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What has happened?

In April 2021, the FCA publicly censured Alsford Page & Gems Limited (APG) and the firm will pay compensation totalling £399,902 to customers who purchased extended warranty insurance policies through its Appointed Representatives during the period 1 February 2013 to 21 March 2016. The FCA would have also imposed a financial penalty on the firm of £958,100 (£670,600 as APG qualified for a 30% discount for resolving matters) if APG had not established that it was in serious financial hardship and was unable to pay this, or any amount. The compensation will be paid by APG out of funds provided by its parent.

What do you need to do?

APG is a wholesale and reinsurance broker which began to sell extended warranty insurance policies to retail customers in 2013, in a move away from its standard business model. The policies were for goods such as satellite equipment or household appliances and were sold on APG’s behalf by six Appointed Representatives.

The FCA found that APG had failed to sufficiently consider or address the risks associated with selling products to retail customers and that its systems and controls were wholly inadequate as its oversight of the Appointed Representatives was limited and ineffective. The consequence of the weaknesses in the sales process was that the FCA found that APG had no assurance that its customers were being treated fairly or being sold products that they understood or which met their needs. The breaches are particularly serious as the FCA found that APG had no effective controls in place to identify and protect vulnerable customers who may have needed additional care and protection in their interaction with sales agents.

The FCA has publicly censured APG for its breaches of Principles 3 and 6 of the Principles for Businesses.

The regulator’s thematic reviews of the general insurance sector in 2016 and the investment management sector in 2019 identified significant shortcomings in principal firms’ understanding of their regulatory responsibilities for their ARs. Failings included insufficient oversight of their ARs and inadequate controls over the regulated activities for which they had accepted responsibility.

Traditionally, most ARs used the delegated permissions of their principal to sell mainstream products and services, and this generally continues to be the case. However, ARs are now being used in a more diverse range of business models and sectors, including asset management and wholesale activities. Currently, approximately half of all principals have just one AR. These developments in the use of the AR regime have increased the range of potential harms to consumers.

The FCA has concluded that it needs to do further work at its gateway for authorisations, and in supervision and policy, to address the harms identified.

The FCA work programme announced will include:

• Undertaking greater engagement with, and scrutiny of, firms as they appoint ARs. This will apply both to new applicants and already authorised firms. The aim will be to understand how the AR fits into the firm’s business model, and the FCA will assess whether the firm has appropriate systems and controls to oversee the AR,
• Undertaking proactive supervision of principal firms that may pose a higher risk of harm,
• Carrying out a range of targeted supervision activity in sectors or portfolios where the FCA considers that the AR regime is a particular driver of harm, and
• Undertaking analysis, informed by the work above, to determine whether policy interventions, such as rule changes, are required to reduce the harm posed by the AR regime. This could include making recommendations to the Treasury for changes in the legislative regime.

As part of its 2021/22 fees consultation, the FCA is consulting on a new fee relating to Appointed Representatives and is proposing a flat periodic fee to be levied on principal firms and payable on each of their ARs. This new flat fee is proposed to be £250. It has also created a new fee block – A22 – for principal firms and their ARs.

How can we help you?

If you’d like to know more about how we can help you with your AR onboarding or supervision arrangements, or any other regulatory compliance issues, our expert team is here to help.

Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.