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In a hard-hitting report published a week ago, the Financial Conduct Authority (FCA) described ‘serious and widespread’ issues with how insurance companies manage their Appointed Representatives (ARs).

ARs are firms that undertake regulated activities under the supervision of a firm that is directly regulated by the FCA. The FCA said it was taking ‘intervention actions’ in relation to five firms and the national media reported that consumers could be due compensation for “unnecessary” equipment warranty products.

The implications for both motor and asset finance appear significant.

The FCA’s main concern was whether Principal firms, the regulated firms that have responsibility for ARs, are doing enough to monitor and control the actions of their ARs. In short, the FCA found that too often they are not.

This review follows previous action by the FCA last year when it banned ‘opt-out’ or ‘default’ selling techniques for ‘add-on’ products, including insurance products sold by car dealers. From 1 April this year, firms are banned from imposing charges for optional additional financial services products for consumers and small businesses of up to 10 employees, unless the customer actively elects to obtain a product before becoming bound to pay for it.

GAP insurance

Many car dealers - almost certainly the majority of those with dedicated premises - are ARs for ‘add-on’ insurance products such as Guaranteed Asset Protection (GAP) insurance. Car dealers are often ARs not directly for insurers but instead for ‘Umbrella networks’. Their Principals firms have been set up specifically to supervise ARs as their primary business.

Even the Umbrella principals - which typically have quite elaborate systems in place to control what takes place in the dealership - come in for criticism. Such firms “did not always have full knowledge or control of the activities performed by their ARs, so could not always show that they met their regulatory obligations to oversee these ARs, including mitigating the risks to customers".

The Umbrella model "can create issues when a firm regards itself as primarily offering a compliance service to its ARs, rather than as an authorised form owning all of the regulatory risks arising from its ARs' activities" the FCA said.

So can the AR model can ever work in the way the FCA appear to want it to?

However much the Principal attempts to automate the sales process (and many Umbrella principals do aim to keep car dealer staff to a script that meets all FCA rules, with multiple check-points to confirm customer understanding) by definition they cannot be present at point of sale and so cannot always control exactly what happens.

A minority doing a good job

The FCA did note that while AR practices were predominantly poor, the shortcomings it identified were not universal, and a minority of Principal firms were doing a good job. No firms are named, so we cannot tell whether any Principals operating in the car dealer market were involved (but it does seem very likely) or how they were assessed.

The standards the FCA is holding Principal firms to in the insurance market would seem likely to apply equally to Principal firms for regulated consumer credit. Some asset finance brokers, equipment suppliers and car dealers are ARs for consumer credit.

Lessors and their advisers have been cautious about taking on ARs and this report seems to confirm the need for such caution. After this report alternative arrangements, including the use of Agents or Introducer Appointed Representatives (IARs), or simply helping dealers or brokers to obtain and manage their own FCA authorisation, could now seem more attractive.

Agents are individuals who are managed as if they are employees. IARs can only pass contact details of customer and must not discuss financial products with customers themselves.

The message from the FCA’s report is that sales processes for financial products need to be actively monitored and controlled. However strong their training and regulatory policies, FCA-regulated firms across the motor and asset finance sectors should be able to demonstrate this is happening in practice for both insurance and consumer credit - and not only within their own operations but also for their ARs, IARs and Agents.

Julian Rose is director of consultancy Asset Finance Policy Limited ( and runs the Asset Finance 500 directory of asset finance brokers (