Appointed Representatives – are you compromising your Principals?
The Appointed Representative/Principal business model has evolved since its infancy, with many brokers and insurers offering routes to FCA authorisation. But what are the risks of jumping into bed with the wrong Principal?
This question has become increasingly important since the 2nd half of 2016, when the Financial Conduct Authority released the findings of a thematic review into Appointed Representatives (ARs) and the Principals they work with.
The review highlighted shortcomings in some Principal firms’ understanding of the rules and their compliance with the requirements. In the FCA’s own words, “the issues we identified were serious and widespread, and showed that over half of the Principal firms did not fully understand the risks arising from their ARs’ activities, or were unable to demonstrate that they were complying with their obligations to control and oversee these activities.”
Whilst some of the findings were related to firms with a large number of ARs who were not ‘insurance people’, the findings highlight the responsibilities that all firms take on when appointing an AR.
The Principal is responsible for any regulatory shortcomings that might occur with their ARs, and must, therefore, put in place an appropriate risk management framework to identify and manage the risks that the individual ARs present to their business and to clients.
The regulator will undoubtedly be more involved in AR networks, with the possibility of further thematic work or regulatory actions as a result of last year’s findings.