responsible for the issue in dispute.

The FOS framework is currently subject to wider review: see Starting gun sounds for comprehensive reforms to the FOS.

Background

HMT published a Call for Evidence in December 2021 on the future of the appointed representatives regime. This sought views on potentially wide-ranging reforms. For example, questions considered:

• amending the range of activities that appointed representatives could be permitted to undertake,
• placing regulatory obligations directly on appointed representatives, and
• applying a form of the Senior Managers and Certification Regime (appointed representative are currently subject to the pre-SMCR Approved Persons Regime).

Ultimately, the Government has chosen to preserve the current scope of the regime and focus on more targeted changes. The policy statement notes that the regime promotes competition by allowing a cost-effective way for unauthorised firms to engage in regulated activity. HMT will consult on the detail of its reforms in due course.