Principal Firms – Final chance to get your house in order before December

5th September 2022 by Samuel Rossiter

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Principal Firm FCA Compliance

In a press release published in early August 2022, the FCA confirmed that it will enforce new rules for Principal firms (Regulatory Hosts) to improve oversight over their Appointed Representatives (ARs). These new rules will come into effect on 8 December 2022, with the goal to better protect consumers and the broader financial industry. 

So, as a Principal firm, what does this mean for you?

With such a tight timeline and a very intimidating set of new rules, we know you might be stressed about what this means for your operational set up and the future of your firm. But don’t worry – we thought we’d gather our own thoughts on the matter and give you some advice on what to do before the deadline, so you can move forwards with more confidence as we approach December. 

So, just how did we get here, what does this mean for you as a Principal firm, and what can you do to satisfy these new rules?  

A Quick Timeline: Why is the Regulatory Hosting industry under such scrutiny?  

2019 – The ‘Dear CEO’ letter’ is published  

In 2019, the FCA conducts a multi-firm review of Principal firms in the investment management sector and investigates how they supervise their Appointed Representatives.  

They find, in the regulator’s words:  

“[We] found that most principal firms within our review had weak or under-developed governance arrangements in place, including a lack of effective risk frameworks, internal controls and sufficient resources.” 

Andrew Shrimpton, Chair, Compliance Consulting at IQ-EQ, talks about the background to the ‘Dear CEO’ letter: 

“When the FCA’s (Dear CEO) letter was written, the regulatory hosting industry had a fatal flaw: ‘a rapid growth in numbers of ARs without associated enhancements to governance and risk frameworks’. This resulted in a number of scandals culminating with Greensill, which brought the Appointed Representative (AR) regime under a political microscope.” 

This simple letter puts all Principal firms on alert and incites real transformational change within Principal firms who want to be around for the long haul. However… 

2021 – The FCA releases its bombshell ‘CP21/34 – Improving the Appointed Representative Regime‘ consultation paper  

The FCA proposes major changes to the Appointed Representative regime and is not happy with how many Principal firms run things. It puts the Regulatory Hosting industry into a bit of a spin, as the FCA even suggest shutting the entire industry down!  

However, the FCA kindly opens its ears to the industry and later consults with over 1,000 Principal firms and 20,000 Appointed Representatives (roughly half of the entire industry) who are given the opportunity to respond to CP21/34 paper.  

2022 – The FCA confirms new rules that specify that Principal firms must improve oversight over their Appointed Representatives  

In August 2022, the FCA publishes a new set of rules in Policy Statement PS22/11 to make Principal firms more responsible for their Appointed Representatives.  

In the press release, Sheldon Mills, Executive Director for Consumers and Competition, says:  

“While appointed representatives can bring innovation and choice, principals and ARs account for more than 60% of the total value of recent claims to the Financial Services Compensation Scheme. They also generate up to 400% more supervisory cases and complaints than other directly authorised firms. 

The changes we’re making will help ensure that principals manage their ARs better – ensuring that they provide the oversight needed to avoid consumers being mis-sold or mis-led and to make sure markets can operate safely and fairly.” 

The deadline for all Principal firms to implement these rules is on 8 December 2022.  

What do these new FCA rules mean for Principal firms?  

As a Principal firm, the press release and accompanying policy document should compel you to assess your supervision procedures, processes and operational set up (if you haven’t started already, of course). The FCA provides a very clear review period until the 8th December 2022 for all Principals to review and implement (if needed) new policies, procedures and technologies at a principal firm level to ensure that they comply with these new rules.  

The FCA are focused on achieving several key outcomes with these new rules. Principals will need to:  

  • Apply enhanced oversight of their ARs, including ensuring they have adequate systems, controls and resources. 
  • Assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business. 
  • Review information on their ARs’ activities, business and senior management annually, and be clear on the circumstances when they should terminate an AR relationship. 
  • Notify the FCA of future AR appointments 30 calendar days before it takes effect. 
  • Provide complaints and revenue information for each AR to the FCA on an annual basis. 

Of course, it’s best to read the FCA’s policy document for a thorough breakdown of all new rules and expectations. 

In our eyes, it seems like the presence of a few bad eggs at both an AR and Principal firm level have caused the whole industry to come under fire. These new rules from the FCA have been a long time coming, with the ‘Dear CEO’ letter signifying the start of major change.  

