Principals often have networks of appointed representatives. Find out how to control your networks to reduce risks to your business.
Principals can have networks of appointed representatives (ARs).
By 'networks' we mean:
- firms with 5 or more AR firms, or
- ARs that have 26 or more individual advisers between them
As a principal firm, we expect you to have appropriate oversight arrangements to effectively monitor and control your business and network of ARs in line with our requirements.
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 and reduce 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, and all other regulated activities they carry out. You need to be satisfied that your ARs are offering sound advice. You need to be satisfied your ARs are offering appropriate advice, acting within the scope of your agreement with them and their actions comply with the Consumer Duty.
If more firms join your network
You must notify us 30 calendar days before onboarding 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 and resources 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. It is your responsibility to complete sufficient background checks on ARs joining your network.
Resources
You must maintain adequate and competent resources to monitor your ARs effectively to ensure they meet our requirements.
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.
How to identify risks
Here are some basic questions which may help you identify risks.
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 monitoring of your ARs?
- The right people with the skills and competence to carry out those roles, especially in governing and control functions?
- Enough evidence to satisfy yourself that your ARs are offering sound advice in line with the Consumer Duty?
- A regular review of your management information to ensure that it remains relevant?
- An annual process to self-assess your ARs and your oversight of them, to ensure details are up-to-date, processes remain fit for purpose, and risks are identified?
