The Appointed Representatives Regime: Evolution, Not Execution
Reassurance for Principal Firms
The UK Government has reaffirmed its support for the AR regime, recognising it provides a range of benefits for businesses and consumers including:
- Offers a cost-effective route for firms to operate without direct authorisation
- Enables broader market access
- Fosters competition
- Drives innovation
- Supports economic growth.
Despite the reforms, the government acknowledges that most Principal Firms are responsible users, providing appropriate oversight and ensuring ARs comply with regulations and treat consumers fairly.
Lessons from Greensill
This policy development comes after the scrutiny the AR regime faced following the collapse of Greensill Capital and the Treasury Select Committee’s July 2021 report, Lessons from Greensill Capital. The report urged the FCA and HM Treasury to consider reforms to limit the regime’s scope and reduce opportunities for abuse.
The Treasury notes that while the Financial Conduct Authority (FCA) has taken steps to improve oversight post-Greensill, FCA data still indicates poor oversight by some Principal Firms, posing risks to consumers. As a result, the government has concluded that reform of the legislative framework is necessary to address these concerns.
Proposed Reform: A New Regulatory Gateway
A key issue—similar to the UK’s financial promotions regime under Section 21 of the Financial Services and Markets Act 2000 until recently— is that any authorised firm can currently act as a Principal and appoint ARs without further FCA approval. To close this regulatory gap, the government proposes a new gateway requiring firms to obtain specific FCA permission before acting as a Principal to ARs.
This change would involve amending Section 39 of FSMA 2000, ensuring that the exemption from the general prohibition applies only if the firm has received FCA permission. This would give the FCA direct powers to assess a firm’s suitability before it can appoint ARs, such as that the firm as the necessary expertise, resources, and systems to oversee ARs effectively.
Minimising Disruption for Existing Firms
Importantly, the government is committed to ensuring that the new permission does not disrupt existing business activity or impose undue administrative burdens on suitable firms. The implementation approach will be designed so that existing Principal Firms will not need to reapply for the new permission. Additionally, firms seeking authorisation will be able to include a ‘Section 39 gateway’ application as part of their initial authorisation process, mirroring the current Section 21 gateway.
What This Means for Principal Firms
These proposals represent a sensible and proportionate enhancement to the regulatory regime, giving Principal Firms clarity and confidence to plan their future business activities under a strengthened framework.
Timeline and Next Steps
As of now, no specific timeline has been provided for the passing of the necessary legislation. Firms should stay informed and prepare for consultation on the detailed implementation of these reforms.
Stay Ahead of the Reforms
If you’re a Principal Firm, AR or considering entering the AR market, now is the time to review your oversight frameworks and ensure you’re ready for the upcoming changes.
To discuss the changes and how your firm can stay compliant and competitive, please contact your usual Waystone representative or reach out to our team via the below.