Spotlight on Appointed Representatives
Our Technical Consultant, Ann Peel, considers the implications for firms with Appointed Representatives following the recent fine on AP&G Limited.
Firms are responsible for each of their ARs whether they have one or a hundred. The principal firm runs the risk of being held accountable by the regulator for any breach of the rules involving an AR. In other words, what an AR does, or fails to do, is treated as having been done, or not done, by the principal.
The FCA certainly has its eyes on the conduct of ARs and has recently published details of a long- running enforcement case against a wholesale insurance broker, Alsford Page & Gems Limited. Through a small network of ARs, the firm sold extended warranties for satellite equipment or household appliances to customers (including vulnerable customers) that did not meet their needs or were not really wanted.
APG has been censured and its parent company has agreed to make a restitution payment of £400,000 to affected customers – this is equivalent to the brokerage fees that APG made from selling the extended warranty insurance policies.
This case emphasises the point that the principal firm is responsible for ensuring customers are treated fairly by the Appointed Representatives. Firms with ARs must therefore ask themselves some fundamental questions:
- Does our risk management frameworks enable us to manage the risks associated with appointing ARs?
- Do we have adequate oversight and control over the activities of our ARs, particularly over their sales activities?
The primary lesson for firms is that they should not take on ARs where they have limited knowledge of the AR’s business model as they will not be able to adequately assess and monitor the AR’s conduct risks. Firm’s should also only take on ARs if they have adequate resources to oversee their activities. This includes regular contact, quality monitoring (file reviews) and ensuring the AR is complying with the both Principal and FCA requirements. Don’t forget, also, that ARs cannot hold client money and the Principal firm has to select from two options; Immediate or Periodic segregation.
Rule changes could be made to reduce the potential harm to consumers posed by ARs. In the meantime, the FCA is consulting on a new fee related to ARs whereby Principals will pay an additional fee of £250 per AR to raise £10m to fund more supervisory work in this area.