The regulator said today it found “significant shortcomings” in the control and oversight of appointed representatives by their principal firms in the general insurance sector.

Appointed representatives undertake regulated activities under the supervision of an authorised firm who acts as their principal. The principal firm has regulatory responsibility for the appointed representative.

The FCA has taken action against five of the principal out of the 15 it examined. This included:

- Asking two firms to cease sales activities
- Agreeing the imposition of requirements on all five firms’ regulatory permissions to stop them taking on new appointed representatives
- Considering the need for customer redress and whether further regulatory action in relation to the issues identified is required

The findings were published in a thematic review today.

The regulator stated: “The FCA has found examples of potential mis-selling and customer detriment as a result of appointed representatives’ actions at a third of the principal firms included in the review, with most of these issues not previously identified by the principals.

“The poor customer outcomes identified included customers buying products they may not need, products they may not be eligible to claim under or customers not being provided with enough information to make an informed decision. At the appointed representatives of one principal firm there was significant evidence of mis-selling leading to actual customer detriment.”

Over half of the 15 principal firms examined by FCA officials sample “could not consistently demonstrate that they had effective risk management”.

Neither did they show “control frameworks to identify and manage the risks arising from the activities of their appointed representatives”.

The FCA also found that almost half of the principal firms in the sample could not demonstrate that they had understood the nature, scale and complexity of the risks arising from their appointed representatives’ activities and in particular the risk to customers.

The FCA is also writing to chief executives of principal firms in the general insurance sector to set out what actions firms should take to address the issues raised in the report.

Jonathan Davidson, director of supervision – retail and authorisations at the FCA, said: “While some principals did have a good understanding of their appointed representatives’ activities and their obligations as principal firms, we found widespread examples of poor practices across the sector. In many cases firms were simply failing to understand and manage the risks arising from their appointed representatives’ activities.

“General insurance is a large and important sector and we are concerned about the potential for customer detriment arising from the lack of oversight of appointed representatives. All principal firms need to consider these findings and look again at their practices.”