By Rachel Aldridge, Managing Director, Regulatory and Compliance Solutions, UK, and Éilis Corcoran, Senior Compliance Consultant
Close oversight of principal firms with appointed representatives (ARs) continues to be high on the Financial Conduct Authority (FCA)’s agenda. The UK regulator is increasingly challenging principals to prove they can oversee their ARs effectively, with particular focus on “sister companies” or group entities where conflicts of interest may be more pronounced.
This shift matters. For years, some principals have assumed that because an AR sits within the same group, familiarity or shared governance reduces the oversight burden. The FCA is making clear that the opposite is true: close connections can heighten conflicts, blur independence, and weaken effective supervision if not properly managed.
What is the FCA looking at?
Through its supervisory activity, the FCA is focusing on whether principals can demonstrate that they have tight control over their large and complex ARs. Focus areas at present include:
- Business models – How large ARs fit into the principal’s structure and why the AR model is used
- Governance and oversight – Whether principals have in place strong, independent structures for managing ARs, with clear accountability at senior management function (SMF) level
- Conflicts of interest – How firms identify and deal with conflicts arising from shared directors, resources or group structures
- Financial oversight – Whether principals monitor AR revenues, capital resources and risk exposures with sufficient detail and regularity
- Risk management – Use of risk registers, oversight committees and formal reviews to identify and act on emerging risks
- Monitoring and review – Documented evidence that annual AR assessments and ongoing monitoring meet the standards set out in SUP 12.6A
What this means for firms
The message is clear: the FCA will not accept “light-touch” oversight on the basis that an AR is part of the same group. If anything, the regulator expects enhanced scrutiny where there are overlapping directors, integrated systems, or shared management functions.
Firms that cannot evidence robust and independent oversight risk regulatory intervention, potential restrictions and reputational harm. The FCA wants to see that principals are not only meeting their obligations, but doing so in a way that actively protects consumers and market integrity.
What should firms be doing now?
Firms should act now to strengthen their AR oversight to stay ahead of regulatory expectations. Practical steps include:
- Re-thinking governance – Ensure that AR management falls within the purview of the right SMF and is supported by clear reporting lines, independent decision-making and documented accountability
- Reviewing conflicts management – Carry out a structured conflicts assessment, with careful consideration of common ownership, common resources or cross-directorships, and document how the risks are controlled
- Enhancing financial oversight – Collect and analyse granular AR revenue data (regulated, unregulated and non-financial), capital adequacy, and stress-testing of resources
- Strengthening risk management – Update risk registers, formalise escalation procedures and provide assurance that oversight committees obtain timely, substantive management information (MI) on AR performance
- Updating monitoring programmes – Reconsider AR agreements, onboarding processes, self-assessments and annual monitoring compared to SUP 12.6A to ensure compliance is demonstrated and proportionate to risk.
How we can help
At IQ-EQ, we work with a wide range of regulated firms to establish, develop and enhance AR oversight frameworks. Our experts combine regulatory knowledge with practical experience to help firms:
- Assess the robustness of their current governance and oversight structures
- Conduct gap analyses against FCA expectations, including SUP 12.6A compliance
- Strengthen conflict of interest management where ARs are sister companies or group entities
- Enhance monitoring programmes with documented self-assessments, risk registers and oversight reporting
- Prepare the documentation that the FCA increasingly requests during supervisory reviews.
IQ-EQ itself is one of the largest principal firms in the sector, with two regulated entities. We have invested significantly in our control framework and believe that our oversight is market-leading. With fixed fees giving certainty, transferring ARs to a regulatory host like IQ-EQ can significantly reduce risk for firms with group company ARs.
To discuss AR oversight in more detail or to find out how we can support your firm, please contact our Compliance Consulting team.
