We assessed the key harms and drivers of harm caused by Appointed Representatives (ARs) and Introducer Appointed Representatives (IARs) who undertake credit broking.
Introduction
We want to improve principals’ oversight of their Appointed Representatives (ARs). Below we give examples of good practices and areas for improvement we have seen in principal firms’ due diligence checks when appointing ARs and in their ongoing monitoring of ARs.
This publication builds on our policy statement and work to improve the AR regime. The guidance these examples refer to are in SUP 12: Application and purpose.
Any references to ARs includes Introducer Appointed Representatives (IARs), unless stated otherwise.
Next steps
All principal firms who have ARs should consider these findings and address any gaps during their initial and ongoing monitoring of ARs. We looked at principal firms that introduce consumers to lenders or other brokers to provide finance. However, firms with ARs conducting other types of regulated activity will also benefit from considering our findings.
We will act where we identify firms that do not have adequate oversight of their ARs.
Initial appointment and ongoing oversight of ARs
Outcome we want
Firms have robust procedures, systems and controls to ensure they conduct appropriate due diligence checks on ARs, both on an initial and ongoing basis.
Full ARs
Firms should ensure on an initial and ongoing basis that the AR:
- is solvent
- is suitable to act for the firm, including whether they are fit and proper
- has no close links which could prevent effective supervision by the firm
Firms should also ensure:
- they have adequate controls over the AR’s regulated activities
- they have enough resources to monitor and enforce compliance of the relevant requirements by the AR
- the AR’s activities do not or would not result in undue risk of harm to consumers or market integrity
Introducer Appointed Representatives
Firms should take reasonable care to ensure on an initial and ongoing basis that:
- an IAR is suitable to act for the firm, and
- the IAR’s activities do not or would not result in undue risk of harm to consumers or market integrity
Initial appointment of ARs - areas for improvements
Some firms did not have an adequate understanding of the full requirements when appointing ARs and/or had poor systems and controls when conducting initial due diligence before appointing an AR.
Initial appointment of ARs - good practices
Firms that demonstrated good practice in overseeing and monitoring their ARs had a good understanding of the risks and harms involved in using an AR. They were also able to identify how the regulatory requirements translate to the business model used. These firms understood SUP 12 sets out minimum requirements and used these as a starting point when designing effective approaches to onboarding ARs.
These firms also undertook robust quality assurance/auditing of their ARs and applied the same standards to the AR’s conduct as they did to their own firm.
Ongoing monitoring of ARs - areas for improvements
Firms with poor systems and controls were not able to demonstrate effective ongoing oversight of their ARs. Some firms did not have enough resources to adequately monitor the number of ARs they either had, or planned to have, in the near future.
We also found a potential conflict of interest between persons who were maintaining and developing commercial relationships with ARs while simultaneously being responsible for a compliance function involving the ongoing monitoring of the ARs. There was a risk that because of commercial interests and relationships these staff may also be unable to fulfil independent compliance obligations.
In particular, some firms could not adequately demonstrate how they were monitoring the activities of their ARs, so that this did not or would not result in undue risk of harm to consumers.
Ongoing monitoring of ARs - good practices
Firms with robust systems and controls to monitor their ARs could demonstrate a variety of methods by which they could satisfy themselves their ARs were complying with the relevant rules and regulations. Monitoring procedures also focused on identifying and addressing potential individual consumer harm and improving procedures more generally for the future.
These firms had dedicated oversight staff, adjusted the resource as and when required and had a clear structure around responsibilities and points of escalation. While the number of oversight staff per AR didn’t always correlate to better oversight, the experience and knowledge of the individuals involved did. Oversight staff also had clear responsibilities which favoured a compliance function rather than a relationship management function.
In one case we found that the effective use of resourcing allowed a firm to have a recorded phone call with all introduced consumers before proceeding to full application stage. This allowed the firm to ensure the particular AR had not acted outside the scope of its permissions and the consumer had received all the relevant information. Where the firm identified any incidents of this not happening, it put in place additional training or action.
Ending AR relationships
Outcome we want
Firms to be clear on when and how to end an AR relationship in line with the requirements in SUP 12.8.
Ending AR relationship - good practices
Firms with robust systems and controls had appropriate and well-documented procedures to end AR relationships when appropriate.
Some firms could show they kept significant control of the regulated services they were permitting their ARs (and in particular IARs) to conduct. This was either through having direct control of the software used to provide quotes, where they could suspend or terminate access if the AR/IAR did not follow correct procedures, or through controlling promotions literature on websites which could easily be removed.
Where an AR had not conducted regulated activities for some time and there were no valid reasons for this, firms terminated the AR relationship.
Ending AR relationship - areas for improvements
Some firms did not check an AR’s website after termination to ensure it no longer stated that it was an AR of the firm or that it could undertake regulated activities on behalf of the firm.
Some firms were not able to explain their offboarding policy and did not maintain up to date policies and procedures.
Some firms did not notify us to amend the Register immediately after terminating a contractual arrangement. This is important, to ensure consumers don’t believe an AR continues to act on the principal’s behalf.