Bite-size: Inactive appointed representatives: FCA highlights governance and oversight risks
New FCA guidance warns principals not to treat inactive ARs as low-risk relationships and highlights growing scrutiny around oversight, reporting and consumer understanding.
The FCA has published a short but useful paper looking at the risks linked to inactive appointed representatives (ARs) and introducer appointed representatives (IARs). While the regulator accepts there may be legitimate reasons why some ARs carry out little or no regulated activity for periods of time, the message is clear: inactivity does not reduce a principal’s oversight obligations and may, in some cases, increase regulatory risk. The paper sets out examples of good and poor practice identified through supervisory work and gives a useful indication of where the FCA’s focus now sits.
Summary
The paper addresses risks linked to appointed representatives (ARs), including introducer appointed representatives (IARs), that do not carry out regulated activities for a period of time. The FCA states that there may be valid reasons for this inactivity, but principals remain responsible for effective oversight of their ARs. Where ARs are inactive, principals cannot rely on transaction oversight as a source of information.
The FCA says an unexplained lack of reported regulated activity can indicate weaknesses in a principal’s governance, monitoring, oversight, and risk management of ARs. The FCA links these weaknesses to increased risk that consumers may be misled or suffer harm.
The paper provides examples of good practice and areas for improvement identified through supervisory work. The FCA expects principal firms to consider whether oversight and governance remain appropriate where ARs are not routinely carrying out regulated activities, provide accurate and clear explanations in REP025 returns where ARs have not carried out regulated activities in the reporting period, and take timely action to terminate AR relationships where they are no longer appropriate.
Who this applies to
The publication is relevant to principal firms operating with ARs, including IARs.
Rules and guidance these examples relate to
The paper builds on previous FCA publications, including PS22/05, PS22/11, and the FCA’s 2023 publication on Improving the Appointed Representative regime through greater use of data.
The paper also refers to relevant regulatory requirements and guidance, including SUP 12, SUP 12.7.7R, SUP 12.4.2R, SUP 12.6.1R, GEN 4, GEN 4.3.1R, and requirements connected with Section 39 of FSMA and SUP 12.5.
What we looked at
The FCA used two years of REP025 regulatory return data, which includes information collected from principals about AR complaints and revenue generated.
The FCA assessed how principal firms oversee ARs that carry on no regulated activities for some time. The review focused on whether principals could clearly explain the absence of income from regulated activities reported through REP025, were accurately reporting AR activity to the FCA, and could demonstrate effective oversight of the AR’s business.
What we found
The FCA found that principals with certain business models and in some sectors are more likely to report ARs that carry on no regulated activities for a period of time. In many cases, this reflected the nature of the AR’s business.
· For retail finance providers, credit brokers, and corporate finance firms, ARs may act as intermediaries where regulated activity occurs only occasionally because their main business focuses on unregulated activities. The FCA also found cases where commission linked to regulated activity was incorrectly recorded as unregulated income, making ARs appear inactive when they were not.
· For funeral plan providers, the FCA states that funeral directors may not treat regulated activity as their core business, making periods with no reported regulated activity more common. The FCA says this increases the importance of principals understanding how and when regulated activity arises within the AR’s wider business.
· For alternatives and asset management firms, regulated activity may not generate income for extended periods, with revenue accruing over longer periods. The FCA says ARs may therefore appear inactive based on REP025 revenue alone, even where this does not necessarily reflect a lack of regulated activity or engagement.
The FCA also found that, in some cases, lack of reported activity reflected weaknesses in classification or reporting of regulated and non-regulated business through REP025. The FCA states that firms need to oversee all regulated activities by ARs and accurately represent revenue generated and its origins. When completing REP025, principals must report revenue generated by the AR and not attribute it to the principal.
The FCA says explanations in REP025 Column F should be clear, avoid unclear internal terminology, and not be applied indiscriminately to all ARs in a network. Examples such as “not trading” or “not introduced business during this period” were described as insufficient where they did not explain why the AR generated no revenue from regulated activities.
Good practice identified by the FCA included setting clear expectations at onboarding, understanding and documenting why ARs were not carrying out regulated activity, using active and data-led oversight, reviewing Companies House records, checking AR websites and marketing materials, monitoring regulated business leads, and intervening early where inactivity was identified.
Areas for improvement included principals lacking a clear and up-to-date understanding of AR business models, failing to explain why ARs had no regulated activity, and allowing ARs to remain in networks for extended periods without reassessing whether the relationship remained appropriate.
The FCA includes case studies where ARs remained on the Financial Services Register despite not intending to conduct regulated activity, or where ARs were suspended without clear documentation, expected duration, reinstatement criteria, or FCA notification. The FCA also highlights the risk of the “halo effect”, where consumers may be misled by an AR’s presence on the Register.
The paper also identifies insufficient monitoring of consumer-facing materials. Some ARs presented themselves in ways that could mislead consumers about regulatory status, including references to being “FCA authorised” or using the term “Authorised Representative”. The FCA states that ARs are not authorised by the FCA; they are permitted to conduct regulated activities through an FCA-authorised principal.
Finally, the FCA found that some AR agreements did not meet regulatory requirements, including failures by principals to clearly accept responsibility for regulated activities carried on by ARs or include required terms under Section 39 of FSMA and SUP 12.5.
Next steps
The FCA states that many principal firms are taking appropriate steps to manage risks from AR relationships, including where ARs carry on no regulated activities. It also reports that proactive regulatory engagement prompted positive change at 7 of the 14 principal firms reviewed, with 11 ARs offboarded and principals strengthening monitoring arrangements.
Following the review, the FCA says principals should actively and appropriately engage with ARs through oversight, use robust data quality and governance, apply additional measures when an AR is inactive, accurately report AR revenue and reasons for inactivity through REP025, monitor whether AR relationships remain appropriate, and take timely steps to keep the Register up to date and mitigate risks.
Key takeaway
The FCA’s message is that inactive ARs should not become ‘invisible’ within principal firms’ oversight frameworks. Where regulated activity is limited or intermittent, principals still need to understand the AR’s business model, monitor customer-facing activity, maintain accurate reporting and reassess whether the relationship remains appropriate. Weak governance, poor data quality and unclear oversight in this area are likely to attract increasing supervisory attention.
Source reviewed: FCA, “Managing potential risks from inactive appointed representatives: Good and poor practice”, published and last updated 21/04/2026.
