Principal Firms with Credit Broking Permissions: Best Practice and Areas for Improvement
Initial Appointment of ARs:
Areas for improvement: Some firms did not have adequate understanding of the full requirements when appointing ARs and/or had poor systems and controls when carrying out initial due diligence before appointing an AR.
Best Practice: Firms that had a good understanding of the risks and harms involved in using an AR were also able to identify how the regulatory requirements translate to the business model used. These firms undertook robust quality assurance/auditing of their ARs and applied the same standards to the ARs conduct as they did their own firm.
Ongoing Monitoring:
Areas for improvement: Some firms did not have enough resources to adequately monitor the number of ARs they either had or planned to have in the near future. The FCA also found a potential conflict of interest between staff who were maintaining and developing commercial relationships with ARs while simultaneously being responsible for a compliance function involving the ongoing monitoring of the ARs. In this case, there was a risk that, because of commercial interests and relationships, these staff might be unable to fulfil independent compliance obligations. Some firms could not adequately demonstrate how they were monitoring the activities of their ARs so that this did not result in undue risk of harm to consumers.
Best Practice: Firms that could demonstrate a variety of methods by which they could satisfy themselves their ARs were complying with the relevant rules and regulations. Monitoring procedures also focused on identifying and addressing potential individual consumer harm. These firms had dedicated oversight staff, adjusted the resource as and when required and had a clear structure around responsibilities and points of escalation. While the number of oversight staff per AR didn’t always correlate to better oversight, the experience and knowledge of the individuals involved did. Oversight staff also had clear responsibilities which favoured a compliance function rather than a relationship management function.
Termination:
Areas for improvement: Some Principal Firms did not check an AR’s website after termination to ensure that it no longer stated that it was an AR of the firm or that it could undertake regulated activities on its behalf. Some Principal Firms were not able to explain their AR offboarding policy and did not maintain up to date policies and procedures. Some Principal Firms did not notify the FCA to amend the Register immediately after terminating a contractual arrangement. This is important, to ensure consumers are not led to believe that an AR continues to act on the Principal’s behalf.
Best Practice: Firms with appropriate and well-documented procedures to end AR relationships when appropriate. Some firms could show they kept significant control of the regulated services they were permitting their ARs (and in particular Introducer ARs) to conduct. Where an AR had not conducted regulated activities for some time and there were no valid reasons for this, firms terminated the AR relationship.
How we can help
Principal Firms should consider the findings from this review in full and compare them to the systems and controls they have in place in this area. The FCA has confirmed that they will continue to monitor how Principal Firms oversee their AR populations and will challenge business models where they see shortcomings in how firms approach this area.
The FCA clearly has concerns over Principal Firms’ resources when it comes to AR oversight and of the independence and capabilities of oversight staff in Principal Firms. The Padda team can help in providing support or upskilling internal teams, and to evidence independent oversight of ARs activities.
Additionally, our partner company Ever Comply is already helping firms take some of the pressure off their internal compliance teams and offers a solution that helps firms to address many of the risk and compliance strands of work that they have ongoing, including those relating to the oversight of ARs. The tool can also provide a direct compliance solution to ARs who may benefit from the compliance expertise that the system provides, and which would help evidence to Principal Firms that they are complying with regulations, including those of the Consumer Duty.
If you require support in any of the areas, please get in contact and we would be happy to help. If you want to discuss the work, we are doing with Ever Comply or would like a demo of the system, then please contact us here.
