Navigating the FCA's Guidelines: Recruiting, Changing, or Terminating an Appointed Representative

Introduction:

The Financial Conduct Authority (FCA) recently published guidelines on the recruitment, change, and termination of appointed representatives (ARs). As a principal firm, it's crucial to understand and adhere to these guidelines to ensure effective supervision, compliance with standards, and responsible management of ARs.

Recruiting an AR:

Recruiting a new AR involves notifying the FCA at least 30 days before the appointment starts. Prior to notification, principal firms must conduct thorough due diligence, ensuring the financial stability and competence of the appointed firm. Additional scrutiny may be required for overseas ARs or instances of rapid expansion.

Key Information for AR Notification:

When notifying the FCA, principal firms must provide essential information, including:

1. Primary reason for appointing the AR.

2. Nature of regulated activities permitted.

3. Non-regulated activities conducted and their nature.

4. Provision of services to retail clients.

5. Previous AR affiliations and reasons for the change.

6. Group affiliation, if applicable.

7. Financial arrangements and estimated revenue in the first year.

Related Approved Persons Applications:

Principal firms are responsible for assessing the fitness and propriety of individuals associated with ARs. This involves due diligence practices such as:

1. Checking fitness and propriety in the public domain.

2. In-depth review of competence and suitability.

3. Evaluation of employment history and reasons for leaving roles.

4. Verification of previous and current company directorships.

5. Assessment of capacity and experience for the sought role.

6. Standard Disclosure and Barring Service (DBS) checks when appropriate.

Good Practices and Areas for Improvement:

The FCA outlines good practices and areas for improvement in due diligence. Disclosures should be comprehensive, explaining any identified risks and outlining mitigating steps. Failure to disclose relevant information may be viewed as dishonesty.

Change of AR Details and Termination:

Principal firms must notify the FCA of any changes in AR details or termination. Termination may be appropriate when ARs are unwilling or unable to resolve issues or mislead clients.

Assessment Timeframes: AR appointments may take longer than 30 days, especially if individuals require approval as Approved Persons. Principal firms should plan for potential delays, taking up to 90 days or more in certain cases.

Adhering to the FCA guidelines is essential for principal firms in effectively managing their relationships with ARs. Thorough due diligence, transparent disclosures, and timely notifications contribute to a regulatory-compliant and responsible framework for recruiting, changing, or terminating appointed representatives.