For many firms, using appointed representatives( ARs) can be an attractive way to grow. The model can help expand distribution, increase market presence, and create new revenue opportunities without the cost and complexity of establishing additional directly authorised businesses. However, with those benefits comes a significant regulatory challenge.

Since the FCA strengthened its expectations around principal firms and appointed representative oversight in December 2022, principal firms need to have a deep understanding of their ARs, the activities they undertake, the associated risks, and the potential impact they could have on customers. Based on increasing FCA supervisory activity in this area, firms should expect those arrangements to be tested.

" One of the biggest misconceptions surrounding the appointed representative model is that the risk sits with the appointed representative – to be clear, it does not."

A common misconception

One of the biggest misconceptions surrounding the appointed representative model is that the risk sits with the appointed representative – to be clear, it does not.

Ultimately, the principal firm remains responsible for the activities carried out by its appointed representatives. If an AR provides unsuitable advice, generates customer complaints, breaches Consumer Duty requirements, or becomes involved in financial crime or mortgage fraud concerns, the regulator will inevitably ask what oversight the principal firm had in place, whether the AR was suitable, and whether those issues should have been identified sooner. In other words, your AR ' s problem is your firm ' s problem.

The additional arm’ s-length relationship between some principals and their appointed representatives can also lead to an increased risk. It is important to ensure that relationships between

Paul Bruns, Compliance Director, Simplybiz

18 | The Adviser Online