UK FCA findings on managing potential risks from inactive appointed representatives

The UK Financial Conduct Authority (FCA) has published a new webpage setting out good and poor practice identified from a review on managing potential risks arising from inactive appointed representatives (ARs). The FCA states that where ARs carry out no regulated activities, principals cannot rely on transaction based oversight and must ensure effective governance, monitoring and engagement. Unexplained inactivity may indicate weaknesses in the principal's governance, monitoring, oversight and risk management and increase the risk of consumer harm. The FCA expects firms to: reflect on whether arrangements for inactive ARs remain appropriate; provide clear explanations in REP025 regulatory returns where ARs have not carried out regulated activities during the specific reporting period; and take timely action to reassess, suspend or terminate AR relationships where appropriate, including notifying the FCA when the status of the relationship changes.

Good practice included clear expectations set at onboarding, active and data led oversight, and early intervention on inactive ARs. Poor practice included situations where principals lacked understanding of AR business models, allowed prolonged inactivity without engagement, or failed to monitor how ARs presented themselves to consumers, increasing the risk of consumers being misled about regulatory status. The FCA notes that some firms have already strengthened oversight and offboarded inactive ARs following supervisory engagement and it expects all principals to review their arrangements to ensure risks are appropriately managed.

Return to main website.