In this series of articles, MEMA will break down what is the Appointed Representative Regime and what steps your organsiation will need to take.

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History

The Appointed Representative (AR) regime was first introduced through primary legislation in 1986. The regime was created primarily to allow self-employed representatives to engage in regulated activities without having to be authorised. In particular, insurers and other product providers used it to distribute products through ARs.

Since the regime has evolved to include a wider range of models such as regulatory hosting and networks. Principals and their ARs also offer a wider set of products and services across many different sectors (for example, from retail and general insurance to asset and investment management).

The FCA has estimated that there are around 40,000 ARs, including IARs, operating under around 3,600 principals in a wide range of financial services markets.

What is an Appointed Representative?

The FCA defines an appointed representative (AR) as a firm or person who runs regulated activities and acts as an agent for a firm it directly authorises. The firm directly authorised is known as the AR' principal'.

There must be a written contract between the principal and the AR documenting the arrangement. The principal takes full responsibility for ensuring that the AR complies with the FCA rules.

When appointing an AR, the principal assumes responsibility for the regulated activities the AR carries on.

Regulations

In the United Kingdom, The Financial Conduct Authority regulates financial services companies. It will generally provide the Principal firm with authorisation. The Principal will then proceed to offer firms within its network the opportunity to be regulated or have permissions to allow them to operate in the UK as a regulated entity.  

Financial Services and Markets Act 2000 states that ‘The principal of an AR is responsible, to the same extent as if the principal had expressly permitted it, for anything done or omitted by the representative in carrying on the business for which the principal has accepted responsibility. This means that an act or omission of the AR, in carrying on the business the principal has accepted responsibility for, is treated as an act or omission of the principal itself.

How to become an Appointed Representative

To become an Appointed Representative you will need to:

• decide which regulated activities it wants to facilitate and find a principal who is in that type of business
• decide whether it wants to be an AR or an introducer-appointed representative (IAR)
• think about how many principals you want – this will depend on the type of business you run and the type of customers you have
• find out what contracts and controls you need to have in place
• confirm the costs of the relationship
• understand the expected level of monitoring in place from the Principal and the type of visits (onsite, remote), and the frequency
• agree when you will inform the FCA of the arrangement so this information is placed on the FCA’s register

What Appointed Representatives can do

ARs can undertake some regulated activities but not others. The relevant legislation (STATE) specifies which regulated activities an AR can undertake. Most of these activities are advising on and arranging/making arrangements for different financial products and services (SUP 12.2.7G provides details on the regulated activities ARs can undertake).

Where these models are well run, they can also bring benefits such as wider consumer access and greater innovation.

Practicalities of being an Appointed Representative

There are some benefits to the AR regime. These range from increased cost efficiency for principals to effective competition for firms and market participants. We provide more detail below.

• Easy and fast process- you will not need to proceed with the lengthy steps of setting up your FCA application. This will include the creation of a structured and logical business plan, procedures, financials, and presentation of senior management. The process with an AR generally takes a few weeks
• Costs: You do not have to consider the authorisation fee, annual reporting fee or associated costs with first going through authorisations. It is a cost-effective way to comply with regulations
• Competition: it allows for a wider and more diverse range of firms to perform certain activities without requiring FCA authorisation
• Regulator incubator: it allows some firms to better understand the regulatory environment and demands before proceeding to full authorisation

About MEMA

Our specialist team has the experience and expertise to help you. Our offering includes a regulatory business plan, a suite of compliance policies and procedures, and an IT security risk assessment.

We can provide template documents and work with you to tailor these to your specific circumstances. We can also carry out a gap analysis on your current policies and procedures – and help you address any action points identified.

We will explain to you the FCA’s expectations and its recent publications and prepare a gap analysis and/ or a suitable remediation plan. Among the firms, we work with are:

• Payment initiation service providers (PISPs)
• Account information service providers (AISPs)
• E-Money institutions
• FX exchange companies
• Merchant acquirers
• Bill payment service providers
• Electronic communication exclusion businesses

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