The recent HMT consultation on reform of the Appointed Representative (AR) regime signals that the structure remains under close scrutiny. While the Financial Conduct Authority (FCA) has already strengthened its supervisory framework through PS22/11, HMT is clearly testing whether further structural reform is required to address harm within principal–AR models.
The direction of travel is consistent: greater accountability on principal firms, clearer lines of responsibility, and stronger data-led supervision. For AR networks, this is no longer about periodic audit and file checks. It is about demonstrable, systemised oversight embedded into governance, risk and control frameworks.
The FCA’s PS22/11 introduced enhanced reporting requirements, tighter due diligence expectations, and clearer expectations around oversight and termination. The HMT review builds on this by questioning whether the regime itself is sufficiently robust to prevent consumer harm, particularly where principals operate large or complex AR networks. A directive which is at the heart of the FCA’s Consumer Duty.
The implication for networks is straightforward. Informal supervision will not withstand scrutiny. Oversight must be structured, evidenced, and auditable, building data driven audit trails.
Regulatory Context
The FCA’s policy reforms in PS22/11 already require principal firms to:
- Undertake enhanced pre-appointment due diligence
- Provide additional data on AR business types and revenue flows
- Assess ongoing fitness and propriety
- Ensure adequate resources to oversee AR activities
- Act promptly where harm or control weaknesses are identified
HMT’s consultation indicates that government is willing to revisit the legislative framework if these measures do not sufficiently reduce risk.
For AR network principals, this means preparing not just for compliance with today’s rules, but for demonstrable resilience under further reforms such as:
- a new regulatory gateway for a new FCA permission for principal firms where the regulator could grant, vary restrict or withdraw this permission.
- New FCA rules for contractual requirements between principals and ARs
- ARs to be brought under the Senior Managers and Certification Regime (SMCR) across fitness, conduct and accountability standards with the principal gaining Senior management function (SMF) within principal firms for AR oversight
- Financial Ombudsman jurisdiction extended to AR firms not just principals
What Principal Firms Now Need to Do
1. Formalise AR Oversight Frameworks
- Map AR business models, permissions and revenue streams.
- Align oversight to risk profile and complexity.
- Evidence how oversight meets SYSC requirements on systems and controls.
- Ensure Consumer Duty outcomes monitoring extends across AR distribution chains.
2. Strengthen Due Diligence and Onboarding
- Implement structured onboarding assessments with documented rationale.
- Assess financial stability and operational capacity.
- Record competency frameworks and Training & Competence monitoring at AR level.
- Maintain auditable approval trails.
3. Deploy Continuous Monitoring – Not Annual Reviews
- Move from reactive file reviews to risk-based, data-led supervision.
- Track complaints, suitability metrics, vulnerable customer indicators and conduct risks.
- Produce board-level MI demonstrating effective oversight.
4. Evidence Consumer Duty Delivery Across the Network
- Demonstrate how principals monitor:
- Fair value assessments
- Advice suitability quality
- Vulnerable customer identification
- Customer understanding and communications
- Ensure AR firms are not operating outside approved target markets.
5. Resource and Governance Alignment
- Review whether oversight teams are proportionate to AR network size.
- Assign clear SMF accountability benchmarked against the SMCR.
- Stress-test escalation and termination processes.
What AR Member Firms Should Be Preparing
AR firms can no longer assume the above is solely a principal issue. Governance and oversight expectations are rising across the distribution chain.
AR firms should:
- Ensure documented systems and controls align with principal oversight frameworks.
- Maintain structured advice suitability documentation.
- Evidence vulnerable customer processes.
- Align product governance processes with principal expectations.
- Prepare for increased data reporting requests.
Those AR firms that operate with minimal governance documentation will find this environment increasingly challenging.
The Role of Supervision RegTech
The shift in regulatory tone is towards structured, technology-enabled oversight. Principal firms must be able to evidence supervision at scale.
This is where platforms such as Model Office become relevant. Supervision RegTech allows principal firms to:
- Automate AR client file review sampling and scoring
- Deploy RAG-rated compliance dashboards
- Streamline risk and data driven audit reporting
- Track Consumer Duty metrics across the network
- Monitor T&C and competency frameworks
- Generate data driven board-ready oversight reports
- Maintain auditable and digital supervision logs
This is not about replacing judgement. It is about evidencing it.
For AR networks operating at scale, manual spreadsheets and dispersed documents will not withstand regulatory challenge. Structured data, audit trails and dashboard-level oversight are becoming baseline expectations.
Key Themes Emerging from HMT + FCA Reforms
- Increased scrutiny of principal firm accountability
- Data-driven supervision replacing informal oversight
- Stronger onboarding and financial due diligence requirements
- Clearer termination and escalation processes
- Consumer Duty outcomes embedded across AR distribution chains
- Proportionate resourcing aligned to network scale
- Greater transparency of AR revenue flows
- Potential future legislative reform if harm persists
Practical Preparation Checklist for AR Networks
- Conduct a full AR regime gap analysis against PS22/11 expectations.
- Map oversight responsibilities to SMF accountability.
- Implement structured risk-based supervision cycles.
- Centralise AR monitoring audit data into a single digital reporting framework.
- Automate compliance audits and file sampling where possible.
- Produce quarterly board MI on AR oversight effectiveness.
- Test termination and contingency processes.
- Embed Consumer Duty monitoring at AR level.
Final Observations
The HMT consultation is not signalling incremental adjustment. It is testing whether the AR regime remains fit for purpose given ARs generate a disproportionate number of FOS complaints and FSCS failures.
For principal firms, this is a governance question. Can you evidence that your AR network is supervised in a way that is structured, proportionate and capable of preventing consumer harm? Those who invest now in systems-based oversight and RegTech supervision infrastructure will be better positioned if reform tightens further. The direction is clear: AR oversight must be demonstrable, data-led and embedded.
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