The Financial Conduct Authority (FCA) has reaffirmed its support for the Appointed Representatives (AR) regime but emphasised that ARs themselves must also take greater responsibility for complying with regulatory standards.

Speaking at the Stonebridge annual conference in Birmingham on 24 February, Joanna Legg, head of consumer policy & outcomes at the FCA, said that while principal firms must ensure oversight, ARs have a crucial role to play in upholding consumer protections and maintaining market integrity.

Legg said: “The Appointed Representative regime offers significant benefits to both consumers and financial services providers. For firms, it offers a proportionate and cost-effective way to comply with regulations… For consumers, the AR regime allows access to tailored mortgage and protection products and services in an economical and convenient way, in part through encouraging competition.”

She added that although principals are ultimately responsible for the monitoring and compliance of their ARs, the relationship works best when both parties are engaged.

“We’ve often found the most effective relationship between principals are based on three things: one, that the principal clearly knows and understands the AR business and activities. Two, that there is openness and transparency between both parties. And three, that there’s appropriate challenge from the principal if any problems are identified that have a potential to cause harm for consumers or the wider market.”

The FCA introduced stricter oversight rules in December 2022, requiring principal firms to provide more detailed information on how their ARs operate and manage risk. These changes came in response to growing concerns about inconsistencies in how principals supervise their networks and the impact this could have on consumers.

The new expectations apply to all sectors using the AR model, including the 35,000 mortgage and financial advice firms that fall under the umbrella of around 2,600 principal firms in the UK.

Many mortgage brokers join networks to gain access to a wider panel of lenders, improved commercial terms, and compliance support – allowing them to focus on client advice. But Legg reminded the audience that regulatory compliance is not solely the domain of the principal.

ADVICE MUST GO BEYOND PRODUCT ELIGIBILITY

Legg also used her speech to reinforce the FCA’s ongoing scrutiny of the quality of mortgage advice being delivered across the sector. Echoing the message from a recent ‘Dear CEO’ letter, she said advice must go beyond assessing whether a client qualifies for a product.

“Advice is about more than just assessing eligibility. It’s also about advising on needs and whether the products the customer is eligible for are really going to deliver a good outcome,” she said.

The FCA is set to review advice quality across the mortgage intermediary sector over the next two years, with a focus on how well advice serves consumer needs.

Rob Clifford, chief executive of Stonebridge, welcomed the FCA’s renewed emphasis on strong governance and collaborative oversight within the AR model.

He said: “We welcome the FCA’s focus on ensuring strong oversight within the Appointed Representatives regime. At Stonebridge, we work incredibly closely with our ARs – not only to ensure they meet all regulatory requirements but also to foster a culture of collaboration that supports their long-term success and delivers high-quality outcomes for consumers.”

Clifford highlighted Stonebridge’s investment in real-time compliance technology and business support infrastructure.

He said: “One of our key advantages is our technology-driven proprietary compliance systems, which allows us to monitor activity in real time, quickly identifying any areas that may require additional support or intervention. This proactive approach helps us maintain the highest standards across our network.

“In addition, we spend literally millions of pounds a year on people and expertise, ensuring that we have best-in-class business standards and BDM support, many of whom are field-based, to help brokers navigate an increasingly complex regulatory landscape with confidence.”