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FSA/PN/123/2007
3 December 2007

A review by the Financial Services Authority (FSA) has found that firms are not doing enough to ensure that their Appointed Representatives (ARs) are treating customers fairly in the sale of general insurance, mortgage and investment products.

As a result four firms are being considered for referral to enforcement, and follow-up visits will be made early next year to 11 firms identified as needing significant remedial action to see that they have addressed failings identified.

The review, conducted over the last few months and mainly involving smaller firms, follows a similar project carried out in 2006. Many of the concerns identified then have not been adequately addressed. Across the four areas reviewed - Systems and controls, Recruitment, Training and Competence and Treating Customers Fairly - the poorest standards overall were found within general insurance firms, with a better picture in the mortgage sector and with the highest standards seen in investment firms.

Key concerns include firms' written procedures not being followed in practice; too much reliance placed on the remote checking of client files as the sole method of monitoring ARs; poor progress with Treating Customers Fairly with ineffective communication to ARs; and not having appropriate management information or measures in place to test whether ARs are delivering the Treating Customers Fairly consumer outcomes and working towards the end of December 2008 deadline.

Firms need to ensure that the ARs they recruit are fit and proper and that their customer-facing staff have the necessary knowledge and competence to sell and advise. They also need to ensure that their ARs understand that they should treat customers fairly before, during and after the point of sale.

Stephen Bland, Director Small Firms Division, FSA said:

“It is disappointing that failings still persist despite the help and information available from the FSA. We have set a deadline of end December 2008 by which time we expect all firms to be able to demonstrate that they are achieving the six TCF outcomes. Principal firms therefore need to act now to ensure that they have appropriate controls in place and management information that enables them to be confident ahead of the deadline that their ARs are treating their customers fairly."

Notes for editors

1. A Principal firm is a firm that is a directly authorised person and accepts responsibility for its ARs' actions in a binding agreement. There are about 1,650 small firms with Appointed Representatives.
2. The 2007 project visited a sample of small intermediary firms with appointed representatives from the investment, mortgage and general insurance (GI) sectors. The GI firms included primary brokers plus secondary firms such as motor dealers, motor warranty specialists, removals, IT insurance property management and letting, and plant hire. The sample also included three larger networks. There were a total of 102 separate visits to 35 Principal firms and 67 of their ARs. Twenty-seven of the Principal firms were 'networks', i.e. having five or more ARs. Eight of the 12 firms originally visited as part of the 2006 project were seen again. The 2006 project concentrated on mortgage and general insurance firms only.
3. An Appointed Representative is a firm or individual that has chosen to become an AR of a Principal authorised firm instead of becoming a directly authorised person. Under this arrangement, the AR enters into an agreement with the Principal under which it accepts full responsibility of the AR's actions.
4. A network firm is one which has appointed five or more ARs. A firm with less than five ARs will also be classified as a network if its ARs have, between them, 26 or more representatives. The Principal firm in the network is the one that is authorised by the FSA.
5. The FSA has published a factsheet and examples of good and bad practice for Principal firms' relations with their ARs.
6. More information about the FSA's Treating Customers Fairly work is available on the FSA website.
7. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
8. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal, and improve its business capability and effectiveness.