The Pros and Cons of Being an Appointed Representative

financial services

As an appointed representative (AR), you are essentially ‘appointed’ by a company that has a full credit license and are able to carry out broker activity for financial products including loans, insurance and credit cards.

For many brokers offering financial products online, being an AR allows for a much quicker entry into market and also allows you to test the waters before deciding to acquire your own license which comes with higher costs and more responsibility.

How to become an appointed representative

To become an appointed representative can take just a few weeks or months to be approved, compared to the alternative of obtaining a license which can take 6 to 18 months, depending on your access to professional advice and help. See the FCA for more information.

You can apply to be an appointed representative by contacting companies with full licenses and agreeing to go under the umbrella. Some companies will charge a monthly or annual licensing fee for this privilege and some will prefer to have a percentage or profit or revenue.

You can speak to a compliance consultant if you would like advice over how to set up and manage appointed representatives. This is also known as ‘regulatory hosting’ according to Robert Quinn Consulting.

What are the pros of being an AR?

There are a number of benefits to becoming an appointed representative, focused mainly on lower costs and barriers to entry.

  • The FCA authorisation process can be lengthy and take several months or over a year to be approved. You will need to provide structured business plans, procedures and present the capability of the key persons. As an appointed representative, you can be approved in a few weeks.
  • An appointed representative is less expensive to apply and run than being directly authorised. The costs are incurred against the principal agent who may charge you a licensing fee or percentage of profits.
  • The principal also has the option to spread their compliance costs across a number of appointed representative clients, saving you on start-up and running costs.

What at the cons of being an AR?

Whilst there are a number of positives when it comes to having appointed representative status, there are risks too that one needs to be aware of:

  • It is not possible to store data as an appointed representative, and you will need to give the principal access to its confidential records, premises and staff.
    Without being able to capture data, you cannot remarket to customers by email or potentially sell a list of customer records when selling the site.
  • As an appointed rep, you are being supervised by the principal and are putting this company at risk if you do not follow compliance in your industry.
  • An appointed representative cannot receive payments or invoices directly, these would need to go through the principal company and then paid to you, which can delay payments and impact your cash flow.

What are the responsibilities of an AR?

The principal company has to accept full responsibility for the appointed representative firm in the event that liabilities arise. The AR and their activity must be FCA compliant according to that industry, whether it is finance, insurance or loans. The party could be prosecuted for lack of transparency, poor wording, miss-selling of data and any advice they provide to clients.

One of the fundamental responsibilities as an appointed representative includes compiling and fully understanding the regulatory requirements that are relevant to the business they are carrying for the principal. Failing to do this can lead to fines, prosecution, loss of business and license for both parties.

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