The FCA confirmed new rules on 3 August, which will come into effect on the 8 December 2022. This early implementation is partly because the FCA considers that principals should already have several of the elements covered by this reform in place.
The regulator has acknowledged that firms will need longer to implement changes to some of the data collection and processes, granting the following transition periods:
- Review of AR details on the Financial Service Register is coming into force on the first Account Reference Date after 12 months have passed from the rules coming into force.
- Annual reviews rules come into effect on the 8 December, however the FCA gives principals up to a maximum of 12 months to carry out their first annual review. This allows firms to spread the review, especially if you have multiple ARs. However, firms shouldn't underestimate the time and skills required to undertake this review. A last-minute approach wouldn't be wise.
- Annual self-assessment: principals will have to prepare their initial self-assessment and seek the governing body’s approval by the 8 December 2023.
Changes to notification and provision of information
Firms will have to notify the FCA at least 30 calendar days before the contract take effect instead of 60 days. This applies for AR and Introducer Appointed Representatives (IAR). Such notification should be made once the principal has completed its due diligence process.
The FCA will collect the data on existing ARs by issuing section 165 data requests to principals that will have 60 days to respond. All firms with existing ARs should expect to receive such information requests. The FCA will start issuing the data request “later in the year”. This might be before the implementation of the final rules. The FCA is also simplifying the data collection process.
With regards to disclosing new relationships, the FCA acknowledged that the provision of non-regulated non-financial activity revenue had a limited value, therefore won't collect this information. The FCA is also introducing a revenue band to capture first year estimates rather than principals having to provide narrow estimates. The FCA is also providing non-Handbook definitions of non-regulated activity and non-regulated financial services activity.
The complaints and revenue data will have to be provided within 60 business days after the principal firm’s accounting reference date, rather than 30 business days. The FCA isn't changing the information on existing AR non-regulated non-financial information that will have to be provided by revenue bands. If an AR has multiple principals only the lead principal will be required to provide the non-regulated activity information to the FCA. The complaints reporting will only apply to complaints open on and after the 8 December 2022.
The FCA will not add information on the nature of regulated activities ARs are permitted to conduct on the register. The annual review of the AR details on the register remains a new requirement, however it's coming into force on the first ARD after 12 months have passed from the rules coming into force.
The definition of regulatory hosting has been refined, and authorised firms still need to notify the FCA 60 calendar days prior to starting to offer such services. No additional rules will be applied to regulatory hosting at this stage.
Notification of significant changes: the FCA is requiring firms to notify any AR change of name within 10 business days of the change rather than at least 10 days before the change.
Clarifications from the FCA
The regulator also provided several clarifications around areas of uncertainty.
Additional triggers to review oversight appropriateness:
- Significant increase in complaints, or
- Change in the AR’s target market, or
- A change to the AR’s scope of appointment (within the principal’s permission)
The FCA has reiterated that the oversight of the AR shouldn't change the AR’s employee relationship with the AR and provides further guidance on “overseeing AR to a comparable standard as if they were employees of the principal”.
The AR annual review can be reviewed at a lower level that the principal’s governing body. The review can be carried out by a responsible individual with a suitable degree of knowledge and authority. Significant changes will still need to be submitted to the governing body. Firms should consider the risk of conflict of interest when having individuals responsible for the review of the AR annual review. However, this doesn't change the requirement for the governing body to approve the principal’s self-assessment on an annual basis.
For ARs with multiple principals, the principals may agree to share information to reduce duplication, however nominating the lead principal to undertake the annual review wouldn't be considered as appropriate oversight by the FCA.
Next steps
On the discussion-paper section of the consultation paper, the FCA isn't providing details on when they will issue a consultation paper. This is partially because there are dependencies with the work the HMT carried out on the AR regime. The areas being considered are:
- the scope of AR permission, an introduction of a principal permission
- potential application of SM&CR or part of it to ARs, and
- coverage of ARs by the Financial Ombudsman Service
The FCA has also reminded firms that they're expected to consider upcoming Consumer Duty requirements when looking at their compliance with this enhancement regime.
The implementation period is short even if the FCA has granted with the extended transition periods for some aspect of the enhanced requirements. Firms should undertake gap analysis and must be prepared to meet the December deadline - this includes reviewing the data available on existing ARs to fulfill the incoming data request.
Among a string of other tightening regulatory requirements, financial services firms must allocate sufficient resources and time to ensure full compliance with the new rules.
To find out more about the AR regime or access leading advice, consultancy and support, contact Alex Ellerton or David Morrey.
