FCA’s three-year strategy to benefit Appointed Representatives


It’s refreshing to see the Financial Conduct Authority (FCA) taking time to write to principal firms with Appointed Representatives (AR), highlighting its three-year strategy which includes making improvements to the oversight of the AR regime.

It’s clear that the FCA has increased its engagement with principal firms and their ARs. Last year they launched a dedicated AR department focussed on tackling harm, and now they are increasingly using data that they receive to direct further supervisory work.

High on their agenda is Professional Indemnity Insurance (PII) and, whilst this recent communication makes it clear that they have not completed a review of each individual principal firm’s PII arrangements, they have felt it necessary to remind principal firms of their obligations to hold continuous PII to cover the activities of their ARs.

This isn’t anything new of course – the FCA have clearly set out PII requirements for principal firms in the sourcebook MIPRU 3. What IS new is that the FCA went on to confirm that they had identified a small number of principal firms that do not hold PII which is sufficient to cover the activities of their ARs.
The review conducted by the FCA primarily focussed on whether principal firm’s PII cover included its current and former ARs, however they also observed a number of PII policies that did not appear to comply with other aspects of their PII rules.

Examples provided included where the PII contained significant exclusions which potentially conflict with the PII requirements, or where policy excesses are so high, the policy is materially ineffective.

In a bold move, Toby Hall, Head of Department Appointed Representatives at the FCA, provided further clarity that “it’s not sufficient for ARs alone to hold PII policies” and “the responsibility to hold a compliant PII policy which covers the regulated activities of its ARs lies with the principal firm”

Whilst the FCA’s correspondence appears to have been distributed industry wide, and was not isolated specifically to the insurance sector, principal firms and their ARs involved in insurance distribution need to be mindful of the FCA’s other recent communications. They highlighted that a number of Principal firms from within the insurance sector had been subject to direct supervision interaction, with the FCA placing restrictions on four firms.

Clearly principal firms, like any other insurance firm, need to have conducted a detailed review of their PII arrangements to ensure they are fully compliant with FCA rules. If they’re not then, in addition to taking immediate action to rectify the situation, it’s also likely to be considered a breach of FCA PII rules and would be deemed a ‘notifiable event’ that the FCA would expect to be made aware of.