A fifth of principal firms have not carried out a required self-assessment or annual review of their appointed representatives while some are taking a ‘bare minimum approach’.
The FCA’s review of principal firms, found while firms made some effort to comply with the regulator’s new rules, there was “still more to do”.
The review looked at how principals were meeting the FCA’s enhanced AR rules introduced in December 2022.
It revealed 96 percent of principals said they were very confident they were effectively implementing the new rules and guidance but the FCA said there was likely some “over-confidence" in how well firms were implementing the rules.
Jane Savidge, interim head of department for appointed representatives at FCAs, said: “Some firms have been embedding our rules well, but some aren’t getting the basics right and are taking a ‘bare minimum’ approach.
“Principals must have clear, written AR agreements from the outset and effectively monitor their ARs to make sure they act within scope."
The FCA said some firms were taking a “tick-box” approach to complying with its rules, with some relying on basic information like website checks or using self-declarations from their ARs to demonstrate effective oversight.
Data from the review showed around half of principals were not regularly reviewing their AR agreements.
It also found 82 per cent of principals had completed their annual reviews, with 43 per cent of these being of a “good quality”.
Some principals involved in the FCA’s in-depth assessment could not show they had undertaken an adequate annual review of information about their AR.
“This was due to either a poor audit trail, insufficient record-keeping or the review not covering the matters required in our rules,” it added.
Further data showed a third of principals were not using data or management information to keep tabs on whether ARs were acting within the scope of AR agreements.
In addition to this most firms had not changed their AR onboarding or termination procedures since the rules were introduced.
According to the review, examples of good practice from principals included keeping clear documentation to show compliance with the rules and using a broad range of checks and information to oversee and monitor ARs’ activities.
The FCA said it had followed up directly with firms in the review and would take “swift action” where it saw principals were not meeting its standards in the future.
alina.khan@ft.com
