The regulator has identified the current appointed representatives' regime as having the potential to cause harm to consumers.

The FCA published its perimeter report today, in which the regulator highlights gaps in legislation and potential for harm.

One area for concern highlighted by the regulator is appointed representatives (ARs) where the regulator sees risk of harm to consumers when principals do not adequately oversee their activities.

The regulator has concerns that risks to consumers, including mis-selling, from the current AR regime are too high.

It said that while the AR regime can bring benefits such as wider consumer access and greater innovation where models are well-run, principals generate 50% to 400% more complaints and supervisory cases than other directly-authorised firms.

The FCA said it will consult on changes to the AR regime, engage more with firms as they appoint ARs and target supervision of principal firms. It will consult on the changes later this year.

According to the regulator there are currently 3,400 principal firms with appointed representatives.

The FCA added that principal firms have more complaints per £1m of revenue on average when compared with similarly-sized firms without ARs. But this varies significantly depending on the size of the business and the number of ARs and there is significant overlap between principal and non-principal firms.

The regulator said it has significantly increased its focus on appointed representatives since May 2021.

Parliament introduced the appointed representatives' regime through primary legislation in 1986.

The FCA’s perimeter report will be updated quarterly.

The FCA’s perimeter (the regulatory sectors and companies it regulates) is decided by the government and parliament through legislation.