Keeping-up with regulatory expectations concerning appointed representatives

Keeping the activities of appointed representatives within regulatory expectations

 

As part of a thematic review exercise conducted by the FCA across the specific general insurance sector, its recent output in late-July (see TR16/6) highlights some of the present concerns and risks associated with firms engaging appointed representatives to perform activities on its behalf. This recognises and reinforces the key tenet that firms’ acting as principal, who appoint and rely on such representatives or indeed agents and other outsource third-parties etc. to act on their behalf, retain ultimate regulatory accountability for their associated acts and omissions. For this reason alone, such findings material will often have a much broader relevance and application across the industry, providing an opportunity for firms to perhaps review and benchmark their own arrangements against likely expectations.

 

Appointed representatives will often be engaged by principal provider or intermediary firms to support either marketing/distribution activity, or undertake related to administrative and service support functions etc. And sometimes, firms may be required to establish and maintain a network of such representatives in order to support its strategic and geographical business-model. The review encompassed a scrutiny of both firms’ and their representatives involving on-site interviews, as well as reviews of policies and procedures and some sampling of customer communications and records etc.

 

The review undertaken suggests that a large number of firms could not adequately demonstrate and evidence a framework of risk-management and controls which appropriately reflected the issues and risks of using and relying on any appointed representatives. But also, the levels of supervision and oversight management being exercised in practice were also not always proportionate or effective as a result, with in some cases failures and shortfalls being identified by the regulator which had gone un-noticed by the principal firm itself!

The FCA has responded to these findings by instigating various early interventions to mitigate and address unacceptable shortcomings and to ensure customers interests and circumstances are not unduly harmed e.g. through investigating the potential consequences of mis-selling, and also imposing activity restrictions on firms if deemed necessary. It has also issued at end-July a Dear CEO letter to the specific related industry sector clarifying its requirements and expectations where principal firms deal with appointed representatives. This kind of output presents a timely opportunity for all regulated firms who appoint and/or rely on other parties to conduct activities on its behalf to ensure their own arrangements can show they properly understand and manage the risks involved.