• Are advisers competent?
• Is the business financially stable?
•Have customer outcomes remained positive?
Too often, annual reviews become a tick-box exercise. If challenged, firms need to be able to show both the evidence reviewed and the rationale behind their conclusions.
Do you have enough resource to supervise your ARs?
This is another question that firms don ' t always ask themselves.
As appointed representative numbers grow, oversight can become increasingly complex. What worked when supervising two ARs may not be sufficient when supervising 20 appointed representatives with a wide geographical spread.
" inactivity should not mean reduced oversight "
Appointed representatives’ which highlighted specific concerns that they have in this area.
Crucially, when an AR is conducting little or no regulated activity, principals lose one of their key monitoring mechanisms – transactional monitoring. With fewer transactions to review, there can be significantly reduced visibility of what the firm is actually doing and how it is interacting with customers. This creates the potential for activities taking place outside expected channels and for customers to be unclear about the nature of the services being provided and the protections available to them.
If regulated business writing reduces but overall revenue remains consistent, a principal firm should be concerned about the source of revenue being generated by the AR, which highlights the need for greater controls than‘ transactional monitoring’.
The regulator has made it clear that inactivity should not mean reduced oversight, it is likely to require even greater scrutiny.
It is an expectation for firms to have appropriate resources, systems, and expertise to oversee their AR population effectively. That means having enough compliance capability, management information, monitoring activity, and governance oversight to identify emerging risks before they become regulatory issues- growth should never outpace control.
What about ARs that are not writing business?
Interestingly, some of the FCA ' s concerns relate not to ARs writing too much business, but to those writing very little or none at all.
At first glance, an inactive AR might seem low risk, but the reality is very different. The FCA published a report in April 2026‘ Managing Potential Risks from Inactive
The growing concern around the " Halo Effect "
One of the increasing risks associated with ARs is what has become known as the " Halo Effect ". This occurs when customers assume that because a business is connected to an FCA-authorised firm, everything it does must be regulated and protected. That assumption can be dangerous.
Many ARs undertake a mixture of regulated and nonregulated activities, such as regulated mortgage business and non-regulated commercial finance. If customers are unable to distinguish between the two, they may believe they have protections that simply do not exist. For principal firms, this can create significant conduct risks and potentially lead to customer harm,
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