The Financial Conduct Authority (FCA) published a review of good practice and areas for improvement in how principal firms manage inactive appointed representatives (ARs).
The FCA review covered two years of REP025 return data.
The regulator looked at whether principals could explain the absence of income, were reporting AR activity accurately and were overseeing ARs’ business properly.
In sectors like retail finance, credit broking, and corporate finance, some ARs only did regulated activities now and then, or had income recorded as unregulated when it should not have been.
In other cases, revenue was not reported correctly in the REP025, or explanations given were unclear – such as just saying ‘not trading’ or ‘not introduced business during this period’.
The FCA said firms should give clear reasons for inactivity.
Good practice included setting expectations at onboarding, monitoring ARs early on, and keeping track of changes using Companies House records, website reviews and lead monitoring.
The FCA found some principals could not explain why ARs had no activity, or left ARs in place for long periods without checking if the relationship remained suitable.
Suspension was used sometimes, but the FCA said it should not be a long-term fix and any changes must be reported.
There were examples of ARs presenting themselves as ‘FCA authorised’ or using the wrong terminology on websites, which could mislead consumers.
The regulator said firms must check all consumer-facing materials and use the correct status disclosures.
The regulator’s engagement led to changes at seven of 14 principal firms reviewed, with 11 ARs removed and monitoring improved.
Phil Smith, head of redress at Broadstone, said: “The FCA’s latest findings underline that inactive appointed representatives are not a passive risk – they can create significant blind spots for principal firms if oversight frameworks are not robust and regularly refreshed.
“The regulator has been clear for some time that weak governance, poor data and a lack of ongoing monitoring are at the heart of many of the issues seen across the AR regime.
“For firms, this is a timely reminder that accountability does not diminish when an AR becomes inactive.”
Smith added: “Regular reviews, clear exit strategies and strong record-keeping are essential to ensure firms can evidence control and avoid unnecessary conduct or redress risks further down the line.
“Ultimately, the direction of travel is towards more proactive supervision and higher expectations on principals.
“Firms that treat AR oversight as a continuous, risk-based process, rather than a one-off onboarding exercise, will be best placed to meet these expectations and protect customer outcomes.”