But let’s not tar every Principal firm with the same brush. Many Regulatory Hosts, both big and small, have been on a journey of transformation well before the ‘Dear CEO’ letter was published. These hosts pride themselves on providing institutional-level compliance oversight and services to their ARs. In fact, we work with multiple Regulatory Hosts who use our supervision software to monitor all AR communications which ensures that they have effective oversight of their clients’ conduct and business activity.  

We’ve seen just how well Regulatory Hosting can be done. We hope that these new set of rules are a test that many Regulatory Hosts make the necessary changes for and pass, as opposed to a challenge that they can’t overcome.  

The Principal Firm problem: many clients, many systems, how do you oversee them all effectively?  

We know how hard it is to effectively oversee multiple ARs while trying to create a profitable business model. Juggling the commercial requirements of your business with compliance has never been easy, and COVID certainly hasn’t simplified things. The pandemic has thrown a multitude of communication channels into the mix, remote working, personal devices, a global workforce – and monitoring your ARs in a time like this, with the FCA’s new rules and demands, gets more challenging by the day.  

The core problem remains the same for all Principal firms – with multiple ARs, each with their own systems, channels and devices, how do you collect their data and monitor them all efficiently?  

Well, we’re happy to tell you there is a solution – and it isn’t in hiring dozens more compliance professionals, increasing your pricing and tightening up your AR contracts.  

Instead, the solution lies in using the right technology.  

And would you believe that using the right tech can help you satisfy the new FCA rules AND help your business improve efficiency, grow, and become even more profitable?  

So… what is the Principal Firm solution?

We stick by our Fingerprint Supervision platform, because it is the only solution on the market that is specifically designed for multi-tenant client management for Principal firms.  

Our software allows Principal firms to easily monitor multiple channels and multiple clients for compliance and risk in a policy-driven way, and evidence their compliance to the FCA. It provides everything needed for the entire communications supervision process in a single unified platform with only one login needed.

Your compliance team will no longer have to manually search through separate systems and waste time using multiple logins and touchpoints for each client, as everything they need will be in one place.  

The platform will save you time, money, improve your efficiency, and allow you to scale profitably. Once your team set terms and lexicons, driven by your own policy, for the platform to scan across all channels, it will automatically search for malicious activity and risk rank the results. So you’ll be able to add more clients to the platform without needing to hire more staff to manually monitor each client and channel – our platform will search through the channels and identify all non-compliant activity for you.

Our platform is the perfect tool for adding more clients to the mix, growing your firm and increasing profitability. 

Best yet – our software is completely cloud based and it’s easy for you to onboard any current or future clients without needing to go onsite to their offices. All you need to do is give the platform access to your clients’ systems through API, then it will archive and ingest all of their channels and allow you to access everything through the platform.  

In fact, it only takes one week (on average) to onboard a single AR client onto the Fingerprint Supervision platform.  

This means that our technology is perfect to implement in your firm and onboard as many clients as needed to ensure that you’re compliant with the new FCA rules before the tight December 2022 deadline 

A little more about the Fingerprint Supervision platform 

  • Allows you to monitor multiple clients easily and effectively  
  • Easily demonstrate that you and your clients are compliant with FCA through robust and regular reporting  
  • Only one login needed to supervise all clients  
  • Saves time, money, and improves your efficiency  
  • Allows you to scale profitably – you can add more clients to the platform without needing to hire more staff to manually monitor clients. Our software will search through the channels for you.  
  • Compliance with GDPR and data protection lawsclient data is confidential and redacted unless further investigation is required  
  • Very user friendly, simple and straightforward to use 

Our history lies in helping Principal firms – our software was originally created for a Principal firm (ACA Mirabella) and was designed specifically to meet Principal firm requirements. We also support other market-leading Regulatory Hosts including the likes of Cipperman, and all of our clients use our software to efficiently monitor their ARs in a single platform and evidence their compliance to the FCA.  

And if you’d like to know how much they like Fingerprint… as of June 2022, 100+ of ACA Mirabella’s AR clients have been onboarded onto the Fingerprint Supervision platform. We’d say that’s a pretty happy customer.  

The future of this industry and compliance lies in technology, and we’re happy to be leading the way. We know how stressful these new FCA rules are, but we hope that we’ve shown you that technology is the solution and the key to growing your business.  

We’re passionate about compliance and showing Principals and other directly regulated businesses just how easy compliance can be with the right technology.  

So, if you need some help satisfying the new FCA rules, come and have a chat with us 

We’d be happy to assist.  


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