UK Financial Conduct Authority Publishes Expectations for Principals of Overseas Appointed Representatives

The Financial Conduct Authority has published guidance on the challenges and expectations for principal firms with overseas appointed representatives. The AR regime allows authorized firms to appoint representatives to conduct certain regulated activities on their behalf. The FCA updated its AR rules and expectations at the end of 2022, which included introducing a requirement for principal firms to report additional information about the business conducted by their ARs and amending its rules and guidance on its expectations of principals and their responsibilities, such as the expectation that principals manage their arrangements with ARs so that there are no conflicts of interest and enhance their monitoring of a delegated task or function, and to specify that the principals' activities should not result in undue risk of harm to consumers or market integrity. The new rules also require principals annually to assess the fitness and propriety and competency and capability of individuals at ARs.

During the FCA's engagement with industry regarding these amendments, it emerged that principals with OARs experience challenges, such as differences in legal, accounting and regulatory requirements for each jurisdiction.

The FCA has now set out expectations for principals with OARs, practical considerations principal firms should be taking into account when managing OARs, including preventing harm to customers and market integrity. The FCA stipulates that principal firms must ensure that AR agreements require any OARs to comply with relevant FCA rules and principals' monitoring and oversight of OARs should account for any extra challenges that may arise. Principal firms are expected to consider whether customers dealing with an OAR will receive equivalent services, protections and outcomes as those dealing with U.K.-based ARs. If not, firms should make customers aware of any differences. If a firm cannot adequately monitor the activities of an OAR, or if it does not conduct any regulated activity in the U.K., a principal firm should consider terminating the agreement.

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