4. Improving oversight of Appointed Representatives

Principal firms are responsible for ensuring their Appointed Representatives (ARs) comply with our rules. But many principals do not adequately oversee their ARs’ activities. Consumers are at risk of being misled and mis-sold, while misconduct by ARs in the financial sector can undermine market integrity. New rules and guidance came into effect in December 2022. These aim to improve principals' oversight of their ARs, increase the information they give us and raise standards across financial services.

Suitability and treatment/Confidence

What the latest metric values tell us

For metric OAR1-M01, complaints data show an improved picture for principals and ARs compared to non-principal firms on average. Overall, principals and ARs are still generating more complaints per £1m of revenue than non-principal firms in each of the 3 key retail portfolios in 2023. However, the gap between principals and non-principal firms has significantly narrowed for mortgage intermediaries and GI intermediaries.

For example, during 2020-2022 principal firms in the mortgage intermediaries portfolio averaged 7.8 complaints per £1m of regulated revenue. In 2023 that fell to 4.9. By contrast, non-principal mortgage intermediaries averaged 4.9 complaints per £1m of revenue over 2020-2022. In 2023 this fell slightly to 4.75.

The graph below shows that the gap between principals and non-principal firms has narrowed compared to the baseline, but not in all sub-portfolios. Whilst principals have improved overall, this is particularly driven by principal firms with higher revenues. For some firms with lower revenues have seen principal performance deteriorate and the gap in complaints generated by principal firms compared to non- principal is not narrowing in the same way.

For metric OAR2-M01, during 2023, we have maintained robust standards at the Authorisations gateway. We have observed some principal firms providing more information at the point of submission as a result of our previous feedback suggesting the principal provides a fuller assessment. Our rate of withdrawals for Add AR notifications in 2023 increased to 5.9% and our rejection, withdrawal and refusal rate for applications to perform control functions related to an AR more than doubled to 6.5%. In 2022 the rates were 1.6% and 2.8%. We anticipated an increase but do not think we can infer an ongoing trend of higher RWR figures. Early signs for 2024 are that this upward trend is starting to reduce. We expect this rate to continue to fluctuate before we can have confidence it is reflecting improvements in due diligence by principals.

For metric OAR2-M02, in 2023, numbers of supervisory cases remain above the 2020 baseline though slightly below 2022 numbers. In 2021, we undertook a significant exercise raising cases against ARs and their principal firms who failed to tell us when the AR changed name, entered administration, liquidation or dissolution. This exercise led to a significant spike in cases opened relating to ARs in 2021 – with a drop in 2022 – but still at a higher level than in 2020. During 2023/24, our supervisory interventions have seen principals terminating relationships with c.300 Introducer ARs and c.350 Full ARs. For calendar year 2023, following our supervisory interventions, 20 firms have applied to impose requirements, 1 own initiative requirement was imposed by the FCA and there have been 3 Attestations, which restrict how firms carry out their business; and there have been many more informal interventions. Also, 9 skilled person reviews took place. In addition, 7 firms (new and existing principals) applied to impose requirements at the Authorisations Gateway.

For metric OAR3-M01, our FCA and Practitioner Panel survey 2023/24 showed that 63% of principal firms surveyed think that oversight of AR has improved because of the FCA’s actions this year. This is an increase from 56% last year. Only 1% believed oversight had decreased.