The Financial Conduct Authority (FCA) has published a review of how principal firms manage inactive appointed representatives, finding gaps in oversight across the AR regime. The FCA said improvements were needed alongside areas of good practice.
Around 34,000 appointed representatives operate through 2,400 authorised principals in the UK. Principals must ensure their ARs comply with FCA rules, including when an AR stops carrying out regulated activity.
Rules introduced in December 2022 require principals to review each AR annually, keep records for six years and consider ending arrangements where no regulated activity has taken place.
A previous FCA review, published in September 2024, found only 43% of annual reviews were of good quality. Some 18% of principals had not carried one out at all.
That earlier assessment surveyed 251 principals and examined 23 firms in depth. Fewer than a third had reviewed consumer-facing materials. Only one in ten had updated their termination procedures.
The regulator noted some firms had adopted a tick-box approach, relying on website checks or self-declarations. This was despite 96% of principals expressing confidence in their compliance.
Inactive ARs that keep their listing on the Financial Services Register can lend credibility to unregulated business. HFW, the law firm, has described this as the "halo effect" of appearing on the register to promote risky activities.
Claims linked to ARs accounted for 61% of the value of claims to the Financial Services Compensation Scheme in 2018/19, totalling £670 million, Kennedys has noted.
Clifford Chance has said the general insurance sector is especially exposed under the AR regime, given that appointed representatives have long been a common route for connecting consumers with providers.
Phil Smith, head of redress at consultancy Broadstone, said "inactive appointed representatives are not a passive risk" and can create "significant blind spots" when oversight lapses.
The direction of travel is "towards more proactive supervision and higher expectations on principals," he said.
The review comes alongside a government push to overhaul the AR regime. HM Treasury published a consultation in February proposing a new FCA permission requirement for principals, an extension of the Financial Ombudsman Service's jurisdiction to AR-related complaints and the application of the Senior Managers and Certification Regime to AR personnel.
Freeths, the law firm, noted the consultation describes the current framework as "inconsistent, burdensome, and increasingly outdated."
Smith said firms that treat oversight as a continuous process rather than a one-off exercise will be better placed to meet the regulator's expectations. The FCA has said it "will take swift action where we see principals are not meeting our standards."
