Principals often have networks of appointed representatives (ARs). Find out how to control your networks to reduce risks to your business.
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As a principal firm, we expect you to have the right procedures to effectively monitor and control your business and networks of ARs in line with our requirements.
By 'networks' we mean:
- firms with 5 or more AR firms, or
- ARs that have 26 or more individual advisers between them
We refer to these firms as network principal firms. As your firm adds more ARs to its network, you could face risks such as preserving cash flow or maintaining satisfactory controls. Use this guidance to spot potential risks.
Know your business
When your firm submits its annual reporting on RegData, this should demonstrate that you have the right monitoring and controls in place.
You're responsible for the sales your ARs make. You need to be satisfied that your ARs are offering sound advice and treating customers fairly.
If more firms join your network
You must notify us 30 calendar days before recruiting a new AR.
As you'll be increasing the size of your network, you should be able to identify and manage any risks or issues this could bring to your business. This includes having adequate systems and controls in place to manage the onboarding and monitoring of new ARs.
Be vigilant for what we call ‘phoenix firms’ – firms that may seek to join your network as an AR as a way back into the industry once they have left behind liabilities in their previous guise.
Budgeting needs careful consideration. You must maintain adequate, competent resource to monitor your ARs effectively to ensure they meet our requirements and treat customers fairly.
A blanket cost-cutting across your network could introduce risks. It's better to identify the benefits and risks of any cuts and then carefully manage the processes to make sure what you do leaves your business financially viable in the long term, with key skills and processes still in place.
Responsibilities for your network
As a network principal firm, you're responsible for:
Questions to help spot risks
You should be asking yourself these questions to help your firm identify any risks as soon as possible.
Do you have:
- enough cash flow to meet liabilities as they fall due?
- a cost-management process to identify both the benefits and risks of any cost-cutting exercise?
- a clear internal structure so your people know who is responsible for what?
- systems and controls in place that ensure close and continuous supervision of your ARs?
- the right people with the skills and competence to carry out those roles, especially governing and control functions?
- enough evidence to satisfy yourself that your ARs are offering sound advice and treating customers fairly?
- a regular review of your management information to ensure that it remains relevant?