Firms may not carry out any regulated consumer credit activity unless they are either directly authorised by the FCA or exempt from authorisation.
A firm cannot be both authorised and exempt. It may choose to become the Appointed Representative (AR) of a directly authorised firm, in which case the directly authorised firm – known as the “Principal” – will take full responsibility for the AR's compliance with the FCA's rules. The FCA will have no direct relationship with ARs, although the Principal firm will act on behalf of the AR.
There is no limit to the number of ARs which a Principal may have: there are some restrictions on how many Principals an AR may have (however, multi-Principals are permitted), but these restrictions relate to the activities which the ARs are carrying out. They do not generally apply to motor finance providers or motor dealers.
A motor dealer may act as an AR for one or more motor finance company Principals – or motor insurance company Principals – and therefore will not need to be directly authorised by the FCA.
Principals are required to have written contracts with their ARs which document the commercial arrangements between them. Before entering into an agreement with an AR, a Principal must:
- carry out sufficient checks to ensure that the firm or individual is financially stable and maintains a satisfactory level of competence;
- approve any individual carrying out a controlled function in the AR firm; and
- notify the FCA of any firm it appoints as an AR.
Once the Principal/AR arrangement is in place, the Principal assumes responsibility for a range of activities carried out by its ARs, including:
- the products they sell and arrange;
- any advice they give to customers; and
- ensuring they deliver the six “treating customers fairly” outcomes in the same way that a directly authorised firm would (see ‘The FCA and principles-based regulation' module).
Firms which wished to become Principals for consumer credit were invited to notify the FCA when seeking to obtain an Interim Permission, and those firms will have been allocated an earlier “landing slot” to apply for authorisation. This was to enable those Principal firms to recruit and appoint their ARs (see below) in a timely manner, and to give those ARs certainty that they would be able to continue to carry out regulated consumer credit activities (via the Principal firm).