Firms may demonstrate they can meet FCA minimum standards at the point of authorisation, but this doesn’t always mean they will not commit misconduct or fail financially.
FCA regulation does not try to remove all harm from markets or operate a zero-failure regime. Instead, the organisation attempts to order the market in a way which minimises potential harm to consumers and the industry, such as, the selling of products which are unsuitable, and mistreatment of customers.
Here we tackle the most frequently asked questions, while outlining the key takeaways from the FCA’s recent authorisation paper.
What does the FCA do?
They regulate most firms that provide a range of financial products – but not all. Some brands may only sell services for which they are specifically authorised or registered to do so.
What are appointed representatives?
An appointment representative (AR) is where an unauthorised business enters into an agreement with one that is already-authorised. Under this acknowledgement, the AR carries out specific regulated activities which are overseen and registered by the authorised firm – a process assessed by the FCA.
Preventing the spread of poor practise
As an example, Motor Group X was already authorised to provide insurance mediation – introducing clients to these type of products – and consumer credit lending for car purchases. It applied to extend this by buying existing FCA-authorised firms that sold used cars, offered insurance and car finance.
The FCA assessment found risks around Motor Group X’s commission-based incentives for staff and performance management, as well as the controls to manage these dangers. They were concerned that, as well as the potential for harm posed by the group, these practices could also be adopted by the firms it wanted to buy, thus affecting their ability to continue to meet the conditions of authorisation.
Therefore, Motor Group X’s authorisation could not be extended until it gave evidence that effective controls were in place to manage these risks.
Revoking authorisation, registration or approval
Unless the FCA has mitigating evidence, it will revoke authorisation or registration if a firm no longer meets the minimum standards. There are various circumstances that could lead to this happening, for example, if a dealership can no longer fulfil its basic regulatory obligations, such as paying fees or submitting returns.
If liabilities can no longer be met, or a firm fails to pay the fee owed to a consumer under a final decision of the Financial Ombudsman Service (FOS), the FCA will articulate this as a breach of the financial resources or suitability threshold condition.
They may also revoke the approval of an individual, or ban them from working in a role if there is evidence that they are no longer suitable – for example, if they are convicted of a financial crime.
Where the FCA decides to revoke a firm’s authorisation or registration, they will expect it to take appropriate steps to safeguard the interests of its customers as it ceases to conduct regulated business. Where appropriate, they will intervene to ensure that this happens.
If you missed the full report on authorisation, you can view it in full here: