Five questions every appointed representative should ask


The Appointed Representative (AR) regime provides companies with a simple, efficient alternative to direct authorisation from the Financial Conduct Authority (FCA) to conduct regulated activities in the UK. Under this arrangement, such businesses become ARs of an FCA-authorised firm, which acts as ‘principal’ and assumes accountability for their conduct.

Principal firms need to conduct a detailed risk assessment of every incoming AR during onboarding. However, responsible organisations should also complete due diligence of their own when selecting a principal firm. Principal firms are experiencing greater regulatory scrutiny from the FCA, so it behoves every AR to ask the right questions and ensure their principal firm isn’t cutting any corners.

To that end, here are the five key questions every AR should ask their principal firm:

1. How is your relationship with the FCA?

Firms that have formed positive working relationships with the FCA are more likely to be keeping abreast of the latest requirements and paying closer attention to their ARs’ behaviour as a result.

2. Have you had any regulatory intervention?

Firms are required to disclose this information, and the answer can reveal a lot. An instance of regulatory intervention shouldn’t necessarily disqualify a firm from acting as a principal, but it’s good to gather details around the nature of any violation and the steps taken afterwards to correct the issue.

3. How many ARs have you offboarded in the last 12 months?

Look for a low number. High turnover should ring at least a few warning bells.

4. How many different business models do you serve?

It has always been important for principal firms to understand the business models of their ARs, and increased oversight makes it doubly so. A principal can’t appropriately oversee an AR whose business activities involve cryptocurrency, for example, without understanding that asset class and its associated complexities. A responsible principal firm should limit their activity to those business models that they thoroughly understand.

5. What about conflicts of interest?

Finally, both you and your prospective principal firm should ask about conflicts of interest. Responsible principals should actively identify conflicts of interest and manage them, so keep an eye and an ear out for proactive searching in this area.

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