The FCA has highlighted the “significant benefits” the Appointed Representatives (AR) structure offers but insists ARs must also take greater responsibility for complying with its rules.
In December 2022, the regulator introduced stricter requirements to improvehow the UK’s approximately 2,600 principal firms (such as networks) oversee the 35,000 AR firms operating in the market. These rules require principals to provide the FCA with more detailed information on how their ARs operate and how they manage risks.
Many mortgage brokers join networks for access to more lenders and products, commercial terms and technology, but mainly for compliance support, allowingthem to focus on advising clients.
Speaking at Stonebridge’s annual conference in Birmingham on Monday (24 February), Joanna Legg, Head of Consumer Policy & Outcomes at the FCA, acknowledged the value of the AR model but stressed that ARs must also playtheir part in meeting regulatory standards.
Legg said: “The Appointed Representative regime offers significant benefits toboth consumers and financial services providers.
“For firms, it offers a proportionate and cost-effective way to comply with regulations and it allows a wider range of providers and intermediaries to come to the marketplace than would otherwise be the case if direct authorisation isthe only route in.
“For consumers, the AR regime allows access to tailored mortgage andprotection products and services in an economical and convenient way, in part through encouraging competition.
“In all this, it’s right that the principal firm has responsibility for the monitoring and oversight of its ARs and ensure that they comply with our rules. But ARshave a part to play in that, too.
“We’ve often found the most effective relationship between principals are based on three things: one, that the principal clearly knows and understandsthe AR business and activities. Two, that there is openness and transparency between both parties. And three, that there's appropriate challenge from the principal if any problems are identified that have a potential to cause harm for consumers or the wider market.”
Separately, Legg reminded the brokers that good advice goes beyond simply assessing a client’s eligibility for a product.
This reinforced the message in a Dear CEO letter last month, which stated itwould be reviewing the quality of broker advice – among other areas – over the next two years.
Legg added: “We’ve done work previously in the mortgage broking market andit has helped us identify this as an area of focus. And that is really about what the advice does for the consumer and how important it is.
“Advice is about more than just assessing eligibility. It’s also about advising onneeds and whether the products the customer is eligible for are really going to deliver a good outcome.”
Stonebridge Chief Executive Rob Clifford added: “We welcome the FCA’s focus on ensuring strong oversight within the Appointed Representatives regime. At Stonebridge, we work incredibly closely with our ARs – not only to ensure theymeet all regulatory requirements but also to foster a culture of collaboration that supports their long-term success and delivers high-quality outcomes for consumers.
“One of our key advantages is our technology-driven proprietary compliance systems, which allows us to monitor activity in real time, quickly identifying anyareas that may require additional support or intervention. This proactive approach helps us maintain the highest standards across our network.
“In addition, we spend literally millions of pounds a year on people and expertise, ensuring that we have best-in-class business standards and BDMsupport, many of whom are field based, to help brokers navigate an increasingly complex regulatory landscape with confidence."
