The appointment of an AR remains, technically, a “registration process” i.e. firms simply need to notify the FCA at least 30 days in advance of the appointment for a standard appointment, or at least 60 days in advance if the principal firm is a regulatory host (i.e it does not undertake any activities itself and purely exists to oversee and monitor its ARs).
Historically, a firm simply submitted the “registration” form to the FCA and the FCA added the AR’s details to the FS Register.
Since the introduction of the enhanced rules at the end of 2022, the “registration” process has become a much more involved process and it is worth noting that there is now a dedicated AR team that sits within the FCA’s Authorisation Division which deals with these applications.
Whilst the registration form was updated, it remains relatively high level, seeking details about the principal firm, the AR, the activities being performed under the AR arrangement and the financial arrangements between the parties. It also asks for information on the likely value of the business being undertaken by the AR, broken down into
- regulated activities;
- financial services activities that are unregulated; and
- wholly unregulated activities.
At the end of the form, the principal is required to confirm:
- it has complied with all of its obligations as a principal firm, including those in FSMA and SUP 12; and
- prior to the commencement of the activities, there will be a written agreement in place which complies with SUP 12.5
Essentially, the principal is confirming that:
- it has carried out appropriate due diligence on the AR before onboarding;
- has appropriate arrangements in place which will enable it to actively oversee and monitor the AR’s activities; and
- will have by the time the arrangement commences a formal written agreement between the parties.
The form is submitted, along with the relevant individual approval applications. Job done? Not quite…….
Within a couple of days of the submission, the triage team comes back with a list of questions, asking for additional information and sometimes documentation, the responses to which are required to be provided in relatively short order and usually within a week. Details covering the following are likely to be requested:
- The principal’s Business Model
- How it makes money
- Why the principal wants to appoint the AR and how this fits into the business model
- Will the appointment of the AR result in any changes to the principal firm’s permissions (VoP)
- Does the principal plan to appoint more ARs in the future
- Onboarding and Due diligence
- Summary of the due diligence undertaken
- Whether the AR is currently an AR of any other firms and if so, is there a Multi-Principal Agreement between the principal firms?
- Whether the AR has previously been appointed as an AR of another firm and if so, the reason for the termination
- Whether the principal has carried out a risk assessment of the risks presented by the planned AR arrangement (a copy is requested if there is one in place) to include:
- The key conduct risks (e.g product governance, fair value, Consumer Dity and conflicts of interest)
- The key prudential risks (e.g the principal’s ability to wind-down solvently or cease regulated activity without any consumer or market harm)
- Oversight and monitoring
- An outline the arrangement for the control and monitoring of the activities of the AR including (as relevant)
- Frequency and type of monitoring
- the oversight and control framework
- ongoing assessment of controlled function holders and other individuals
- financial stability
- financial promotions
- CASS compliance
- money laundering & fraud controls
- complaint monitoring
- Compliance and/or Audit monitoring
- An overview (and a copy, if it exists) of the key management information the principal would expect to use to monitor the AR
- an overview of the resources available to oversee the AR’s activities, including:
- a description of who would oversee the monitoring of the firm
- how the principal would assess their competence and independence
- an overview of the resources available to oversee the AR’s activities, including:
- a description of who would oversee the monitoring of the firm
- how the principal would assess their competence and independence
- Financial and operational resilience
- Impact on current financial resources requirements
- PII requirements
- Conflicts and close links where the AR is in the same group as the principal firm
- The rationale for having the AR
- Why the principal firm is not bringing the activities within its own firm
- Overseeing the AR
- how the principal firm is able to appropriately oversee the activities of the AR
- whether clients will be subject to the UK FOS and FSCS scheme or an oversees equivalent
- whether activities are regulated where the AR is based and any differences in the regime that might adversely impact UK customers
Once you have provided the information to the FCA, it is a matter of waiting. As stated above, firms are required to provide notification to the FCA at least 30 days (or 60 days) in advance of the appointment. In theory, once the required period has elapsed, the AR can start carrying on business…….. yes and no……..
- yes, technically it can (subject to the no below), but this runs the risk that the FCA come back subsequently and seek further information or raise concerns, which goes back to the original comment, this is not a registration process, it is a quasi-approval process and it would be prudent for the principal firm to wait until the ARs details are included in the FS Register before allowing the AR to start doing business;
- no, if the activities that the AR will performing include insurance distribution activities, it is not permitted to carry out those activities until its details are included on the FS Register (a quirk brought about by the Insurance Distribution Directive (IDD)). However, arguably, this only applies to insurance distribution activities subject to the IDD.
It is also worth noting that HMT is currently consulting on changes to the AR regime which includes the introduction of a new regulatory “permission” for being a principal firm….. whilst nothing is yet formalised, under the current consultation, anyone who has ARs at the point this requirement is introduced, will likely be “grandfathered” and will obtain the new permission automatically.
Firms seeking to appoint ARs for the first time after this, will need to apply for a FCA variation of permission to obtain the new permission before they can look to appoint any appointed representatives.
Final thoughts…. Whilst not currently a statutory application / approval process, registering an AR is certainly akin to one currently.
With the proposed changes under consultation, this informal process will become a formal variation of permission process which may result in the bar being raised even higher before firms are allowed to act as principal firms.
Submitting the application on connect - Practical tips:
- The AR Appointment Form must be completed alongside an Approved Person Application (either Full Form A or Short Form A), as the Principal Firm must have a named individual responsible for overseeing the AR.
- This individual does not need to be an employee or director of the principal firm, although in practice they often are.
- When using FCA Connect, firms should complete the AR Application Form first and then add the Approved Person Form as a related application. The Approved Person Form should not be started as a standalone draft.
- It is not currently possible to upload supplementary documents directly to an application submitted via FCA Connect. As a result, any supporting materials - such as a Skills Gap Analysis, AR organisational chart, or the Approved Person’s CV - will need to be provided separately by email.
- The simplest way to do this is to reply to the confirmation email issued by connect@fca.org.uk following submission. You should ensure that you add the relevant application reference number to ensure documents are correctly linked to the application.
Prepare responses early:
- Download the AR Application Form set out in SUP 12 Annex 3 and use this as a working document to prepare draft responses in advance. This allows time to sense‑check, verify and, where necessary, challenge assumptions before the application is submitted via Connect.
- Ensure you clearly understand why your responses are framed as they are. This will place you in a much stronger position if the FCA raises follow‑up questions once the application has been reviewed.
- Note that, whilst SUP 12 Annex 3 form broadly mirrors the questions asked on Connect, the ordering and wording differ, and the Connect form does not number questions. Firms should therefore ensure responses are consistent when completing the form in Connect.
The fourth and final article will focus on translating SUP 12 into practice and what firms should be doing in terms of overseeing and monitoring its ARs.
