Having reviewed how well Principal firms have embedded the requirements of the enhanced AR regime, the FCA has set out good practice and areas for improvement to help Principal firms effectively oversee and monitor their ARs. The FCA’s approach is in line with a number of other recent review findings publications, explaining its approach and setting out its requirements and findings under a number of headings.
The FCA set out its new and enhanced rules and expectations in a new AR regime effective from December 2022. The FCA has now tested some 270 firms, either in a telephone conversation or in a more in-depth and focussed assessment, asking:
- whether Principal firms had completed their annual AR reviews and self-assessments; and
- whether they faced any challenges in completing the new annual regulatory return on AR complaints and revenue (the new REP025).
The more in-depth assessments involved calls with firms and a review of information and documentation, such as annual reviews and self-assessments.
The FCA also asked Principals about:
- their AR oversight;
- how they ensure their ARs don’t act outside of the scope of their appointments;
- their AR onboarding and termination processes;
- how they monitor changes and growth at ARs; and
- whether they delegate tasks or functions to their ARs.
Both samples were randomly selected to include Principals with different numbers of ARs and from a range of portfolios across different financial sectors.
Overall, Principals have made some effort to comply with the new rules. However, the in-depth assessments found that not all Principals could show they had undertaken an adequate annual review or self-assessment covering all of the points set out in SUP 12.6A.
The telephone questionnaire found that 96% of Principals said they were very confident they were effectively implementing the new rules and guidance. However, the FCA believes that there is some over-confidence in how well firms are implementing the rules. For example, 1 in 5 firms had not done the required checks (self-assessments, annual reviews).
The in-depth assessments also showed that the quality and completion of self-assessments and annual reviews requires improvement. From this sample, we found 4 in 5 Principals had completed either annual reviews or self-assessments, and that approximately half of these were of good quality. However, Some Principals had not properly documented their self-assessments or annual reviews (or took a tick box approach to completing them by using templates that did not cover all of the points set out in SUP 12.6A).
Most Principals had also not changed their onboarding or termination procedures since the new rules were introduced. Principal firms must consider their existing processes in light of the new rules if they are assessing whether their processes are are robust and sufficient, and they must be able to evidence why they believe their processes to be robust.
The FCA will continue to monitor compliance with the rules, with a particular focus on annual reviews, self-assessments, and the quality of oversight of ARs.